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Amazon isn’t to blame for the Postal Service’s woes, but it will need to innovate to survive

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In the past week, the 45th president has Twit-tacked Amazon three times and, potentially, cost their shareholders over $40 billion in market cap or just more than one Greek economy.

At the heart of our current President’s criticism is a claim that Amazon is making a mint and leaving a *failing* U.S. Postal Service holding the bag. It’s not a new critique from the Twitterer-in-Chief, but it is one that’s worth unpacking given the crippling effect technologies have had on the USPS — where email is even more reliable than a carrier undeterred by “snow nor rain nor heat nor gloom of night.

Is it failing?

“Why is the United States Post Office, which is losing many billions of dollars a year, while charging Amazon and others so little to deliver their packages, making Amazon richer and the Post Office dumber and poorer?” This infantile question was posed by President Trump on Twitter in December 2017. While it’s not clear what exactly prompted Trump’s criticism,  the tweet did spark a wave of debate as to whether the Postal Service is indeed failing and, if so, whether Amazon is to blame.

First of all, it’s true that the Postal Service is “losing billions of dollars a year” – $2.7 billion in 2017, to be more precise. In fact, the Postal Service has been losing money for over a decade. And the USPS does have a curious relationship with Amazon. While competitors UPS and FedEx charge the e-commerce giant $7-$8 per package, USPS only charges for $2 for the service. However, as with most stories, that of USPS is more complicated.

USPS and Amazon

The USPS-Amazon relationship may be seen as “dumb” by the 45th president, but to many it’s a piece of shrewd business on the part of the Postal Service. As of 2017, Amazon was USPS’s biggest customer, and an intelligent way for the independent agency – that traditionally made its money by having a monopoly on first class mail – to get a piece of the increasingly profitable package delivery pie. It’s not the first time that the Postal Service has tried to muscle its way in on the growing package delivery industry. Back in 2010, the entertainment company Netflix accounted for $600 million from its DVD subscription service. Of course, the Netflix DVD delivery service is fast fading and being replaced by on-demand streaming; and Amazon look to be preparing their own delivery service. It seems that the USPS may have to prepare itself to be jolted by another wave of disruption.

One-Two Punch of Email and a Financial Crisis

The Postal Service’s first major battle against the age of innovation came with the rise of email, and it didn’t take the beating that you might expect. Despite the fact that in 2002 the majority of Americans used email, the Postal Service still managed to make profit between 2003 and 2006. During this time, people were still writing letters, sending greetings cards and, perhaps most importantly, bills were still sent by post.

It wasn’t until the 2007 global financial crisis that the Postal Service took a hit that, arguably, it still hasn’t recovered from. After thousands of businesses suffered from the crisis, they started to cut back on expenses wherever possible, and one such place was mail. Back in 2000, nearly two-thirds of bills were delivered by USPS, and the total revenue from bill payments in this year was estimated at between $15 and $18 billion. Between 2006 and 2010, USPS volume fell by 42 billions pieces, with 15 billion of those being caused by electronic billing.

And if that weren’t enough, the rise of social media further confounded USPS’s problems. Between 2010 and 2014, postcard volume fell by 430 million. As more and more people began logging into Facebook, Instagram and Snapchat to send virtual Christmas cards and birthday wishes, fewer people were sending mail, and therefore fewer profits for the agency that had had its fair share of knocks in the 21st century.

Photo courtesy of Flickr/André-Pierre du Plessis

Innovating within a Risk-Averse Government

To suggest that those in charge at the Postal Service have been idly watching as new technologies disrupt and threaten the agency would be unfair.

It is an organization that looks to engage with the latest technology. For instance, in 2014, it released a white paper on the impact that 3D printing could have on the industry and how the Postal Service could benefit; and again in 2015 it released another on the Internet of Things. Both papers were clearly commissioned with a degree of prescience, being published before either technology had begun to pervade the public consciousness.

Unfortunately, though, forward-thinking initiatives such as these have been blocked before they can enter the action stage. USPS’s status as a quasi government entity may have its benefits, such as a monopoly on all first class post, but in return Congress has a say in how the agency is run. It can outline the products and services provided by the Postal Service, and set its prices. However, unlike other Federal agencies, USPS receives no funding, and hasn’t done since 1982.

In 2016, the Postal Service wanted to make the most of its relationship with Netflix and other video rental business, but the proposal was blocked by the Postal Regulatory Commission. In 2013, USPS attempted to end Saturday letter delivery – a change that would have saved $2 billion a year. The proposal was blocked by Congress. And in 2016, it was ordered to lower the cost of postage stamps from 49 cents to 47 cents, resulting in a $2 billion annual cost.

At the heart of the troubled USPS-Congress relationship lies the problem. A big existential question mark hangs over the Postal Service’s head: what exactly is it? With 2.7 million people working for it, it’s the biggest employer in the US (Walmart, by comparison had 2.2 million as of 2017). It also delivers to remote locations that private companies like FedEx and UPS won’t touch. For these reasons, it exists out of necessity. There are also those who want to see the Postal Service fully privatized or even abolished, believing it to be an outdated relic of nostalgia.

Understandably, those within the Postal Service are equally unsure as to what they should be. On one side, they’re being encouraged to innovate and drive up profits, and on the other they’re being blocked making the changes necessary.

As it stands, the USPS motto “neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds” still holds true. Their resilience through massive shifts in consumer behavior is nothing short of remarkable.

They are at the service of the American people, and so it’s up to them to decide what they want it to be. Although it may be true to say the Post Office is losing money thanks to Congress and cutting Amazon a more-than-fair deal, its importance is far more nuanced and complex than he gives it credit. And without the Postal Service, it would be more than just Amazon that would be losing out.

As the world moves to more and more virtual communication channels it will be fascinating to see USPS evolve.

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npiasecki
168 days ago
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How can you write an article on USPS problems without mentioning the 2006 PAEA which forced the USPS to “prefund its future health care benefit payments to retirees for the next 75 years in an astonishing ten-year time span”. You’d lose billions of dollars too if you had that absolutely insane requirement. It was a way for Republicans to rob the “off-books” USPS (which does not receive taxpayer dollars for its operations) and shove it into the treasury to balance some budgets.

USPS is visiting homes anyway and FedEx and UPS absolutely hate doing onesie twosie last-mile delivery, so USPS putting itself at the forefront of last mile package delivery while transitioning away from a focus on letters is quite a transformation.

To be clear, the USPS has a lot of problems, but working at a warehouse that ships a lot of USPS, it has improved package delivery remarkably in the past ten years. It also had to prefund retirement for people who haven’t been born yet.
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Man stuck behind ATM slips "help me" notes through receipt slot

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Yesterday in Corpus Christi, Texas a contractor was changing a lock inside an ATM room when he got locked inside without his phone. So he wrote "help me" notes that he slipped through the working ATM receipt slot until someone took him seriously and called the cops. From KRISTV.com:

"We come out here, and sure enough we can hear a little voice coming from the machine. So we are thinking this is a joke. It's got to be a joke," (police officer Richard) Olden said.

It turns out it was true, and the employee said afterward he got stuck changing out an electronic lock. Later the contractor supervisor arrived, and police had to kick down a door to get the gentlemen out of the ATM room.

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npiasecki
437 days ago
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Soda Sugar Comparisons

3 Comments and 14 Shares
The key is portion control, which is why I've switched to eating smaller cans of frosting instead of full bottles.
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npiasecki
599 days ago
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Cadbury Creme Egg? African or European? *dies*
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2 public comments
Screwtape
600 days ago
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It's great to know how much sugar is in a 20oz bottle of soda, now I just need to figure out how many 20oz bottles of soda are in, say, a litre.
CaffieneKitty
600 days ago
Google says it's 0.591471 litres. *metric fistbump*
lukeburrage
599 days ago
I've often wondered why there isn't a XKCD METRIC feed, with all the jokes being in metric. You know, for the rest of the world.
2bithacker
599 days ago
For that matter, are we talking American or UK Cadbury Creme Eggs? The US ones (produced by Hershey) have 20g of sugar, the UK ones have 26g.
thebassman
599 days ago
For the rest of the world? The US is pretty much the ONLY country NOT on the metric system! LOL
sfrazer
598 days ago
The comic references this xkcd which pegs a cadbury egg at 20g of sugar: https://xkcd.com/1035/
alt_text_bot
600 days ago
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The key is portion control, which is why I've switched to eating smaller cans of frosting instead of full bottles.
sjk
593 days ago
Same here. Instead of drinking an entire 20 oz bottle of cake frosting, I can drink several mini bottle of cake frosting per week. I don't always feel in the mood for having an entire week's ration of cake frosting in one sitting. Then again, a soda a day for six month vs 4 gallons of Skittles in one sitting? Challenge accepted!

Consumer Reports Now Recommends MacBook Pros

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Consumer Reports:

New Apple software fixes a battery issue found in CR tests. The software, now in beta, will be part of a broad update soon.

This makes it sound like CR found a problem with the batteries. They didn’t. They found a bug in a Safari developer mode. It’s a real bug, but it’s clear now that it didn’t justify the initial sensational “Wow, first ever Apple laptop not recommended by Consumer Reports!” report. There’s no way they would’ve published that rushed initial report for a laptop from any brand other than Apple. Clickbait, pure and simple.

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npiasecki
618 days ago
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These are people who also test clothes dryers. If their test cycle discovered that the clothes dryer sometimes took 2 hours to complete a permanent press cycle and sometimes took 20 minutes, they would not recommend it because as a consumers' union it is not actually not in their interest to care why the clothes dryer is broken, *or to actually be experts in clothes drying technology*, just to report that consumers would be better off with a more predictable clothes dryer based on their good faith tests of usage. They found a problem, they asserted their position, the problem was fixed. It seems like they just did what they do....
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dannberg
618 days ago
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As a former laptop reviewer, I completely agree with this.
New York City

Git

19 Comments and 38 Shares
If that doesn't fix it, git.txt contains the phone number of a friend of mine who understands git. Just wait through a few minutes of 'It's really pretty simple, just think of branches as...' and eventually you'll learn the commands that will fix everything.
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npiasecki
1059 days ago
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For us crusty old geezers still clinging to Subversion, this translates to "something didn't work, so 'svn update' and try again, and if that doesn't work, save it somewhere else and download a fresh copy" ... it's like the cirrrrrrcle ... the circle of source control
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17 public comments
jhudson
994 days ago
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yup..
Olympia, WA
jsonstein
1054 days ago
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how it really works
43.128462,-77.614463
rhelewka
1056 days ago
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Xkcd on git and nails it:
ÜT: 43.642301,-79.378671
JayM
1057 days ago
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:)
Atlanta, GA
Brstrk
1057 days ago
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Git is really easy, once everything clicks. I'm waiting for it anytime now.
llucax
1059 days ago
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xkcd did it again...
Berlin
jshap999
1059 days ago
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You just need to appease the evil git elves.
ktgeek
1059 days ago
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I have lived this conversation multiple times.
Bartlett, IL
mrobold
1059 days ago
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Truth.
Orange County, California
jepler
1059 days ago
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how did you get this number? stop calling me
Earth, Sol system, Western spiral arm
jimwise
1059 days ago
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heh
kafka
1059 days ago
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True.
Austin, TX
brianhoch
1059 days ago
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I'm not alone!
Spokane, WA
mburch42
1059 days ago
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My life.
GeekyMonkey
1059 days ago
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It's sad, because it's true.

Alt: If that doesn't fix it, git.txt contains the phone number of a friend of mine who understands git. Just wait through a few minutes of 'It's really pretty simple, just think of branches as...' and eventually you'll learn the commands that will fix everything.
Ennis, Ireland
marcrichter
1060 days ago
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Touché!
tbd
alt_text_bot
1060 days ago
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If that doesn't fix it, git.txt contains the phone number of a friend of mine who understands git. Just wait through a few minutes of 'It's really pretty simple, just think of branches as...' and eventually you'll learn the commands that will fix everything.

Yahoo Finance: ‘Apple Pay Sides With Credit Card Industry Over Consumer Interests’

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Aaron Pressman, writing for Yahoo Finance:

Apple has regularly delighted its customers with cool products on its way to becoming the most valuable company in the United States. But it hasn’t always stood up for its customers’ best economic interests.

Take the case of Apple Pay. Apple partnered with the three major credit card networks, Visa, Mastercard and American Express and the big bank card issuers such as JP Morgan Chase. That is likely a smart move from a business perspective, because so many Apple customers are frequent credit card users and prior mobile payment services have had trouble gaining much traction.

But the partnership decision also meant Apple was taking sides in a long running war between the credit card industry on one side and retailers and consumer advocates on the other.

Retailers typically pay 2% or more on every credit card purchase, costs that cut into their margins and raise prices for all shoppers.

First, the headline. I think it’s clear that Apple Pay is siding with the credit companies and banks — but they’re not pitted against consumers, they’re pitted against retailers. It’s retailers who want to reduce the use of credit cards (and the resulting fees). Not consumers. Any consumer who doesn’t want to use a credit card can simply not use a credit card. (They can still use Apple Pay with debit cards.) Apple Pay is only allowing us to more easily and securely use the credit/debit cards we already have. For consumers, nothing is worse post-Apple Pay (transaction fees are not higher — the banks pay Apple’s 0.15 percent cut), and much is better (security, privacy, and convenience).

I understand the argument that the 2-3 percent processing fees that retailers pay for credit cards are ultimately passed on to consumers in the form of higher prices, but for consumers that can be offset by cash back and reward programs from their card providers.

I don’t understand how this article amounts to anything more than “Apple should have used magic” hand-waving. What could Apple have done differently that would have actually worked, without involving credit card processors? Remember, Apple Pay doesn’t require retailers to install Apple Pay-specific POS terminal hardware. It famously works with the standard NFC hardware that’s been out for years. Building atop the existing credit card infrastructure is fundamental to people’s willingness to try Apple Pay and to retailers’ ability to accept it. Pressman is implicitly arguing that Apple should have somehow reinvented the entire retail electronic payments industry, without the help of the banks or credit card companies, and presumably with the cooperation of retailers. But we see with CurrentC/MCX the sort of things the retailers would have demanded of Apple in such a hypothetical systems.

Update: Another point. Who is to say that Apple Pay won’t add additional non-credit-card payment options going forward? This is just the start. But the start needs to be something that gets the whole thing off the ground.

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npiasecki
1425 days ago
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Working in e-commerce for some time, I can see this Apple Pay/CurrentC debate from both sides. Stay with me.

The credit card system is insecure, and it is expensive. Merchants are tired of getting blamed for breaches when the only reason the PCI DSS came into existence was that an ever-connected world revealed the network's fundamental security problem, namely that there is no security. If you know the number, you can charge it. The banks issuing the cards needed to do something to fix this or face government regulation in the 2000s when retailers were getting hacked left and right the first time around. The card networks "fixed" the system by asking every merchant on the planet to keep a number embossed in plastic a secret for all time, and they issued a set of guidelines (which has since ballooned to hundreds of requirements) for every merchant to follow. This was all they could do because the card networks like Visa are not all that advanced, at the end of the day they are shuffling balances and account numbers back and forth. They are the minimum of information exchange needed between banks to keep the charade going.

Think about it. Isn't it absurd that a merchant who is paying 2-3% just to accept your plastic is also the one who is blamed when something goes wrong? Better yet, if it's card-not-present, it's the merchant who is the one paying for your zero liability, which is why your favorite e-commerce site flips their shit when your billing address is wrong. The merchants didn't build the network, so they can't fix the network. All they can do is either (A) bend over, which they're sick of or (B) try to create their own network and hope that ends up doing something -- either by succeeding, or at least getting the banks to step their game up. Hence CurrentC. Some of them made this decision over a year before Apple Pay, and now their hands are tied.

The only people who can really fix the credit card network are the people who created it and issue the cards used in it. Those are the banks and their orchestrating interbank entities like Visa and MasterCard. Since they haven't really been footing the bill for card-not-present fraud and have been blaming merchants for the breaches, there's not much incentive for them to fix the broken system that they created. AVS has always worked poorly, heaven forbid you live in an apartment. CVV2 is a joke. These are the tools they give us, and it doesn't matter, because the merchants are the bad guys in the court of public opinion.

I think this will go down as one of Apple's master plays. They looked at Visa, said "look at these idiots," and got Visa to make changes to their system so that Apple could create a new secure payment platform that just happened to leverage Visa for acceptance and market share, positioning it as a win-win. Hook, line, and sinker: a few years from now, Apple offers an ACH-based balance option, and it's game over. They will have successfully created their own secure payment platform with a physical world acceptance rate that PayPal can only dream of, and the card networks will wonder when exactly they started being replaced.
gazuga
1425 days ago
Great backgrounder, npiasecki. Thanks for taking the time to write it. As we were discussing a few posts down, the thing to really keep an eye on is how Apply Pay makes the credit card a swappable element of the payment stack. In theory.
Spuzzy
1425 days ago
Wow, thanks for this insight.
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UCJT
1424 days ago
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Commercial banker here. Cash handling has a cost to the merchant. And with rates at 0%, there is no earnings credit to offset this cash handling charge. It's a hard charge to the client. Article detailing is dated but conceptually accurate.

http://articles.latimes.com/2011/nov/18/business/la-fi-lazarus-20111118

In addition, the effects of the Bank Secrecy Act combined with the Patriot Act, are getting to where banks would rather not deal with a lot of cash, as any lapse in providing the Feds with appropriate reporting regarding big cash deposits are extremely punitive.

The push to plastic - or more importantly, trackable purchasing habits - comes from all sides.
US: 26.585346,-81.741754
samfarmer
1425 days ago
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Retailers have a cost of processing money that consumers use to pay for items with.

Cash received in a store needs to get to a bank. I don't know what that cost is but its not free.
Washington, DC
anthonylatta
1425 days ago
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Retail e-payment are dominated by two types: swipe and EVM (chip) cards. That's it. The only exception that's caught on in any scale is mobile money, eg, M-Pesa in Kenya, but that's the only MM system that's truly at scale, though Philippines, Ghana, and Tanzania could follow. NFC is the only technology in developed countries that has a wide enough base to scale. Apple's entry to this market could actually create a new e-payment ecosystem in developed countries. It's pretty cool for payment systems geeks.
Washington, DC
kenfair
1425 days ago
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Cash is still legal tender, or at least it was last time I checked.
Houston, Texas
steingart
1425 days ago
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grubes grubes grubes:

"I understand the argument that the 2-3 percent processing fees that retailers pay for credit cards are ultimately passed on to consumers in the form of higher prices, but for consumers that can be offset by cash back and reward programs from their card providers."

what a shilly statement in an otherwise well reasoned piece.
Princeton, NJ
satadru
1425 days ago
But it is true, no? Consumers with a good CC do get a kickback from the issuing bank. By siding with banks vs retailers, they assume few of the fraud-related downside risks, passing that along to the banks. I would be shocked if Apple doesn't ask for a bigger cut than .15% in several years.
gazuga
1425 days ago
Interested in the empirics of the kickbacks claim as well, but I'm making a note to start all my comments under Daring Fireball posts with "grubes grubes grubes".
steingart
1424 days ago
kickbacks are the OG loc-kin. If cash is king, not spending it iin the first place is godliness
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