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Volume III, No. 4 Fall 1996 Newsletter

Successful Ad Campaign Drives Double-digit Increase In Priority Mail Volume

Since last March, the Postal Service has promoted Priority Mail with an aggressive advertising campaign, costing more than $20 million. The ads compare the cost and service of Priority Mail to the two-day services offered by FedEx and United Parcel Service. Results to date have been healthy double-digit percentage increases in volume over comparable periods last year. Despite protests from competitors, the advertising campaign is going ahead full steam.

FedEx Sues Postal Service Over Priority Mail Advertising

Federal Express Corporation filed a lawsuit against the Postal Service in Federal District Court in Memphis in early November. The suit accuses the Postal Service of false and misleading advertising and unfair competition with respect to its advertising campaign for Priority Mail and Global Priority Mail. Federal Express seeks a permanent injunction against the ad campaign, as well as unspecified monetary damages. The Federal Express complaint alleges (1) that Priority Mail is not comparable to the FedEx second-day service because, for example, FedEx's second-day service has a state-of-the-art track-and- trace system, as well as a guaranteed delivery date (or money refunded), whereas Priority Mail offers neither, and (2) that the Postal Service ad campaign totally obscures these important qualitative differences.

The Postal Service, for its part, claims that all ads were fully checked for accuracy by its advertising agency, Foot, Cone and Belding, a unit of True North, and it believes that all claims in the ads are true and substantiated.

Separately, the National Advertising Division ("NAD") of the Council of Better Business Bureaus requested that the Postal Service modify its advertisements to reflect the fact that Priority Mail service is "quite different" from the FedEx and UPS services referred to in the Postal Service's advertisements. Specifically, NAD found that the Postal Service advertisements lack material information, that the comparisons are neither truthful nor accurate, and that the comparitive claims made by the Postal Service are "potentially misleading." The Postal Service appealed NAD's findings to the National Advertising Review Board, a watchdog panel that is part of the advertising industry's self-regulation effort. It is expected that the Review Board will meet to consider the matter in January, well before the Federal Express lawsuit will be argued in court.

United Parcel Service has remained on the sidelines of the lawsuit, considering its options, which include filing a friend of the court brief on behalf of Federal Express. It has, however, lodged complaints with the TV networks running the ads for Priority Mail.

Delivery Confirmation Now Available For Priority Mail Free

The Postal Service is now testing delivery confirmation for Priority Mail, at no cost to mailers. This test is being conducted on a nationwide basis; i.e., it is not limited to Florida, as was the revious track-and-trace-test. To participate, at the time of mailing mailers must (i) supply the Postal Service with an electronic manifest (this serves as a substitute for scanning each piece individually into the system), (ii) have a minimum of 500 pieces, and (ii) apply on each piece a barcoded label that can be peeled off by the letter carrier. Upon the carrier's return to the station, the barcode is then scanned into a computer (the system is similar to that used to report on delivery of Express Mail). Within 24 hours of delivery the sender can access delivery data via direct dial-in or through a special web site on the Internet.

To date, demand for delivery confirmation is described by a Postal Service spokesperson as "overwhelming." Any Priority Mail user interested in obtaining proof of delivery and participating in the test should contact Judy Mannings, at (202) 268-8135.

This low-tech form of delivery confirmation is viewed by the Postal Service as the first phase of implementing track-and-trace. In the next phase, hand scanners will be procured for carriers, and subsequent phases will enable Priority Mail pieces to be scanned at various points as they move through the network.

Bids Due To Operate New, Dedicated Priority Mail Facilities

As reported in previous issues of APMU News, the Postal Service requested potential operators of Priority Mail facilities to submit a statement of qualifications. Seven firms were qualified and invited to respond to specifications contained in a formal Request for Proposal. Only four firms showed up for the bidder's conference, however. Detailed bids are due December 10. The Postal Service hopes to award a contract by the end of February.

Postal unions are reportedly up in arms over the mere concept of inviting proposals for outsiders to operate mail processing facilities. And the Postal Service has not firmly committed itself to making any award. After evaluating the bids, management will recommend to the Governors whether to go forward and contract with the private sector, or instead staff and operate the new dedicated Priority Mail facilities itself.

Limited Priority Mail Reclassification Case Said to Be Near

As reported in previous issues of APMU News, the Postal Service continues to prepare a reclassification case described generally as "Expedited/Parcels." At a meeting with parcel shippers in October, the Postal Service stated that the only change planned for Priority Mail is to rezone rates for 3- to 5-pound pieces, to be competitive with the new UPS zoned rates for second-day delivery.

Assertedly, no other Priority Mail rates will be changed, and the newly zoned rates for 3- to 5-pound pieces will be revenue neutral; that is, increased rates to more distant zones (i.e., zones 6-8) will be offset by rate decreases to nearby zones (i.e., zones 2-4). Consideration of this case, tentatively scheduled to be on the Governors' agenda for their December meeting, has now been postponed, presumably to January.

APMU Comments On New 2-Dimensional Code

The Postal Service is pushing to implement its new Information Based Indicia Program ("IBIP"). The primary purpose of the program, for now at least, is to curb fraudulent use of postage meters. This new system, which would allow mailers to print the meter imprint with personal computers and basic laser print technology, already has been dubbed the "ugly" meter imprint. On November 8, APMU submitted comments in response to a Federal Register notice. APMU made the following points: (1) the IBIP program is extremely complex, and more analysis is needed with respect to flats and parcels of the type commonly found in Priority Mail; (2) the program could cause mailers to shoulder substantial costs that far exceed any losses the Postal Service may be incurring through meter fraud; (3) the technology is not fully developed and implementation may involve serious conversion problems; and (4) to date, the program lacks adequate consultation with mailers.

Further, APMU recommended that the Postal Service extend the comment period at least until January 27, 1997, the date set for comments on the IBIP host system specification. Any APMU member that desires more information on IBIP, or that has an interest in furnishing the Postal Service with additional comments concerning IBIP, can contact the APMU office at (703) 356-6913 for additional information.

Postal Service Reports Near-Record Profit for FY 1996

At the Board of Governors meeting on October 8, 1996, Postmaster General Runyon stated "We now expect to end the fiscal year with a $1.5 billion net income, second best in postal history."

These results were achieved through tight containment of labor costs, in large degree through extensive use of casual and transitional workers, whose pay scale is significantly less than regular, full-time postal employees. This use of casual and transitional workers has triggered a lawsuit by Postal unions, which allege that the number of such employees exceeds the allowable percentage specified in their contract. Total Postal Service employment is up 1.4 percent over last year, while total volume is up only 0.6 percent. It would appear that few significant productivity gains have yet been achieved as a result of the extensive reclassification that took effect last July.

Rate Case Outlook

As reported in the last issue of APMU News, it still appears that the Postal Service will need to file a rate case sometime during 1997, probably in the spring, but possibly as late as September, in order to comply with the Board of Governors resolution to rebuild equity and not operate at a deficit. Should the filing occur as expected, rates would increase about 12 months thereafter, in 1998.

Canada Post Report

After conducting extensive hearings throughout Canada, the Canada Post Mandate Review has released a major report that could have an important impact on the future of the Canada Post Corporation ("CPC"). In brief, the Review found that (1) CPC has a mandate to provide universal service at uniform rates, (2) the monopoly on letter mail is necessary in order for CPC to continue providing that core service, and (3) allowing a government agency with a state-sponsored monopoly to engage in unfettered competition against the private sector results not only in inherent and inescapable conflicts of interest, but also diverts management attention from its core undertaking, which is providing high quality mail service. Accordingly, the Review recommends that CPC withdraw from all competitive activities which the private sector is capable of providing. (A copy of the Review has been sent to all APMU members.)

In PMG Runyon's major drive for legislative reform, he has sought more freedom to price competitively and compete in other ways with the private sector, while claiming that the Postal Service's monopoly is necessary and must be kept intact. In Canada, however, the recommendation of the Review has gone in the opposite direction, saying that competition by CPC is not necessary and is a mistake.

Personnel Changes in Shinnebarger's Shop

George Hurst, the ebullient Priority Mail Manager, is on an extended detail. His shoes are being filled by Richard Sherrill, who can be reached at 202-268-4513

Express Shipments: A Growing Share of North American Air Cargo Market

According to the 1996/1997 World Air Cargo Forecast, express carriers now account for 59.4 percent of the North American air cargo market. Moreover, their share is expected to increase as manufacturers and shippers integrate more time-definite transportation into their operations, and as scheduled airlines reduce cargo capacity. According to this report, express carriers have expanded their delivery offerings from simple overnight or second-day delivery to include choices such as early next morning, next afternoon, or third-day delivery. Shippers who have become accustomed to the speed and reliability of overnight delivery may now choose slightly less speed but the same reliability at a discount price. Some shippers are finding that the lower price of a second-day or third-day delivery is suited to their transportation budgets. As a result, the growth in "deferred" shipments (next afternoon or later) has been faster in recent years than the growth in "overnight" shipments.

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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