Citi analyst Mark May weighed in on Amazon.com (NASDAQ: AMZN) after further analysis of USPS finances and its relationship with Amazon. The firm present three scenarios for AMZN to illustrate the impact if the USPS raises parcel rate. Ther base case implies that AMZN’s total gross profits would be negatively impacted by $1.3bn or -1.4%.

The firm estimates that U.S. outbound shipping will represent $13.3bn (or 9%) of Amazon’s COGS in 2018, and that the USPS will represent ~30% of that expense. Specifically, they assume that Amazon spends ~$4bn on USPS, $1.5bn on FedEx (NYSE: FDX), $3bn on UPS (NYSE: UPS) and $4.6bn on regional carriers for domestic shipping costs annually.

In their base case, they assume the USPS raises pricing by 20% and that, as a result, the other carriers raises prices by 5%. In their bull case, they assume FedEx and UPS do not raise prices as they may look to use the opportunity to capture greater market shares. In their bear base, they assume 100% price hike pass-through to AMZN, which leads to 25% price increase for USPS, and 10% for the rest.

"Using our 2018 forecasts to illustrate the potential impact, in the event of a rate hike, our total 2018E shipping cost increase will be $1.3bn in our base case, but only $0.4bn in our bull case and $1.9bn in our bear case," May commented. "This equates to downside to our Gross Profit forecast of -1.4%, -0.4% and -2.1%, respectively."

The firm maintained a Buy rating and price target of $1,700 on AMZN.

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Shares of Amazon.com closed at $1517.86 yesterday.