Volume VI, No. 3 May-June 1999 Newsletter

APMU President Lori Ware Files Testimony on H.R. 22

APMU President Lori Ware filed testimony on behalf of APMU with the House Postal Services Subcommittee regarding H.R. 22, the Postal Reform Act of 1999. The testimony focused on the so-called equal markup provision under the bill as then proposed -- requiring that the overall percentage contribution to institutional costs from "competitive" products be equal to or greater than the percentage contribution to institutional costs from all mail. This provision could injure Priority Mail. Specifically, the provisions could impose an additional $0.60 per piece increase on Priority Mail rates -- assuming volume remains unchanged. (Reductions in volume would need to be offset by even higher rate increases).

The testimony noted that the unintended consequences of the "equal markup provisions" would be to price the Postal Service's competitive products out of the market and to place greater burdens on monopoly and other captive mailers. Indeed, this is undoubtedly what some supporters of the provision, including those who compete with Priority Mail, have in mind.

After the testimony was filed, the subcommittee reported out a version that had some improvements in the equal markup provision but they were still inadequate -- giving discretion to the Postal Regulatory Commission to make adjustments to disregard certain categories of costs in comparing markups for monopoly and competitive class products. APMU will be filing supplemental testimony on the revised bill.

H.R. 22 Approaching Critical Test in House

H.R. 22 is before the full House Government Reform Committee, chaired by Rep. Dan Burton (R-IN). The Chairman agreed to support six amendments offered by the Postal Service when the bill is considered by the full committee. In response, PMG Henderson announced at the recent San Antonio Postal Forum that the USPS gives its full support to the bill as amended.

The bill has become contentious. Upon request, APMU briefed Democrat staff on our concerns, and Rep. Henry Waxman (D-CA) is preparing an alternative bill which he will offer at the mark-up session. Rep. Steven LaTourette (R-OH) is said to be preparing a third bill. Mark-up by the full committee has been delayed, and could be delayed indefinitely, if Chairman Burton cannot muster the necessary votes to pass the bill out of committee. The failure to report the bill will delay any action by the full House until Thanksgiving or later.

H.R. 22 could also become a victim of other developments not related to anything contained in the bill itself. House Republicans are widely reported to be somewhat divided over pending appropriation bills, most of which are now well behind schedule and slowly creating a log jam for all other legislation, including H.R. 22.

Postal Service Finances and Outlook for Filing of Next Rate Case

At the end of accounting period 10, the Postal Service reported a cumulative profit of $974 million. That's the good news. The bad news is that (i) the profit was reported to be $207 million less than planned, and (ii) the Postal Service projects losing about $775 million during the last accounting periods of this fiscal year, ending the year with a surplus of only $200 million.

The rest of the story becomes predictable. Along about mid-year management proclaims that the sky is definitely falling, calls for belt tightening (which has been put into effect), and later proclaims themselves heroes because the sky did not fall.

With respect to timing of the next rate case, even if the Postal Service were to file a rate case in August (which will not happen, even though a briefing on the rate case is on the agenda for the Board's July meeting), the new rates would barely go into effect before FY 2001. Therefore, the real question is: what is the outlook for the Test Year which will be used in the next rate case (either FY 2001 or 2002)? For either prospective Test Year, the Postal Service can realistically project deficits. Total factor productivity has declined during 4 of the last 5 years, wage rates are increasing faster than the rate of inflation, investment spending is far too low to effect any significant improvement in productivity, and the Postal Service is trying to increase delivery performance for all classes of mail.

To sum up, the Postal Service is expected to file for a rate increase between November 1999 and March 2000, with the higher rates to take effect early in CY 2001 -- fulfilling PMG Henderson's pledge not to increase rates before 2001.

Delivery Confirmation Usage

Each week approximately 350,000 retail customers purchase the new delivery confirmation service, according to the Postal Service. Commercial customers using the free electronic delivery confirmation service average approximately 2 million per 4-week accounting period. The scan rate is in the mid-90 percent range, according to Julie Rios, USPS Manager for Information Service for Expedited/Package Services.

Delivery confirmation is providing the Postal Service an extensive in-house data base on delivery performance, but none of the information is being made public. "As soon as FedEx releases its numbers, we will," said Jerry McKiernan, USPS Director of Communications for Expedited/Package Services. "FedEx doesn't do it. UPS doesn't do it. It's a competitive product, not a monopoly product."

Next for Delivery Confirmation -- Signature Service

The Postal Service is planning a new signature service for proof of delivery. The Service will capture the signature on paper, then scan the image and store it in electronic form. Customers can request a copy of the image by telephone or the internet, and it will be transmitted to them by fax or mail (it will not be made available electronically because of privacy concerns). The fee for proof of delivery will be $1.25, and it will be available only in conjunction with delivery confirmation. Equipment tests were scheduled to start June 1, with nationwide deployment scheduled to start in September.

PMPC Network Becomes Profitable for CNF/Emery

According to Air Cargo World magazine, CNF Transportation, which has the PMPC contract, lost $3 million on the contract in 1998. The loss was attributable to a start-up loss in the first quarter of $17.5 million, followed by profits of $2.1, $10.5 and $2.0 million in the next three quarters. It now expects the operation to remain in the black. CNF provides airlift from its Emery World Airways Division, trucks from its Conway division, and logistics support from its Menlo Logistics division.

The aim of the PMPC contract is to help the Postal Service achieve consistent 2-day service for Priority Mail. Whether service has actually improved is anyone's guess. The Postal Service's performance data for prior years are meager, and it refuses to release any current performance data. The PMPC contract expires at the end of 2002. Future plans for the PMPC network and service improvements are still being determined by the Postal Service, but management apparently wants to expand the PM network (whether through Emery or alternatives now being considered) very shortly to include more of the 32 geographical centers where 90 percent of all Priority Mail originates or destinates. Getting new dedicated Priority Mail centers on line will require a 10-month lead time.

Report on Newark PMPC Facility

Operations within the Newark PMPC were described in the May 17, 1999 issue of Business Mailers Review. All flats are sorted manually, while parcels receive mechanized sortation on two Rapistan machines, one designed for incoming sortation and the other designed for outgoing sortation. The difference between the two machines is the number of separations of which each is capable. The Rapistan machines operate in a fashion similar to the small parcel and bundle sorting machine used by USPS, but their innovative design permits many more separations. All parcels are completely separated in one pass. By avoiding additional separations, these larger machines save both money and time (the later is a critical consideration for meeting delivery commitments of expedited packages).

Airborne Express and USPS Offer New Residential Parcel Delivery Service

In a move to provide businesses with an economical way to ship parcels to residential markets, Airborne Express has announced plans for a new delivery service, Airborne@Home. Airborne will transport shipments to more than 24,000 local Direct Delivery Units (DDUs), where they will be entered at the new DDU entry rates approved in the last rate case. The Postal Service will then deliver the shipments. Customers will be able to track their shipments from moment of pickup until Airborne delivers them to the Postal DDU. Total time in transit is expected to be 2 to 4 days, from pickup at the shipper's location to recipients' homes. John Kelly, USPS Vice President of Expedited/Package Services, hailed the agreement. "Airborne wants us to help them do what we do best: deliver to everyone, everywhere, every day."

Rates for the new service, which Airborne plans to start testing in mid-July, have not been announced. However, an Airborne spokesperson stated that volume discounts will be available to large shippers. Although the new service is nominally aimed at parcels now receiving ground shipment by USPS competitors, if successful Airborne's new service could also wind up being highly competitive with Priority Mail. In time, the Postal Service may even consider drop ship discounts for Priority Mail sacks sent to an SCF and then opened, with pieces delivered to the final address via Standard A.

GAO Reviews Postal Service's Performance Plan for Fiscal Year 2000

Each year the Postal Service prepares a performance plan for the forthcoming fiscal year, in accord with the Government Performance and Results Act of 1993. In a report dated April 30, 1999, the General Accounting Office reviewed the Postal Service's preliminary plan for fiscal year 2000. According to that report, "the Service has set a target of on-time performance of 2-day and 3-day First-Class Mail at the 90-percent level, which would be a record level of performance." At the same time, GAO noted that "Service officials have said that the Service does not currently have the specific information that would be needed to estimate budgetary and other resources associated with achievement of each of its goals." No surprise here. One can rest assured, however, that improvements in delivery performance will cost more, not less.

Don't forget -- APMU's Breakfast and Briefing at the Chicago National Postal Forum will be on Tuesday September 28th.