Vol. VIII, No. 2 March-April 2001
R2000-1 Rate Case Back in Governors’ Lap
On March 5, 2001, the Governors rejected and sent
back to the Postal Rate Commission its (second) Opinion and Recommended
Decision upon Reconsideration in the recent rate case (Docket No.
R2000-1). The Governors are seeking an additional $900 million in
revenue. Subsequently, on April 10, the Commission sent the Governors
its (third) Opinion and Recommendation upon Further Reconsideration.
The Commission, finding that the record fully justified its original
recommendation, did not propose any further increase in rates.
At their May meeting, the Governors are expected to
decide what further action, if any, to take with respect to the rates
established as a result of Docket No. R2000-1. Because the Governors
rejected the Commission’s previous Opinion and Recommendation, under
the law they can impose higher rates unilaterally if they unanimously
agree that such rates are needed.
Some predict that the Governors will be inclined to
use the "anarchy clause" (39 U.S.C. §3625(d)) to unilaterally
increase rates. This power has only been used once before — 20 years
ago. Others think the recent hearings before the House Committee on
Government Reform may have awakened the Governors to the fact that they
are being watched very closely by Congress, as well as the entire
No Notice Required for Rate Increases?
The possibility of the Governors using the anarchy
clause raises questions about what kind of notice, if any, the Postal
Service would have to give to mailers before the rates would take
effect. Amazingly, it appears that the Postal Reorganization Act is
completely silent in terms of a minimum notice requirement to the
mailing public for increasing rates.
There are provisions in the Postal Reorganization Act
which require specific notice to mailers in the case of temporary rates
(39 U.S.C. §3641) and nonprofit rates (39 U.S.C. §3642), but no
statutory notice requirement seems to exist with respect to other
increased postage rates. No matter what would be possible legally,
however, observers feel that, in view of the needs of the mailing
community, it is unlikely that there would be less than 30 days’
notice prior to implementing any such unilateral rate increase.
Priority Mail Volume Declines Following Massive Rate
Following the 16 percent rate hike that took effect
on January 7th of this year, in Postal Quarter 2 Priority
Mail volume declined 4.6 percent versus the same quarter of last year,
according to the official USPS Revenue, Pieces Weight ("RPW")
Report. PQ 2 covered the 12- week period from December 2nd
through Feb 23rd, hence the higher rates were in effect for
only 8 weeks of the quarter.
Postal Service Finances in Deficit; Rate Case Looms
At the end of Accounting Period 7 (ended March 23rd),
the Postal Service had an accumulated deficit of about $290 million,
versus a planned net income of $291 million. In other words, its actual
loss to date exhibits a shortfall of some $580 million versus
plan, despite the higher rates that took effect last January. The CFO,
Richard Strasser, is projecting that during this fiscal year the Postal
Service could incur a loss as high as $3 billion, because the
Postal Service traditionally runs large deficits during the last four
accounting periods of the fiscal year.
Total mail volume is actually up 2 percent from last
year, and is running ahead of the volume on which the budget is based.
Nevertheless, while the volume of low margin mail is up,
the volume of mail with high profit margins, such as Priority
Mail, is down (see preceding article). The Postal Service appears
to be nearing the point where further rate increases become
counterproductive. This may be why the Governors are exploring other
options, such as elimination of Saturday delivery.
The continuing red ink, coupled with the Postal
Service’s inability to increase productivity and reduce costs, means
that (i) the outlook for FY 2002 and FY 2003 is grim indeed, and (ii)
the next rate case is likely to be filed sooner rather than later. The
Postal Service is expected to seek $6 to $8 billion in additional
revenue, and plans to have its filing for the next rate case ready
by July. After that, it will be up to the Board of Governors to
determine when the case will actually be filed. Some mailer groups are
trying to have the filing put off until January 2002, but that presents
a number of problems. First, without higher rates or a change in the
law, the Service may exhaust its borrowing authority some time next
year. Second, a filing in January could entail using FY 2000 as the
"initial" Base Year, and then updating it to FY 2001 as the
case proceeds (as occurred in Docket No. R2000-1).
Postal Reform Moving Back to Center Stage
On March 2, 2001, the Governors of the Postal Service
wrote similar letters to President Bush and Rep. John McHugh (R-NY)
requesting their help to enact some kind of postal reform legislation.
Significantly, the Governors broadened the scope of debate about reform
by putting new issues on the table, including the vital issue of cost
control. For the first time, the Governors called attention to the
compulsory arbitration requirement in the current law, stating that it
militates against a negotiated settlement and puts some 80 percent of
the Postal Service’s costs in the hands of a third-party arbitrator.
Separately, the Governors also announced that they were instructing the
Postal Service to study the cost reduction that could be achieved by
eliminating Saturday delivery.
On April 4, the House Committee on Government Reform,
chaired by Rep. Dan Burton (R-IN), conducted its first oversight
hearing regarding the Postal Service. The lead witness, Comptroller
General David Walker, called attention to the Postal Service’s
failure to increase productivity and capture more of the potential
savings from its automation program. "We believe," he said,
"that the Service’s deteriorating financial situation calls for
prompt, aggressive action, particularly in the areas of cutting costs
and improving productivity." (emphasis added) He further stated
that, because of such problems, the GAO was adding the Postal Service to
its high-risk list, which flags troubled government agencies and
It is finally becoming clear to more and more
interested parties that what all mailers need is for the Postal Service
to increase productivity and reduce its costs. This, and only this, will
address the fundamental problem – the "disease,"
figuratively speaking – that underlies the "symptom" of
financial losses. Neither the Postal Service nor mailers can afford rate
increases that come ever faster and higher. Nor do mailers need some
kind of bogus reform giving the Postal Service greater product as well
as pricing "flexibility" that diverts attention from the
fundamental problem of low productivity in its core business.
The issue of how to reduce costs, whether it be by
eliminating Saturday delivery, closing thousands of small money-losing
post offices, or improving productivity and eliminating tens of
thousands of jobs, will be contentious, but some such measure may be the
only way to achieve the kind of meaningful reform that mailers so
desperately need. If the issues prove too contentious for Congress to
tackle head-on, then a Presidential or Congressional Commission likely
will be needed to study the issue and make recommendations. That, of
course, will take years. Meanwhile, the Postal Service’s financial
situation is in something of a "mini-crisis" (see preceding
Presort Discounts Proposed for Priority Mail
The Postal Service has filed with the Postal Rate
Commission a request to establish experimental presort rate
categories for Priority Mail. The request was filed on March 7, and the
Postal Service has requested an expedited hearing on the matter.
The previous Priority Mail presort discount of 10
cents per piece was discontinued after Docket No. R97-1, largely because
the discount was used by so few mailers. Three categories of discounts
are proposed, distinguished by depth of sort: ADC (Area Distribution
Center), 3-digit and 5-digit. The discounts proposed for the service are
12, 16 and 25 cents per piece for sortation to ADC, 3-digit and 5-digit,
Under the Postal Service’s new proposal, about 10
mailers will be allowed to participate in the experimental presort
program. The Postal Service expects to work closely with participants to
observe first-hand any problems and learn how to fashion an effective
presort program for Priority Mail.
United Parcel Service ("UPS") has already
weighed in with objections, claiming that the proposal is not even
entitled to consideration under the special rules governing experimental
classification changes. According to UPS, the proposed worksharing
discounts are not new or innovative, and the requested duration of the
experiment (three years) is longer than necessary for a presort discount
proposal. R.R. Donnelley & Sons Company, the only mailer thus far
joining the fray, has agreed with the Postal Service that experimental
treatment is appropriate and that UPS’ position should be rejected.
APMU has intervened in the case, and currently is
monitoring its progress. APMU members having an interest in this
experimental case should get in touch with the APMU office at
PMPC Delivery Confirmation Scanning Problem
The Postal Service reportedly has discontinued
scans of originating Priority Mail at all PMPC sites since January
7, 2001. The causes are said to be operational issues, including
processing delays as a result of the scanning. The Postal Service plans
to implement a nationwide system for scanning all Delivery Confirmation
packages at origin sites by September of this year. No explanation has
been offered as to why six months will be required to fix the problem,
which arguably should have been anticipated before the delivery
confirmation program was launched.
Lack of a scan at origin sites, of course, makes it
impossible for customers, or even the Postal Service itself, to check on
actual time from inception to final delivery.
USPS/FedEx Contracts In the Spotlight
CNF’s Emery Worldwide Airlines, in a letter to the
Board of Governors, claims that the Board was "materially
misinformed" by "grossly inadequate data" before
approving the FedEx shipping contract in January. According to Emery,
costs will be higher and service levels worse than they were under
now-canceled contracts between Emery and the Postal Service. As a
result, the Office of Inspector General, which reports directly to the
Board of Governors, is investigating the $6.3 billion, seven-year,
no-bid arrangement with FedEx.
When questioned about the contract at the recent
oversight hearing of the House Government Reform Committee, PMG
Henderson responded, "Trust me, it’s a terrific deal." He
refused, however, to provide any substantive information to back up his
position. The claimed cost savings are based on contract details that
are being withheld as confidential, proprietary information.
Meanwhile, under a separate, non-exclusive contract,
FedEx has begun installing its own drop boxes in 10,000 post offices
around the country. Whether these drop boxes will reduce Priority Mail
volume remains to be seen.
Calendar of Events
See the APMU Calendar of events at http://www.apmu.org/calendar.html.
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 22102-3860 • (703) 356-6913 (phone)
• (703) 356-5085 (fax)