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Volume II, No. 2 August 1995 Newsletter

New Priority Mail Rates to Take Effect on Sunday, August 27, 1995

At its August meeting, the Board of Governors of the Postal Service voted unanimously to accept the Postal Rate Commission's Recommended Decision Upon Reconsideration with respect to proposed reductions in Priority Mail rates. The new, lower rates will take effect on Sunday, August 27, 1995. The only changes from present rates are in Zone 4 from 6 pounds to 70 pounds, and Zone 5 between 8 and 14 pounds. These rates were designed to mitigate the sharp increases in rates which went into effect on January 1. APMU had sent a letter to the Board of Governors urging that the Commission's recommended decision be adopted.

Tony Gallo Named Acting Product Manager for Priority Mail

In a surprise move within the Postal Service, Bob Michelson, the former product manager for Priority Mail, transferred on July 10 to a new position within the Postal Service. His title is Manager, Commercial Products - International. Bob has his work cut out for him, as the Postal Service's share of the hotly competitive international market has slipped by 13 percent in recent years. Bob has been a powerful voice for Express and Priority Mail within the Postal Service, and he will be missed.

Tony Gallo, who is familiar to many APMU members, has been named Acting Product Manager. Tony can be reached at (202) 268-2947. The slot occupied by Bob Michelson has not yet been filled, so Tony and the rest of the Priority Mail product management team are operating short- handed at the present time.

APMU Elects Officers - Lori Ware New President

New officers were elected at APMU's March meeting in held in Washington. The new officers, their respective companies and telephone numbers are:

    President   Lori Ware       Amway Corporation   (616) 787-4874
    V-President Andy Quay       QVC, Inc.           (610) 701-1031
    Treasurer   Jack Sigman     Nashua Photo, Inc.  (304) 422-6418
    Secretary   Dick Stotler    Loral Corporation   (610) 648-2500

New Labor Contracts Expected

The Postal Service's contracts with its two major labor unions, NALC and APWU, are in the final stages of binding arbitration. Terms of the new contracts should be announced in the near future. Since labor costs represent more than 80 percent of total Postal Service costs, these contracts will significantly affect Postal Service finances, and the timing of the next rate case.

Major Rate Case Expected in 1996

When the Postal Service filed for a 10.3 percent across-the-board rate hike in 1994, it maintained that such an increase would give the Service sufficient additional revenues to last approximately two years. As a result of the rate hikes that took effect last January, for the first nine months of this fiscal year, the Postal Service reports a net income of $1.5 billion (but over $900 million of this is targeted for the recovery of prior years' losses). By 1997, however, the Postal Service could need more money, ergo higher rates. That would necessitate filing another rate case sometime during 1996.

Priority Mail Redesign Effort In Home Stretch

Top postal management is scheduled to receive the Phase One redesign plan for Priority Mail in September, 1995. If the plan passes muster, it will then go to the Board of Governors for final approval and funding in October. The Phase One plan is thought to include both facilities and personnel that will be dedicated to Priority Mail in a number of major cities. Implementation of such a plan would obviously improve accountability for failures in service performance. Whether it would actually improve service remains to be seen. Readers will recall that Priority Mail has no independent measure of end-to-end service performance, so ascertaining whether performance has actually improved will range between difficult and impossible.

Implementation will be divided into phases. The first phase, which will test the concept, could begin this winter. Since acquisition of new facilities is involved, however, it may be months, possibly years, before Priority Mail users will actually see any noticeable improvement. The key to improved service, especially more consistent service, lies with the redesign effort, not reclassification. We plan to follow this effort closely, and keep APMU members informed of progress.

Reclassification Update

The reclassification case for First-Class, second-class regular rate and third-class regular rate mail is proceeding apace. Intervenors filed their case-in-chief on July 27. With respect to the proposed reclassification for second-class, the publishing industry is sharply divided. Solid support comes from some of the largest publishers, who are the chief beneficiaries, while strong opposition has been registered by other, major segments of the publishing industry. Opposition also exists for the First- Class and third-class proposals as formulated by the Postal Service.

Rebuttal testimony is due to be submitted on October 2. Initial briefs and reply briefs are due November 6 and 16, respectively. An opinion and recommended decision by the Postal Rate Commission is expected no later than January 23, 1996, and perhaps before the end of this year. That decision will likely hold important consequences for other reclassification proposals yet to be filed.

At the Postal Forum in Nashville, eight APMU members participated in a focus group discussion centered on possible ways to reclassify Priority Mail; as part of an on-going effort by the Postal Service to get mailers' input. Reclassification studies for Priority Mail are reportedly stalled, which makes it increasingly unlikely that any Priority Mail reclassification filing will occur this year.

In a potentially related matter, the Postal Service on July 18 convened a group of mailers to discuss the possible reclassification of "parcels." Chaired by Pete Zeranski, that group will meet again at the Postal Forum in Philadelphia. At the initial meeting it was stated that Priority Mail parcels will be excluded from the group's deliberations "for now." The difference between rates for Priority Mail and parcel post is only 5 cents in a number of rate cells. Rates for Priority Mail can thus be said to act as a ceiling on parcel post rates. It is therefore reasonable to wonder how far reclassification of parcel post can go without involving Priority Mail. Furthermore, Priority Mail is highly profitable, while parcel post is close to a breakeven operation. Reclassification for parcels is on a slow track, and is not likely to be filed before next July at the earliest.

Sale on Priority Mail $3 Stamps

In a test program now being run at 36 Price-Costco Stores, a package of 10 Priority Mail stamps with a normal retail value of $30 is being offered for $29. A shrink-wrapped package of ten red, white and blue Priority Mail envelopes are strategically placed in the store, and customers receive their stamps at the checkout counter when they pay. The sale started July 17th and is expected to run for six months. These sale items are not available through any Post Office, only at the 36 selected Price-Costco outlets (6 stores in each of 6 regions).

Also on sale at these same outlets are a package of five Express Mail stamps for $51 (normal retail value: $53.75) and rolls of 100 32-cent stamps for $31 (normal retail value: $32). Price-Costco pays the Postal Service full face value for all products, so in effect they are selling postage as a "loss leader" to help build store traffic.

UPS Enters Same-Day Delivery Market

UPS has become a serious player in the same-day delivery market through its acquisition of SonicAir, headquartered in Scottsdale, Arizona. Prior to its acquisition, SonicAir delivered nearly 2,000 packages a day from one city to another - virtually anywhere in the USA - within 4 to 6 hours and with a 99.6 percent on-time delivery record. How does SonicAir consistently accomplish such expeditious service? Interestingly, SonicAir uses commercial airlines - not a hub and spoke network - the same commercial airlines used to fly Priority Mail. The Postal Service should take notice. With over 50,000 domestic flights a day, the commercial air network should enable well over 95 percent of all Priority Mail to be delivered within two days.

Priority Mail Volume Continues to Grow Sharply in FY 1995

Through the first 11 accounting periods in postal fiscal year 1995, total Priority Mail volume was up 12.1 percent over the corresponding period last year. The percentage increase in revenues was slightly greater, up 14.1 percent. The growth rate in the volume of Priority Mail continues to outstrip all other major subclasses. Here are the numbers (volume in millions, and revenue):

                    (1)     (2)     (3)
                    A/P 11  A/P 11  Percent
                    1995    1994    Change

    Volume          727     648     12.2%

    Revenue         $2,559  $2,243  14.1%

    Revenue/piece   $3.52   $3.46   1.7%

The increase in revenue per piece, only 6 cents, reflects three factors: (i) the small change (under 3.5 percent) in the unzoned rates for Priority Mail pieces that weigh up to 5 pounds; (ii) the fact that 95 percent of all Priority Mail weighs less than 5 pounds; and (iii) continued erosion in market share and volume of pieces that weigh more than 5 pounds, owing to the substantial (average 13.7 percent) rate increase imposed on zone-rated pieces over 5 pounds.

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)


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