Define “profitable”

Define “profitable”

PE Bias Grade : B-

By: Allen Nitschelm on August 19, 2020 | Article Review

This is a review of the following Boston Globe Article:
Article Title Amazon, USPS deal profitable
Date 08/19/2020
Article Link Boston Globe ( Page C11 )
Syndicated From Bloomberg News
Journalist Ben Brody
Article Summary

The post office makes money delivering Amazon packages despite losing billions a year, claims today’s Globe article.

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Today’s Boston Globe informs readers that in fact the money-hemorrhaging United States Postal Service (USPS) actually makes a profit when it delivers Amazon packages at a discounted rate. This assertion in today’s article headline is despite an admission that the deal between Amazon and the USPS is confidential so no one knows how much the post office is actually charging.

We know Amazon gets a discount, partly because their mail usually does not travel far. Amazon’s strategy to speed up delivery is to have the post office deliver “the last mile” so Amazon doesn’t have to stop at every house which the post office delivery does already.

But whether a money-losing enterprise can segment one part of its service to call it “profitable” is debatable, not just because the post office is losing billions per year and has been doing so for years, but because how one apportions overhead costs is subject to interpretation.

The post office is required by Congress to use overhead when determining what it charges, but the overhead rate is another judgment call.

In my research, I see several articles from 2018 when this issue first bubbled up, and the Washington Post did a story on this which admitted that calculating overhead was an inexact science and that many of USPS’s competitors think they are undercharging (see photo 4, or this link: https://www.washingtonpost.com/news/wonk/wp/2018/04/04/is-the-post-office-making-or-losing-money-delivering-amazon-packages/)

“Marginal cost” is one way of looking at the problem. If the postal worker is stopping at someone’s door anyway, it costs almost nothing extra to drop off a package. Under that scenario, anything the shipper pays could be labeled “profit,” although usually an entity has to make a profit before anything can be termed profitable.

The other extreme is if dropping off the package makes the post office add a new route, buy a vehicle, and hire a driver. Then, in theory, that one package could cost hundreds of thousands of dollars. This might sound far-fetched but with the requirement that all addresses must be covered, a very rural, inaccessible location could be quite costly.

In my view, the article’s headline is misleading because “profitable” is just too loaded of a word during the current partisan discussion of the post office (as related to mail-in voting). It would be better if the article said “beneficial” or used some other positive word that didn’t imply a net financial gain.

The article gets an additional downgrade for its anti-Trump slant and its phrase “without showing evidence” which has become a media trope for “Trump is lying.” It has been reported that Amazon is paying about $2 less than the retail cost to deliver a package and the Post article says that it could be up to $1.50 more if the full cost were charged, which adds up to $3.50, less than Trump’s back-of-the-envelope claim of $3 that the reporter said was made without evidence.

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Allen Nitschelm is publisher of PublicEditorMA.com. He critiques the Boston Globe, mostly focusing on the bias in their news reporting. News articles are graded for bias, and the website has a listing of the average bias ratings for all reporters reviewed. See our website for more information and the four categories of articles we publish.

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