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Volume VII, No. 2 March-April 2000 Newsletter

Postal Service Rate Case: Update

APMU has launched a frontal attack against the Postal Service's proposed 15 percent average increase in Priority Mail rates. Some rate cells, such as the popular two-pound rate, would increase over 20 percent The APMU Rate Case Litigation Fund has been supported by many members and nonmembers alike who oppose the Postal Service's excessive rate increases. (If you would like to help, additional contributions are still needed. Please call (703) 356-6913 for info.)

During the discovery phase, the Postal Service revealed that it had mistakenly attributed an extra $46 million to Priority Mail costs. This represents 1.4 percent of all costs allocated to Priority Mail. Because no party except APMU had an interest in getting this information into the record, every party declined to do so -- except APMU. If APMU had not represented the interests of Priority Mail users, this information would never have entered the evidentiary record.

In addition to providing an opportunity to fight for the interests of Priority Mail users, omnibus rate cases also provide a wonderful opportunity to learn what the Postal Service has done, is doing, or plans to do, and why. For example, APMU has learned in this case that much uncertainty exists surrounding the PMPC Network. See below.

PMPC Network

The Postal Service states that "on average, it is more expensive to process Priority Mail within the PMPC network." Significant PMPC contract cost increases occur each year. In fact, the Postal Service states that PMPC contract costs in 2001 are now estimated to be over $24 million higher than reported when the case was filed in January 2000. Payments under the PMPC contract increased by 74 percent (from $289 million to $503 million) between FY 1998 and FY 1999. The network of 10 PMPCs became fully operational during FY 1998. Overall Priority Mail volume increased 1.3 percent from 1998 to 1999. PMPC contract costs in 2001 are now scheduled to increase by another $21 million over 1999.

These increases in PMPC contract costs are stated to be tied to increased volume to be handled by the PMPCs. In fact, the Postal Service claims it is currently (in FY 2000) paying lower rates than it paid in 1998. However, the Postal Service made two "mutually beneficial" payments to Emery totaling $65.6 million, which were not required under the contract, and were not related to Priority Mail volume. Also, the Postal Service has identified six outstanding claims against it due to the PMPC contact, totaling an astonishing $685,744,027, which are currently being contested.

The Postal Service is therefore currently considering options including "continuing the current network structure, expanding or reducing the PMPC network, or replacing the Emery network with an alternative network run by the Postal Service or by an outside contractor." In addition, the Priority Mail rates proposed in this docket were developed based on the assumption that the PMPC network "may not persist."

Lastly, the Postal Service says that questions about the PMPC network underly the Postal Service's decision not to propose Priority Mail dropship discounts in this case -- "uncertainty surrounding the Priority Mail network and the potential impact of changes in that network on Priority Mail rates" led to the decision not to propose any Priority Mail discounts. APMU has repeatedly sought dropship discounts to hold down costs.

Marketshare Still Dropping

Priority Mail's volume marketshare of the two- to three-day delivery market continues to fall -- it was 62.7 percent in 1997, 62.4 percent in 1998, and 61.3 percent through the first three quarters of 1999. By way of historical perspective, Priority Mail's volume marketshare was 76 percent in 1990 and 72 percent in 1993.

Priority Mail Service Performance

In January 1997, the Postal Service implemented an external system for measuring time-in-transit from entry to delivery for Priority Mail -- Priority Mail End-To-End Measurement ("PETE"). However, the Postal Service asserts PETE data is confidential, and refuses to release such data to the public (unlike the First-Class Mail external system data, "EXFC,"which are the subject of press releases trumpeting improved Postal Service delivery). However, certain PETE figures were revealed during discovery in this omnibus rate docket:

Percentage of Priority Mail Delivered on Time by Service Standard

As Measured by PETE [UPS/USPS-T34-26]

Postal Quarter 2/97 3/97 4/97 1/98 2/98 3/98 4/98 1/99 2/99 3/99 4/99
Overnight 86 88 86 85 83 88 91 91 88 91 91
2-day 71 77 72 70 61 76 83 83 67 80 85

Percentage of First-Class Mail Delivered on Time by Service Standard

As Measured by EXFC [USPS-T-9, Table 7]
Postal Quarter 2/97 3/97 4/97 1/98 2/98 3/98 4/98 1/99 2/99 3/99 4/99
Overnight 91 92 92 93 93 94 93 93 93 94 94
2-day 72 79 79 79 79 86 88 86 83 87 88

The Postal Service regularly asserts that Priority Mail receives better service than First-Class Mail. Priority Mail has a substantially wider range of zip code pairs designated to receive second day service than does First-Class Mail, but overnight service areas are virtually identical and therefore directly comparable. First-Class beats Priority Mail every quarter.

Emery Sues Postal Service Over PMPC Contract

On April 4, 2000, CNF, Inc. announced that its subsidiary, Emery Worldwide Airlines, Inc., filed a complaint in the United States Court of Federal Claims seeking both a declaration of contract rights and a ruling that the Postal Service is in breach of payment obligations under the PMPC contract. The company added that it still hoped to resolve the differences outside of court. We will keep you updated on this very important issue.

Successful APMU Meeting at National Postal Forum

APMU's March 21, 2000 Breakfast and Briefing at the National Postal Forum in Nashville, Tennessee, was a tremendous success. Over 90 members and guests were in attendance. APMU is grateful to Senior Vice President, Operations, Jack Potter for his presentation and to Deputy Postmaster General John Nolan for his welcoming comments at the breakfast.

Recent officer elections were announced at the meeting: Jon Wittnebel (of CTC Direct) was elected President, with Joyce Bagby (of RJ Reynolds Tobacco) as Vice President, Ernie Brogdon (of Intuit) continuing as Treasurer, and Brad Williams (of Cornerstone Brands) the new Secretary. Lori Ware (of Amway), past president (who has served several terms) was recognized for her service to APMU with a lounging robe (in hope that she may be able to relax a bit for the first time in several years).

Postal Service Pricing Manager Ashley Lyons received APMU's (tongue-in-cheek) Lifetime Achievement award. As Lori Ware pointed out, no one has done more to build APMU membership than Lyons, whose efforts to raise Priority Mail rates convinced many Priority Mail users of the need to join APMU.

Priority Mail Provides Exception to Dismal Postal Results

At the last Board of Governors meeting, Postal Service Chief Financial Officer Richard Porras reported that Postal Service revenues for the second quarter were $33 million below plan, while expenses were $108 million above plan.

However, Porras singled out Priority Mail revenues as continuing to exceed plan revenues. Preliminary RPW data show Priority Mail revenues are up 10.6 percent in the first two quarters of FY 2000 over the same period in FY 1999, while volume is up only 2.5 percent.

At the Governors meeting, Porras also announced efforts to reduce Headquarters overhead expenses by $360 million. Postmaster General William Henderson also announced planned reductions in postal expenditures at the National Postal Forum. PMG Henderson announced efforts to reduce Postal Service costs by $1 billion on an annual basis -- $100 million in overhead costs, $100 million from more efficient paperwork and purchasing procedures, $100 million in transportation costs, and $700 million from increased productivity. (While assurances of increased postal productivity have proven elusive to fulfill in the past, PMG Henderson reported to a Congressional subcommittee earlier this month that the Postal Service's total factor productivity rose to 2.1 percent in the fourth quarter of 1999, 2.2 percent in the first quarter of 2000, and 2.7 percent in the second quarter.)

Postal cost-cutting plans include the elimination of 9,000 jobs in postal operations and mail processing by 2004. Job cuts next year reportedly include 300 jobs at Postal Headquarters, another 200 jobs at area offices, and 900 jobs in the field.

Year 2000 Calendar

Be sure to make plans to attend the APMU meetings listed below:

APMU Meetings April 24 -- Washington, DC
July 10 -- Washington, DC
September 12 -- Anaheim, CA
(NPF Breakfast and Briefing)
October 2 -- Washington, DC
National Postal Forum
September 10-13 -- Anaheim, CA
MTAC Meetings
April 25-27 -- Washington, D.C.
July 11-13 -- Washington, D.C.
October 3-5 -- Washington, D.C.
MailCom 2000 May 2-May 5 -- Atlantic City, NJ
August 20-23 -- Las Vegas, NV
USPS Board of Governors May 1 - 2 -- Washington, DC
June 5 - 6 -- Philadelphia, PA

July 10 - 11 -- Washington, DC
August 7 - 8 -- Reno, NV
August 28 - 29 -- Washington, DC
October 2 - 3 -- San Diego, CA
November 6 - 7 -- Washington, DC
December 4 - 5 -- Washington, DC

The Association of Priority Mail Users, Inc. is a nonprofit organization of Priority Mail users and suppliers to Priority Mail users which seeks to ensure that proper business and financial decisions are made by the United States Postal Service to promote and protect the cost efficiency and quality of service of Priority Mail. For information on APMU programs and membership information, please call 703-356-6913.
Association of Priority Mail Users, Inc. 8180 Greensboro Drive, Suite 1070 McLean, Virginia 22102-3823 (703) 356-6913 (phone) (703) 356-5085 (fax) (URL) (e-mail)