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Comment by ogre_codes | Hacker News Reader

What people miss here is Amazon's is taking advantage of the fact that the cost to deliver packages varies greatly. Where it's cheap/ easy to deliver packages, Amazon delivers their own. Where it's expensive to deliver, they outsource to UPS/ USPS/ FedEx. Delivering a package in rural areas where houses are a quarter mile apart is a lot more expensive than when a carrier can load up a handcart and deliver 10 addresses.

Traditional carriers break even or even take a small loss on a percentage of deliveries because it's important to their business model to have consistent prices and deliver everywhere. Amazon isn't restricted that way, they can cherry pick which places they deliver based on how profitable it is to get the package to the doorstep.

Essentially Amazon is draining away all the deliveries which made UPS/ USPS/ FedEx profitable. How sustainable this model is long term is somewhat questionable.

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> Delivering a package in rural areas where houses are a quarter mile apart is a lot more expensive than when a carrier can load up a handcart and deliver 10 addresses.

And yet Amazon does their own deliveries in my parents' rural area where the houses are indeed about a quarter mile apart and several miles from the nearest town. Perhaps the business model isn't quite so one-sided as you thought? USPS has issues with managing their pricing, true, but UPS and FedEx are under no obligation to deliver packages below cost.

It may be because there are enough consistent deliveries in the area to employ someone dedicated to delivery there.

Yes, naturally. That doesn't change the fact that Amazon does handle their own deliveries in rural areas, not just cities. FedEx and UPS operate under the same constraints.

The parent offered rural areas as an example of where it might not be profitable to deliver. Not a be-all-end-all analysis carving up profitable and non-profitable areas.

Was meant as a simple example. I live in a rural area and get Amazon delivery too (though much of the volume I get is USPS).

It could easily be self-selecting, Amazon puts out their own deliveries essentially the same way as Uber. They set rates for drivers and if they can't get drivers at the rates they set, they send the packages off to USPS. The result is more-or-less the same. Much as Uber drivers don't service unprofitable areas, Amazon's contractors don't either.

No, but it does change how profitable it is to make those deliveries.

Delivering to urban areas is generally more cost effective because there is an opportunity bonus. People in rural areas can simulate that opportunity bonus by getting more packages more regularly.

Well, UPS/etc can also cherry pick or negotiate terms if it doesn't make sense. They don't have to take those (or any) deliveries from Amazon.

This is why I was suggesting this might not be sustainable. Carriers have built their business based on certain assumptions. The big assumption is that customers prefer having predictable pricing. This assumption is correct for every other business they deal with, for the carriers Amazon is an aberration. Since Amazon only provides a small percentage of their business, carriers must invest significantly in building out a system for destination based pricing just for Amazon. The alternative is to simply assume all of Amazon's package traffic is going to be lowest-margin and price appropriately.

> The alternative is to simply assume all of Amazon's package traffic is going to be lowest-margin and price appropriately.

This seems like the simplist way. The company could take a sample of 100 Amazon parcels, analyze the marginal cost of delivering each (how full was each van, how much did it add to each route, etc), and use that as the basis for price negotiations with Amazon.

If that means Amazon pays more than other customers, fine.

USPS does not have that leverage, they are obligated to provide last mile support at a loss if necessary.

My house is two miles down a paved road from the nearest village (800 full-time residents in the Western Sierras), and USPS doesn't deliver mail, although they do provide a free PO Box in the village. UPS and Fedex both deliver to my door.

Anecdotally, your claim doesn't seem correct, but I'm not sure what the exact rules are.

Here is USPS's "Universal Service Obligation" https://www.uspsoig.gov/sites/default/files/document-library...

There is no set and clear definition of the Postal Service’s USO; it is generally assumed to be a collection of various laws and regulations.

from the document

This is just factually incorrect. USPS does not provide to the door service for massive swaths of the country.

I know this because as I type this I’m sitting in a house in a rural area of upstate NY that doesn’t have USPS delivery. When clueless e-commerce merchants send me things via USPS anyways they never arrive and eventually get sent back.

This situation is not uncommon at all.

Maybe this is why Amazon sends a huge chunk of their packages via USPS. Part of the deal between the USPS and Amazon included some pretty big incentives to deliver Amazon packages on time. My wife worked for USPS for years and Amazon packages were given pretty high priority.

Which is perfectly fine, because the USPS is a service, not a business. It's not supposed to be profitable anymore than the military or the EPA are supposed to be profitable.

The problem is when a company can leverage that loophole to make even more money, which is what Amazon is doing.

Isn't that kind of the point of most public infrastructure though? That its losses can be subsidized because the net economic gain and overall improvement to people's lives is worth it? How many companies depend the "loophole" of roads and public transport being publicly subsidized in order to operate in any capacity whatsoever?

Under the assumption that they are funded to provide that service.

Amazon has the leverage

Do they?

If what is being said is actually true, then amazon doesn't have any leverage at all. (again if what is being argued is true) These last mile providers might be taking a small hit to deliver amazon packages, so why deliver them at all?

If you answer is: "if they don't deliver these they won't get amazon's business." It would appear they are not getting any of amazon's profitable business (2/3 of delivers), so who cares about getting amazon's crap business?

It's more that Amazon packages can comprise such a a large % of deliveries/orders that the UPS/etc may need to keep that business, even at near 0 profit, to keep their infrastructure above water. That contract possibly covers a ton of last mile region they want to cover anyway to stay competitive but couldn't keep going due to lack of volume vs cost without Amazon.

It's a bit of a catch-22, they can reform their route and coverage to similarly profitable state with less coverage, potentially dooming them in the long run, or they can take the near 0 profit contract from Amazon and stay competitive while having almost no cards at the negotiation table. Amazon knows their business is huge and needed by these groups and is not afraid to point that out.

That doesn't really make sense to me.

FDX booted them last year, their stock is way up now...there's a whole lot more to ecommerce than Amazon (though admittedly they are a huge piece).

Amazon's data is pretty precise I'm guessing. I live in a suburban area right next to a major city.

We get a lot of stuff from Amazon, and in a single day I have seen the UPS guy, FedEx gal, our regular USPS postman, and the packages only USPS guy, all bringing Amazon boxes in one day.

This also applies to UPS and Fedex, actually. In rural areas they just hand the packages off to USPS. It's also why the recent debate about how profitable or otherwise USPS is misses the point: it isn't designed to be a profitable business, it's designed to deliver mail to everyone in the country.

> Traditional carriers break even or even take a small loss on a percentage of deliveries because it's important to their business model to have consistent prices and deliver everywhere.

Maybe that's the case for the average walk-in, but at scale all of these terms are subject to negotiation.

This. Op seems to suggest pricing is fixed when shipping for Amazon. Without any knowledge I would be surprised if it was. In fact 3rd party shippers can charge whatever they want to deliver Amazon packages because until Amazon can deliver all their packages they need shipping partners.

If I recall correctly, DHL (Germany's largest delivery company, part of the former state post system) charges Amazon ~2 euros, while the end user price is between 5 and 6 euros.

It's common wisdom that most of the cost for delivery is in the last mile. Amazon has great leverage, because DHL certainly isn't making money on their deliveries - the intake scales with Amazon's large quantities, but the individual delivery does not.

It's a race to the bottom between the delivery companies, fueled mostly by sub-sub-contractors with very low wages, long hours and bad conditions. DHL has seen giant growth, but profits are falling apart.

> DHL [in Germany] charges Amazon ~2 euros, while the end user price is between 5 and 6 euros.

Up to a certain point [1], that's actually reasonable. Amazon drops off entire truckloads at a time, whereas end users hand packages over individually at shops that have to pay staff and rent. So the cost of just accepting parcel is going to be higher for packages sent by end users.

Side note: If I were DHL, I'd be giving Amazon a discount for packages that are addressed to a Packstation, since that cuts down on the other big cost center, the cost of delivering parcel on the last mile.

[1] I'm not arguing that this is the difference between 2 and 5-6 euros, but it's certainly a large part of it.

Absolutely, some rebate makes sense, Amazon delivers them well-wrapped, in a few sane package sizes etc, the hand-over scales well. The delivery on the last mile does not, and that's supposedly 50% of costs.

I'd be surprised if Amazon does not enjoy additional rebates for Packstation deliveries.

it's the other way around, Deutsche Post bought DHL, which had been a private US company.

Thanks, I wasn't aware of that. The outcome is the same, as they just rebranded the Deutsche Post operations to run as DHL in Germany, and the original Post employees are working at DHL with (pretty much) the same contracts (which DHL cites as a disadvantage, because the former state employees draw significantly higher salaries; they're beeing replace with sub-contractors where possible).

> Maybe that's the case for the average walk-in, but at scale all of these terms are subject to negotiation.

I'm sure could, but prior to Amazon, having a fairly flat rate table has been a selling point for carriers even to their larger customers.

I'm sure the holiday and other demand spikes are also extremely expensive. By handling the steady-state deliveries, Amazon is again draining away all the profitable, predictable deliveries, and outsourcing the expensive spikes. It's … brilliant?

like so much the big tech companies seem to do, it's brilliant but unsustainable. it's brilliant right up until the point where it kills the partner that they're abusing and there's nobody left to handle their spikes.

Or right up until FedEx and UPS agree on burner phones Dec 1 that they aren’t taking more than a pittance of the holiday spike traffic, leaving Amazon in the lurch.

Let's say Amazon kills Fedex, UPS and USPS. That's great! Now Amazon has monopoly/duopoly on logistics.

> It's … brilliant?

Assuming it's a steady state then it's certainly good for Amazon. Particularly since their competition doesn't have the scale to reduce costs similarly.

> Essentially Amazon is draining away all the deliveries which made UPS/ USPS/ FedEx profitable.

Without Amazon, there is no business for UPS/USPS/FedEx to deliver Amazon packages... Heck, the deliveries that Amazon choses not to do themselvs, is extra business for UPS, USPS and FedEx. Also, there is a great deal of shipping that has nothing to do with Amazon.

>> How sustainable this model is long term is somewhat questionable.

I wouldn't worry much.

What's the worst that could happen ? Amazon would need to invest ~$50B in their network ?

They already did so since 2014. They'll manage.

But carriers have dynamic prices for shippers that are returned via an API. If they didn’t want the business they can just raise the prices for a specific shipper, e.g. Amazon.

I think it would be great if they could source production of all their Amazon label products to local companies.

This would be nice to help the local communities a little.

local businesses are not going to accept chinese wages, and customers aren't going to pay for US or EU labor.

I think we are moving away from manual labor at this point. There is going to be automation if factories come back to America.

The US should stop subsidizing rural communities. It is bad for the environment and people that want to live out there should have to pay the real costs of serving them.

One possibility is to reduce the days mail is delivered to rural communities to cut costs.

And city folk could pay the real cost of having their food grown and delivered to their doors and local stores. The whole issue works both directions but most people only tend to see their perspective. ;)

Most people living in the countryside rely on the same food distribution networks that serve city dwellers, so that equation doesn't check out.

> city folk could pay the real cost of having their food grown and delivered to their doors and local stores.

But they do. That's the market price. That and the subsidies.

Another perspective is that everyone is paying for the real cost of having their food grown by massive agribusinesses through massive government handouts in the form of subsidies.

Mail subsidy built this nation.

I invoke Chesterton's Fence. You haven't demonstrated an understanding of why package and parcel delivery works the way it does; so I reject your call to dismantle it, until you do demonstrate that.

Cities house half the worlds population but create 70% of the worlds carbon emissions. I'm not sure they are as green as you think.

How much of these cities' carbon emissions are caused by the manufacturing of products for people living in the countryside? Big factories tend to be in or near big cities where there is a workforce to support them.

As an example here in Germany, the city of Wolfsburg has the original Volkswagen plant. It's so big, it's literally called "car city" ("Autostadt"). They certainly don't make cars just for Wolfsburg, or just for city dwellers.

I'm not sure you're comparing like-for-like. A large number of the people living outside cities are subsistence farmers in developing countries and have unsurprisingly low carbon footprints. There is significant lifestyle inflation as the rural populace move to cities.

There is significant lifestyle inflation as the rural populace move to cities.

Exactly.

While we’re on the topic of carbon emissions what’s the footprint of the post office? Driving around junk, the printing of which burns carbon, with combustion engines, most of which is thrown away immediately.

Don't put that on the Post Office, put that on (many) lazy Congress which allowed the post office to be taken advantage of this way, and the abusers.

Rural communities used to have industry and manufacturing and were able to contribute to our nation as a whole.

When have factories ever sprung up without cities?

Historically never, since you need convenient access to a population of workers. Rural areas are too spread out.

In modern times car companies, in particular, have built factories in the middle of nowhere because land is cheap. Small cities then spring up around them to support a population of new workers.

As a side note, the car companies are pretty savvy doing it this way. They get to pay minimal amounts for empty, "worthless" land and force everyone else to pay increasing prices on the surrounding land which may be purchased, directly or indirectly, by the company.

I mean anywhere between the two coasts, yeah. Can you still call places like Detroit “cities” when they’ve been left to decay to destroy the generational wealth of the people who lived there?

http://cornersideyard.blogspot.com/2018/07/a-personal-segreg...

And they shall rise again.

I hope so :)

This is already the case in some very small communities, and there are sometimes mail delivery volunteers. The USPS was already profitable but has been undermined significantly: opening the private option for servicing USPS mail and requiring pensions to be paid up front for every employee.

Additionally rural communities are about 20% of the population, and many of these communities are around farmland, which of course is necessary to keep some of. It's much harder to live alone with just a small amount of farmers vs. even the smallest of communities. Should farmers commute to the farm just so the USPS has a slightly easier time?

Yeah because who needs rural America with all of their useless farms...

Ah yes, we should just force them into the dense city centers. That'll improve housing affordability for all those urban families.

It's not as simple as thinking in terms of those first order effects. Mailing subsidies reduce the cost of non-local alternatives for goods. It can often make it impossible for small businesses to exist in less urban environments and can lead to downward spirals where rural communities are self-exterminating because processes like this consistently siphon money out of the local economy.

Imagine if shipping of all consumer goods were made free. Amazon would be INCREDIBLY more dominant. And in fact, this is a large reason they started with books. The USPS has a special program built for a world 100 years ago called Media Mail which allows you to ship books for next to nothing. It made it impossible to run a bookstore profitably. Removing shipping subsidies to rural communities may very well create more of them and will definitely make them more resilient.

This isn't "the US" subsidizing rural communities, though. This is private enterprises effectively doing the same, for the sake of providing a flat rate shipping service. Although I too think that rural living is bad for the environment, this is not a particular case of the government subsidizing it.

if UPS/FedEx want to offer flat rate shipping to both densely and sparsely populated areas, it's on them to make it economic. if amazon wants to take advantage of their business model, I don't see anything unfair about it.

USPS is a government agency though. if they ship stuff to rural areas below cost, that is the US government subsidizing rural communities. with mail still being the lowest-common-denominator means of communication, there is a public good argument for burning money to deliver mail/packages affordably to people in these areas. I do agree they should feel at least some of the cost though, and I also feel there is something distasteful about amazon exploiting this cost structure.

I wonder what the cost difference would be if we reduced mail to 1x per week and got everyone broadband.

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