Volume V, No. 3 Fall 1998 Newsletter

Governors' Decision in Rate Case Appealed by Several Parties

Following the Governors' decision in the recently-concluded postal rate case, appeals were filed in the U. S. Court of Appeals for Washington, DC, by four parties: United Parcel Service (UPS), the Alliance of Nonprofit Mailers (ANM), Niagara Telephone Co., and four photo-finishers acting jointly (District Photo, Nashua Photo, Mystic Color Lab, and Seattle FilmWorks).

On August 11, UPS identified three issues that it plans to raise in its appeal:

All three issues raised by UPS could affect Priority Mail rates. Addition of Alaska air transportation costs would increase parcel post costs, and therefore rates, substantially. Parcel post rates act as a floor under Priority Mail rates. UPS' preferred method for estimating incremental costs would increase the attributable costs of both Express and Priority Mail. By raising the third issue, UPS seeks to raise the markup over the attributable costs of Priority Mail.

ANM charges that the rate increases scheduled for January 10, 1999 are illegal because during the "test year" of the rate case (the current fiscal year) the Postal Service will achieve a $1 billion surplus at current rates. Therefore, no rate increase was necessary to achieve the statutory break-even requirement. ANM's appeal thus could affect all mailers. ANM has also requested that the court hear its appeal on an expedited basis.

Parcel Post Rates Remanded

The Governors' decision in the recent rate case requested that the Commission reconsider the recommended parcel post rates for DDU entry. This request by the Governors was triggered by UPS' complaint that the minimum rate for 2-pound parcels was set arbitrarily low. UPS and CTC, both parties to the rate proceedings, filed comments in late July, and reply comments were filed on August 11. The Commission is expected to issue a further recommended decision soon. As discussed above, Priority Mail rates are calculated (in part) based upon parcel post rates.

Postal Service Budget -- An Unexpected Profitable Year

The Postal Service traditionally budgets for substantial losses in the last four accounting periods of the year, A/Ps 10-13. In recent years, however, actual Postal Service performance has been far better than forecasted. This year is no exception. For A/Ps 10 and 11, the Postal Service budgeted for a loss of $394.4 million, while its actual losses were only $323.8 million, which was $70.6 million better than planned. Through A/P 11, the Postal Service reported a cumulative FY 98 profit of $1.1 billion. In the recent rate case, the Postal Service had projected that it would lose $1.6 billion this fiscal year if it did not get a rate increase.

Through A/P 11, comparing FY 98 with FY 97 data, FY 98 revenues were up 3.8 percent, mail volume was up 3.5 percent, and the number of career employees was up 2.6 percent.

Priority Mail Volume Continues to Grow Sharply in FY 1998

A comparison between Priority Mail volume and revenues through FY 98 A/P 11 and FY 97 A/P 11 shows that FY 98 volume and revenues were both up more than 13 percent over the corresponding period of FY 97. The growth rate of Priority Mail continues to outstrip all other major subclasses. Here are the numbers (which, except for the per piece figures, are in millions):

Deadline Set for Priority Mail Delivery Confirmation Service

According to John Kelly, Vice President for Expedited and Package Services, the target date for formal inauguration of nationwide delivery confirmation for Priority Mail is March 13, 1999. The computer and communications systems are already up and running, and the Postal Service is acquiring and deploying to its entire delivery force some 300,000 handheld scanners. To date, about 95,000 scanners have been deployed. A number of firms already are participating in electronic confirmation on a trial basis. The Postal Service is seeking more mailers to volunteer; anyone interested should call 202-268-5555. Some people see nationwide delivery confirmation as the first step toward development of a major information infrastructure for the Postal Service.

Postal Service Union Contracts Due to Expire At Start of Christmas Rush

The Postal Service's contracts with its two largest unions expire at the end of November. Formal negotiations got underway in late August with the American Postal Workers Union (APWU), which represents 340,000 clerks, and the National Association of Letter Carriers (NALC), which represents 315,000 city carriers. A smaller union, the National Postal Mail Handlers Union, is also involved in the negotiations.

Despite the investment in automation, 80 percent of total Postal Service costs are still labor-related. Consequently, any increase in labor costs will quickly turn the Postal Service's surplus into deficit, unless offset by productivity increases. The outcome of the current negotiations thus will be a major factor in determining future rate stability.

Both the Postal Service and the unions have stated publicly that they would like to see a settlement that is negotiated rather than arbitrated. However, in view of the multi-billion dollar surplus accumulated by the Postal Service during the last four years, the unions' desire for a significant increase in wages may will test the mettle of new PMG Henderson.

Progress Report on PMPC Network

All ten Priority Mail Processing Centers under contract with Emery are now reported to be fully operational. Within the network, Emery is said to be meeting its agreed-upon schedule at least 93 percent of the time. At present, the PMPC network is still being evaluated, and the Postal Service has no immediate plans to extend the network to any other area.

USPS Can Be Sued Over Advertising Claims

In late July, a federal appeals court ruled that if the Postal Service wants to act like a private business and attack competitors in televised ads, it cannot claim a federal agency's protection against lawsuits. The U.S. Court of Appeals for the Sixth Circuit kept FedEx's lawsuit alive. FedEx claims that it was damaged by Postal Service ads criticizing its express mail delivery services. A three-judge panel of the appeals court unanimously upheld a lower court's March 1997 decision rejecting the Postal Service's attempt to dismiss the suit. The court took no position on whether FedEx's substantive claims are valid.

In 1995, the Postal Service began its national TV ad campaign to win overnight delivery business from FedEx and other competitors. FedEx sued in 1996, seeking a court order to stop what the company said are television commercials that unfairly portray the Postal Service's Priority Mail delivery service as better than the FedEx 2-day service. FedEx said its services, though more expensive, offer superior package tracking and guarantees. The lawsuit also asks for unspecified monetary damages.

Congressman McHugh's Postal Reform Bill May Reach House Floor

A redraft of H.R. 22, Rep. William McHugh's (R-NY) postal reform bill, had not been released when Congress adjourned for its August recess. The redraft is expected to reflect comments submitted to the Postal Service Subcommittee by interested parties during the H.R. 22 hearings. Although H.R. 22 may reach the House floor this year, the Senate is not expected to take any action. A similar bill will likely be introduced in the new Congress next year.

Postal Service Still Represents U.S. at Universal Postal Union

At one point the House Treasury-Postal Appropriations Bill would have authorized the U.S. Trade Representative, rather than the Postal Service, to negotiate postal agreements with foreign governments at the Universal Postal Union (UPU) in Geneva. This change is favored by competitors of the Postal Service, such as FedEx and UPS, which feel that the Postal Service cannot and does not represent their interests fairly at the UPU. As finally passed by the House, however, the Postal Service's role was left unchanged.

Status of Priority Mail End-to-End Performance Measurement

The Postal Service's external Priority Mail end-to-end performance system ("PETE"), managed by Price Waterhouse, is operational. However, the only public information from PETE is summary data in the Postal Service's annual comprehensive report to Congress. Priority Mail users must therefore assess Priority Mail performance on the basis of their own experience.

1998 Calendar

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