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Volume IV, No. 2 Spring 1997 Newsletter


Re-engineered Priority Mail Facilities to be Contracted-out

The Postal Service will contract out the operation of the dedicated Priority Mail facilities/network (in the initial phase of the re-engineering project) to Emery Worldwide Airlines of Redwood City, California, the current contractor for the Express Mail airline hub. Emery will be required not only to staff and operate 10 Priority Mail processing plants, but also to provide both airlift capacity and a dedicated ground transportation network (400 new tractor-trailers) within 13 states primarily in the Northeast. The $1.7 billion contract has a 58 month term, and sets a 96.5 percent on-time handling benchmark (with incentives for better performance, and financial accountability for shortfalls), for the sorting, handling, and transportation of 300 million pieces of mail each year. This decision completes an arduous procurement process that took more than eight months. Postal unions previously announced that they will attempt to organize employees at the new facilities.

Parcels Reclassification Case Aborted; Rate Case Imminent?

APMU News previously reported the Postal Service’s filing of its long-awaited parcels reclassification case with the Postal Rate Commission on February 21. Major changes focused on (1) Standard (B) parcel post, where new discounts were proposed for destination entry at SCFs and DDUs; (2) Standard (A) small (under 16 oz) parcels, where a surcharge of 10 cents per piece was proposed; and (3) Standard (B) parcels, which had a 4 cent barcode discount proposed. Another surcharge was proposed for hazardous medical and other materials in all classes, including Priority Mail, as well as an increase in the fee for picking up Priority Mail. As filed, the case had only minor implications for Priority Mail users, however, APMU intervened in the case to protect the interests of Priority Mail users.

On April 14, the Postal Service withdrew its request for a recommended decision in the parcels reclassification case. In its notice to the Commission, the Postal Service stated that it “is currently engaged in an evaluation of its financial situation, together with an assessment of existing schedules of all postal rates and fees. This review may lead to development and preparation of proposals that could be incorporated in a request for a recommended decision on general rate and fee changes.” When the next general rate case is filed, “the specific proposals made in this docket would be considered for inclusion in such a request.”

Previously, on April 11, the Board of Governors had issued its own statement that “the Board will decide within 90 days whether a general change in postage rates will be sought.” The Postal Service gave several reasons for withdrawing the case. It explained that litigating both a general rate case and the parcels reclassification case could overburden its resources. “Moreover, efforts by intervenors (e.g., United Parcel Service) to expand the scope of the instant proceeding, if successful, would require the allocation of additional resources and increase the possibility of inevitable differences between the instant request and proposals currently undergoing review.” The UPS proposal holds major implications for Priority Mail, as discussed below.

UPS Seeks Major Rate Hike for Priority Mail Parcels

On April 4, 10 days before the Postal Service terminated the Parcels Reclassification Case, UPS filed a motion to expand the scope of the parcels case to include proposals to increase Priority Mail parcel rates. The Postal Service's cost allocation calculations for lower weight parcel post sent to higher zones (e.g., cross-country) indicated that the proposed rates for such “rate cells” would be less than the costs incurred. UPS evidently intended to propose significant rate increases, particularly in the unzoned Priority Mail rates (up to five pounds).

UPS noted that “according to the Postal Service's own data, Priority Mail includes approximately 24.6% of all parcels carried by the Postal Service, and First Class Mail includes just under 20% of all parcels.” As noted above, the Postal Service’s proposals had only minor implications for Priority Mail; the same was true of First-Class Mail. UPS criticized the Postal Service’s proposals as a “piecemeal approach” to parcel reform.

UPS observed that Standard (B) rates are calculated not to exceed Priority Mail rates. (Parcel post rates are kept lower than Priority Mail rates because parcel post receives a lower standard of service than Priority Mail.) Therefore, UPS argued that the Postal Service’s decision not to raise Priority Mail rates imposes “artificial constraints on Parcel Post rates” which would cause certain parcel post rates “to be below the cost determined by the Postal Service's own costing methods.” As a result, to ensure that parcel post covers its attributable costs, “the revenue lost as a result of artificially reducing the rates in the cells [affected by Priority Mail rates] is recovered by increasing all other Parcel Post rates above what the Postal Service would otherwise have proposed.”

UPS concluded that the “intimate nexus between the proposed Parcel Post rates and the rates for Priority Mail packages requires the Commission to review the pricing schedules for all packages, especially those sent as Priority Mail.” Priority Mail users are now forewarned, as soon as the rate case is filed, UPS will be back in full force.

Delivery Confirmation Forges Ahead Despite Problems

The delivery confirmation test currently underway requires mailers to apply a peel-off barcode on the package. Upon delivery, the carrier is supposed to peel the label off. After carriers return to the station, labels are scanned into the computer. Trouble is that many carriers forget to remove the barcoded label. Business Mailers Review reports that up to 50 percent of all parcels with delivery confirmation labels are reportedly not scanned under the existing system.

At its regular May meeting, the Board of Governors will be asked to approve funding for over 300,000 hand-held scanners Ä one for every carrier. This will be a major step for the Postal Service. No more peel-off labels. Under the new system, carriers must scan the package when it is delivered. Delivery confirmation, for a fee, was one of the Postal Service proposals in the now-defunct parcel reclassification case. Expect it to resurface in the next rate case.

Priority Mail versus Standard (B)

APMU News readers know the significant contribution that Priority Mail makes to the Postal Service’s profitability and revenues. Nevertheless, we anticipate that, in the next rate case, UPS will try to use Standard (B) as a means to increase already high Priority Mail rates and cost coverages even further. For the record, here are recent data on revenues and profits (in millions).

                                    Revenue Less       1995
               1995      1996       Attributable Cost  Coverage

Priority Mail  $3,035    $3,399     $1,716             229%

Standard (B)   703       708        15                 103%

Postal Reform Bill Hearings Held

On Wednesday April 16, 1997, the Subcommittee on the Postal Service, of the House Committee on Government Reform and Oversight, held hearings on H.R. 22, the Postal Reform Act of 1997. The hearing offered conflicting opinions by leading economists and specialists with a broad knowledge of price cap regulation, antitrust law, and the U.S. Postal Service. The price cap provision received mixed reviews. Chairman John McHugh (R-NY), Ranking Minority Member Chaka Fattah (D-PA/2), Ben Gilman (R-NY/20), Steven C. LaTourette, (R-OH/19), Jeff Sessions (R-TX/5), and Danny Davis (D-IL/7) attended the hearing.

Congressmen Fattah and Davis invited APMU to brief them on its interests in the pending postal reform legislation.

Priority Mail Advertising Referred to Federal Trade Commission

The two most recent issues of APMU News reported on the status of FedEx’s complaint regarding the Postal Service’s Priority Mail advertisements. Recently, action was taken on a Postal Service complaint regarding FedEx advertisements.

Last year, the Postal Service filed a complaint with the National Advertising Division of the Council of Better Business Bureaus, Inc. (“NAD”), claiming that FedEx’s commercials:
falsely disparage Priority Mail and the Postal Service;
assert that Postal Service advertisements promise Saturday delivery — the Postal Service states they do not; and
mistakenly indicate that the Postal Service couldn’t guarantee Saturday delivery, even if the customer pays more — the Postal Service states that guaranteed Saturday delivery is available through Express Mail.

NAD took no action on the Postal Service’s complaint until February 4, 1997, after FedEx’s complaint regarding the Postal Service’s Priority Mail advertisements had been resolved. After FedEx failed to respond to NAD inquiries, NAD referred the Postal Service’s complaint to the Federal Trade Commission on March 6, 1997.

1997 Calendar

APMU Meetings May 21 - New Orleans, Louisiana (at Postal Forum)
September 10 - Boston, Mass. (at Postal Forum)
December Washington, D.C. (to be scheduled)
National Postal Forum May 18-21 - New Orleans, Louisiana
September 7-10 - Boston, Massachusetts
MailCom 1997October 20-23 - Las Vegas, Nevada
MTAC MeetingsJune 10-12 - Washington, D.C.
September 23-25 - Washington, D.C.
December 9-11 - Washington, D.C.
Postal Board of Governors May 5-6 Ä Washington, D.C.
June 2-3 - San Juan, Puerto Rico
August 4-5 - Minneapolis, Minnesota
October 6-7 - Charlotte, North Carolina

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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