Volume VI, No. 1 January 1999 Newsletter

Priority Mail: A Heavyweight Contributor to Postal Profits

Priority Mail continues to increase its role as a major Postal Service product. Final (revised) RPW data for fiscal year 1998, released in December, show that Priority Mail revenues, nearly $4.2 billion, exceeded total revenues derived from all categories of Periodicals and all categories of Standard B combined. Here are the numbers (in millions):

Priority Mail's volume and weight are relatively small in comparison to the combined totals for Periodicals and Standard B (see columns 2 and 3). However, in terms of contribution to the Postal Service's institutional costs or "operating profit," Priority Mail is a heavyweight.

Year-to-year growth rates are shown in the bottom half of the table. Priority Mail's relatively high growth rate has positive implications for the Postal Service's bottom line.

Postal Reform Bill Re-Introduced

Rep. John McHugh (R-NY), Chairman of the House Subcommittee on the Postal Service, re-introduced his postal reform bill, H.R. 22, on January 6, 1999 (the re-introduced bill has the same number as in the previous Congress). H.R. 22 is identical to the bill reported to the full House Government Reform and Oversight Committee last September, before the 105th Congress adjourned. The bill is co-sponsored by Rep. Dan Burton (R-IN), Chairman of the full committee.

H.R. 22 would alter the way that postal rates are set and allow the Postal Service more freedom and flexibility to compete in other enterprises. Rep. McHugh's subcommittee plans to hold two days of hearings on February 11 and March 3, then mark up the bill in late March or early April and send it to the full committee. Any interested party is invited to submit written comments to the subcommittee on or before either hearing date. The Postal Service has already submitted an initial list of proposed amendments, with yet more proposals said to be forthcoming. The Postal Service amendments seek somewhat more pricing flexibility than was contained in the version that emerged in the last session. The Postal Service proposals, along with others received by the subcommittee, are available on the subcommittee's website: http//www.House.Gov/Reform/Postal/Index.htm.

Proponents of H.R. 22 are expected to make an all-out effort to obtain passage before the 106th Congress adjourns. Under current House rules, Rep. McHugh may not continue as Chairman of the House Subcommittee on Postal Service in the 107th Congress, because he will have served three consecutive terms as chairman. Thus, the next Congress likely will have a new subcommittee chairman, even if Republicans retain control of the House.

In a separate, unrelated legislative move, Rep. Duncan Hunter (R-CA) reintroduced his bill (H.R. 198) to prevent the Postal Service from entering new business areas.

Postal Service Reports First Quarter Profit

Postmaster General Bill Henderson reported to the Board of Governors that the Postal Service had an operating profit of $611 million in the first quarter of FY 1999 (ended December 4th). The reported profit was down from $976 million in the first quarter of FY 1998, but 12 percent over the $549 million recorded in the first quarter of FY 1997. First quarter profits do not reflect the higher rates which took effect on January 10th.

Update on Appeal of Omnibus Rate Case

The Governors' decision in Docket No. R97-1, the recently concluded postal rate case, has been appealed by three parties: United Parcel Service (UPS), the Alliance of Nonprofit Mailers, and Niagara Telephone Co. UPS seeks an increase in the Priority Mail markup and rates. (See the Fall and Winter 1998 issues of APMU News for a discussion of other issues raised.) In response to petitioners' briefs filed November 16, the Postal Service filed its brief on January 8.

The Postal Service defended the Priority Mail rates approved by the Governors. One of the key arguments is that the Postal Rate Commission appropriately considered all relevant statutory criteria when recommending Priority Mail rates and associated cost coverage levels.

Key dates for the remainder of that appeal are as follows.

Consumers Union Tests Expedited Delivery Performance

The December 1998 issue of Consumer Reports contains results of a test which Consumers Union conducted on expedited delivery performance: USPS vs. FedEx vs. UPS. For second-day air, FedEx had 97 percent on-time performance, versus 90 percent for UPS and 60 percent for all packages sent via Priority Mail. Consumer Reports found that, for distances over 1,500 miles, Priority Mail's two-day performance dipped to 35 percent. At the same time, Priority Mail received the highest mark for gentle handling, and was recommended for fragile packages.

The reporter visited the Postal Service's mail facility in Capitol Heights, MD, the FedEx super hub at Memphis, and the UPS terminal in New York City. Although noting that Postal Service headquarters has "a room with giant maps to track weather, video screens to follow flights, and sophisticated computer workstations," the reporter commented that at the general mail facility, "procedures seem low-tech indeed." This comment reflects the low level of investment in facilities and equipment -- as well as track-and-trace technology -- by the Postal Service in comparison with FedEx and UPS.

APWU Ratifies 2-Year Contract with Postal Service

The Postal Service's contracts with its largest unions expired at the end of November. Two unions, the American Postal Workers Union (APWU), which represents 340,000 clerks, and a smaller union, the National Postal Mail Handlers Union, have voted to ratify the contract agreed to by union and Postal Service negotiators. Following are some key provisions of the contract:

It is estimated that the contracts with APWU and the Mail Handlers will cost the Postal Service an additional $1 billion in each year of the contract. Although the amounts of the pay increase are significant, they would not appear to "break the bank." Still, they will accelerate filing of the next omnibus rate case.

Meanwhile, negotiations with the National Association of Letter Carriers (NALC), which represents 315,000 city carriers, are reported to have resumed. These talks had been recessed pending the outcome of the vote by APWU and the Mail Handlers Union.

The last two negotiations with Postal Service unions, in 1990 and 1994, were settled by arbitration. This was the first settlement negotiated with the APWU in more than a decade.

Maximum Weight of First-Class Mail Now 13 Ounces

The implementation of the new classification and rate schedule on January 10, 1999, raised the maximum weight of First-Class Mail from 11 to 13 ounces. Therefore, Priority Mail serves as "heavyweight First-Class Mail" for packages over 13 ounces.

1999 Calendar

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