Post office rate hike could cost Amazon up to $1.8 billion more per year: Credit Suisse
President Donald Trump’s recent focus on what the post office charges Amazon for delivery may cost the e-commerce retailer a significant amount of money, according to one Wall Street firm.
Credit Suisse ran the numbers on how much more it will cost Amazon if the United States Postal Service raised its rates by 15 to 20 percent.
In recent weeks Trump repeatedly blasted Amazon on Twitter, sparking a decline in the company’s share price. The president criticized the e-commerce retailer over taxes and claimed it has not paid the post office adequately for its delivery services.
Trump also issued an executive order on Thursday to set up a task force to study the post office’s financial position and recommend reforms. Amazon was not directly referenced in the order.
“Instead of spending time debating whether changes to the USPS shipping rates have any merit, we would rather think through relative scenarios and impact to Amazon’s shipping costs,” analyst Stephen Ju wrote in a note to clients Friday. The firm’s “sensitivity table suggests incremental shipping expenses for 2018 in the range of ~$1b to $1.8b based on the aforementioned range of price hike possibilities under the assumption of the USPS accounting for 40-50% of costs.”
The analyst downplayed the long-term impact from any post office pricing changes, as Amazon can shift shipping volume to its own delivery services.
“And as it continues to do with the ongoing rollout of Prime Now and its Flex Driver program, Amazon continues to decrease its dependency on the USPS – we hence believe that while the potential exists for near-term profits to be negatively impacted, the long-term thesis remains unchanged,” he wrote.
As a result, Ju reiterated his outperform rating for Amazon shares and his $1,750 price target, representing 21 percent upside to Thursday’s close.