Dive Brief:
- Proposed price hikes on letters, postcards and parcels could cost Amazon $400 million to $1.1 billion, according to an estimate from Credit Suisse analyst Stephen Ju, reported by CNBC.
- The pending rate changes are designed to "keep the Postal Service competitive while providing the agency with needed revenue," according to the agency.
- On the back of this estimate, along with other expected carrier rate hikes and rising labor costs due to a recent company-wide minimum wage hike, the bank cut Amazon's near-term profit estimate.
Dive Insight:
It's no surprise an increase in rates from USPS, which Amazon still relies upon heavily for last-mile delivery despite some efforts to bring that task in-house, add up to big bucks.
Should the cost increase reach the $1 billion mark, it would exceed Amazon's quarterly profits for 10 of the last 13 quarters — though notably not the most recent three quarters in which the company posted more than $1.5 billion in profits each.
Unsurprisingly, Amazon and other retailers and e-commerce stakeholders oppose the proposed price hikes. A group of retailers, e-commerce and logistics companies, including Amazon and the National Retail Federation, formed "The Package Coalition" earlier this year to lobby against "regulatory changes that would force the Postal Service to raise its prices above market rates" at what they perceive as an already profitable USPS.
Rate hikes are just one source of rising costs for the e-commerce giant. Costly investments in robotics at Amazon facilities, as well as a recent company-wide increase of the minimum wage to $15, have presented what Ju called "meaningful" increases in expenditures, but he predicts the technology investments that may be able to reduce the amount of human labor required by the company will eventually make up for the increased wages.
USPS has said it will not add surcharges for fuel or holiday deliveries in 2018. If approved by the Postal Regulatory Commission, the price changes would take effect Jan. 27, 2019.
