According to Greek mythology, one of the most epic battles between the gods occurred when Typhon the monstrous serpentine giant challenged Zeus, the ruler of all gods, for control of the universe.
While Zeus would ultimately emerge victorious over Typhon, the people of Earth suffered mightily. As the battle raged, scores of farmers’ herds were devoured, rivers were turned to dust ruining crops and destroying all sea life, and the land in the battle zone was generally laid to waste.
Order was eventually restored, but it would take generations for the people of Earth caught up in the wake of the battle to overcome the calamity. Tragically, without the treachery of goddess Gaia (Typhon’s mother who thought she should be queen of the universe) the battle would never have happened.
There’s a new clash brewing. This time it’s between the most powerful man on the planet, President Trump and the richest man in the world, Amazon CEO and Washington Post owner Jeff Bezos. And like the Zeus–Typhon battle, it all could be avoided but for the destructive whisper campaign being waged by UPS.
UPS is upset that it has been losing package delivery business to the U.S. Postal Service. But rather than compete openly in the marketplace, UPS has surreptitiously lobbied the White House with claims that Amazon, the largest online retailer, has been given an unfairly low shipping price by the Postal Service. As a result, earlier this year Trump called for the Postal Service to raise its prices for package deliveries.
Like the Zeus-Typhon battle, this clash between the richest man and the most powerful individual can cause widespread damage to millions of consumers and small businesses, especially for those who live in rural areas that elites refer to as “fly-over” country.
News that Trump is paying attention to the Postal Service would normally be welcome. There are plenty of reasons to be suspicious of the operations of the U.S. Postal Service. The Postal Service has a long tradition of laconic and inefficient performance. But Trump has ordered a task force to look into raising Postal Service shipping rates, not just ways for the USPS to be more efficient overall.
You see, there are two broad categories of postal products: First there is letter and marketing mail – think of Christmas cards and the flyers often referred to as junk mail. The second kind is parcels and packages. The first product is heavily regulated and subject to the consumer price index for fee increases. The second kind is mostly subject only to the marketplace.
Since more revenue is better, shouldn’t the Postal Service simply increase its shipping fee for packages? That answer might work for stamped letters, but not for parcels. No other company can deliver First Class mail, catalogs, and magazines in the U.S. and when the post office raises stamp fees we accept it begrudgingly because we don’t have any real alternative.
On the other hand, the package-shipping field is rife with market competition – precisely why Congress set up ground rules for the Postal Service’s expansion into this area. FedEx and UPS are just the largest private operators in this field, but not the only ones. Postal Service price hikes won’t result in higher profits for the Postal Service; it will just send more customers to companies like UPS. Remember, shipping customers get to choose who will deliver their parcels and as long as the Postal Service is competitively priced it will get more business. That’s good for the millions of Americans who send and receive packages, but maybe not so much for UPS’ bottom-line.
By law, the Postal Service’s parcel shipping may not be subsidized by letters and marketing mail. In fact, parcel shipping must cover all associated costs of delivery as well as offset some portion of the overall costs of operating the Postal Service.
And the evidence shows that it’s been working. Since 2007 and every year thereafter the Postal Service has profited handsomely from its parcel delivery business, each year more than the year before. Last year revenues were $20.7 billion and more than $7 billion above the actual cost, allowing much needed financial assistance to go to the Postal Service’s overall bottom line.
Notably, because the Postal Service reaches every household in America and almost all businesses, it enjoys certain network efficiencies that it can pass through to businesses and consumers in the form of lower prices.
Moreover, herein lies the problem for red states in the rural and Midwest parts of the country. Both FedEx and UPS have really good shipping rates for cities and major metropolitan areas, but not for most of the country. For states like Nebraska, Kansas, and even Texas, private delivery companies regularly charge an extended delivery surcharge to drop a package off at your house. Even with “free shipping,” this surcharge is added into the price of every product delivered outside of the blue states.
Here’s the takeaway: If the Postal Service’s competitive price was removed, the East and West Coast might not even notice, but the rest of the country would.
The President’s Commission issues its report this summer. Let’s hope the clash between these two titans ends without laying waste to the pocket books of Middle America.
Horace Cooper is a legal commentator and a senior fellow with the Marketplace Institute.
