Postal Services launches review of package delivery fees as Trump influence grows

WASHINGTON - Weeks before a Republican donor and top White House ally becomes postmaster general, the U.S. Postal Service has quietly launched a review of its package delivery contracts and lost its last senior official who was not appointed by President Donald Trump.

The moves, confirmed by six people with knowledge of the Postal Service's inner workings but not authorized to speak publicly, underscore how Trump is moving closer to reshaping an independent agency he has dubbed "a joke."

The Postal Service in recent weeks has sought bids from consulting firms to reassess what the agency charges companies such as Amazon, UPS and FedEx to deliver products on their behalf - often in the "last mile" between a post office and a customer's home. Higher package rates would cost shippers and online retailers billions of dollars, potentially spurring them to invest in their own distribution networks instead of relying on the Postal Service.

Trump for years has alleged, without evidence, that the Postal Service is undercharging companies, particularly Amazon (whose founder and chief executive, Jeff Bezos, owns The Washington Post). The agency has steadfastly rejected that assessment, saying it charges what it can given a competitive marketplace.

The Postal Service and White House declined to comment.

Trump has recently threatened to withhold a $10 billion line of credit approved by Congress in a coronavirus stimulus package unless the Postal Service quadruples what it charges to deliver packages. Independent analysts warn that such a change would devastate the agency, which increasingly has relied on such deliveries for a fast-growing portion of its business.

But recent developments show Trump's efforts to reshape the USPS are gaining traction. Every member of the agency's bipartisan governing board is a Trump appointee. Democratic Vice Chairman David Williams resigned April 30, fed up with what he considered Treasury Secretary Steven Mnuchin's meddling, according to people familiar with his thinking. The postmaster general and deputy postmaster general also sit on the board, but do not vote on postal rates or personnel matters.

And last week the panel announced it has tapped Louis DeJoy, the finance chairman of the 2020 Republican National Convention, as the new postmaster general.

Also, Deputy Postmaster General Ronald Stroman announced his resignation on Friday. Stroman had years of experience working with congressional Democrats and had become the agency point man on vote-by-mail initiatives for the November election.

Stroman did not respond to a request for comment.

Trump and Mnuchin have sought to attach terms to a $10 billion emergency loan to the USPS that would allow the administration to dictate package prices, review and alter bulk-discount contracts known as negotiated service agreements or NSAs, appoint the next postmaster general and direct negotiations with labor unions.

Conversations between Treasury and postal officials on the loan began last week where those terms were discussed, according to congressional staffers briefed on the meetings. Progress has slowed since then as House Democrats finalized language for another pandemic stimulus plan.

The reevaluation of those bulk-discount contracts signals how swiftly the independent agency and its board of governors have fallen under the administration's influence, say people familiar with the White House's plans. As one Senate aide involved in the emergency funding negotiations put it: "It is game, set, match right now with the Postal Service."

Democrats and labor unions see DeJoy, the incoming postmaster general, as the polar opposite of outgoing Postmaster General Megan Brennan, a onetime letter carrier who rose through the agency's ranks and fought to keep it independent of the White House. They worry DeJoy will be too deferential toward Trump and Mnuchin. But conservatives have hailed his business record as an executive of a national logistics firm.

DeJoy did not respond to a request for comment.

Congressional Democrats had attempted to thwart the White House's growing influence with the Postal Service by including funding and no-strings-attached borrowing in the $3 trillion Health and Economic Recovery Omnibus Emergency Solutions Act, or Heroes Act, which House Speaker Nancy Pelosi, D-Calif., unveiled Wednesday. It includes $25 billion in aid and new language forbidding Treasury from attaching conditions to the earlier $10 billion loan.

"At the very moment House Democrats are trying to rescue the Postal Service by providing emergency cash and removing onerous loan terms, the president and his cronies continue to try and leverage this pandemic to privatize and dismantle the USPS," said Rep. Gerald Connolly, D-Va., who chairs the House subcommittee responsible for postal oversight. "It's shameful and will hurt every American and business."

Senate Majority Leader Mitch McConnell, R-Ky., quickly rejected much of the bill, and lawmakers in both chambers say they expect the Senate to whittle down much of the USPS funding. McConnell has signaled a willingness to follow the White House's agenda on postal matters.

Advocates are fighting to persuade Senate Republicans to preserve the no-strings-attached borrowing provision. GOP Sens. Susan Collins of Maine, Lisa Murkowski of Alaska, Steve Daines of Montana, Dan Sullivan of Alaska and Pat Roberts of Kansas joined with five Democrats last week in a letter to McConnell and Minority Leader Charles Schumer, D-N.Y., that called for "significant emergency appropriations" and unconditioned borrowing. That could still leave the postal provisions short of the requisite support to avoid being gutted, advocates worry.

"I don't know if you can convince them by logic or reason. You may have to convince them by force of votes," Rep. Peter King, R-N.Y., said of the GOP-controlled Senate. "Basically, insist on it in negotiations, show that the American people are behind it and use it as leverage in the negotiations. If they want something, they'll have to agree with this."

Postal leaders have told lawmakers they expect the agency to lose $13 billion this year as the pandemic causes the volume of personal and marketing mail - on which USPS makes its highest profit margin - fall by close to 20% and 45%, respectively.

Package volumes, though, have skyrocketed as a homebound nation dived into e-commerce. Packages typically constitute 5 percent of postal volume, but 30 percent of its revenue, postal experts say. During the pandemic, volume has surged 70 percent, propping up the agency's finances. The Postal Service frequently contracts with shippers and internet retailers to perform "last mile" delivery, or the final leg of an item's journey, to a customer's home.

But Trump often cites packages, and the Postal Service's relationship with Amazon and other online retailers, as the main driver of USPS's financial woes. He falsely stated in April that the agency loses $2 to $5 each time it delivers a package for "Internet retail companies." The Postal Service is required by law to charge enough on each package to cover the cost of delivery and a percentage of the agency's overhead expenses.

Much of Trump's ire is aimed at Bezos and his ownership of The Post. Trump has been critical of the newspaper's coverage of his administration, and his policy priorities on mail issues appear to target Amazon directly, independent experts say.

One former senior administration official who was present for Trump's discussions with some Postal Service employees said he repeatedly railed about Amazon and Bezos and told Brennan, the outgoing postmaster general, and others to raise rates. When told that the rates were fixed by the contacts, Trump regularly grew irate, the official said.

The agency reviews these deals annually, both for individual contracts and for each mail product, according to one person with knowledge of the postal pricing process. Such audits are included in annual reports to the USPS's leadership but rarely scrutinize packages, because they represent a relatively small slice of the agency's volume.

The private nature of the agency's review and the solicitation of outside consulting firms in late April to conduct it may point to agency leaders' interest in crafting a case for package rate increases to present to the Postal Regulatory Commission, the person said, though the USPS still may choose not to pursue price changes.

Companies can receive discounts with the Postal Service if they deliver a large quantity of packages directly to a postal facility nearest to the parcels' final destination, said John Haber, founder and chief executive of Spend Management Experts, a logistics consulting firm in Atlanta.

Those discounts are often marginal, often only 5% to 10% off normal shipping rates, according to a former Amazon executive who spoke on the condition of anonymity because he was not authorized to discuss the company's internal business practices.

Analysts say higher package prices or even smaller bulk discounts would hurt Amazon disproportionately because it is both a retailer and shipper. Other shipping companies can pass higher costs on to merchants and customers; since Amazon both sells and delivers products, it has less room to defray the expense.

It would hurt small businesses even more, though, that don't have their own distribution networks, experts say, and rely on the Postal Service as a secure, cheap way to reach customers across the country.

The bulk discounts do, though, ensure that shipping companies continue work with the Postal Service, providing the post office with a reliable and brisk package business, Haber said.

Raising rates on NSAs would drive crucial clients away from USPS, and lead them to cover more "last mile" deliveries on their own. Amazon already delivers roughly half of all packages itself, according to an estimate by Morgan Stanley.

"I can promise that will happen," Haber said. "Amazon is going to bring that stuff in house if the price of using the Postal Service is too much."

Trump's supporters argue that once the Postal Service raises package prices, it should focus on paper mail delivery, still its most profitable product, and scale back its package business.

“Packages are bigger, they’re bulky, they’re heavy. They’re not as efficient to deliver as envelopes,” said Paul Steidler, who studies the Postal Service at the right-leaning Lexington Institute. “The packages bring in revenue, but they don’t necessarily bring in profitability.”