ORDER NO. 1369

UNITED STATES OF AMERICA

POSTAL RATE COMMISSION

WASHINGTON, DC 20268-0001

Before Commissioners: George Omas, Chairman;

> Dana B. Covington, Sr., Vice Chairman;
>
> Ruth Y. Goldway; and Tony Hammond

International Mail Report Docket No. IM2003-1

SECOND NOTICE OF INTERNATIONAL MAIL

DATA REQUIREMENTS FOR FY 2002

(Issued April 28, 2003)

In order to help the Commission prepare the report required by 39 U.S.C.
section 3663, on the costs, volumes, and revenues of the Postal
Service's international mail services, the Service is requested to
provide the information for item 1 on or before May 1, 2003 and for
items 2 through 10 on or before May 9, 2003.

1.  In response to Item 5 of the First Notice, the Postal Service
    acknowledged that in formulating the rate increases for
    international mail that went into effect January 2001, it had used
    FY 1999 as the base year and FY 2002 as the test year. The Service
    further acknowledged that it had explicitly taken into account
    changes in volume, costs, and revenues, and had derived average
    revenue per piece estimates for the test year. Item 5 of the First
    Notice also requested the percentage rate increases for each
    category, but they were not included in the Postal Service's
    response. Please provide them. The Commission notes that the
    percentage rate increases for Economy Parcels (15.5 percent) and Air
    Parcels (1.6 percent) were provided in the response to item 4 of the
    First Notice.

2.  This item concerns Inbound Express.

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a.  It is the Commission's understanding that the Postal Service
    negotiates rates for inbound parcel post with each foreign postal
    administration and that there were 189 of these bi-lateral
    agreements in FY 2002. Please confirm this understanding or modify
    it as appropriate.

b.  The cost coverage for inbound Express decreased substantially from
    greater than 100 percent to less than 100 percent. Unit revenue
    changed marginally between the two periods, while unit attributable
    costs increased substantially. The increase in unit cost is
    traceable to processing and domestic transportation. Please explain
    the reasons underlying these cost increases. Does the Postal Service
    expect cost coverage to remain below 100 percent in FY 2003? If not,
    why not? If so, does the Postal Service anticipate negotiating new
    bilateral rate agreements? If not, why not?

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3.  This item concerns Inbound Air Parcel Post.

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a.  It is the Commission's understanding that the Postal Service
    publishes rates for inbound Air Parcel Post that differ by country
    or country group. It is also the Commission's understanding that by
    the term "published," the Postal Service means these rates are not
    negotiated. Please confirm these understandings or modify them as
    appropriate.

b.  The cost coverage for inbound Air Parcel Post decreased
    substantially from greater than 100 percent to less than 100
    percent. Unit revenue changed marginally between the two periods,
    while unit attributable costs increased substantially. Both delivery
    and domestic transportation unit costs increased significantly, but
    the latter increase accounts for the lion's share. Please explain
    the reasons underlying these cost increases. Does the Postal Service
    expect cost coverage to remain below 100 percent in FY 2003? If not,
    why not? If so, does the Postal Service anticipate increasing the
    published rates? If not, why not?

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4.  The unit revenue and unit attributable cost for Global Direct
    Inbound increased substantially between FY 2001 and FY 2002. Please
    discuss the reasons for these increases.

5.  According to the Postal Service's response to the First Notice, item
    2, the terminal dues received by the Service for inbound LC/AO mail
    from Canada did not cover the corresponding attributable costs in
    FY 2002. Does the Postal Service plan to negotiate a more
    remunerative bi-lateral agreement with Canada? If not, why not? Does
    the Postal Service have an alternative plan for increasing the cost
    coverage above 100 percent? If so, please explain.

6.  According to the Summary Description and Documentation, Volume 1,
    Part 2, p. 9-1, "Global Direct Outbound revenue and volume data for
    Canada are extracted from the PERMIT system on an AP basis." There
    is no mention of Global Direct Outbound mail destined for other
    countries. Is Canada the only country receiving this category of
    international mail? If so, is this category designed only for mail
    going to Canada? If so, what is the rationale?

7.  The percentage change in the CPI-U between FY 2001and FY 2002 was
    1.5 percent. Between FY 2001 and FY 2002, the following outbound
    categories experienced increases in unit attributable costs greater
    than 1.5 percent: (1) Economy Letters and Letter Packages; (2)
    Periodicals; (3) Economy Parcel Post; (4) Air Letters and Letter
    Packages; (5) Air Cards; (6) Global Priority Mail; (7) Air Parcel
    Post; and (8) Global Express Mail.

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a.  For Economy Letters, most of the cost increase is traceable to
    processing, other nontransportation, and settlement. Please discuss
    the underlying causes of these increases and whether these increases
    are reasonable.

b.  For Periodicals, most of the cost increase is traceable to
    processing, other nontransportation, and domestic transportation.
    Please discuss the underlying causes of these increases and whether
    these increases are reasonable.

c.  For Economy Parcels, most of the cost increase is traceable to
    processing, other nontransportation, and domestic transportation.
    Please discuss the underlying causes of these increases and whether
    these increases are reasonable.

d.  For Air Letters, most of the cost increase is traceable to other
    nontransportation, domestic transportation, and international
    transportation. Please discuss the underlying causes of these
    increases and whether these increases are reasonable.

e.  For Air Cards, most of the cost increase is traceable to processing.
    Please discuss the underlying causes of this increase and whether
    the increase is reasonable.

f.  For Global Priority Mail, most of the cost increase is traceable to
    international transportation and settlement. Please discuss the
    underlying causes of these increases and whether these increases are
    reasonable.

g.  For Air Parcel Post, most of the cost increase is traceable to
    international transportation. Please discuss the underlying causes
    of this increase and whether the increase is reasonable.

h.  For Global Express Mail, most of the cost increase is traceable to
    domestic transportation and international transportation. Please
    discuss the underlying causes of these increases and whether these
    increases are reasonable.

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8.  According to page 9-1 of the Summary Description and Documentation,
    Volume 1, Part 1, "the International Business Unit provides the
    revenue, pieces, and weight for Global Express Guaranteed (GXG) on
    an AP basis." In Docket No. IM2002-1, the Postal Service stated that
    these data came from "the GXG database." Does the difference in the
    description of the source of these data indicate a difference in the
    source of these data?

9.  Based on the data the Postal Service provided in response to the
    First Notice, Item 1b, the ICMs for Express Mail, Air Parcel Post,
    and Air Letters produced cost coverages for each service that are
    less than 100 percent. Please explain the reason for the low cost
    coverages for each of these services. Please explain any steps the
    Postal Service is taking or will take to raise the cost coverages
    above the 100 percent level.

10. Please provide the supporting spreadsheets for Rural Carriers in
    cost segment 10.

It is ordered:

The Postal Service is directed to provide item 1 on or before May 1,
2003 and items 2 through 10 on or before May 9, 2003.

By the Commission.

(SEAL)

Steven W. Williams

Secretary