Volume V, No. 1 Spring 1998 Newsletter

Deputy Postmaster General Michael Coughlin to Speak at APMU Meeting

Deputy Postmaster General Michael Coughlin will become the highest ranking Postal official ever to speak at an APMU meeting when he addresses members and guests at a breakfast briefing on March 10, 1998, at National Postal Forum, in Las Vegas.

Mr. Coughlin became Deputy Postmaster General on January 6, 1987. He is a 30+ year veteran, having first joined the Postal Service in 1967. He has held a wide variety of positions of responsibility throughout the Postal Service: Assistant PMG for Mail Processing, Regional PMG for the Western Region, Executive Assistant to the PMG, Senior Assistant PMG for Finance, Senior Assistant PMG for Employee and Labor Relations, and Senior Assistant PMG for Operations Support.

UPS Seeks to Add $1.00 to Certain Postal Service Proposed Priority Mail Rates

In the rate case pending before the Postal Rate Commission, United Parcel Service has made three proposals which would add nearly $1.00 beyond the rate increases requested by the Postal Service to Priority Mail parcels utilizing electronic delivery confirmation.

First, UPS has asked the Commission to attribute an additional $300 million in mail processing costs to Priority Mail. APMU members have received a memo entitled U.S. Postal Service Proposals for Priority Mail in Docket No. R97-1 which discussed how postal rates are designed. (Courtesy copies are still available; call APMU at 703-356-6913). The first step in assigning rates to a postal product (like Priority Mail) is the calculation of attributable costs. In the case of Priority Mail, attributable costs are then marked up by almost 100 percent to develop rates. UPS' proposal, therefore, would add nearly $600 million to Priority Mail's target revenue. UPS estimates that this change alone would raise rates for every piece of Priority Mail by an average of 32 percent over current rates. (The rate for two-pound pieces actually could go up to between $4.25 and $4.75 under the UPS proposal, an increase of 42-58 percent.)

However, UPS proposes that the shift of $300 million in attributable mail processing costs only increase the per-piece element of Priority Mail rates. Since the shift in attributable costs does not affect the per-pound element of Priority Mail, the UPS proposal would have a less noticeable effect on heavier pieces.

Second, UPS seeks to impose an additional $0.25 charge for use of Priority Mail Base Delivery Confirmation. As APMU News has previously reported, the Postal Service had already incorporated the cost of using this service electronically into its Priority Mail basic product price (unlike the manual service, Priority Mail Retail Surcharge Delivery Confirmation, which the Postal Service proposes to offer for an additional $0.35).

Third, UPS has proposed that Priority Mail parcels pay a 10 cent surcharge, on the theory that parcels cost more to handle than flats.

Priority Mail Processing Centers Update

Six of the ten Phase I Priority Mail Processing Centers ("PMPCs") are now operational:

Miami, FL; Jacksonville, FL; Orlando, FL; Newark, NJ; Hartford, CT (Springfield, MA); and Rochester, NY. The remaining planned Phase I PMPCs are: Pittsburgh, PA; New York Metro (Long Island); Boston, MA (Nashua, NH); and Philadelphia, PA (New Jersey).

The network will handle all identified Priority Mail that originates and/or destinates in the Northeast and New England (parts of West Virginia, all of Pennsylvania, all of Delaware and all states to the north of those) and parts of the Southeast (southeastern Georgia, the southernmost tip of South Carolina, and Florida except for the western panhandle).

Priority Mail is Big Business

Priority Mail is a major Postal Service product. Final data for fiscal year 1997, released in January, show that Priority Mail revenues, at $3.9 billion, exceeded all revenues derived from all categories of Periodicals, and all categories of Standard B. Here are the numbers (in millions):

In terms of volume and weight, Priority Mail is relatively small potatoes when compared with Periodicals and parcels (see columns 1 and 2). However, in terms of contribution to the Postal Service's institutional costs (overhead), or "operating profit," Priority Mail comes in as a heavyweight. In 1997 the operating profit from Priority Mail was greater than the operating profit of from all postal products (except First-Class and Standard A Mail) combined.

The trend continues in FY 1998. Through accounting period 4 of this fiscal year, Priority Mail revenues are up 14.6 percent over the same period last year; volume is up 15.2 percent.

Postal Service Remains Profitable

The Postal Service is prospering. The most recent data (Accounting Period 4, PFY 1998) show, year-to-date, a revenue surplus that is $83.2 million more than budgeted (and $299.4 million more than the same period last year) while expenditures are $265.6 million less than budgeted (and only $257.6 million more than the same period last year).

According to the Postal Service's 1997 Annual Report, total operating expenses for Government Fiscal Year ("GFY") 1997 were $54.9 billion, an increase of $1.8 billion (and 3.4 percent) over GFY 1996. GFY 1997 revenues were also $1.8 billion over GFY 1996. The slower than expected increases in postal expenditures, combined with the unexpected profitability of the Postal Service in 1997, has led the Postal Rate Commission to request the Postal Service Board of Governors' agreement to extend the rate case for three additional months, and use 1997 rather than 1996 data to develop the new rates. (A copy of this request from the Postal Rate Commission is being provided to APMU members).

Postmaster General Runyon's Comments Appear in Rate Case

Several intervenors in the current rate case have cited comments by soon-departing Postmaster General Marvin Runyon expressing delight at the demise of a competitor, Publishers Express, as demonstrating the Postal Service's evolution from a public service agency to an aggressive competitor.

Publishers Express had been created by Time-Warner in the early 1990s as an alternative delivery service for subscription magazines. However, two weeks following the Postal Rate Commission's Opinion & Recommended Decision in the omnibus reclassification case, Docket No. MC95-1, Time-Warner announced that Publishers Express would cease operations.

Later that month, Postmaster General Runyon expressed his delight before the National Association of Postmasters in the United States, claiming that the Postal Service had "run them out of business," demonstrating that "when we get our act together, we can be one hell of a competitor." These intervenors questioned whether these comments were consistent with the public service responsibilities of the Postal Service.

Moving Right Along...

Congratulations to our member representatives: Andy Quay, has been promoted to Vice President of Transportation & Logistics at QVC Network; and Dave MacDonald, has been promoted to Operations/Technical Director at Mystic Color Lab.

Thomas Sharkey, the Postal Service's pricing economist with jurisdiction over Priority Mail/Express Mail (and the Postal Service's Priority Mail/Express Mail rate design witness in the current rate case) has announced his resignation from the Postal Service after 24 years of employment. His career has run the entire gauntlet, serving as a distribution clerk, supervisor, and accounts payable technician in the New York Bulk and Foreign Mail Center, a Cost Systems Analyst, and a Principal Economist. In October 1989, he became manager of the Revenue and Volume Statistics Branch. In November 1992, he joined the Pricing team in Marketing. Tom will be moving on to a position with the U.S. General Accounting Office (GAO).

1998 Calendar

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