ANNUAL COMPLIANCE

DETERMINATION REPORT

FISCAL YEAR 2013

Postal Regulatory Commission

Submitted 3/27/2014 3:42:21 PM

Filing ID: 89500

Accepted 3/27/2014
901 New York Avenue NW, Suite 200 • Washington, DC 20268-0001

(202) 789-6800 • www.prc.gov

Ruth Y. Goldway, Chairman

Mark Acton, Vice Chairman

Robert G. Taub, Commissioner

POSTAL REGULATORY COMMISSION 

MESSAGE FROM THE 

CHAIRMAN

On behalf of the Postal Regulatory Commission, I am pleased to present this Annual Compliance 

Determination (ACD) reviewing the U.S. Postal Service’s compliance with pricing and service 

performance standards for Fiscal Year 2013. The Commission is issuing two additional reports this 

year: a separate Financial Report and a report analyzing the Postal Service’s performance plans and 

program performance.

In part due to regulatory oversight, the Postal Service has shown improvement in important areas. 

The Commission approved the use of Intelligent Mail barcodes (IMb) for service measurement in 

2008 and has been urging robust implementation of IMb during the last six years. It is encouraging 

to see that service performance has improved for many categories as the Postal Service has 

moved more aggressively to implement broader use of IMb, and with it the ability to track mail 

and correct problems. Competitive products are providing higher overall cost coverage than in 

FY 2012. Competitive products are also making a larger contribution than in FY 2012, more than 

the Commission-mandated minimum. The Commission welcomes and consistently has approved 

innovations submitted by the Postal Service including new negotiated service agreements and market 

tests of experimental products. Furthermore, both the Periodicals Class and the Standard Flats product 

have reduced their deficits and narrowed their cost coverage shortfalls. 

However, this ACD also points out three major recurring compliance challenges that the Postal Service 

should address in the coming year.

First, this year a sizable number of the Postal Service’s workshare discounts were not in compliance 

with the current law, exceeding the avoided cost savings from worksharing, often without a statutory 

exception. The Postal Service’s financial position is harmed by losses due to discounts that exceed 

the costs avoided by the Postal Service when mailers prepare, sort and transport their mail.

Ensuring that worksharing discounts comply with the law is an important part of the Commission’s 

statutory responsibilities. The ACD identifies at least two ways in which the Postal Service could 

address this recurring compliance issue. The Commission is committed to supporting Postal Service 

efforts to resolve this situation.

Losses in Standard Flats are a second recurring concern. Our ACD commends the Postal Service’s 

progress toward reducing its cost coverage shortfall as it continues with annual incremental aboveCPI price increases for Standard Flats, as directed by the Commission’s FY 2010 ACD. However, to close 

the gap for Standard Flats, the Postal Service will be aided, as noted in the FY 2010 ACD, by “efforts to 

streamline operations, to capture efficiency and reduce costs.” The Commission discusses in this ACD 
 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

that the Postal Service cost savings programs for Flats processing “should have specific, measurable 

targets by which the benefits of the program can be evaluated.”

Third, the Postal Service faces a daunting challenge in achieving full cost coverage for the Periodicals 

Class. The continuation of inefficient pricing signals, including the various charges to mailers for 

preparation options such as pallets and bundles, add to its shortfall. Inefficient pricing signals 

discourage mail preparation which would reduce Postal Service costs. The Commission once again 

calls on the Postal Service to use its pricing flexibility within the price cap to mitigate the revenue 

shortfall for Periodicals.

The Commission is charged with assuring that the Postal Service maintains adequate levels of service. 

Maintaining service performance, customer access, and customer satisfaction are important for any 

service provider or business, but are of paramount importance for a monopoly and a government 

entity required to provide an essential communications network for the Nation. Overall, the Postal 

Service is measuring delivery performance for an increasing fraction of mail, and this provides 

increased visibility and service quality assessment. 

However, two specific areas still require improvement. One is resolving the large number of post 

office retail facilities that remain under emergency suspension for prolonged periods of time. The 

other is satisfactory and prompt resolution of customer complaints. Customers gain confidence in the 

Postal Service when they know their concerns are being addressed, and are more likely to continue to 

use the mail.

I wish to thank my colleagues, Vice Chairman Mark Acton and Commissioner Robert Taub, for their 

valuable work and contributions to this report. Along with my fellow Commissioners, I want to 

recognize the Commission staff’s outstanding efforts and dedication to our work.

Ruth Y. Goldway

Chairman
POSTAL REGULATORY COMMISSION 

TABLE OF 

CONTENTS

Message from the Chairman 

Executive Summary .................................................................................................................................................................

Principal Findings ......................................................................................................................................................

Chapter 1: Introduction..........................................................................................................................................................

Statutory Context ......................................................................................................................................................

Timeline and Review of Report ..........................................................................................................................

Focus of the ACR ......................................................................................................................................................

Other Reports ...........................................................................................................................................................

Commission Responsibilities...............................................................................................................................

Procedural History....................................................................................................................................................

Methodology Changes...........................................................................................................................................

Product Analysis ......................................................................................................................................................

Service Performance...............................................................................................................................................

Confidentiality ..........................................................................................................................................................

Requests for Additional Information.................................................................................................................

Chapter 2: Market Dominant Products: Pricing Requirements ............................................................................

Introduction...............................................................................................................................................................

Workshare Discounts..............................................................................................................................................

Preferred Rate Requirements...............................................................................................................................

Chapter 3: Market Dominant Products: Other Rate and Fee Compliance Issues...........................................

Introduction............................................................................................................................................................... 

Noncompensatory Products................................................................................................................................

Market Dominant Negotiated Service Agreements (NSAs)......................................................................

Nonpostal Services..................................................................................................................................................

Other Issues................................................................................................................................................................

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 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Chapter 4: Competitive Products....................................................................................................................................

Introduction...............................................................................................................................................................

Cross-Subsidy Provision: Section 3633(a)(1)..................................................................................................

Product Cost Coverage Provision: Section 3633(a)(2)................................................................................

Appropriate Contribution Provision: Section 3633(a)(3)...........................................................................

Issues Raised by Commenters.............................................................................................................................

Chapter 5: Service Performance.......................................................................................................................................

Introduction...............................................................................................................................................................

Measurement Systems.........................................................................................................................................

Service Performance Results by Class............................................................................................................

Customer Access....................................................................................................................................................

Customer Experience...........................................................................................................................................

Appendix A: Empirical Review of Price Cap Application.......................................................................................

Appendix B: Special Study of Delivery Performance for Remote Locations..................................................

Appendix C: Status List of Commission Directed Undertakings that May Result in 

 Future Analytical Principle Changes (FY 2012 ACD).....................................................................

Appendix D: Commenters................................................................................................................................................

Appendix E: Abbreviations...............................................................................................................................................

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POSTAL REGULATORY COMMISSION 5

EXECUTIVE 

SUMMARY

This report reviews the Postal Service’s performance in Fiscal Year 2013, fulfilling the Commission’s 

responsibility to produce an annual assessment of Postal Service rates and service. 39 U.S.C. 3653. It 

is based on information the Postal Service is required to provide within 90 days after the close of the 

fiscal year, and on comments subsequently received from the public. Specific Commission findings and 

directives are identified (in italics) in each chapter.

The Commission has adopted a different approach for its ACD this year. This ACD focuses on compliance 

issues as defined in 39 U.S.C. 3653(b)(1) and (b)(2). These statutory subsections require the Commission 

to make determinations on whether any rates and fees in effect during FY 2013 were not in compliance 

with chapter 36 of title 39 U.S. Code and whether any service standards in effect during FY 2013 were 

not met. The financial analysis that had been incorporated in past ACDs has been expanded and issued 

as a separate report. The Commission will issue a separate report on the Postal Service’s Performance 

Plans and Program Performance to fulfill its statutory responsibilities under 39 U.S.C. 3653(c).

PRINCIPAL FINDINGS

Market Dominant Rate and Fee Compliance

The Commission identified 42 compliance issues related to workshare discounts, finding that 18 of 

the 42 workshare discounts did not comply with section 3622(e), which directs the Commission to 

ensure that workshare discounts do not exceed the costs avoided by the Postal Service as a result of the 

worksharing activity. See Chapter 2. 

■ For 15 of those 18 workshare discounts not in compliance with section 3622(e), the Postal Service 

did not propose a statutory exception but rather cites a lag between estimation of current cost 

avoidances and pre-existing discounts. Without persuasive statutory exceptions, the Commission 

must find these discounts out of compliance with section 3622(e).

■ Because the timing of pricing adjustments is not a statutory exemption for passthroughs over 

100 percent, for these 15 discounts the Commission recommends that the Postal Service consider 

different approaches for setting workshare discounts, including projecting cost avoidances, that may 

reduce the number of discounts with passthroughs above 100 percent resulting from the timing of 

price adjustments. Alternatively, the Postal Service should consider revising the schedule of market 

dominant price adjustments.
6 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

■ For the remaining three workshare discounts that did not comply with section 3622(e), the 

Commission does not find the Postal Service’s proposed statutory exceptions to be persuasive. As 

a result, the Commission concludes that they do not apply, and thus these discounts are out of 

compliance with section 3622(e).

■ Of the 18 workshare discounts that did not comply with section 3622(e), four were aligned with 

avoided costs in Docket No. R2013-11, and 14 must be aligned with avoided costs in the next market 

dominant price adjustment, or else the Postal Service must specify an applicable statutory exception.

Competitive Products Rate and Fee Compliance

Revenues for the following four products did not cover attributable costs and thus did not comply with 

section 3633(a)(2): Parcel Return Service Contract 4, International Priority Airmail (IPA), International 

Air Parcel Post (at non-Universal Postal Union (UPU) rates), and International Money Transfer Service – 

Outbound. The Commission orders the Postal Service to take corrective action. See Chapter 4.

Market Dominant Products Service Performance

The Postal Service met its service performance targets for Presorted First-Class Letters/Postcards.

In FY 2013, a majority of market dominant mail products did not meet annual service performance 

targets. Similar to FY 2012, most products made significant improvements over the course of the 

fiscal year.

An increase in the number of pieces with Full-Service Intelligent Mail barcodes resulted in more robust 

product-level measurement. Products within Package Services continue to present measurement 

challenges for the Postal Service.

During FY 2013, the Postal Service implemented new service standards for several classes of mail. A 

major impact resulting from these changes was a decrease in volumes of First-Class Mail Presorted 

Letters/Postcards with overnight and 2-day service standards and an increase in the volume of pieces 

with a 3-5-day service standard. As a result, for mail affected by the changes, it is difficult to compare 

FY 2013 service performance results with past years.

Noncompensatory Products

In FY 2013, nine market dominant products were noncompensatory. These products were First-Class 

Parcels, Periodicals Within County and Outside County, Standard Flats, Standard Parcels, Single-Piece 

Parcel Post, Media/Library Mail, Inbound Letterpost and Stamp Fulfillment Services.

Concerning Standard Mail Flats, the Commission finds that progress is being made toward addressing 

the issues raised by the Commission in the FY 2010 ACD. As a result, no further remedial action is 

required at this time. See Chapter 3.
POSTAL REGULATORY COMMISSION 7

For Periodicals, in the FY 2014 ACR, the Postal Service must provide a detailed analysis of the progress 

made in improving Periodicals cost coverage. This report shall include:

■ The impact of leveraging its pricing flexibility to improve the efficiency of Periodicals pricing;

■ The impact of the implementation of operational strategies outlined in Chapter 7 of the Periodicals 

Mail Study; and

■ The progress in implementing pricing strategies outlined in Chapter 7 of the Periodicals Mail 

Study.

For Inbound Letterpost the Commission recommends that the Postal Service continue to negotiate 

more compensatory bilateral (or multilateral) agreements with foreign postal operators in the upcoming 

fiscal year.

For the other noncompensatory products, the Commission finds that the Postal Service is taking 

appropriate steps to improve cost coverage.

Customer Access and Satisfaction

The Commission makes several principal findings regarding customer access and customer satisfaction.

■ Some of the offices under emergency suspension have been under study for possible 

discontinuance for over two years. The Postal Service should proceed expeditiously in either 

discontinuing offices under suspension or reopening them.

■ The number of collection points decreased by three percent from FY 2012 to FY 2013.

■ The average wait time in line was less than five minutes and improved over last year in almost all 

districts.

■ Regarding the Customer Experience Measurement survey, the Commission found that customers 

were generally satisfied with their overall experience when visiting post offices, but were less 

satisfied with resolution of complaints.
8 FY 2013 ANNUAL COMPLIANCE DETERMINATION 
POSTAL REGULATORY COMMISSION 9

CHAPTER 1

INTRODUCTION

STATUTORY CONTEXT

Two sections of title 39, United States Code, as amended by the Postal Accountability and 

Enhancement Act (PAEA),1 require the Postal Regulatory Commission to conduct ongoing, 

systematic reports and assessments of the financial and operational performance of the United 

States Postal Service. The first provision, 39 U.S.C. 3652, requires the Postal Service to file certain 

annual reports with the Commission, including an Annual Compliance Report (ACR). See 39 U.S.C. 

3652(a). The second provision, 39 U.S.C. 3653, requires the Commission to review the Postal Service’s 

annual reports and issue an ACD regarding whether rates were not in compliance with applicable 

provisions of the title and whether any service standards were not met. 39 U.S.C. 3653(b). Together, 

these provisions establish the ACR and the ACD as integrated mechanisms for providing ongoing 

accountability, transparency, and oversight of the Postal Service.

In prior years, the ACD reported on the Postal Service’s financial condition and its performance 

plans and program performance. Beginning this year, the Commission will report on those issues 

separately.2 This ACD focuses on the requirements of sections 3653(b)(1) and (b)(2).3 The analysis of 

the Postal Service’s finances was issued in a separate report on March 18, 2014.4 The analysis of the 

Postal Service’s performance plans and program performance, required by 39 U.S.C. 3653(d), will also 

be issued in a separate report in May of 2014.

For regulations governing rates and fees in the PAEA, Congress divided mail categories and services 

between market dominant and competitive products. For market dominant products, the relevant 

sections of title 39 for rates and fees are sections 3622 and 3626. For competitive products, the 

relevant section is 3633.

The analysis of rates and fees that have been challenged as not in compliance is contained in three 

chapters. In Chapter 2, the Commission evaluates the workshare discounts for market dominant 

products to determine compliance with 39 U.S.C. 3622(e). The introduction to Chapter 2 also includes 

a discussion about the preferred rate requirements and the price cap. Chapter 3 focuses on other 

1 Pub. L. 109-435, 120 Stat. 3198 (2006).

2 See Docket No. ACR2013, Order No.1972, Notice Regarding the Postal Service’s FY 2013 Performance Report and FY 2014

Performance Plan, January 17, 2014.

3 In this ACD, the Commission only addresses rates and fees that have been challenged as not in compliance.

4 PRC-FinRpt13-NP-LR1 - PRC Financial Analysis, 2013: FY 2013 Postal Service’s Product Finances, March 18, 2014. 
10 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

compliance issues related to rates and fees of market dominant products. Chapter 4 covers compliance 

issues related to the rates and fees of competitive products. In Chapter 5, the Commission discusses 

service performance and measurement.

There are five appendices to the ACD. Appendix A contains an empirical review of the price cap 

application. Appendix B provides an evaluation of the Postal Service’s special study of delivery 

performance in remote locations. Appendix C provides the status of Commission directed undertakings 

from past ACDs and new Commission directed undertakings in this ACD. Appendix D contains a list of 

Commenters. Appendix E contains an index of abbreviations used in this ACD.

TIMELINE AND REVIEW OF REPORT

The Postal Service is required to file the ACR no later than 90 days after the end of each fiscal year (that 

is, 90 days after September 30, 2013). The Commission is required to complete the ACD within 90 days 

after receiving the ACR. The Postal Service filed the FY 2013 ACR on December 27, 2013. Thus, the 

Commission must issue this ACD no later than March 27, 2014.

FOCUS OF THE ACR

In accordance with 39 U.S.C. 3652, the ACR must provide analyses of costs, revenues, rates, and quality of 

service sufficient to demonstrate that during the reporting year all products complied with all applicable 

requirements of title 39. Additionally, for market dominant products, the Postal Service must include 

product information, mail volumes, and measures of quality of service, including the speed of delivery, 

reliability, and the levels of customer satisfaction. For market dominant products with workshare 

discounts, the Postal Service must report the per-item cost avoided by the Postal Service through the 

worksharing activity performed by the mailer, the percentage of the per-item cost avoided that the 

per-item workshare discount represents, and the per-item contribution to institutional costs. 39 U.S.C. 

3652(b).

OTHER REPORTS

In conjunction with its filing of the ACR, the Postal Service must also file its most recent comprehensive 

statement on postal operations, its performance plan, and program performance reports. 39 U.S.C. 

3652(g).

COMMISSION RESPONSIBILITIES

Upon receipt of the ACR, the Commission provides an opportunity for public comment on the 

Postal Service’s submissions. 39 U.S.C. 3653(a). The Commission is responsible for making a written 

determination as to whether any rates or fees were not in compliance with applicable provisions of 

chapter 36 of title 39, United States Code, or related regulations, and whether any service standards were 

not met. 39 U.S.C. 3653(b). If a determination of non-compliance is made, the Commission is required to 

take such action as it deems appropriate. 39 U.S.C. 3653(c).
POSTAL REGULATORY COMMISSION 11

PROCEDURAL HISTORY

On December 27, 2013, the Postal Service filed its FY 2013 ACR, covering the period from 

October 1, 2012, through September 30, 2013. The ACR includes an extensive narrative discussion and a 

substantial amount of detailed public and non-public information contained in library references. 

The library references include the Cost and Revenue Analysis (CRA), the International Cost and Revenue 

Analysis (ICRA), cost models supporting workshare discounts, and volume information presented in 

billing determinants. Library Reference USPS-FY13-9 summarizes the other materials included in the 

ACR submission and contains a list of special studies and a discussion of obsolescence5 in response to 39 

CFR 3050.12.

The Postal Service concurrently filed its 2013 Comprehensive Statement on Postal Operations, 

which included the Postal Service’s 2013 Annual Performance Report and 2014 Performance Plan.6 

Additionally, the Postal Service filed its Annual Report to the Secretary of the Treasury regarding the 

Competitive Products Fund, as required by 39 U.S.C. 2011(i), as part of Library Reference USPS-FY13-39.

On December 30, 2013, the Commission issued an order providing notice of the Postal Service’s filing of 

the ACR and an opportunity for public comment, establishing Docket No. ACR2013 as a formal docket 

to consider the ACR, and appointing a Public Representative to represent the interests of the general 

public.7 It established January 31, 2014, as the deadline for comments and February 14, 2014, as the 

deadline for reply comments.

METHODOLOGY CHANGES

The Postal Service reports that the FY 2013 ACR generally employs the methodologies applied in the 

FY 2012 ACR. The Postal Service identifies two approved and nine pending changes to methodologies. 

The approved changes are incorporated into the FY 2013 ACR. The Postal Service indicates that of the 

nine pending changes to methodologies, it used three changes in instances where it was not practical 

to file the FY 2013 ACR without using the pending changes. The Postal Service requests that the 

Commission provide each model used in the preparation of the FY 2013 ACD at the time the FY 2013 

ACD is issued, in order to ensure that the most up-to-date models are used in the future ACRs. FY 2013 

ACR at 7-8. The Commission routinely posts the most current workshare cost avoidance models on its 

website.8 Those models were used in its preparation of the FY 2013 ACD. 

5 In this regard, obsolescence refers to studies that may be outdated, e.g., a study may not reflect current operating conditions and 

procedures.

6 2013 Comprehensive Statement of Postal Operations, December 27, 2013. These documents were filed as part of Library Reference 

USPS-FY13-17.

7 See Docket No. ACR2013, Notice of Postal Service’s Filing of Annual Compliance Report and Request for Public Comments, December 30, 2013 (Order No. 1935); see also 79 FR 669-671 (January 6, 2014).

8 See Directory of PRC Workshare Cost Avoidance Models at http://www.prc.gov/PRC-DOCS/UploadedDocuments/Directory%20

of%20PRC%20Workshare%20Cost%20Avoidance%20Models%207%2029%202013_3233.pdf.
12 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

PRODUCT ANALYSIS

The Postal Service provides an analysis of each market dominant product, including special services, and 

domestic and international negotiated service agreements entered into during FY 2013. This analysis 

includes a discussion of workshare discounts and passthroughs for market dominant products, required 

by 39 U.S.C. 3652(b). The Postal Service also provides data for competitive products and discusses the 

data with reference to standards under 39 U.S.C. 3633 and 39 CFR 3015.7. Finally, the Postal Service 

discusses the two market dominant market tests and two competitive market tests conducted in FY 

2013, as well as two market dominant and nine competitive nonpostal products.

SERVICE PERFORMANCE

The FY 2013 ACR also includes information regarding service performance, customer satisfaction, and 

consumer access, as required under 39 U.S.C. 3652(a)(2) and 39 CFR Part 3055.

CONFIDENTIALITY

Commission rules require the Postal Service, when it files non-public materials with the Commission, 

to simultaneously file an application for non-public treatment. 39 CFR 3007.20. The application 

for non-public treatment must clearly identify all non-public materials and fulfill the burden of 

persuasion that the non-public materials should be withheld from the public by showing that the 

particular information is commercially sensitive and by identifying the nature, extent, and likelihood 

of commercial harm that would result from disclosure. The ACR includes such an application with 

respect to certain competitive products.

REQUESTS FOR ADDITIONAL INFORMATION

Sixteen Chairman’s Information Requests (CHIRs) were issued with respect to the ACR during the period 

beginning January 3, 2014, and ending March 21, 2014. The Postal Service responded to the 16 CHIRs, 

often filing supplemental information in support of the responses. The Commission appreciates the 

Postal Service’s responsiveness to the CHIRs.
POSTAL REGULATORY COMMISSION 13

CHAPTER 2

MARKET DOMINANT PRODUCTS:

PRICING REQUIREMENTS

INTRODUCTION

The PAEA introduced three pricing requirements for market dominant products: (1) a class-level price 

cap; (2) a cap on workshare discounts; and (3) a cap on preferred rates. The Commission approved 

the price increases for the prices in effect during FY 2013, thus the prices complied with the price 

cap provision. However, because changes in prices generally affect the mix of volumes within 

classes, after rate price increases by class may differ from the price increase based on historical billing 

determinants. In Appendix A, the Commission analyzes the after-rate price change. This chapter 

provides an analysis of workshare discounts and preferred rates.

Workshare discounts provide reduced rates for mail prepared or entered so as to avoid certain 

activities the Postal Service would otherwise have to perform. These discounts are based on the 

estimated costs avoided as a result of the mailer performing the activity. 39 U.S.C. 3622(e)(2) 

directs the Commission to ensure that workshare discounts do not exceed the costs avoided by the 

Postal Service as a result of the worksharing activity. The statute provides four exceptions to this 

requirement. See 39 U.S.C. 3622(e)(2)(A) through (D).

The Commission analyzes the discounts to determine whether they comply with applicable statutory 

provisions. Workshare discounts that are not greater than their avoided costs are in compliance for FY 

2013 and require no further discussion.1

This chapter discusses workshare discounts, organized by class of mail, that are greater than their 

avoided costs. Two issues that affect workshare discounts are addressed first: (1) a timing issue that 

adversely affects workshare discounts’ compliance with 39 U.S.C. 3622(e)(2); and (2) the methodology 

for calculating the avoided costs for the Automated Area Distribution Center (AADC) categories in 

First-Class Mail and Standard Mail.

Timing of Price Adjustments

Since October 18, 2011, when the Postal Service altered its schedule of planned price changes and 

informed the mailing community that it planned to adjust market dominant prices in January of each 

year, there has been an increase in the number of discounts that passthrough more than 100 percent of 

avoided cost at the time of the Postal Service’s ACR. 

1 The difference between the workshare discount and the avoided cost is referred to as the “passthrough.” Passthroughs above 100 percent 

indicate discounts that are greater than avoided costs. Passthroughs below 100 percent indicate discounts that are below avoided costs.
14 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

The Postal Service is required by statute to give notice of price adjustments. In general, the Postal 

Service provides notice of price adjustments for the upcoming year in October. Although the Postal 

Service’s fiscal year ends in September, cost data for that fiscal year is not available until December 

when the Postal Service files its ACR. Consequently, the cost data the Postal Service relies on for setting 

workshare discounts in October are nearly two years old. As part of its compliance determination, the 

Commission compares the discounts in effect during a fiscal year with the cost avoidances for that fiscal 

year. The two-year lag between the data that are used to set discounts and the data used to evaluate 

discounts increases the number of discounts that pass through more than avoided costs. The timing 

issue applicable to the current ACD is discussed below.

On October 11, 2012, the Postal Service filed a notice of market dominant price adjustments. The Postal 

Service developed workshare discounts in that price adjustment using the most recent fiscal year data 

at the time, FY 2011 data. In the FY 2013 ACD, the Commission reviews the results of the Docket No. 

R2013-1 price adjustment. Many workshare discounts that were at or below 100 percent of the FY 2011 

cost avoidance passed through more than 100 percent of the FY 2013 cost avoidances.

The Postal Service observes that these above 100 percent passthroughs result from the lag between 

estimation of new cost avoidances and pre-existing discounts.2 The Postal Service recognizes that 

there is no statutory exception that addresses this timing issue. Consequently, the Postal Service does 

not rely on statutory worksharing exceptions to justify certain workshare discounts that pass through 

more than 100 percent of their avoided costs. Id.

The Postal Service contends that adjusting prices now to bring passthroughs to 100 percent would 

be inefficient and disruptive to both the Postal Service and its customers. See Response to CHIR No. 2, 

question 11. The Postal Service asserts that if it had been required to adjust discounts when the new 

cost data became available, it would have had to choose between two problematic options. The first 

option would have been to delay the implementation date for new rates in order to implement the 

prices that correct the workshare passthroughs in conjunction with the prices approved in Docket 

Nos. R2013-10 and R2013-11. A delay in implementation would have decreased the revenue the 

Postal Service would collect in FY 2014. The second option would have been to have an additional 

price adjustment a few months after the January 26 implementation of the Docket Nos. R2013-10 and 

R2013-11 prices. This option would have required “the Postal Service and industry to incur additional 

programming and implementation costs.” Id.

The Postal Service does not offer a remedy to address the above 100 percent passthroughs that result 

from relying on outdated data for setting discounts. In the FY 2012 ACD, the Commission noted a Public 

Representative suggestion that cost avoidances in future years can be projected in advance of the ACR 

in the Postal Service’s price adjustment filing. FY 2012 ACD at 80. Because the timing of price adjustments 

is not a statutory exemption for passthroughs over 100 percent, the Postal Service should consider different 

approaches for setting workshare discounts, including projecting cost avoidances, that may reduce the 

2 FY 2013 ACR at 12, 14, 26, 36.
POSTAL REGULATORY COMMISSION 15

number of discounts with passthroughs above 100 percent resulting from the timing of price adjustments. 

Alternatively, the Postal Service should consider revising the schedule of market dominant price adjustments.

Automation AADC Categories

The Postal Service did not use the approved methodology for calculating the costs avoided for FirstClass Mail Automation AADC Letters, First-Class Mail Automation AADC Cards and Standard Mail 

Automation Letters.3 It calculates the cost avoidance as the difference in cost between the Mixed AADC 

category and the volume weighted hybrid of the AADC and 3-Digit categories. The Postal Service 

argues that the weighted average of AADC/3-Digit costs should be used not only as a benchmark for the 

calculation of 5-Digit prices, but also for the calculation of the cost avoidance for the AADC category. 

Response to CHIR No. 5, question 9.4 It contends that “it makes no sense to have a different cost 

avoidance for AADC than for 3-Digit, when they represent just one price cell.” Id.

In Docket No. RM2012-6, the Commission approved the hybrid AADC/3-Digit costs as the benchmark 

for First-Class Mail 5-Digit Automation Letters, First-Class Mail 5-Digit Automation Cards and Standard 

Mail 5-Digit Automation Letters. In that docket, the Commission made no changes to the calculation of 

the AADC categories. The cost avoidance calculation for the AADC categories is calculated as the cost 

differential between the Mixed AADC category and the AADC category.

This ACD reflects only workshare methodologies approved by the Commission prior to the filing of the 

ACR. The appropriate means for changing an analytical principle, such as the methodology to calculate 

passthroughs for the AADC categories, is to petition for a rulemaking.

The remainder of this chapter discusses workshare discounts that exceed avoided cost by class of mail. 

There is also a short discussion of preferred rates at the end of this chapter.

WORKSHARE DISCOUNTS

First-Class Mail

The following nine workshare discounts exceeded the cost that worksharing avoids: (1) Qualified 

Business Reply Mail (QBRM) Letters; (2) QBRM Cards; (3) Mixed AADC Automation Letters; (4) AADC 

Automation Letters; (5) Mixed AADC Automation Cards; (6) AADC Automation Cards; (7) ADC 

Automation Flats; (8) 3-Digit Automation Flats; and (9) 5-Digit Automation Flats. The calculations that 

form the basis of these avoided cost passthroughs employ the accepted cost methodology. Below, the 

Commission discusses passthroughs that were above 100 percent in the order listed above.

3 Pitney Bowes notes that the Postal Service did not use the Commission-approved methodology in its passthrough calculation for the FirstClass Mail Automation AADC categories. Pitney Bowes Comments at 3.

4 Docket No. ACR2013, Responses of the United States Postal Service to Questions 1-3.b, 4-5, and 7-12 of Chairman’s Information 

Request No. 5, February 11, 2014 (Response to CHIR No. 5).
16 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

The discounts for QBRM Letters and Cards are 113.3 percent of avoided costs. The Postal Service 

asserts that the excessive passthroughs result from a lag between estimation of new cost avoidances 

and the setting of discounts. FY 2013 ACR at 11. The Postal Service has not provided a statutory 

reason to justify the excessive passthroughs. See 39 U.S.C. 3622(e). The Commission finds that the 

discounts for both QBRM Letters and Cards are out of compliance for FY 2013. The Postal Service must 

either align the QBRM Letters’ discount with avoided costs during the next general market dominant 

price adjustment, or provide support for an applicable statutory exception. With regard to the discount 

for QBRM Cards, the Postal Service’s price change in Docket No. R2013-11 aligns the discount with 

avoided cost; therefore, no further action is required.

Discounts for Automation Mixed AADC Letters and Automation AADC Letters reflect a passthrough 

of 103.8 percent and 105 percent of avoided costs, respectively. The Postal Service has not provided 

a statutory reason to justify the excessive passthroughs.5 The Commission finds that the discounts 

are out of compliance for FY 2013. The Postal Service’s price change in Docket No. R2013-11 aligns the 

Automation Mixed AADC Letters’ discount with avoided cost; therefore, no further action is required. The 

Postal Service must either align the Automation AADC Letters’ discount with avoided costs during the next 

general market dominant price adjustment, or provide support for an applicable statutory exception. 

Automation Mixed AADC Cards and Automation AADC Cards reflect a passthrough of 176.9 percent 

and 109.1 percent of avoided costs, respectively.6 The Postal Service has not provided a statutory 

reason to justify the excessive passthroughs. See 39 U.S.C. 3622(e); FY 2013 ACR at 12 and Response 

to CHIR No. 5, question 9. The Commission finds that the discounts are out of compliance for FY 2013. 

The Postal Service must either align the Automation Mixed AADC Cards’ and Automation AADC Cards’ 

discounts with avoided costs during the next general market dominant price adjustment, or provide 

support for an applicable statutory exception.

The Postal Service calculates the following passthroughs of avoided costs for automation flats: 

Automation ADC Flats, 140.8 percent; Automation 3-Digit Flats, 127.8 percent; and Automation 5-Digit 

Flats, 133.3 percent. The Postal Service asserts these passthroughs are necessary to mitigate rate 

shock.7 The Postal Service provides a range of rate increases (10.1 percent to 21.2 percent) necessary to 

bring Automation Flats (ADC, 3-Digit, and 5-Digit) passthroughs to 100 percent. However, it provides 

no explanation as to the adverse effects those increases would have on users of these mail categories. 

Id. For 5-Digit Automation Flats, the Postal Service argues that it would require an additional 4 cent 

decrease in the discount from the approved Docket No. R2013-10 discount to bring the passthrough to 

100 percent of costs avoided. FY 2013 ACR at 15. Again, the Postal Service does not explain the nature 

or extent of the rate shock a lower passthrough would cause.

5 See 39 U.S.C. 3622(e); FY 2013 ACR at 12; Responses of the United States Postal Service to Questions 1-3.b, 4-5, and 7-12 of 

Chairman’s Information Request No. 5, February 11, 2014 (Response to CHIR No. 5).

6 Pitney Bowes urges the Commission to use the First-Class Mail Flats cost avoidance model as proposed in Docket No. RM2014-1 

(Proposal 8) and updated in USPS-FY13-11, in calculating passthroughs for the First-Class Mail Flats categories. Pitney Bowes Comments 

at 4.

7 See 39 U.S.C. 3622(e)(2)(B); Responses of the United States Postal Service to Questions 1-11 of Chairman’s Information Request No. 

2, January 23, 2014 (Response to CHIR No. 2).
POSTAL REGULATORY COMMISSION 17

The Postal Service’s use of the “rate shock” exception is not sufficiently supported. The Commission 

finds that the Postal Service has not demonstrated that Automation ADC Flats, Automation 3-Digit 

Flats, and Automation 5-Digit Flats qualify for the exception. The Commission finds that these discounts 

are out of compliance for FY 2013. The Postal Service must either align the discounts with avoided 

costs during the next general market dominant price adjustment, or adequately provide support for an 

applicable statutory exception.
18 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

FY 2013

Type of Worksharing (Benchmark)

Year-End Discount 

(cents)

Unit Cost 

Avoidance 

(cents) Passthrough

First-Class Mail Automation Letters

Barcoding & Presorting

Automation Mixed AADC Letters 5.5 5.3 103.8%

(Metered Letters)

Automation AADC Letters 2.1 2.0 105.0%

(Automation Mixed AADC Letters)

Automation 3-digit Letters 0.0 0.4 0.0%

(Automation AADC Letters)

Automation 5-digit Letters 2.4 2.9 82.8%

(Hybrid Automation AADC/3-digit Letters)

First-Class Mail Non-automation Letters

Barcoding

Non-automation Presort Letters 2.7 6.5 41.5%

(Metered Letters)

First-Class Mail Single-Piece Letters

Qualified Business Reply Mail

Barcoding

QBRM 1.7 1.5 113.3%

(Handwritten Reply Mail)

First-Class Mail Automation Cards

Barcoding & Presorting

Automation Mixed AADC Cards

(Non-automation Presort Cards)

 2.3 1.3 176.9%

Automation AADC Cards 1.2 1.1 109.1%

(Automation Mixed AADC Cards)

Automation 3-digit Cards 0.0 0.2 0.0%

(Automation AADC Cards)

Automation 5-digit Cards 1.2 1.5 80.0%

 (Hybrid Automation AADC/3-digit Cards)

First-Class Mail Single-Piece Cards

Qualified Business Reply Mail

Barcoding

QBRM 1.7 1.5 113.3%

(Handwritten Reply Cards)

First-Class Mail Automation Flats

Barcoding & Presorting

Automation ADC Flats 10.0 7.1 140.8%

(Automation Mixed ADC Flats)

Automation 3-digit Flats 4.6 3.6 127.8%

(Automation ADC Flats)

Automation 5-digit Flats 18.8 14.1 133.3%

(Automation 3-digit Flats)

Table II-1

First-Class Mail

Workshare Discounts and Benchmarks
POSTAL REGULATORY COMMISSION 19

Periodicals

Twelve Periodicals Outside County passthroughs, identified in Table II-2 below, exceeded 100 

percent in FY 2013. No Periodicals Within County passthroughs exceeded 100 percent in FY 2013.

Discounts that exceed avoided costs are permissible if a statutory exception applies. See 39 U.S.C. 

3622(e). The Postal Service justifies the Periodicals discounts that exceeded 100 percent on the basis 

of section 3622(e)(2)(C), which authorizes workshare discounts greater than avoided cost if provided 

in connection with a subclass that consists exclusively of mail matter with educational, cultural, 

scientific, or informational (ECSI) value. FY 2013 ACR at 33. All the passthroughs for Within County 

and Outside County, and all the bundle/container price-cost ratios are contained in Chapter 2.

Public Representative Comments

The Public Representative notes that 12 of 20 Outside County workshare discounts exceed avoided 

costs. PR Comments at 39.

Outside County

Type of Worksharing

Avoided 

Cost

Discount/ 

(Surcharge) Passthrough

Presorting (cents/piece)

1

Machinable Non-automation 5D 

Flats 8.4 10.3 122.6%

2 High Density 2.5 3.3 132.0%

3 Machinable Automation 5D Flats 7.4 9.0 121.6%

4

Non-machinable Non-auto ADC 

Flats 9.5 12.1 127.4%

5

Non-machinable Non-automation 

3D/SCF Flats (2.5) 7.8 -312.0%

6

Non-machinable Automation 

ADC Flats 9.5 10.0 105.3%

7

Non-machinable Automation 3D/

SCF Flats (2.2) 6.4 -290.9%

Barcoding (cents/piece)

8

Machinable Automation MADC 

Flats 3.1 3.3 106.5%

9

Non-machinable Automation 

MADC Flats 0.3 4.7 1566.7%

Presorting Automation Letters (dollars/piece)

10 ADC Automation Letter 1.5 4.1 266.3%

11 3-Digit Automation Letter 0.3 2.1 603.8%

12 5-Digit Automation Letter 2.0 6.4 313.8%

Table II-2

Periodicals Workshare Discounts Exceeding Avoided Cost in FY 2013

Source: PRC-ACR2013-LR-3.
20 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Commission Analysis

The Periodicals class qualifies for ECSI consideration; therefore, the Commission finds that the Outside 

County discounts that exceed avoided costs are consistent with section 3622(e).8 None of the 

passthroughs for these workshare discounts was reduced toward 100 percent in the most recently 

approved prices in Docket No. R2013-10 and Docket No. R2013-11.9 While the Postal Service justifies 

these workshare discounts based on 39 U.S.C. 3622(e)(2)(C), other factors and objectives highlight 

the importance of sending efficient pricing signals. The Postal Service has not changed the pricing 

relationships between workshare categories since FY 2009. Better aligning discounts with avoided 

costs would allow mailers and the Postal Service to maximize efficiency. 39 U.S.C. 404(b) authorizes 

the Governors to establish “reasonable and equitable” rates “under best practices of honest, efficient, 

and economical management.” The growing disconnect between Periodicals costs and Periodicals 

prices raises concerns for both clauses.

In the FY 2012 ACD, the Commission noted that Periodicals workshare discounts increasingly 

reflect outdated cost relationships. Specifically, the Commission noted that the FY 2012 discount 

for the pre-barcoding of Non-machinable Automation Mixed area distribution center (Mixed ADC) 

Flats of 4.5 cents was 45 times the avoided cost of 0.1 cent. As the Commission further noted, 

this discount highlights that the Periodicals pricing structure has not been updated to reflect 

operational realities. Periodicals mail entered as Non-machinable Automation Mixed ADC Flats 

did not meet the machinability standard for Periodicals. The Postal Service offers a discount from 

Non-machinable Non-automation Mixed ADC Flats to Non-machinable Automation Mixed ADC 

Flats for mailers pre-barcoding their mail. This barcode is only valuable to the Postal Service when 

the discounted mail is processed on automation equipment. The Postal Service has historically 

used the Upgraded Flats Sorting Machine (UFSM) to sort flats that cannot be processed on the 

Automated Flats Sorting Machine (AFSM).10

As part of facility modernization efforts, most notably the Mail Processing Network Rationalization, the 

Postal Service has removed the UFSM from usage. In FY 2009, 6.1 percent of Periodicals were sorted 

on the UFSM. In FY 2013, 0.3 percent of Periodicals were sorted using only the UFSM. The removal of 

UFSM from the postal network has eroded the value of incentivizing mailers to pre-barcode 

non-machinable flats. In FY 2009, the avoided cost of pre-barcoding flats processed on the USFM 

was 3.3 cents. In FY 2013, the discount for the pre-barcoding of Non-machinable Automation Mixed 

ADC Flats was 15 times the avoided cost. The source of the improvement was an increase in avoided 

cost from 0.1 cent to 0.3 cent.11 Notably, the Postal Service increased the discount for this worksharing 

activity in FY 2013, from 4.5 cents to 4.7 cents.

8 Tables displaying the full range of discounts, avoided costs, and passthroughs for Within County and Outside County Periodicals, as well 

as prices, bottom-up costs, and price-cost ratios for bundles, sacks, and pallets, appear in the tables at the end of this section.

9 See Docket No. R2013-10, Library Reference PRC-LR-R2013-10/2, November 21, 2013. 

10 AFSM machinability standards are used to set Periodicals machinability standards.

11See Docket No. RM2014-1, Petition of the United States Postal Service for the Initiation of a Proceeding to Consider Proposed Changes 

in Analytical Principles (Proposals Six Through Eight), November 8, 2013, Proposal 8.
POSTAL REGULATORY COMMISSION 21

By sending inefficient price signals to mailers, the Postal Service is distorting mail preparation 

incentives. The example of the discount for the pre-barcoding of Non-machinable Automation Mixed 

ADC Flats highlights the many effects of these inefficient price signals. The price of Non-machinable 

Automation Mixed ADC Flats is the benchmark from which all Non-machinable Automation prices 

are set. For preparing Non-machinable Automation ADC Flats, mailers receive a discount of 10 cents 

compared to the avoided cost of 9.5 cents, for a passthrough of 105.3 percent, as detailed in line 6 in 

Table II-2. Because the benchmark for Non-machinable Automation Mixed ADC Flats is priced with 

a discount of 4.4 cents in excess of avoided cost, mailers are sent an inefficient price signal to prebarcode all rate categories in the Non-machinable Automation worksharing tree.

The two Outside County rate elements with the most volume are Automation Machinable 5-Digit Flats 

and Carrier Route Basic Flats. Table II-3 details the passthrough for 5-Digit Machinable Automation 

pieces and for Basic Carrier Route pieces since FY 2008.

The 9.8 cent differential between 5-Digit and Carrier Route has remained unchanged since FY 2008. The 

Joint Periodicals Mail Study found that Carrier Route presorted pieces were among “the rate elements 

that provide the most contribution per piece.”12 The Periodicals pricing structure provides the Postal 

Service with pricing flexibility. The Postal Service has the option to incent Carrier Route presorted pieces 

to achieve more profitable mail in Periodicals.

The Postal Service did not offer Flats Sequencing System (FSS) specific prices in FY 2013. In Docket 

No. R2013-10, the Postal Service added an FSS discount and amended FSS mail preparation rules. As 

the Commission noted, the Postal Service “should investigate how it can increase cost coverage with 

its new FSS prices.”13

Table II-3

Carrier Route and 5-Digit Automation Passthroughs 

Passthroughs

FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013

CR Basic 88.15% 71.52% 71.05% 69.48% 71.33% 77.70%

5-Digit Automation 61.37% 96.63% 102.38% 106.17% 104.82% 121.62%

Sources: Docket Nos. ACR 2009 –ACR 2013, PRC Periodical Library References.

12 Periodicals Mail Study, Joint Report of the United States Postal Service and Postal Regulatory Commission, September 2011, at 25 

 (Periodicals Mail Study). 

13 Docket No. R2013-10, Order on Price Adjustments for Market Dominant Products and Related Mail Classification 

 Changes, November 21, 2013, at 88 (Order No. 1890).
22 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

As Postal Service operations have changed, Periodicals prices have become increasingly detached 

from costs. In FY 2009, five discounts for Periodicals exceeded avoided costs, and three of those 

discounts were for low-volume letter rate categories. In FY 2013, over 50 percent of Periodicals 

worksharing categories had passthroughs over 100 percent. Worksharing discounts that do not 

reflect cost relationships lead to Periodicals mailers paying disproportionately unequal amounts of 

contribution. Discounts in excess of avoided cost also contribute to Periodicals revenues not covering 

costs.

39 U.S.C. 3622 (b)(1) encourages maximizing incentives to reduce costs and section 3622(c)

(7) encourages pricing that reflects the degree of mail preparation and its corresponding effect 

on reducing Postal Service costs. Each of these objectives and factors recognizes that pricing 

incentives can lower costs.

Taken together, the current Periodicals worksharing relationships do not maximize incentives that 

would reduce Postal Service costs. There are too many workshare discounts (and container/bundle 

charges discussed below) that are above and below the most efficient price. Disregarding the total 

negative contribution of Periodicals for the moment, if every price were set in accordance with an 

efficient approach, every individual Periodical piece would have a price that covers the cost it imposes 

on the Postal Service plus make the same contribution per piece that every other Periodical piece 

would contribute. All other variables held constant, this approach should maximize the contribution 

of Periodicals as a whole.

As an example, consider the worksharing discount for the Non-machinable Automation Mixed ADC 

Flats discussed above. The discount exceeds the avoided cost by 4.4 cents, which means that the 

price paid by mailers of this minimally presorted, barcoded piece is 4.4 cents below the efficient 

price and results in a price that does not cover the cost it imposes on the Postal Service. Yet the 

Postal Service increased the discount in FY 2013. This mail category amounted to only 14.3 million 

pieces in FY 2013, but it provides an example of how the Postal Service does not take advantage of 

opportunities to maximize contribution. The Postal Service would be better served by charging a 

price that reflects the costs imposed on the Postal Service.

However, the Postal Service cannot change one price in isolation. Because setting prices within a class is 

a zero-sum game, changing one price results in a cascade of changes. Other prices must be increased 

or decreased to offset the revenue losses or gains from a poorly set discount, which produces, with 

little exception, an entire set of inefficient prices. Conversely, one price cannot be moved to its efficient 

level without taking into account the cascading effect. Thus, a set of Periodicals prices that maximizes 

efficient mailer preparation cannot be achieved in one set of price changes.

In past ACDs, the Commission has encouraged the Postal Service to begin adjusting its prices to 

increase the incentives for efficient mailer behavior.14 However, the Postal Service has instead used 

14 Docket No. ACR2009, FY 2009 Annual Compliance Determination Report, March 29, 2010, at 76 (FY 2009 ACD); Docket No.

ACR 2010, FY 2010 Annual Compliance Determination Report, March 29, 2011, at 96, 97 (FY 2010 ACD); Docket No. ACR 

2011, FY 2011 Annual Compliance Determination Report, March 28, 2012, at 108, 110 (FY 2011 ACD); Docket No. ACR 

2012, FY 2012 Annual Compliance Determination Report, May 7, 2013, at 100, 101 (FY 2012 ACD).
POSTAL REGULATORY COMMISSION 23

an across-the-board approach to increasing Periodicals rates, which has not incentivized mailers to 

increase mail preparation or pay for the costs imposed on the Postal Service. In this regard, it appears 

the Postal Service bears much of the responsibility for the inability of Periodicals prices to cover more of 

their attributable costs. Had the Postal Service begun to move discounts incrementally toward a more 

efficient set of prices in Docket No. R2008-1 and continued to improve prices incrementally through 

Docket No. R2013-10, the negative contribution might have been reduced substantially. Thus, the Postal 

Service should begin to remedy this issue by judicious use of its pricing flexibility, while being mindful of the 

cascading effect of changing prices.

The Postal Service has the tools to balance a set of price adjustments that move toward maximizing 

efficiency. It has a database that will allow it to test alternative sets of prices so that it can minimize, 

but not avoid, adverse price impacts on its customers. The entire postal community, including 

Periodicals mailers, has an interest in maintaining a viable Postal Service and paying a fair share 

of Postal Service expenses. The negative contribution of Periodicals must be reduced further to 

contribute to the financial well-being of the Postal Service. This must begin in the next market 

dominant price adjustment.

The Postal Service should use the time between the issuance of this ACD and the next market dominant 

price adjustment to design an alternative set of Periodicals prices while continuing to improve 

operations to reduce the costs of handling flat-shaped mail.

For these reasons, the Commission again recommends the Postal Service leverage its pricing flexibility 

to improve Periodicals pricing options and worksharing passthroughs to incent more efficient mailer 

preparation and increase contribution from Periodicals. In the next market dominant price adjustment, 

the Postal Service must describe how it is implementing the Commission’s pricing recommendation set 

forth herein. 

Standard Mail

During FY 2013, four Standard Mail worksharing discounts differed between the commercial and 

nonprofit categories for the same presort and automation level. Two of these appear in the discussion 

of the High Density products and the other two occur in the discussion of the Flats product. See

section on Letters and Flats, infra. Other workshare discounts that were not equal for nonprofit and 

commercial corresponding workshare activities were equalized in Docket No. R2013-1. See Order No. 

1890 at 82-8415 and Order No. 1902 at 3-4.16

Table II-4 shows the passthroughs by shape for the High Density Presort level and for dropship Carrier 

Route, High Density, and Saturation categories. The table includes the presort discounts for Nonprofit 

High Density Letters and Nonprofit High Density Flats. These discounts differ from their commercial 

counterparts. All of the passthroughs, including the separate nonprofit discounts, are less than 100 

15 Docket No. R2013-10, Order on Price Adjustments for Market Dominant Products and Related Mail Classification Changes, 

 November 21, 2013 (Order No. 1890).

16 Docket No. R2013-10, Order Approving Amendments to Notice of Market Dominant Price Adjustment, December 11, 2013 

 (Order No. 1902).
24 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

percent. In the last ACD, the Commission directed the Postal Service to equate the discounts in the 

next rate case or provide a justification for not doing so. In Docket No. R2013-10, the Postal Service 

equated the high density discounts for the nonprofit and commercial categories. Thus, in this ACD 

there is no need for further action.

Table II-5, Table II-6, and Table II-7 on page 29-33 show the passthroughs for the remaining products: 

Letters, Flats, and Parcels. Table II-6 includes two nonprofit workshare discounts that differ from their 

commercial counterparts. Unless the line items in this table are identified as nonprofit or commercial, 

the discounts apply equally to the nonprofit and commercial categories.

The discounts for 17 workshare categories exceed avoided costs. In its discussion of discounts that 

exceed avoided cost, the Commission first discusses Letters, then Flats, and finally the Parcels product.

Letters

Five discounts for Standard Mail Letters exceeded avoided costs in FY 2013: (1) Automation Mixed AADC 

Letters; (2) Non-automation 3-Digit Non-machinable Letters; (3) Non-automation 5-Digit Nonmachinable Letters; (4) Non-automation ADC Non-machinable Letters; and (5) Automation 

AADC Letters.

Although Automation Mixed AADC Letters had a passthrough of 400 percent, avoided costs improved 

by 0.5 cents, from a negative 0.3 cents in FY 2012 to a positive 0.2 cents in FY 2013. In the FY 2012 

ACD, the Commission requested that the Postal Service investigate the reason for the negative cost 

avoidance. FY 2012 ACD at 123. The Postal Service contends that the negative cost avoidance was 

due to a temporary problem affecting underlying productivity measurement. FY 2013 ACR at 22 n.15.

The Postal Service justifies the excessive Automation Mixed AADC Letters passthrough pursuant to 

section 3622(e)(2)(D), as this barcoding discount encourages mailers to provide an Intelligent Mail 

barcode (IMb) on their mailpieces, which improves operational efficiency. In addition, the Postal 

Service intends to eliminate the portion of the discount above avoided cost over time. Id. at 22.

The Commission concludes that this discount is adequately justified pursuant to section 3622(e)(2)(D) as 

encouraging mailers to utilize IMb barcodes which should improve operational efficiency.

Non-automation 3-Digit Non-machinable Letters and Non-automation 5-Digit Non-machinable 

Letters had passthroughs of 161.9 percent and 137.7 percent, respectively.

The Postal Service justifies these passthroughs by citing the exceptions listed in 39 U.S.C. 3622(e)

(2)(B) and 3622(e)(2)(D). The Postal Service indicates that aligning the discounts and avoided costs 

would result in increases for Non-automation 3-Digit Non-machinable letters of 10.4 percent and Nonautomation 5-Digit Non-machinable letters of 20.3 percent. To avoid price increases that could result 

in rate shock, the Postal Service intends to continue reducing the discount until the passthrough 

reaches 100 percent. In addition, the Postal Service also asserts that these discounts encourage 

mailers to enter more finely presorted mail. Given the fewer number of processing plants, the Postal 
POSTAL REGULATORY COMMISSION 25

Service contends that reduction of the passthroughs could lead to additional allied operations, 

manual processing, and transportation costs. Id. at 21-22.

The Public Representative contends that the Postal Service should not rely upon 39 U.S.C. 3622(e)

(2)(B) because it stated that it would not be feasible to alter rates. Without any rates being altered, 

there would be no rate shock. PR Comments at 40. As for the Postal Service’s explanation pursuant 

to 39 U.S.C. 3622(e)(2)(D), the Public Representative indicates that he supports more efficient mail 

preparation, but is concerned that the Postal Service has not provided sufficient evidence of how 

excessive passthroughs, as opposed to other factors, are responsible for improved mail preparation. 

He recommends that the Commission only allow excessive passthroughs pursuant to 39 U.S.C. 3622(e)

(2)(D) when there is sufficient evidence that the discount results in a substantial reduction in avoided 

cost. He also recommends that “the Postal Service and/or the Commission investigate whether or not 

there are diminishing marginal benefits from continued and/or increasing passthroughs greater than 

100 percent for a product.” Id. at 41.

The Commission concludes that these discounts are adequately justified pursuant to section

3622(e)(2)(D) as encouraging operational efficiency because mailers will be incentivized to enter more 

finely presorted mail. However, the Commission encourages the Postal Service to investigate the additional 

costs it has listed, such as allied operations, manual processing, and transportation costs, to ensure the 

avoided costs model accurately reflects the additional cost savings for having more finely presorted mail.

Non-automation ADC Non-machinable Letters had a passthrough of 135.7 percent. The Postal Service 

notes that the cost avoidance increased from 7.9 cents in FY 2011 to 8.0 cents in FY 2012, decreased to 

7.0 cents in FY 2013, and effective January 26, 2014, the discount was reduced 0.2 cents to 9.3 cents. It 

contends that “given the volatility of cost avoidances, the progress made in recent price changes, and 

the Commission’s acceptance of a 116.3 percent passthrough in Docket No. R2013-10, it is not relying 

on any of the statutory exceptions.” FY 2013 ACR at 20. In addition, the Postal Service “...intends to 

eliminate the portion of the discount above avoided costs, as soon as practicable, while taking into 

account relevant business considerations.” Id.

The Public Representative does not agree with the Postal Service that it will be able to reduce the 

passthrough to 100 percent in the future. He contends that the Postal Service “is able to slightly 

reduce discounts, but recent history has shown that avoided cost changes (usually reductions) 

regularly overwhelm discount reductions and yield increasing, not decreasing, passthroughs.” 

PRC Comments at 40.

The Commission finds that the discount for Non-automation ADC Non-machinable Letters is out of 

compliance for FY 2013. The Postal Service must either align the discount with avoided costs when it 

files its next general market dominant price adjustment, or adequately support the discounts with an 

applicable statutory exception.

Automation AADC Letters had a passthrough of 106.7 percent. The Postal Service did not use the 

approved methodology for calculating the costs avoided for Automation AADC Letters. It calculates 
26 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

the cost avoidance as the difference in cost between the Mixed AADC category and the volume 

weighted hybrid of the AADC and 3-Digit categories. The Postal Service argues that the weighted 

average of AADC/3-Digit costs should be used not only as a benchmark for the calculation of 5-Digit 

prices, but also for the calculation of the cost avoidance for the AADC category. See Postal Service 

Response to CHIR No. 9. It contends that “it makes no sense to have a different cost avoidance for 

AADC than for 3-Digit, when they represent just one price cell.”17 Id. The Postal Service has not 

provided a statutory exception to justify the excessive passthrough. Id.

This ACD reflects only methodologies approved by the Commission prior to the filing of the ACR. The 

Postal Service may file a petition to initiate proceedings to consider changes to the methodology for the 

calculation of cost avoidances for the AADC categories that, if approved, may be used in future ACDs.

The Commission finds, using the approved methodology, that the discount for Automation AADC Letters is 

out of compliance for FY 2013. The Postal Service must either align the discounts with avoided costs when 

it files its next general market dominant price adjustment, or adequately support the discounts with an 

applicable statutory exception.

Flats

Seven Standard Mail Flats discounts exceeded their avoided costs in FY 2013. This includes two 

separate discounts for the nonprofit category, two separate discounts for the commercial category, 

and three discounts that apply equally to both: (1) Non-automation 3-Digit (nonprofit); (2) 

Automation 5-Digit (nonprofit); (3) Non-automation 3-Digit (commercial); (4) Automation 5-Digit 

(commercial); (5) Automation 3-Digit; (6) Non-automation 5-Digit; and (7) Automation Mixed AADC.

Nonprofit discounts for Non-automation 3-Digit and Automation 5-Digit Flats had passthroughs 

of 125.7 and 104.7 percent, respectively. Commercial discounts for Standard Mail Non-automation 

3-Digit Flats (commercial) and Automation 5-Digit Flats (commercial) had passthroughs of 142.9 

percent and 108.1 percent, respectively. For these four discounts, the Postal Service does not provide 

any statutory exception for these discounts exceeding avoided costs. Instead, the Postal Service plans 

to align these discounts with avoided costs during future market dominant price adjustments.18 

While the Commission finds that these four discounts are out of compliance for FY 2013, the Commission 

notes that two of the discounts, Nonprofit Non-automation 3-Digit Flats and Commercial Automation 

5-Digit Flats, have passthroughs of 100.0 percent after the approval of Docket No. R2013-10.19 For Nonprofit 

Automation 5-Digit Flats and Commercial Non-automation 3-Digit Flats, the Postal Service must either 

align the discounts with avoided costs when it files its next general market dominant price adjustment, or 

adequately support an applicable statutory exception.

17 Docket No. ACR2013, Response of the United States Postal Service to Chairman’s Information Request No. 9, February 27, 2014 

 (Response to CHIR No. 9).

18 Docket No. ACR2013, Response of the United States Postal Service to Questions 1-11 of Chairman’s Information Request No. 2, 

 January 23, 2014, question 11. See also FY 2013 ACR at 25-26.

19 See Docket No. R2013-10, United States Postal Service Notice of Market Dominant Price Adjustment, Attachment B at 8 and Order 

 No. 1902 at 3-4.
POSTAL REGULATORY COMMISSION 27

The passthrough for Automation 3-Digit Flats was 117.9 percent. Like the four discounts above, the 

Postal Service does not provide any statutory exception for this discount exceeding avoided costs. 

Instead, the Postal Service plans to align this discount with avoided costs during future market dominant 

price adjustments.20

For Automation 3-Digit Flats, the Commission finds the discount is out of compliance. The Postal Service must 

either align the discount with avoided costs when it files its next general market dominant price adjustment, 

or adequately support an applicable statutory exception.

The presort discount for Non-automation 5-Digit Flats had a passthrough of 132.2 percent for 

FY 2013. In Docket No. R2013-1, the Commission found that the proposed discount of 7.8 cents 

was aligned with the avoided cost. However, during consideration of Docket No. R2013-10, the 

discount had a passthrough of 120.8 percent. The Postal Service notes that “the cost avoidance fell 

significantly, to 5.9 cents, meaning that the passthrough will likely remain above 100 percent in FY 

2014.” FY 2013 ACR at 27. It contends that aligning the discount with cost avoidance would require 

an 11 percent price increase. In order to avoid a significant price increase that could result in rate 

shock, the Postal Service intends to continue reducing the discount until the passthrough reaches 

100 percent. Id.

The Commission finds the Postal Service has demonstrated that this excessive discount is adequately 

justified pursuant to 39 U.S.C. 3622(e)(2)(B) as it is necessary to mitigate rate shock and will be phased out 

over time.

The Automation Mixed ADC flats discount had a passthrough of 305.6 percent in FY 2013. The 

avoided cost decreased from 4.5 cents in FY 2012 to 1.8 cents in FY 2013. The Postal Service indicates 

that “ [o]n January 26, 2014, this discount will decrease to 4.9 cents from 5.5 cents.” Id. In addition, 

the Postal Service justifies the excessive pre-barcoding discount for Standard Mail Automation 

Mixed ADC Flats under 39 U.S.C. 3622(e)(2)(D), a reduction in the discount would impede operational 

efficiency. In previous ACRs the Postal Service explained that the excessive passthrough is necessary 

to encourage pre-barcoding of flats as a way to support the implementation of the FSS program. 

While the Postal Service’s deployment of FSS machines has been completed, it indicates that there is 

still a need for a pre-barcoding incentive. The Postal Service notes its intention to continue to phase 

this discount out over time. Id.

The Public Representative argues that the Postal Service should provide evidence as to why a discount 

that has increased its passthrough from 239 percent to 305.6 percent is needed a year after the 

deployment of the FSS has been completed. PR Reply Comments at 42. Valpak agrees with the Public 

Representative and questions why the Postal Service is providing such large workshare discounts to 

those mailers using a product that is causing large financial losses to the Postal Service. Valpak Reply 

Comments at 34.

20 Docket No. ACR2013, Response of the United States Postal Service to Questions 1-11 of Chairman’s Information Request No. 2, 

 January 23, 2014, question 11. See also FY 2013 ACR at 25-26.
28 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

The Commission finds this discount is adequately justified pursuant to 39 U.S.C. 3622(e)(2)(D), as a 

reduction in the discount may impede operational efficiency and discourage the use of pre-barcoding. In 

addition, the Postal Service intends to continue phasing this discount out over time.

Parcels

Five worksharing discounts for Standard Mail Parcels exceeded their avoided costs in FY 2013. The 

following two presort discounts exceeded avoided costs: (1) NDC Irregular Parcels21 at 36.5 cents, 

and (2) NDC Marketing Parcels at 41.4 cents. In addition, the following three pre-barcoding discounts 

exceeded their avoided costs: (1) Mixed NDC Machinable Barcoded Parcels at 6.4 cents; (2) Mixed NDC 

Irregular Barcoded Parcels at 6.4 cents; and (3) Mixed NDC Barcoded Marketing Parcels at 6.4 cents.22

The Postal Service justifies the passthroughs of the two presort discounts by citing the exception 

found in 39 U.S.C. 3622(e)(2)(B). It contends that immediately aligning the discount for NDC Irregular 

Parcels with avoided cost would require a 19 percent price increase. In addition, the Postal Service 

intends to continue phasing out the discount until the passthrough reaches 100 percent. Id. 

The Public Representative reiterates his claim that the Postal Service should not rely upon 39 U.S.C. 

3622(e)(2)(B), rate shock, when it contends that it is unable to modify prices. If there are no rates to 

alter, then there is no rate shock. PR Comments at 43.

The Commission finds the Postal Service has demonstrated that these excessive discounts are adequately 

justified pursuant to 39 U.S.C. 3622(e)(2)(B) as they are necessary to mitigate rate shock and will be phased 

out over time.

As for the three pre-barcoding discounts, the Postal Service justifies these discounts in excess 

of estimated avoided cost on the basis of efficient operations, citing section 3622(e)(2)(D). As 

discussed in previous ACRs, the Postal Service wants to promote a fully prebarcoded incoming parcel 

mailstream which would allow the elimination of keying stations on parcel sorters, thereby increasing 

the efficiency of postal operations. FY 2013 ACR at 29. The Postal Service applies a surcharge to all 

Standard Mail Parcels that do not bear a correct barcode. The Postal Service notes it has plans to soon 

require barcodes on all ground parcels.

The Public Representative contends that the same passthroughs were 164.1 percent in FY 2013 and 

have remained relatively constant compared to FY 2012. He therefore accepts the Postal Service’s 

proposed exceptions. PR Comments at 43.

21 For this category, the discount applies only to nonprofit. Its commercial counterpart was moved to the Competitive Product List. See 

 Docket No. MC2010-36, Order No. 689, Order Conditionally Granting Request to Transfer Commercial Standard Mail Parcels to 

 the Competitive Product List, March 2, 2011.

22 Id. Parcel dropship cost avoidances increased substantially between FY 2012 and FY 2013. The Postal Service characterizes these 

cost avoidances as anomalous and is investigating an alternative methodology to improve the costing. Docket No. 2013ACR, United 

States Postal Service Response to Question 1 of Chairman’s Information Request No. 11, March 6, 2014.
POSTAL REGULATORY COMMISSION 29

The Commission finds that for FY 2013, the pricing of the pre-barcoding discounts for Standard Mail Parcels 

is justified under 39 U.S.C. 3622(e)(2)(D) on the basis that it promotes a fully pre-barcoded incoming parcel 

mailstream which will improve operational efficiency.

Table II–4 

Standard Mail Carrier Route, High Density, and Saturation by Shape

FY 2013

Type of Workshare (Benchmark)

Year-End 

Discount 

(cents)

Unit Cost 

Avoidance 

(cents) Passthrough

Commercial Presorting (cents/piece)

High Density Letters 7.7 17.5 44.0%

(Carrier Route Letters)

High Density Flats 5.1 6.6 77.3%

(Carrier Route Flats)

Nonprofit Presorting (cents/piece)

High Density Letters 7.4 17.5 42.3%

(Carrier Route Letters)

High Density Flats 4.9 6.6 74.2%

(Carrier Route Flats)

Dropship (cents/pound)

DNDC Letters 16.1 31.5 51.1%

(Origin Letters)

DSCF Letters 20.9 39.5 52.9%

(Origin Letters)

DNDC Flats 16.1 18.5 87.0%

(Origin Flats)

DSCF Flats 20.9 21.6 96.8%

(Origin Flats)

DDU Flats 25.2 26.5 95.1%

(Origin Flats)

Source: PRC-ACR2013-LR-2.
30 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

FY 2013

Type of Workshare (Benchmark) Year-End Discount (cents) Unit Cost Avoidance (cents) Passthrough

Standard Mail Letters

Standard Mail Automation Letters 

Presorting (cents/piece)

Automation AADC Letters 1.6 1.5 106.7%

(Automation Mixed AADC Letters)

Automation 3-digit Letters 0.0 0.3 0.0%

(Automation AADC Letters)

Automation 5-digit Letters 1.9 2.0 95.0%

(Automation 3-digit Letters)

Barcoding (cents/piece)

Automation Mixed AADC Letters 0.8 0.2 400.0%

(Non-automation Machinable Mixed ADC 

Letters)

Standard Mail Non-automation Letters 

Presorting (cents/piece)

Non-automation AADC 

Machinable Letters 1.6 1.6 100.0%

(Non-automation Mixed AADC 

Machinable Letters)

Non-automation ADC

Non-machinable Letters 9.5 7.0 135.7%

(Non-automation Mixed ADC 

Non-machinable Letters)

Non-automation 3-digit

Non-machinable Letters 3.4 2.1 161.9%

(Non-automation ADC 

Non-machinable Letters)

Non-automation 5-digit

 Non-machinable Letters 9.5 6.9 137.7%

Table II-5

Standard Mail Letters and Flats (Commercial and Nonprofit)

Presorting/Barcoding Workshare Discounts and Benchmarks
POSTAL REGULATORY COMMISSION 31

(Non-automation 3-digit 

Non-machinable Letters)

Standard Mail Flats

Standard Mail Automation Flats

Presorting (cents/piece)

Automation ADC Flats 1.0 3.8 26.3%

(Automation Mixed ADC Flats)

Automation 3-digit Flats 4.6 3.9 117.9%

 (Automation ADC Flats)

 Commercial Automation 5-digit Flats 9.3 8.6 108.1%

(Automation 3-digit Flats)

 Nonprofit Automation 5-digit Flats 9.0 8.6 104.7%

 (Automation 3-digit Flats)

 Barcoding (cents/piece)

 Automation Mixed ADC Flats 5.5 1.8 305.6%

 (Non-automation Mixed ADC Flats)

 Standard Mail Non-automation Flats

 Presorting (cents/piece)

 Non-automation ADC Flats 3.7 4.2 88.1%

 (Non-automation Mixed ADC Flats)

 Commercial Non-automation 3-digit Flats 5.0 3.5 142.9%

 (Non-automation ADC Flats)

 Nonprofit Non-automation 3-digit Flats 4.4 3.5 125.7%

(Non-automation ADC Flats)

Non-automation 5-digit Flats 7.8 5.9 132.2%

(Non-automation 3-digit Flats)

Table II-5

Standard Mail Letters and Flats (Commercial and Nonprofit)

Presorting/Barcoding Workshare Discounts and Benchmarks (Cont.)

FY 2013

 Type of Workshare (Benchmark) Year-End Discount (cents) Unit Cost Avoidance (cents) Passthrough

Source: PRC-ACR2013-LR-2.
32 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

FY 2013

Type of Workshare (Benchmark)

Year-End 

Discount 

(cents)

Unit Cost 

Avoidance 

(cents) Passthrough

Nonprofit Standard Mail Parcels

Presorting (cents/piece)

NDC Machinable Parcels 36.2 54.6 66.3%

(Mixed NDC Machinable Parcels)

5-digit Machinable Parcels 26.0 62.2 41.8%

(NDC Machinable Parcels)

NDC Irregular Parcels 36.5 19.5 187.2%

(Mixed NDC Irregular Parcels)

SCF Irregular Parcels 35.6 43.8 81.3%

(NDC Irregular Parcels)

5-digit Irregular Parcels 2.9 56.9 5.1%

(SCF Irregular Parcels)

Barcoding (cents/piece)[1]

Mixed NDC Machinable Barcoded Parcels[2] 6.4 3.5 182.9%

(Mixed NDC Machinable Non-barcoded Parcels)

Mixed NDC Irregular Barcoded Parcels[2] 6.4 3.5 182.9%

(Mixed NDC Irregular Non-barcoded Parcels)

Standard Mail Marketing Parcels

Presorting (cents/piece)

NDC Marketing Parcels 41.4 30.6 135.3%

(Mixed NDC Marketing Parcels)

SCF Marketing Parcels 31.2 36.4 85.7%

(NDC Marketing Parcels)

5-digit Marketing Parcels 6.8 54.9 12.4%

(SCF Marketing Parcels)

Barcoding (cents/piece)[1]

Mixed NDC Barcoded Marketing Parcels[2] 6.4 3.5 182.9%

(Mixed NDC Non-barcoded Marketing Parcels)

Table II-6

Standard Mail Parcels (Commercial and Nonprofit)

Presorting/Barcoding Workshare Discounts and Benchmarks

Source: PRC-ACR2013-LR-2.

[1] The Postal Service charges a surcharge for non-barcoded pieces.

[2] The Postal Service Standard Mail Parcel mail processing cost model does not estimate costs separately for barcoded and 

 non-barcoded pieces. The Postal Service uses a barcoding avoidable cost for Bound Printed Matter (BPM) as a proxy.

 See PRC-ACR2013-LR-4, Excel file “2013 BPM MP,” tab ‘Barcode Savings.’
POSTAL REGULATORY COMMISSION 33

Table II-7

Standard Mail Letters, Flats, and Parcels (Commercial and Nonprofit)

Dropship Discounts and Benchmarks

Source: PRC-ACR2013-LR3

FY 2013

Type of Worksharing (Benchmark)

Year-End 

Discount 

(cents)

Unit Cost 

Avoidance 

(cents) Passthrough

Standard Mail Letters

Dropship (cents/pound)

DNDC Letters 16.1 31.5 51.1%

(Origin Letters)

DSCF Letters 20.9 39.5 52.9%

(Origin Letters)

Standard Mail Flats

Dropship (cents/pound)

DNDC Flats 16.1 18.5 87.0%

(Origin Flats)

DSCF Flats 20.9 21.6 96.8%

(Origin Flats)

Nonprofit Standard Mail Machinable Parcels

Dropship (cents/pound)

DNDC Machinable Parcels 22.3 898.5 2.5%

(Origin Machinable Parcels)

DSCF Machinable Parcels 46.2 1106.9 4.2%

(Origin Machinable Parcels)

DDU Machinable Parcels 64.1 1141.5 5.6%

(Origin Machinable Parcels)

Standard Mail Marketing Parcels

Dropship (cents/pound)

DNDC Marketing Parcels 22.3 898.5 2.5%

(Origin Marketing Parcels)

DSCF Marketing Parcels 46.2 1106.9 4.2%

(Origin Marketing Parcels)

DDU Marketing Parcels 64.1 1141.5 5.6%

(Origin Marketing Parcels)

Nonprofit Standard Mail Irregular Parcels

Dropship (cents/pound)

DNDC Irregular Parcels 22.3 898.5 2.5%

(Origin Irregular Parcels)

DSCF Irregular Parcels 46.2 1106.9 4.2%

(Origin Irregular Parcels)

DDU Irregular Parcels 64.1 1141.5 5.6%

(Origin Irregular Parcels)
34 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Package Services

The following three Package Services products offered workshare discounts in FY 2013: (1) Media 

Mail/Library Mail; (2) Bound Printed Matter (BPM) Flats; and (3) Bound Printed Matter (BPM) Parcels.

Media Mail/Library Mail

There were four discounts offered for Media Mail/Library Mail in FY 2013. Table II-8 shows the FY 2013 

discounts, avoided costs, and passthroughs for Media Mail/Library Mail.

The Basic presort discount for the Media Mail/Library Mail categories exceeded avoided costs in FY 

2013. The FY 2013 Basic presort passthroughs for Media Mail/Library Mail were 156.7 percent and 

146.7 percent, respectively. The Postal Service justifies the FY 2013 passthroughs pursuant to section 

3622(e)(2)(C) because Media Mail/Library Mail are categories consisting of mail matter of ECSI value. 

The Postal Service explains that it plans to move the discounts toward their unit cost avoidances over 

time, while avoiding any drastic changes that could cause rate shock. FY 2013 ACR at 35.

BPM Flats and BPM Parcels

In FY 2013, there were 15 discounts offered for BPM Flats and 12 discounts for BPM Parcels. Table II-9 

and Table II-10 show the FY 2013 discounts, avoided costs, and passthroughs for BPM Flats and BPM 

Parcels, respectively.

The Destination Network Distribution Center (DNDC) dropship discount for BPM Flats and BPM Parcels 

exceeded unit avoided costs in FY 2013. The DNDC dropship passthrough was 121.4 percent for both 

products. See Tables II-9 and II-10. In Docket No. R2013-1, the Postal Service set the DNDC dropship 

discounts for BPM Flats and BPM Parcels equal to their respective unit avoided costs.23 However, those 

discounts were set using FY 2011 unit avoided costs data. Since the Docket No. R2013-1 proceeding, the 

unit avoided costs of DNDC dropship discounts for BPM Flats and BPM Parcels decreased, resulting in 

above-100 percent passthroughs for FY 2013. The Postal Service plans to align the discounts with their 

unit avoided costs in its next price adjustment. FY 2013 ACR at 36; Response to CHIR No. 2, question 11.

The Postal Service also observes that in its most recent price adjustment that went into effect on 

January 26, 2014, the discounts for BPM Flats and BPM Parcels DNDC dropship were set equal to the 

latest available unit avoided costs data from FY 2012.24 However, those discounts, while equivalent 

to the FY 2012 unit avoided costs, are still greater than the newly calculated unit avoided costs for 

FY 2013. Therefore, these discounts are likely to have above 100 percent passthroughs in the Postal 

Service’s FY 2014 ACR. Consequently, the Postal Service believes that it does not need to rely on a 

statutory worksharing exception to justify above 100 percent pass throughs for BPM Flats and BPM 

23 See Docket No. R2013-1, Compliance Calculations for Package Services, Library Reference PRC-LR-R2013-1-4, 

 November 16, 2012; Excel file “R2013-1 Package Services Worksharing.xlsx,” which shows that the DNDC dropship discount and 

 unit avoided costs were 17.0 cents for both BPM Flats and BPM Parcels.

24 See Docket No. R2013-11, Price Adjustment Calculations for Package Services, Library Reference PRC-LR-R2013-11-6, 

 December 24, 2013; Excel file “R2013-11 Package Services Worksharing.xlsx,” which shows that the DNDC dropship discount 

 and unit avoided costs were 14.1 cents for both BPM Flats and BPM Parcels.
POSTAL REGULATORY COMMISSION 35

Parcels DNDC dropship discounts. ld. at 36. It believes that the above-100 percent passthroughs 

can be best explained by the lag between the most recent price adjustments and the fiscal year cost 

avoidance calculations. ld.

Public Representative Comments

The Public Representative recognizes the ECSI exemption for the Media Mail/Library Mail product, but 

is skeptical of the Postal Service’s ability to reduce the excessive passthroughs for BPM Flats and BPM 

Parcels DNDC dropship discounts by bringing unit avoided costs and discounts into better alignment. 

PR Comments at 44. He notes that there is high year-to-year volatility in avoided costs and observes 

that the Postal Service’s discount flexibility will be more restricted once the exigent rate increases are 

withdrawn. ld.

Commission Analysis

Section 3622(e)(2) requires the Commission to ensure workshare discounts do not exceed estimated 

avoided costs unless justified by a statutory exception. For FY 2013, the Commission concludes that four 

Package Services workshare discounts exceeded unit avoided costs: (1) Media Mail Basic presort; (2) Library 

Mail Basic presort; (3) BPM Flats DNDC dropship; and (4) BPM Parcels DNDC dropship. All other Package 

Services workshare discounts did not exceed their respective unit avoided costs, and thus complied with 

section 3622(e) in FY 2013.

With respect to the basic presort discounts for Media Mail/Library Mail, the Commission concludes that 

these discounts are justified pursuant to section 3622(e)(2)(C) since the Media Mail/Library Mail product 

qualifies for the ECSI exemption. To the extent practicable, the Postal Service should align these discounts 

with their avoided costs in its next price adjustment filing.

With respect to the DNDC dropship discounts for BPM Flats and BPM Parcels, the Commission finds that 

the discounts are not in compliance with section 3622(e). Based on the Postal Service’s past practices with 

setting these discounts, and its representation that it intends to align these discounts with avoided costs 

at the time of the next general market dominant price adjustment, the Commission finds that no further 

remedial action is required.
36 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Source: PRC-ACR2013-LR-4.

[1] The calculated passthroughs are based on rounded unit avoided costs.

FY2013 

Type of Worksharing (Benchmark)

 Year-End 

Discount 

(cents) 

 Unit Cost 

Avoidance 

(cents) Passthrough[1]

Media Mail

Presorting (cents/piece)

Basic (Single-Piece) 47.00 30.00 156.7%

5-Digit (Basic) 39.00 63.00 61.9%

Library Mail

Presorting (cents/piece)

Basic (Single-Piece) 44.00 30.00 146.7%

5-Digit (Basic) 37.00 63.00 58.7%

Table II-8 

Media Mail/Library Mail

Workshare Discounts and Benchmarks
POSTAL REGULATORY COMMISSION 37

 FY 2013 

Type of Worksharing (Benchmark)

 Year-End 

Discount 

(cents) 

 Unit Cost 

Avoidance 

(cents) Passthrough[3]

Presorting (cents/piece)[1]

Basic Flats (Single-Piece Flats) 34.4 See Note[1] N/A

Carrier Route Flats (Basic Flats) 9.9 14.5 68.3%

Presorting (cents/pound)[1]

Basic, Carrier Route Flats (Single-Piece Flats)

Zones 1&2 4.1 See Note [1] N/A

Zone 3 5.5 See Note [1] N/A

Zone 4 5.3 See Note [1] N/A

Zone 5 6.0 See Note [1] N/A

Zone 6 6.2 See Note [1] N/A

Zone 7 6.2 See Note [1] N/A

Zone 8 7.0 See Note [1] N/A

Barcoding (cents/piece)[2]

Single-Piece Automation Flats 3.0 See Note [2] N/A

(Single-Piece Non-automation Flats)

Basic Automation Flats 3.0 See Note [2] N/A

(Basic Non-automation Flats)

Carrier Route Automation Flats 3.0 See Note [2] N/A

(Carrier Route Non-automation Flats)

Dropship (cents/piece)

Basic, Carrier Route DNDC Flats 17.0 14.0 121.4%

(Basic Origin Flats)

Basic, Carrier Route DSCF Flats 61.5 63.2 97.3%

(Basic Origin Flats)

Basic, Carrier Route DDU Flats 76.2 79.3 96.1%

(Basic Origin Flats)

Table II-9 

Bound Printed Matter Flats

Workshare Discounts and Benchmarks

Source: PRC-ACR2013-LR-4.

[1] The BPM cost model does not estimate cost differences between single-piece and presorted BPM. Single-piece BPM is a residual 

 category with low volume and adequate data are not available. Previously, rate differences between single-piece and presorted BPM 

 were based on an assumption that unit mail processing costs for single-piece BPM were twice that of presorted BPM. See Docket No 

 R2006-1, USPS-T-38, p. 8.

[2] The calculated passthroughs are based on rounded unit avoided costs.

[3] The calculated passthroughs are based on rounded unit avoided costs.
38 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Source: PRC-ACR2013-LR-4.

[1] The BPM cost model does not estimate cost differences between single-piece and presorted BPM. Single-piece BPM is a residual 

 category with low volume and adequate data are not available. Previously, rate differences between single-piece and presorted 

 BPM were based on an assumption that unit mail processing costs for single-piece BPM were twice that of presorted BPM. See

 Docket No. R2006-1, USPS-T-38, p. 8.

[2] The calculated passthroughs are based on rounded unit avoided costs.

 FY 2013 

Type of Worksharing

 Year-End 

Discount 

(cents) 

 Unit Cost 

Avoidance 

(cents) Passthrough[2]

Presorting (cents/piece)[1]

Basic Parcels (Single-Piece Parcels) 64.0 See Note[1] N/A

Carrier Route Parcels (Basic Parcels) 9.8 14.5 67.6%

Presorting (cents/pound)

Basic, Carrier Route Parcels (Single-Piece Parcels)

Zones 1&2 5.9 See Note [1] N/A

Zone 3 6.6 See Note [1] N/A

Zone 4 6.3 See Note [1] N/A

Zone 5 5.7 See Note [1] N/A

Zone 6 6.4 See Note [1] N/A

Zone 7 4.6 See Note [1] N/A

Zone 8 4.6 See Note [1] N/A

Dropship (cents/piece)

Basic, Carrier Route DNDC Parcels 17.0 14.0 121.4%

(Basic Origin Parcels)

Basic, Carrier Route DSCF Parcels 61.6 63.2 97.5%

(Basic Origin Parcels)

Basic, Carrier Route DDU Parcels 76.5 79.3 96.5%

(Basic Origin Parcels)

Table II-10

Bound Printed Matter Parcels

Workshare Discounts and Benchmarks
POSTAL REGULATORY COMMISSION 39

PREFERRED RATE REQUIREMENTS

Section 3626 of title 39, United States Code, identifies preferred rate requirements applicable to 

Periodicals, Standard Mail, and Package Services prices.

Periodicals is a preferred class of mail and receives several statutory discounts identified in 39 U.S.C. 

3626, such as a five percent discount for nonprofit and classroom publications. In Docket No. R2013-1, 

the Commission determined that Periodicals prices were set consistent with statutory preferences for 

mail in the Periodicals class.25

39 U.S.C. 3626(a)(6) requires nonprofit prices in Standard Mail to be set in relation to their commercial 

counterparts regardless of nonprofits’ independent costs. In Docket No. R2013-1, nonprofit prices 

were set to yield per-piece average revenues that were 60 percent of commercial per-piece average 

revenues at the class level. Order No. 1541 at 49. The Commission calculates that in FY 2013, the 

actual per-piece revenue from Standard Mail nonprofit pieces was 59.7 percent of Standard Mail 

commercial per-piece revenue.

One preferred mail requirement applies to Media Mail/Library Mail, a product in Package Services. 

39 U.S.C. 3626(a)(7) requires Library Mail prices to be set at 95 percent of Media Mail prices. In Docket 

No. R2013-1, the Commission determined that Library Mail prices were set at 95 percent of Media Mail 

prices. Id.

The Commission finds that in FY 2013, prices were in compliance with all the preferred rate requirements 

identified in 39 U.S.C. 3626.

25 Docket No. R2013-1, Order on Price Adjustments for Market Dominant Products and Related Mail Classification Changes, 

 November 16, 2012, at 65 (Order No. 1541).
40 FY 2013 ANNUAL COMPLIANCE DETERMINATION 
POSTAL REGULATORY COMMISSION 41

CHAPTER 3

MARKET DOMINANT PRODUCTS:

OTHER RATE AND FEE COMPLIANCE ISSUES

INTRODUCTION

Commenters raise other rate and fee compliance issues, most of which relate to the objectives and 

factors established by 39 U.S.C. 3622 and the policies of title 39, United States Code. These issues 

include noncompensatory products, negotiated service agreements (NSAs), and pricing issues related 

to perceived cost coverage disparities. The Commission has also identified some additional cost 

coverage issues not raised by the commenters.

This chapter begins with an analysis of noncompensatory products, organized by class. It also 

includes a discussion of Standard Flats (an area of concern to several commenters), issues relating to 

NSAs, and other pricing issues.

NONCOMPENSATORY PRODUCTS

First-Class Mail Parcels

Following the transfer of commercial First-Class Mail Parcels to the competitive product list in FY 2012, 

the cost coverage for First-Class Mail Parcels fell to 98.5 percent. FY 2012 ACD at 17. The Commission 

urged the Postal Service to improve cost coverage through cost reductions and rate adjustments. Id. 

In FY 2013, despite an above-average five percent price increase in January 2013, the attributable 

costs of First-Class Mail Parcels exceeded revenues by $3 million, resulting in a cost coverage of 99.5 

percent. Id.; PRC-ACR2013-LR1. On January 26, 2014, the Postal Service increased prices for First-Class 

Mail Parcels by approximately 11.0 percent.1 The Postal Service anticipates that the cost coverage 

for First-Class Mail Parcels as a result of this price increase will be above 100 percent. FY 2013 ACR 

at 11. The Commission commends the Postal Service for taking steps to increase the cost coverage 

for First-Class Mail Parcels consistent with the FY 2012 ACD. The Commission shares the Postal 

Service’s expectation that the January 26, 2014 price increase will result in a cost coverage of more 

than 100 percent.

1 See Order No. 1890 at 38; Docket No. R2013-10, Library Reference PRC-LR-R2013-10/1, November 21, 2013; Docket No. 

R2013-11, Order Granting Exigent Increase, December 24, 2013, at 193 (Order No. 1926).
42 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Periodicals

Periodicals commenters address whether Periodicals prices were in compliance with title 39 in FY 2013.

In FY 2013, the cost coverage for Periodicals increased for the first time since FY 2008. Periodicals 

revenue covered 76.1 percent of the $2.2 billion in attributable costs incurred by the class in FY 2013. 

This resulted in a negative contribution to institutional costs of $521 million. Table III-1 summarizes 

the financial results for Periodicals since the enactment of the PAEA.

Since the enactment of the PAEA, the cost coverage for Periodicals has declined from 84.0 percent 

to 76.1 percent. Table III-2 details the unit cost, revenue, and contribution for Periodicals over the 

same timeframe.

Source: PRC-ACR2013-LR^.

Table III-1

Periodicals Cost Coverage FY 2007—FY 2013

Periodicals Historical Financial Results (Millions)

Year Volume Revenue Cost

Cost 

Coverage Contribution

2007 8,795 $2,188 $2,636 83.01% $(448)

2008 8,605 $2,295 $2,732 84.00% $(437)

2009 7,953 $2,038 $2,680 76.04% $(642)

2010 7,269 $1,879 $2,490 75.46% $(611)

2011 7,077 $1,821 $2,430 74.94% $(609)

2012 6,741 $1,732 $2,402 72.10% $(670)

2013 6,359 $1,658 $2,179 76.10% $(521)

 $(3,938)

Table III-2

Periodicals Unit Cost, Revenue, and Contribution FY 2007—FY 2013

Source: PRC-ACR2013-LR-3.

Source: PRC-ACR2013-LR-3.

Cost/Piece Revenue/Piece Contribution/Piece

2007 $0.2997 $0.2488 $(0.0509)

2008 $0.3175 $0.2667 $(0.0508)

2009 $0.3370 $0.2563 $(0.0807)

2010 $0.3425 $0.2585 $(0.0841)

2011 $0.3434 $0.2573 $(0.0860)

2012 $0.3562 $0.2568 $(0.0994)

2013 $0.3427 $0.2608 $(0.0819)
POSTAL REGULATORY COMMISSION 43

In FY 2013, the average contribution per piece for Periodicals improved to negative 8.1 cents per 

piece. Reversing a trend since FY 2006, the cost per piece for Periodicals decreased in FY 2013 to 

roughly the same level as FY 2010. Further, revenue per piece for Periodicals increased by 0.4 cents 

in FY 2013.

The Postal Service summarizes the Periodicals cost coverage issue as follows:

The Postal Service shares the Commission’s concern about Periodicals cost 

coverage, and, as stated in the Periodicals Mail Study, “the Postal Service and the 

Commission will continue to work together to identify and address challenges 

related to Periodicals.” That Study outlined the continuing steps that the Postal 

Service is taking to reduce costs. The improved cost coverage shows that 

savings from those steps are now starting to accrue.

More generally, while the Postal Service will continue to pursue whatever 

efficiency enhancements are possible, it is extremely doubtful, in the context 

of price increases limited to the CPI cap, that the Periodicals class can achieve 

100 percent cost coverage.2

Valpak notes that the Postal Service has lost $3.44 billion from Periodicals since FY 2008. Valpak 

Comments at 46. Valpak discusses underwater products and flat-shaped mail generally, but does not 

discuss Periodicals compliance issues specifically. Valpak states that “[t]he Postal Service has offered 

false promises about declining flats costs for many years, which the Commission has accepted, but 

it would be irresponsible if one were to repeat that mistake again.” Id. at 63. Valpak contends that 

the FY 2013 prices violated section 3622(c)(2), section 3622(c)(7), section 3622(c)(12), section 101(d), 

section 3622(b)(1), section 3622(b)(2), section 3622(b)(5), section 403(c), and section 404(b), but 

does not propose a remedy for these violations. Id. at 50-51.

The Public Representative notes the improvement in Periodicals cost coverage in FY 2013, 

and states that while “a one year improvement in the financial results does not yet provide 

a solid ground for positive conclusions, it gives some hope.” PR Comments at 31. The Public 

Representative requests the Commission to “direct the Postal Service to continue implementing 

cost savings and productivity improvement measures.” Id. at 32.

Magazine Publishers of America, Inc. (MPA) and the Alliance of Nonprofit Mailers (ANM) urge 

the Commission to reject Valpak’s argument that Periodicals prices were out of compliance with 

title 39 in FY 2013. MPA & ANM Reply Comments at 2, 17. MPA and ANM note that the Public 

Representative’s request that the Commission direct the Postal Service to continue implementing 

cost savings and productivity improvement measures has “considerable merit.” Id. at 2. MPA and 

ANM state that the Commission needs to “confront directly the elephant in the living room of 

Periodicals mail pricing: the Postal Service’s failure to rein in the out-of-control costs of Periodicals 

2 FY 2013 ACR at 32-33.
44 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Mail despite large investments in automation equipment by the Postal Service, and large increases 

in worksharing by periodical publishers and their mail service providers.” Id.

Regarding Valpak’s argument that Periodicals prices were out of compliance with title 39, MPA and 

ANM address each of Valpak’s arguments concerning sections 3622(c), 3622(b), 403(c), 101(d), and 

404(b). Id. at 3-10.

Despite the failure of Periodicals to cover costs since FY 1996, the Commission does not find the rates 

and fees for the Periodicals class to be out of compliance for FY 2013.

In the FY 2012 ACD, the Commission found that “the Postal Service needs to take further action to 

reverse Periodicals negative net revenue trend.” FY 2012 ACD at 18. The Commission directed the 

Postal Service to “leverage its pricing flexibility to improve Periodicals bundle and container pricing to 

incent more efficient mailer preparation and increase contribution from Periodicals.” Id. at 101. The 

Commission also directed the Postal Service to “pursue the considerable opportunities identified in 

FY 2012 to reduce the costs of handling Flats.” Id. at 97.

Regarding the Commission’s direction to leverage its pricing flexibility, the Postal Service continued 

its strategy, initiated in Docket No. R2009-2, of across-the-board price increases for the rate elements 

in Periodicals in Dockets No. R2013-10 and R2013-11. In Docket No. R2013-11, the Commission 

approved the implementation of the exigent surcharge. The Postal Service estimated that the 

cost coverage of Periodicals would increase to 81 percent for FY 2014. The FY 2013 increase in 

unit revenue was driven by an increase in pounds per piece. As discussed in Chapter 2, supra, the 

Commission is increasingly concerned that the Postal Service’s Periodicals pricing strategy is leading 

to inefficient mailer preparation. The inefficient pricing signals being sent by the Postal Service’s 

prices prevent the Postal Service from maximizing contribution from Periodicals. Further, the 

inefficient price signals are increasingly creating winners and losers within the Periodicals class. 

See Chapter 2, supra.

Following the Commission’s direction to reduce costs, in FY 2013, the Postal Service continued to 

implement operational strategies to reduce the cost of flats, as detailed in its response to CHIR No. 

2, question 1.3 The Postal Service described the new and ongoing operational initiatives it took in 

FY 2013 to make its processing of flats more efficient. However, the Postal Service did not relate its 

success in reducing Periodicals unit costs to the operational initiatives it implemented, noting that 

no “analysis has been performed to isolate the cost savings from these initiatives, assuming that such 

analyses are even possible with available data.” Id. The Commission is concerned that the Postal 

Service is not measuring the success of the operational initiatives it has implemented to reduce the 

costs of Flats.

3 Response to CHIR No. 2, questions 1-11.
POSTAL REGULATORY COMMISSION 45

In the Periodicals Mail Study, the Commission and the Postal Service worked together to generate 

an enhanced understanding of the challenges facing the Periodicals class. In the study, the Postal 

Service detailed projects that would improve Periodicals cost coverage. For FY 2013, the Postal 

Service was unable to report on the success of these initiatives. The Commission expects the Postal 

Service to continue the work of the Periodicals Mail Study and update its analysis for implementation 

results. The Commission is willing and able to work with the Postal Service in this endeavor. Further, 

in the Periodicals Mail Study, the Postal Service discussed pricing strategies it may choose to pursue 

in the future. The Commission expects the Postal Service to detail its progress, if any, in pursuing its 

Periodicals pricing strategies.

In the FY 2014 ACR, the Postal Service must provide a detailed analysis of the progress made in improving 

Periodicals cost coverage. This report shall include:

■ The impact of leveraging its pricing flexibility to improve the efficiency of Periodicals pricing;

■ The impact of the implementation of operational strategies outlined in Chapter 7 of the Periodicals 

 Mail Study, specifically, how actual savings compare with the $146 million estimated in Table 9; and

■ The progress in implementing pricing strategies outlined in Chapter 7 of the Periodicals Mail Study.

Standard Mail Flats

Prior to FY 2012, the cost coverage for Standard Mail Flats had decreased every fiscal year since 2008. 

In FY 2012, cost coverage for Standard Mail Flats increased by 1.4 percentage points over FY 2011. In 

FY 2013, cost coverage for Standard Mail Flats increased 4.2 percentage points, from 80.9 in FY 2012 to 

85.1 percent in 2013.

The improvement in cost coverage was driven by a unit revenue increase of 0.7 cents, and a decrease 

in unit attributable cost of 1.3 cents. Although total contribution from Standard Mail Flats was a 

negative $376 million, this was an improvement of $152 million over FY 2012.

In the FY 2010 ACD, the Commission determined that Standard Mail Flats prices in effect in FY 2010 did 

not comply with section 101(d) of title 39, and directed the Postal Service to increase the cost coverage 

of the Standard Mail Flats product through a combination of cost reductions and above-average 

price adjustments, consistent with the price cap requirements, until such time that revenues exceed 

attributable costs. FY 2010 ACD at 106. In addition, the Postal Service was directed to provide in each 

of its subsequent ACRs the following information: (1) a description of operational changes designed to 

reduce flats costs in the previous fiscal year and an estimation of the financial effect of such changes; 

(2) a description of all costing methodology or measurement improvements made in the previous 

fiscal year and estimated financial effects of such changes; (3) a statement summarizing the historical 

and current fiscal year subsidy of the Flats product; and (4) the estimated timeline for phasing out this 

subsidy. Id. at 107. Consistent with the Commission’s directive, in subsequent market dominant price 

adjustments, the Postal Service was required to report the following: (1) an explanation of how the 

proposed prices will move the Flats cost coverage toward 100 percent; and (2) a statement estimating 

the effect that the proposed prices will have in reducing the subsidy of the Flats product. Id.
46 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

The Postal Service appealed to the United States Court of Appeals for the District of Columbia Circuit 

the Commission’s FY 2010 ACD findings and directive. On April 17, 2012, the United States Court of 

Appeals for the District of Columbia Circuit issued an opinion in USPS v. Postal Regulatory Comm’n, 

676 F.3d 1105 (D.C. Cir. 2012). In its opinion, the Court rejected the Postal Service’s contention that the 

Commission acted outside of the scope of its statutory authority by considering the general standards 

of section 101(d) in an Annual Compliance Determination “at least in extreme circumstances”. Id. at 

1108. The Court remanded the case to the Commission “for a definition of the circumstances that 

trigger [section] 101(d)’s failsafe protection, and for an explanation of why the particular remedy 

imposed here is appropriate to ameliorate that extremity....” Id. at 1109. In response, the Commission 

issued Order No. 1427 clarifying that its analysis of the circumstances that would trigger section 

101(d) depended on the totality of circumstances.4

The Commission identified the following specific factors which, in the case of Standard Mail Flats, 

triggered section 101(d)’s protections: (1) a significant and growing cost coverage shortfall; (2) the 

duration of the shortfall over a significant period; (3) evidence the shortfall is likely to increase further, 

and a significant adverse impact on users of other products; (4) failure of the Postal Service to address 

the shortfall; and (5) the failure of the Postal Service to take remedial steps. The Commission also stated 

that an extreme case may not apply if price increases would be counterproductive under the price cap 

or if cost reductions were not feasible. Order No. 1427 at 10. The Commission affirmed that Flats present 

an “extreme case.” The Commission explained further that additional factors could emerge in other cases 

that would support a finding of extreme circumstances requiring remedial action. Id. at 9. In addition, 

the Commission stated that it “does not interpret section 101(d) to require ‘only 100% cost coverage, 

and nothing short of 100%’ to satisfy the fair and equitable cost apportionment standard, provided an 

adequate explanation for a failure to improve cost coverages is offered.” Id. at 14.

While the Court case was pending, the Commission found in its FY 2011 ACD that the rates and fees 

for Standard Mail Flats remained out of compliance and that Standard Mail prices continued to reflect 

an unfair and inequitable apportionment of the costs of postal operations to all Standard Mail users. 

FY 2011 ACD at 118-19. Shortly after the close of FY 2011, the Postal Service filed notice with the 

Commission announcing an above-average increase of 2.209 percent for Standard Mail Flats. The 

Commission explained in its FY 2011 ACD that “[o]rdinarily, the Commission would consider the Postal 

Service’s subsequent filing.” However, because of the pendency of the litigation regarding the FY 2010 

ACD, the Commission held action in this area in abeyance pending receipt of the Court’s decision and 

did not require further remedial action. Id. at 16, 119.

On September 21, 2012, the Commission issued an order confirming termination of the stay it had 

previously granted pending resolution of the Postal Service’s appeal.5 The Commission directed that 

as part of its FY 2012 ACR, the Postal Service should respond to the specific remedy adopted by the FY 

2010 ACD. Id. at 3. 

4 Docket No. ACR2010-R, Order on Remand, August 9, 2012, at 4 (Order No. 1427).

5 Docket No. ACR2010-R, Notice and Order Confirming Termination of Stay, September 21, 2012. 
POSTAL REGULATORY COMMISSION 47

6 See Docket No. R2013-10, Response of the United States Postal Service to Chairman’s Information Request No. 3, Questions 1-2 and 

6-7, October 24, 2013, question 6 (Docket No. R2013-10 Response to CHIR No. 3). See also FY 2013 ACR at 19-20.

7 In FY 2013, the Postal Service continued its efforts to move flat mail from manual flats processing operations to processing on 

automated equipment. As part of its network rationalization effort, the Postal Service consolidated 143 processing plants, which 

reduced the number of facilities with manual processing. While this should have decreased manual processing, the Postal Service 

noted that the percentage of manually processed flats increased from 8.5 percent to 9.4 percent in FY 2013. It attributed this 

increase to initial plant consolidation activities, which mostly occurred during the fourth quarter of FY 2013. It expects to see the 

percentage of manual processing to decline in FY 2014 as the benefits of these consolidations are realized. Response to CHIR No. 

2, question 1.

8 The Postal Service explains that “Bundle Operation” is the conversion of Small Parcel Bundle Sorter (SPBS) units to Automated 

Parcel and Bundle Sorter (APBS) units. This conversion, which was completed in FY 2013, has reduced operating costs and 

improved operational efficiency by replacing aging equipment with newer technology and resulted in improved throughput per hour 

performance. Id.

9 The Postal Service explains that this tool produces the “optimum” sort program run order for FSS machines based on dynamic flat mail 

volumes and expected throughput per hour performance. Id.

10 For a discussion of each of these initiatives, refer to the Postal Service’s Response to CHIR No. 2, question 1.

In its FY 2012 ACD, the Commission found that “the Postal Service has begun to make progress 

towards addressing the issues raised by the Commission in the FY 2010 ACD...[and]...[t]he 

approach advocated by the Postal Service does not require changes to the Commission’s FY 2010 

ACD directive.” FY 2012 ACD at 116.

Postal Service Response to ACD Directive

In its FY 2013 ACR, the Postal Service provides a two-year schedule of above-Consumer Price Index 

(CPI) price increases for the Standard Mail Flats product. FY 2013 ACR at 20. The Postal Service plans 

to increase Standard Mail Flats prices by CPI multiplied by 1.05 in 2015 and 2016. It reiterates its 

argument in Docket No. R2013-10 that a two-year outlook for scheduling above-price increases for 

Standard Mail Flats is appropriate because the Commission’s review under 39 U.S.C. 3622(d)(3) of the 

system for regulating rates and classes for market dominant products is slated to begin in FY 2017.6

In its FY 2013 ACR, the Postal Service did not provide the information required by the Commission’s 

FY 2010 ACD directive, e.g., a description of operational changes designed to reduce Flats costs, a 

description of all costing methodology or measurement improvements made in the previous fiscal 

year, and an estimated timeline for phasing out this subsidy. FY 2010 ACD at 107. However, in its 

Response to CHIR No. 2, question 1, the Postal Service describes several new and ongoing steps that 

it took during FY 2013 to make its processing of Standard Mail Flats more efficient: (1) FSS Scorecard; 

(2) Move Mail Up the Ladder;7 (3) Bundle Operation;8 (4) Service Performance Diagnostics Tool; (5) FSS 

Daily Sort Program (Batting) Order Optimization Tool;9 (6) FSS Tiger Teams; (7) Lean Mail Processing 

(LMP); and (8) Cost Per Work Hour.10 

The Postal Service does not provide the financial effect of the operational changes identified above. 

In its Response to CHIR No. 2, question 1, it states, “[n]o analysis has been performed to isolate the 

cost savings resulting from these initiatives, assuming that such analyses are even possible with 

available data.” Id.
48 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

In its Response to CHIR No. 2, question 1, the Postal Service identifies three costing methodology 

changes that affected Standard Mail Flats costs in FY 2013, all of which were part of Docket No. 

RM2013-6: (1) Proposal One; (2) Proposal Two; and (3) Proposal Three.11 These three methodology 

changes added $0.7 million in attributable cost to Standard Mail Flats.

Additionally, the Postal Service provides the historical and current fiscal year subsidy of the Standard 

Mail Flats product. However, it does not provide a timeline for phasing out the subsidy and reiterates, 

as initially noted in its Response to CHIR No. 1, question 2(c) in the FY 2012 ACR,12 that it is difficult to 

predict when the shortfall for Standard Mail Flats will be phased out. See also Response to CHIR No. 2, 

question 1(c). 

It also indicates it is unlikely that the shortfall will be eliminated by the end of 2016 (when the 

Commission commences its review of the rate system) and states that “[t]he prospects for eliminating 

the shortfall thereafter will depend not only on pricing and cost saving initiatives, but also on any 

changes made to applicable regulations by the Commission.” Id. The Postal Service also notes that 

“over the past two fiscal years the Postal Service has reduced the Standard Mail Flats shortfall by $272 

million...[and]...predicts that similar progress will be made in the upcoming year.” Id.

Comments on Standard Mail Flats Product

The Commission received comments from ACMA, the PR, and Valpak related to the Standard Mail Flats 

product. The comments generally address four areas: (1) relationship of Standard Mail Flats to other 

Standard Mail products; (2) intra-class cross-subsidy; and (3) recommendations for future costing 

models; and (4) cost coverage and compliance.

Relationship of Standard Mail Flats to Other Standard Mail Products

ACMA argues that Standard Mail Flats should not be evaluated and priced in isolation because 

this product is “composed of mail that, due to volume limitations, cannot be presorted more finely 

than a 5-digit area,...[and]...simply cannot reach the 10-piece threshold for Carrier Route.” ACMA 

Comments at 3-4. ACMA maintains that “the rates for Standard Flats are part of a schedule of 

rates...[that]...includes Standard Flats, Carrier Route, and High-Density, whose differences are not 

based on meaningful criteria,...have been eroded by DPS processing, and are now being eroded 

further by FSS processing.” Id. at 4. ACMA believes “the Postal Service should be allowed latitude in 

selecting these differences.” Id.

11 On February 4, 2014, the Commission issued Order No. 1983 approving Proposals One through Five in Docket No. RM2013-6. 

See Docket No. RM2013-6, Order No. 1983, Order on Analytical Principles Used in Periodic Reporting (Proposals One Through 

 Five), February 4, 2014. Proposal One would implement a simpler method for calculating the Alaska Air Adjustment Factor within 

 Cost Segment 14 (Purchased Transportation) using postal operational data from the Transportation Cost System (TRACS) instead of 

 U.S. Department of Transportation data. Proposal Two would establish a single set of distribution factors to assign relevant costs from 

 the Non-Preferential Alaska Air, Preferential Alaska Air, Hawaii Air, and Air Taxi cost pools to products using current postal operational 

 data from the TRACS, which would also remedy an inaccuracy in the distribution of Air Taxi costs. Proposal Three would create a set 

 of proxy distribution factors, updated quarterly, to assign relevant costs from Cost Segment 14 Highway Plant Load and Rail Plant 

 Load cost pools to products as an alternative to the current distribution factors, which are derived from special studies. 

12 Docket No. ACR2012, Responses of the United States Postal Service to Questions 1-9 and 12-15 of Chairman’s Information Request 

 No. 1, January 14, 2013, question 2(c).
POSTAL REGULATORY COMMISSION 49

The Public Representative contends that if, as ACMA asserts, Standard Flats is a residual category that 

cannot be separated from Standard Mail Carrier Route, and Standard Mail High Density and Saturation 

Flats, then it follows that Standard Flats should not be considered a separate product. PR Reply 

Comments at 7. If this is the case, he suggests that ACMA petition to open a rulemaking so that the 

Commission can determine whether the MCS should be modified accordingly. Id. at 7-8. 

Valpak contends that almost all of Standard Mail is advertising mail that adds value regardless of the 

type of mailing method used. Valpak Reply Comments at 2. In addition, every class of mail has some 

form of “residual” mail that the Postal Service accepts and processes at a higher cost. Id. at 7. However, 

Valpak does not believe that this residual mail is a separate category with its own rate. Id.

Intra-Class Cross-Subsidy

ACMA argues that to determine if a product is being cross-subsidized, one needs to conduct a burden 

test which analyzes the effects of withdrawing products that are complements or substitutes for one 

another. ACMA Initial Comments at 7, n.8. In conducting such a test, ACMA asks a series of questions 

pertaining to the removal of various products such as Standard Mail Flats. It concludes that removal 

of Standard Flats would leave in place Standard Mail Carrier Route and Standard Mail High-Density, 

which it states are “nothing more than highly prepared forms of Standard Flats.” Id. at 8. Given this 

conclusion, ACMA asserts “[t]here can be disagreement about how the Postal Service selects the 

rate elements for the various categories of Commercial Flats, and there can be opinions that the cost 

coverage for this grouping should be higher, but there is no subsidy that needs to be fixed.” Id. at 9.

Valpak argues that the existing cross-subsidies within Standard Mail demonstrate a deliberate 

misuse of the Postal Service’s pricing flexibility. Valpak Comments at 33. It further contends that the 

Commission “has allowed ‘pricing flexibility’ to override title 39 so that under no circumstances can 

the playing field be considered level, nor can the law be seen to protect mailers from implicit stamp 

taxes and cross-subsidies to those other mailers which the Postal Service chooses to favor.” Id. 

The Public Representative responds to Valpak’s assertion that Standard Flats are subsidized by other 

Standard Mail products. PR Reply Comments at 6-7. He states that because Standard Flats make no 

contribution toward institutional costs, there is no question that this product is being subsidized by 

other postal products. However, he states that one cannot conclude that the subsidy is only coming 

from other Standard Mail products. Id. at 6. The Public Representative points out that because “the 

Commission does not have approved incremental or stand-alone cost models by product and groups 

of products, it is not possible to conclude that Standard Flats, or any product with a cost coverage 

less than 100 percent is being subsidized.” Id. at 7. However, the Public Representative does support 

Valpak’s basic point that products such as Standard Mail Flats that are not contributing to institutional 

costs are not satisfying section 3622(c)(2). He also agrees “that other mail products with revenues 

greater than their attributable costs are bearing an inequitable share of institutional costs.” Id.
50 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Recommendations for Future Costing Models

Valpak offers its revised Standard Mail contribution model13 to demonstrate the inadequacy of the 

Postal Service’s rationale that raising rates for Standard Mail Flats may cause it to lose revenue. Valpak 

Comments at 18-42, Appendix. The revised model allows users of the model to adjust the assumed 

elasticity of each product individually and conduct sensitivity analyses with different elasticities. 

Independent secular trends may be introduced to distinguish between trend-induced and elasticityinduced changes in volume. Additionally, the model allows unit costs to be adjusted to distinguish 

between nominal and real price adjustments. Id. at 24. The model is no longer a single-period 

model. It has been expanded to include an additional period and shows how to increase contribution 

systematically, up to the maximum available under the cap. Id. at 40. By using its revised model, 

Valpak contends that the Postal Service could increase contribution, up to the maximum available 

under the price cap, by bringing the price of Standard Mail Flats up so as to cover its costs as soon as 

possible. Id. at 42.

ACMA states that Valpak’s subsidy test—which asks whether the profits of the Postal Service would 

increase if a product were withdrawn—is “irrelevant” because it improperly isolates Standard Flats for 

removal, instead of taking the continuum14 approach into account. ACMA Reply Comments at 3-4. It 

also criticizes Valpak’s model because it includes nonprofit categories in the withdrawal. Id. at 3. It 

states that for purposes of the test, if Valpak treated the nonprofits as though they paid commercial 

rates, and then estimated the effects of withdrawing the entire group consisting of Standard Flats, 

Carrier Route, and High-Density, the cost coverage would be above 100 percent and negative effects 

on Postal Service profits would be even greater, especially if interdependencies are considered. 

Id. at 4. ACMA argues that the volume of Standard Mail Flats has declined significantly while the 

portion of nonprofit has increased. It argues that “the advent of the FSS has blurred the separability 

of Standard Flats, important questions concerning the validity of the costing results have been raised, 

and the nature of the continuum of rates used by Flats mailers has been clarified.” Id. at 5.

The Postal Service argues that “in its current state, Valpak’s model remains seriously flawed.” Postal 

Service Reply Comments at 4. More specifically, the Postal Service contends that Valpak’s model only 

presents a 2-year time horizon, which is not enough for long-run effects to materialize. It assumes no 

secular volume declines and that the optimum contribution can be obtained by a sequence of static 

short-run solutions. It also explores only a single price path and does not consider other price paths 

that may achieve greater contribution in the long run. Id. at 5. 

13 Docket No. ACR2012, Valpak Direct Marketing Systems, Inc. and Valpak Dealers’ Association, Inc. Initial Comments on the United 

 States Postal Service FY 2012 Annual Compliance Report, February 1, 2013, at 80-107, Appendix A. See also Docket No. 

 R2013-11, Initial Comments of Valpak Direct Marketing Systems, Inc., and Valpak Dealers’ Association, Inc., November 26, 2013, 

 at 99-106, Appendix. 

14 According to ACMA, excluding the commercial categories of High Density Plus and Saturation, the following categories form a 

 continuum: (1) High Density, (2) Carrier Route, (3) 5-Digit preparation, (4) 3-Digit preparation, (5) ADC preparation, and (6) Mixed 

 ADC preparation. ACMA Comments at 2 n.2.
POSTAL REGULATORY COMMISSION 51

The Postal Service also asserts that its “focus has always been on the bottom line. Rather, the 

reference to ‘revenue yield’ in witness Taufique’s response was included: (1) because revenue yield is 

an important component of profitability; and (2) because revenue yield is constrained (on a beforerates basis) by the price cap.” Id. at 5. The Postal Service contends that it “continues to make progress 

toward moving Standard Mail Flats toward 100 percent cost coverage and believes that such progress 

will continue with the implementation of the agreed upon schedule of price increases and future 

cost savings.” Id. It “believes that the Commission’s current approach best balances the interests of 

all parties....[and] the Commission should decline to implement any additional orders with regard to 

Standard Mail Flats pricing.” Id.

Cost Coverage and Compliance

Although ACMA has argued in the past that the increase in unit costs is primarily due to costs of 

excess capacity being attributed to Standard Flats, it notes that the cost coverage indicates the 

downsizing of the Postal Service’s operations and reducing its excess capacity is working, and ACMA is 

optimistic that the Postal Service’s ongoing efforts to right size its network will continue to work. 

See ACMA Comments at 13. As such, ACMA recommends that the Commission find that the rates for 

Standard Flats are satisfactory and not in violation of title 39. Id. 

The Public Representative agrees that the Postal Service is on the right track in its measures to 

improve cost coverage. He points out that the Postal Service has improved its cost coverage 

for Standard Mail Flats and recognizes that the Postal Service continues to undertake multiple 

operational changes in order to reduce Standard Mail Flats costs, as directed by the FY 2010 ACD. He 

notes that the Commission in the FY 2012 ACD acknowledged the Postal Service’s progress towards 

addressing the issues raised in the FY 2010 ACD directive and that the Postal Service should continue 

to follow such directive. PR Comments at 27-28. He believes that “[c]ontinued improvement in cost 

coverage for Standard Flats proves the effectiveness of a ‘special remedy,’ i.e. above CPI price increases 

for Standard Mail Flats.” Id. at 29. 

However, the Public Representative notes that the Postal Service did not adopt the Commission’s FY 

2012 ACD recommendation to “derive elasticity estimates to provide for a more realistic assessment of 

the impact of price changes on contribution.” Id. at 30. Given that the Postal Service still estimates own 

price elasticity for all Standard Mail without any differentiation by product and that the elasticity for 

Standard Mail Flats is thus unknown, the Public Representative believes that “[t]he Postal Service’s failure 

to provide elasticities for products is a strong disadvantage.” Id. He reiterates his recommendation, 

initially made in his FY 2012 ACR Reply Comments, that the Postal Service utilize a demand-based 

pricing policy when setting prices for Standard Mail products. Id. Using this pricing policy should 

“ensure the greater product contribution to institutional costs, and a positive effect of such rate increases 

on the general public and other mail users in accordance with 39 U.S.C. § 3622(c)(3).” Id. 

Valpak disagrees with the notion that the Standard Flats product is moving in the right direction. 

It contends that the “deliberate underpricing of Standard Flats sends erroneous price signals, 

encouraging mailers to enter mail that the Postal Service cannot handle in an economically efficient 

manner[.]” Valpak Comments at 5. It states that in FY 2013, the “inequitable and unlawful Standard 
52 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Mail pricing has gotten worse, not better.” Id. It opines that “[n]o exigent rate case would have been 

necessary if the Postal Service had properly used its pricing flexibility.” Id. at 8. It observes that since 

enactment of the PAEA, the Postal Service has accumulated losses on underwater products, which 

includes Standard Mail Flats, in the amount of $8.6 billion, of which approximately $1.0 billion was 

added in FY 2013. Id.

Valpak maintains that “the pricing aspects of the Commission’s remedial order in the FY 2010 ACD 

have been disregarded and frustrated by the Postal Service.” Id. at 6. It contests the Postal Service’s 

reasons that, under a price cap regime, compliance with the Commission’s FY 2010 ACD directive 

would cause it to lose money. 

Valpak argues that the pricing of the Standard Mail High Density and Saturation Letters product is 

arbitrary and capricious, in violation of 39 U.S.C. 3622; fails to apportion the costs of Standard Mail 

fairly in violation of 39 U.S.C. 101(d); and unfairly discriminates against Standard Mail High Density/

Saturation Letters, in violation of 39 U.S.C. 403(c). Valpak Comments at 43-51, 62. It contends 

that the Postal Service’s failure to properly price underwater products resulted in an exigent price 

adjustment that violated 39 U.S.C. 3622(b)(2), predictability and stability in rates, at the expense of 

profitable products such as Standard Mail High Density and Saturation Letters and Standard Mail 

High Density and Saturation Flats. Id. at 48-51. 

As for the FY 2010 ACD directive, Valpak argues that the Postal Service has “alternately challenged, 

defied, ignored, and minimally complied with the Commission remedial order to adjust prices for 

Standard Flats[.]” Id. at 52. It asserts that Standard Mail prices fail to apportion the costs of postal 

operations to all Standard Mail users on a fair and equitable basis. Id. at 60-62. Valpak believes that 

“[n]ow is the time for the Commission to use its full range of remedial powers to ensure compliance 

with its own order.” Id. at 7. It urges the Commission to find that the Standard Mail Flats product 

remains out of compliance and in addition to the FY 2010 ACD directive; it should require higher 

Standard Mail Flats rates that cannot be circumvented. Id. at 60. In addition, Valpak urges the 

Commission to issue “a new remedial order...[that] would rescind its recent approval of increased 

prices [Docket Nos. R2013-10 and R2013-11] for Standard Mail approved previously, and order the 

Postal Service to establish lawful rates for all Standard Mail products as soon as possible.” Valpak 

Reply Comments at 46-47.

In response, ACMA discounts Valpak’s argument that the existence of underwater products 

triggered the Postal Service’s exigency request. ACMA Reply Comments at 2. ACMA believes that 

Standard Flats should be viewed as part of a continuum of categories used by Commercial Flats 

mailers, which encompasses Standard Flats, Carrier Route, and High Density. Id. at 4. According 

to ACMA, reported coverage has improved and there are sound reasons to expect further 

improvement. It urges the Commission to reconsider the FY 2010 ACD directive. Id. at 5.

The Public Representative also disagrees with Valpak’s conclusion that the Postal Service is not in 

compliance with the FY 2010 ACD directive. He states that as the Commission explained in the FY 

2012 ACD, losses alone do not necessarily require a finding of non-compliance. He believes that 
POSTAL REGULATORY COMMISSION 53

since the “...Commission concluded in the 2012 ACD that no further remedial action was necessary 

and in FY 2013 contribution continued to improve and the Postal Service’s actions continue to 

improve contribution, it must be concluded that the remedial directives in the 2010 ACD do not 

need revision.” PR Reply Comments at 6.

The Postal Service takes issue with Valpak’s conclusion that it has not complied with the FY 2010 

ACD directive. It understands:

why a mailer of High Density/Saturation Letters would focus its attention 

on the cost coverage gap between these products (Standard Mail Flats and 

Standard Mail High Density and Saturation Letters), [but argues that] this 

argument is simply not germane to whether the Postal Service has complied 

with Commission’s orders, particularly its order in the Annual Compliance 

Determination for Fiscal Year 2010 (‘2010 ACD Order’). In this regard, it is 

noteworthy that Valpak’s comments virtually ignore the over five percentage 

point increase in Flats cost coverage achieved since the FY 2011 ACD.

Postal Service Reply Comments at 3. Furthermore:

[a]s evidenced by: 1) the implementation of two above average price increases 

for Flats in Docket Nos. R2013-115 and R2013-10;16 2) the recent improvement in 

Flats’ cost coverage; and 3) the Postal Service’s commitment to implementing 

the schedule of above-average price increases approved by the Commission in 

the FY 2012 ACD, the Postal Service believes that it is in full compliance with the 

Commission’s orders and directives. 

Commission Analysis

Although a significant cost coverage shortfall still exists in FY 2013, it is not growing. The combination of 

above-average price increases for Standard Mail Flats in Docket No. R2013-1,17 a decrease of 2.8 percent 

in unit cost per piece from 46.5 cents in FY 2012 to 45.2 cents in FY 2013, and a decrease of 6.2 percent 

in volume from 5.94 billion pieces in FY 2012 to 5.6 billion pieces in FY 2013 resulted in a loss of $376 

million in FY 2013. This is an improvement of $152 million over FY 2012, and is the second fiscal year 

that Standard Mail Flats has improved its contribution and reduced its cost coverage shortfall.

15 Docket No. R2013-1, Order on Standard Mail Rate Adjustments and Related Mail Classification Changes, December 11, 2012

 (Order No. 1573).

16 Docket No. R2013-10, Order No. 1902, Order Approving Amendments to Notice of Market Dominant Price Adjustments, 

December 11, 2013. In its Reply Comments, the Postal Service cited Order No. 1904, but Order No. 1902 actually addressed 

the above-average price increases referenced in Docket No. R2013-10. 

17 See Order No. 1573.
54 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

In FY 2013, the Postal Service has continued to undertake various operational changes to make 

Standard Flats processing more efficient. In conformance with the FY 2010 ACD directive, the Postal 

Service presents a schedule of future Standard Flats price increases of at least CPI x 1.05 in 2015 and 

2016.18 These measures may prevent cost increases from outpacing price increases, which in turn, 

may decrease the shortfall. 

The unit contribution gap between Standard Mail Letters and Standard Mail Flats, and between 

Standard Mail Carrier Route and Standard Mail Flats, has continued to decrease in FY 2013. The gap 

between Standard Mail Letters and Standard Mail Flats decreased from 17.5 cents in FY 2012 to 16.2 

cents in FY 2013. Similarly, the gap between Standard Mail Carrier Route and Standard Mail Flats 

decreased from 14.7 cents in FY 2012 to 13.1 cents in FY 2013. In addition, the gap between Standard 

Mail High Density and Saturation Letters and Standard Mail Flats decreased from 16.5 cents in FY 2012 

to 14.9 cents in FY 2013, and the gap between Standard Mail Flats and Standard Mail High Density 

and Saturation Flats and Parcels decreased from 17.9 cents in FY 2012 to 16.4 cents in FY 2013.

In response to the Commission’s FY 2010 ACD directive, the Postal Service has taken steps to 

address the cost coverage shortfall. In FY 2013, the Postal Service made improvements with 

regard to cost and revenue. Nonetheless, some commenters argue that the Postal Service has not 

done enough to curb the shortfall and that the steps it has taken are inadequate to close the cost 

coverage gap in a reasonable time. 

The Commission notes that the Postal Service has taken remedial steps to address the cost 

coverage shortfall, and as indicated above, the cost coverage gaps are decreasing. If implemented, 

the schedule of price increases presented by the Postal Service coupled with cost changes below 

CPI-U would lead to continued improvement.

The Commission finds that progress is being made towards addressing the issues raised by the 

Commission in the FY 2010 ACD. As a result, no further remedial action is required at this time.

According to the Postal Service, while it has described the new and ongoing steps it has taken 

during FY 2013 to make its processing of Flats more efficient, “[n]o analysis has been performed 

to isolate the cost savings resulting from these initiatives, assuming that such analyses are even 

possible with available data.” See Response to CHIR No. 2, question 1. Generally, cost savings 

programs or initiatives target one or more specific activities to produce cost savings. These 

programs should have specific, measurable targets by which the benefits of the program can be 

evaluated. The Postal Service establishes similar targets in the form of performance goals in its 

Annual Performance Plans and Reports under 39 U.S.C. 2803 and 2804.19 

18 FY 2013 ACR at 19-20. The Postal Service states that “[t]he Commission approved the schedule of above average price increases 

in its ACD for FY 2012.” Id. at 19, citing the FY 2012 ACD at 115-16. While this observation is correct as to the formula proposed 

(CPI x 1.05), no temporal limit was suggested or implied by the Commission in its FY 2012 ACD.

19 See 39 U.S.C. 2801(3) (defining “performance goal” as “a target level of performance expressed as a tangible, measurable 

 objective, against which actual achievement shall be compared...”).
POSTAL REGULATORY COMMISSION 55

The Commission remains concerned that the Postal Service has not quantified the cost savings from 

operational changes designed to reduce Standard Mail Flats costs.20

To assist the Commission’s review, it recommended in the FY 2012 ACD that “the Postal Service derive 

elasticity estimates to provide for a more realistic assessment of the impact of price changes on 

contribution.” FY 2012 ACD at 116. The Postal Service indicated that for each quarter in which new data 

became available, it estimated both aggregate and disaggregated shape-based (letters and non-letters) 

Standard Mail equations with the additional data. According to the Postal Service, “the disaggregated 

shaped-based equations have still not yielded results which would suggest that substituting the 

disaggregated elasticity estimates for the aggregate estimates would generate better forecasts or 

otherwise improve the assessment of the impact of price changes on contribution.” 21 

The Commission appreciates the Postal Service’s efforts to derive elasticity estimates as recommended in the 

FY 2012 ACD. Having these elasticity estimates would provide for a more realistic assessment of the impact 

of price changes on volume and total contribution. Therefore, the Postal Service should continue its efforts to 

derive elasticity estimates for Standard Mail products. 

Standard Mail Parcels

In FY 2013, the Standard Mail Parcels product again did not produce sufficient revenues to cover its 

attributable costs. The Standard Mail Parcels product had a 67.9 percent cost coverage, a decline 

of 17.6 percentage points from FY 2012. The Postal Service notes that “[t]his decline comes on 

the heels of repeated above average price increases – i.e. 2.864 percent in January 2012 (vs. 2.041 

percent class average); 3.081 percent in January 2013 (vs. 2.569 percent class average); and 1.820 

percent (based on Docket No. R2013-10) in January 2014 (vs. 1.642 percent class average).” FY 2013 

ACR at 18. It indicates that these changes have “left the remaining Standard Mail Parcels product with 

a significantly higher proportion of nonprofit mailpieces, driving down cost coverage.” Id. While this 

latest increase, which was effective on January 26, 2014, is the sixth consecutive increase for Standard 

Mail Parcels, the Postal Service indicates that it is “committed to improving this product’s cost 

coverage by proposing above average price increases in future price adjustments.” Id.

In FY 2013, the revenue generated from Standard Mail Parcels was not sufficient to recover the 

attributable cost of the product. The Public Representative observes that Standard Parcels’ 

attributable cost has decreased. Thus, he concludes that the Postal Service is “on the right track 

in the measures undertaken to improve cost coverage, including proposed above average price 

increases in future price adjustments.” PR Comments at 27.

Standard Mail Parcels experienced a decline in its cost coverage and significantly increased its negative 

unit contribution to institutional costs by 32.8 cents from a negative 16.1 cents in FY 2012. However, the 

20 Generally, cost savings programs or initiatives target one or more specific activities to produce cost savings. These programs should 

 have specific measurable targets by which the benefits of the program can be evaluated.

21 Docket No. FY 2013ACR Responses of the United States Postal Service to Questions 1-20 of Chairman’s Information Request 

 No. 4, February 6, 2014, question 13 (CHIR No. 4).
56 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

loss was reduced by $13.7 million over FY 2012 to a $35.2 million loss in FY 2013. The reduction in losses 

may be due to a decline of 76.3 percent of volume from FY 2012, as the market dominant commercial 

Standard Mail Fulfillment Parcels was transferred to the competitive product list.22 These changes 

became effective on January 22, 2012.

The Commission finds that the Postal Service’s approach to improve the cost coverage for Standard Mail 

Parcels through above-average price increases in future price adjustments is appropriate.

Single-Piece Parcel Post

In FY 2013, Single-Piece Parcel Post had a cost coverage of 93.1 percent, a 0.9 percentage point 

increase from FY 2012. Unit contribution increased 12.0 cents per piece from FY 2012 to FY 2013. 

Despite the increase in unit contribution, this is the seventh consecutive year that Single-Piece Parcel 

Post did not generate sufficient revenues to cover attributable costs.

Single-Piece Parcel Post was offered for approximately four months in FY 2013. On January 27, 

2013, the following three related product list changes occurred: (1) Single-Piece Parcel Post was 

removed from the market dominant product list; (2) a similar single-piece product, Standard Post, 

was added to the competitive product list; and (3) the Alaska Bypass Service23 subcategory of 

the former Single-Piece Parcel Post was added to the market dominant product list as a Package 

Services product offering.24

Public Representative Comments

The Public Representative notes that Single-Piece Parcel Post did not cover its attributable costs in FY 

2013. PR Comments at 32-33. He observes that Single-Piece Parcel Post was eliminated from the 

market dominant product list in FY 2013. Id. at 33.

Commission Analysis

Single-Piece Parcel Post did not cover its attributable costs during the four months that it was in 

effect in FY 2013, so it made no contribution to institutional costs. Thus, for FY 2013, Single-Piece 

Parcel Post was inconsistent with section 3622(b)(5) (revenue adequacy), and section 3622(c)(2) 

(cost coverage). Since Single-Piece Parcel Post was removed from the market dominant product list 

on January 27, 2013, no remedial action is warranted.

22 Docket No. MC2010-36, Order No. 689, Order Conditionally Granting Request to Transfer Commercial Standard Mail Parcels to 

 the Competitive Product List, March 2, 2011, and Docket No. CP2012-2, Order No. 1062, Order Approving Changes in Rates of 

 General Applicability for Competitive Products, December 21, 2011.

23 Alaska Bypass Service allows shippers to send shrink-wrapped pallets of goods within Alaska from designated “hub points” to 

designated “bush points.” These pallets are flown to remote rural Alaska areas using commercial air carriers. Therefore, Alaska Bypass Service attributable costs are reflected only in intra-Alaska air transportation costs (cost segment 14.1.1). See Library Reference 

USPS-FY13-2, Excel file FY13.Public CS&CRpt.Revised.xls, tab CS14 (revised February 6, 2014).

24 See Docket No. MC2012-13, Order No. 1411, Order Conditionally Granting Request to Transfer Parcel Post to the Competitive 

 Product List, July 20, 2012. In Docket No. CP2013-3, the Commission determined that the Postal Service satisfied the conditions 

 of Order No. 1411. See Docket No. CP2013-3, Order No. 1536, Order Approving Changes in Rates of General Applicability 

 for Competitive Products, November 8, 2012, at 16. In that docket, the Commission also approved the Postal Service’s request to 

 change the name of the product from Parcel Post to Standard Post. See also Docket No. R2013-1, Order No. 1541, Order on 

 Price Adjustments for Market Dominant Products and Related Mail Classification Changes, November 16, 2012, at 69 (adding 

 Alaska Bypass Service to the market dominant product list effective January 27, 2013).
POSTAL REGULATORY COMMISSION 57

Media Mail/Library Mail

In FY 2013, Media Mail/Library Mail had a cost coverage of 85.0 percent, a 0.3 percentage point 

decrease compared to FY 2012. Unit contribution decreased 3.8 cents per piece from FY 2012 to FY 

2013. This is the seventh consecutive year that Media Mail/Library Mail did not generate sufficient 

revenues to cover attributable costs. The Postal Service explains that under the price increases 

that went into effect on January 26, 2014, Media Mail/Library Mail’s cost coverage is expected to 

improve to 94.3 percent in FY 2014. FY 2013 ACR at 35 n.18. The Postal Service further elaborates 

that it plans to attempt to improve the product’s cost coverage over time through price increases. 

FY 2013 ACR at 35.

Public Representative Comments

The Public Representative notes that Media Mail/Library Mail requires special attention since it 

consistently has not covered its attributable costs. PR Comments at 34. The Public Representative 

compares Media Mail/Library Mail’s mail processing costs for FY 2013 and FY 2012. ld. Based on his 

analysis, the Public Representative states that unit mail processing costs for all Media Mail/Library 

Mail price categories increased from FY 2012 to FY 2013. ld. Consequently, he concludes that the 

unit mail processing cost increases raise concerns about Media Mail/Library Mail’s compliance with 

section 3622(c)(2) in FY 2013 and its ability to comply in FY 2014. ld.

Commission Analysis

Media Mail/Library Mail did not cover its attributable costs or make a contribution to institutional 

costs in FY 2013. While this product may not be consistent with section 3622(c)(2) (cost coverage), 

the Commission must also consider the 9 objectives and 14 factors in their totality, such as the pricing 

factor outlined in section 3622(c)(11). Section 3622(c)(11), which is especially relevant to Media Mail/

Library Mail, requires the Commission to take into account the educational, cultural, scientific, or 

informational value to the recipient of the mail matter.

The Postal Service has used its pricing flexibility to consistently propose above-inflation price increases 

for Media Mail/Library Mail in order to bring the revenues for this product closer to 100 percent cost 

coverage. The above-inflation price increases should eventually produce prices that are consistent 

with section 3622(b)(5) (to ensure adequate revenues to maintain financial stability). Therefore, despite 

Media Mail/Library Mail’s failure to cover costs, the Commission does not find that Media Mail/Library 

Mail was inconsistent with section 3622 in FY 2013. Table III-3 shows the history of price increases for 

Media Mail/Library Mail under the PAEA.
58 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Nevertheless, the Commission agrees with the Public Representative that Media Mail/Library Mail 

requires special attention to ensure that this product becomes profitable for the Postal Service. The 

Commission encourages the Postal Service to continue pricing the Media Mail/Library Mail product in 

a way that brings the product towards full cost coverage.

Stamp Fulfillment Services

The Stamp Fulfillment Services (SFS) product provides for the fulfillment of stamp orders placed by 

mail, phone, fax, or online to the Stamp Fulfillment Services Center in Kansas City, Missouri. Stamp 

Fulfillment Services was added to the Mail Classification Schedule as a market dominant product in 

FY 2010. Since its introduction, SFS costs have exceeded its revenues such that the cost coverage is 

below 100 percent. However, Table III-4 shows that the SFS cost coverage for FY 2013 improved 21.5 

percentage points from that reported in the FY 2012 ACD.

ACD Year Cost Coverage

FY 2010 53.1 percent

FY 2011 59.7 percent

FY 2012 59.3 percent

FY 2013 88.8 percent

Table III-4

Stamp Fulfillment Services Cost Coverage25

Docket No. Price Adjustment

Price Adjustment 

Authority 

(Price Cap)

R2008-1 4.538% 2.900%

R2009-2 7.468% 3.800%

R2011-2 1.964% 1.741%

R2012-3 2.581% 2.133%

R2013-1 3.469% 2.570%

R2013-10 2.061% 1.696%

Table III-3

Media Mail/Library Mail Price Adjustment versus

Price Adjustment Authority Comparisons

Source: PRC Package Services Price Cap Adjustment Workpapers.

25 FY 2012 ACD at 142. See also Notice of the United States Postal Service of Revisions to the FY 2013 Annual Compliance Report – 

 Errata, February 6, 2014, at 37. (FY 2013ACR Errata) Percentages are rounded to the nearest tenth of a percent.
POSTAL REGULATORY COMMISSION 59

26 FY 2010 ACD at 29 n.43. See also FY 2011 ACD at 142.

27 Id.; see also FY 2012 ACR at 32.

28 The term “letterpost” refers to international mail that is not classified as Parcel Post or Express Mail (EMS). Also known as LC/AO mail 

 (i.e., letters and cards, and all other objects, including flats and small packets), letterpost consists of mail similar to domestic First-Class 

 Mail, Periodicals, Standard Mail, Bound Printed Matter, and Media Mail/Library Mail, weighing up to 4.4 pounds (2.0 kilograms).

Commission Analysis

The substantial increase in cost coverage is traceable to a 19 percent increase in unit revenue and 

a 6. 5 percent decrease in unit attributable cost. The increase in unit revenue was mostly due to the 

elimination of the $1.00 domestic fee for customers requesting SFS in FY 2013. Prior to this change, 

there were three domestic fee levels that varied by the value of the order ($1.00, $1.25, and $1.75). With 

the elimination of the $1.00 charge, customers either pay the $1.25 or $1.75 domestic fee. This increases 

the unit revenue from $1.27 in FY 2012 to $1.51 in FY 2013. See PRC-ACR2013-LR-5. The unit handling 

cost appears to have decreased because of a productivity gain that resulted in a 7 percent reduction in 

handling minutes per order. See PRC-ACR2013-LR-5.

In FY 2010 and FY 2011, SFS and the philatelic revenues and costs were reported together in the 

applicable CRA. In response to an FY 2010 and FY 2011 CHIRs, the Postal Service estimated the 

proportion of revenues and costs attributable to SFS without philatelic services.26 In January 2012, the 

Postal Service implemented a relatively large SFS price increase and expected a significant improvement 

in the cost coverage. Consequently, the Commission concluded that no further action was required. 

However, the Commission recommended that the Postal Service report revenues and volumes for SFS 

and philatelic products separately in the FY 2013 RPW. Id.

In FY 2012, the SFS cost coverage was 0.4 percentage points lower than in FY 2011. The Postal Service 

asserted that had the FY 2012 rate increase been in effect for an entire fiscal year, the cost coverage 

would have improved significantly.27 The Postal Service stated that it would “continue to attempt to 

move the cost coverage toward 100 percent through price adjustments.” FY 2012 ACD at 142. The Postal 

Service should continue to improve the cost coverage for this product.

Inbound Letterpost (at UPU Rates)

The Inbound Letterpost (at UPU rates) product consists of inbound letterpost items entered by 

foreign postal operators.28 Foreign postal operators remunerate the Postal Service for the delivery 

of inbound letterpost items at UPU terminal dues rates or negotiated rates established in bilateral 

or multilateral agreements.

For FY 2013, revenues for the Inbound Letterpost (at UPU rates) product did not cover attributable 

costs. The reported loss was $83.2 million, an increase from the $65.3 million loss in FY 2012. The cost 

coverage also decreased to 63.5 percent in FY 2013 from 67.3 percent in FY 2012. The decrease in 

contribution and cost coverage between FY 2013 and FY 2012 reflect a total unit cost increase that was 

greater than the increase in total unit revenue. 
60 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

The smaller total unit revenue increase compared to the total unit cost increase follows from a decrease 

in unit revenue from Target System countries—the largest source of Inbound Letterpost—that more 

than offset the increase in unit revenue from Transition System countries.29 Domestic transportation 

costs for Inbound Letterpost on a pound basis increased approximately 10 percent. Response to CHIR 

No. 3, question 7. The Postal Service states another contributing factor to the total unit cost increase 

was a 15 percent increase in weight per piece for Inbound Letterpost from Transition System countries, 

resulting in double-digit increases in Transition System country unit mail processing, delivery and 

transportation costs. Id. 

Under the UPU’s Quality Link Measurement System (QLMS), terminal dues payments to the Postal 

Service are adjusted, positively or negatively, depending upon whether service performance achieves 

the UPU-established annual quality of service performance target. In FY 2013, revenue from Inbound 

Letterpost (at UPU rates) was adversely affected by adjustments to terminal dues payments for the 

quality of service provided by the Postal Service. This reduction reflects the fact that the Postal Service’s 

final on-time service performance scores did not meet the UPU quality of service target of 88 percent in 

CY 2012.30 As a result, the Postal Service had to forgo additional revenue, albeit small, as it also incurred 

penalties during CY 2012, which includes the first quarter (October-December 2012) of FY 2013.

Preliminary on-time service performance scores for the months of January through November 2013 

show a decline during the first-half of the year, and improvement thereafter, compared to the same 

preliminary monthly scores reported in CY 2012. Id. Notwithstanding this improvement, the preliminary 

monthly scores do not meet or exceed UPU quality of service target. Consequently, the final annual 

service performance score is not expected to meet or exceed the UPU quality of service target of 88 

percent in CY 2013. This in turn would result in a small but negative effect on Postal Service revenue 

for the Inbound Letterpost (at UPU rates) product, although there is a lag in making the final CY 2013 

adjusted terminal dues payments.

More generally, the Postal Service observes that the failure of Inbound Letterpost (at UPU rates) 

revenue to cover attributable costs “stems from the product’s unique pricing regime.”31 Prices are set 

“according to a Universal Postal Union (UPU) terminal dues formula . . . for the majority of mail, the 

formula is based upon a percentage of the one ounce retail Single-Piece First-Class Mail price, [and 

for] the remainder . . . [prices are] based on a set rate per kilo,” instead of actual Postal Service costs. 

Id. That formula is renegotiated in the UPU once every four years. Thus, the Postal Service does not 

“independently determine the prices [paid by foreign postal operators] for delivering foreign origin 

mail” in the United States. Id.

29 The target system refers to the UPU system of terminal dues payments to designated postal operators for the delivery of Inbound 

 Letterpost in “target” countries, primarily industrialized countries, from other Target System designated operators at rates linked to the 

 domestic postal rates in the country of delivery. The Transition System refers to terminal dues payments to designated postal operators 

 for the delivery of inbound letterpost in “transition” countries, primarily developing countries, from Transition System and Target System 

 designated operators at a fixed rate per kilogram. Unlike the target system, Transition System terminal dues rates are generally not ad

 justed for quality of service, although Transition System designated operators are expected to transition into the Target System overtime.

30 Responses of the United States Postal Service to Questions 1-14 of CHIR No. 3, question 5, January 27, 2014. The information was 

filed under seal in Library Reference USPS-FY13-NP33.

31 Notice of the United States Postal Service of Revisions to the FY 2013 Annual Compliance Report—Errata, February 6, 2014, at 11 

 (Revised FY 2013 ACR).
POSTAL REGULATORY COMMISSION 61

The Public Representative is the only party to comment on the Inbound Letterpost (at UPU rates) 

product. The Public Representative states that given the “pricing regime for inbound single-piece 

[letterpost], [it] does not believe [Inbound] First-Class Mail rates were out of compliance in FY 2013.” 

PR Comments at 24.

The noncompensatory nature of inbound letterpost means that domestic mailers continue to 

subsidize foreign mailers who use the same postal infrastructure, while bearing none of the burden 

of contributing to its institutional cost. However, the Commission recognizes that the pricing regime 

for the Inbound Letterpost (at UPU rates) product, based upon the current UPU formula, results in 

terminal dues rates that are not compensatory. The Commission therefore does not recommend any 

remedial action at this time.

During the past several years the United States Delegation, which included representatives from the 

Commission, played an active role in UPU negotiations to develop a more compensatory terminal 

dues formula for inbound letterpost. Those negotiations were concluded in 2012, resulting in the 

adoption of a new formula to calculate terminal dues rates. Under the formula, new terminal dues 

rates, effective in CY 2014, will rise by double digits. According to the Postal Service, the new terminal 

dues rates “are expected to have a positive effect on [inbound letterpost] revenue and cost coverage 

for both target and transition countries.” Revised FY 2013 ACR at 11. The Commission notes that 

similar increases in UPU terminal dues rates will also occur during CY 2015, 2016, and 2017.

In recent years, the Postal Service has entered into bilateral agreements with a number of foreign 

postal operators that include negotiated terminal dues rates as an alternative to the UPU terminal 

dues rates for some or all of its inbound letterpost items. These negotiated rates are designed to 

improve the overall cost coverage for inbound letterpost. In FY 2013, bilateral agreements were in 

effect with the following foreign postal operators: Australia Post, Canada Post, the China Post Group, 

Hongkong Post, Royal PostNL (Netherlands), and Singapore Post.

Under current circumstances, the Commission recommends that the Postal Service continue to negotiate 

more compensatory bilateral (or multilateral) agreements with foreign postal operators in the upcoming 

fiscal year.

MARKET DOMINANT NEGOTIATED SERVICE AGREEMENTS (NSAs)

NSAs are contracts between a specific mailer and the Postal Service that provide the mailer discounts 

(rebates) designed to encourage higher mail volumes and contribution. The Commission bases its 

review of market dominant NSAs on their performance during “contract years,” i.e., 12-month periods 

measured from the time that the contract was first implemented. For the ACD, the Commission 

reviews the contract year that ends during the fiscal year of the ACD. 

In FY 2013, the Postal Service had two domestic market dominant NSAs in effect: Discover (DFS) and 

Valassis. Contract year 2 of the NSA with DFS (Docket Nos. MC2011-19 and R2011-3) ran from

April 1, 2012 through March 31, 2013, (and was thus completed during FY 2013). The Postal Service 
62 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

was authorized to implement an agreement with Valassis (Docket Nos. MC2012-14 and R2012-4) in 

FY 2012. Valassis sent no mail under the agreement in FY 2013. FY 2013 ACR at 38. Table III-5 shows 

the net effect on the contribution to institutional costs of the NSAs in effect during FY 2013.

Discover NSA

When requesting approval of the DFS NSA, the Postal Service stated the “objective of this multi-class 

market dominant agreement is to maintain the total contribution the Postal Service receives from 

DFS First-Class and Standard postage, and to provide an incentive for net contribution to grow 

beyond that.”32 Pursuant to the agreement, DFS receives rebates on “qualifying mail”33 if its total 

revenue exceeds the agreed upon revenue threshold.34 In contract year 2, the revenue threshold 

was $276.5 million, which DFS exceeded by $10.3 million.35 The DFS NSA provides DFS with a 

rebate of a portion of the generally applicable market dominant price increases during the contract 

for eligible volume (75 percent of the price increase for First-Class Mail and 37.5 percent of the price 

increase for Standard Mail). Table III-6 details the rebate calculation for contract year 2. As detailed 

in Table III-6, DFS received rebates of $9,233,198 in contract year 2 on 1.095 billion pieces qualifying 

for the rebate.

Table III-5 

Summary of NSA Net Effect on Contribution for NSAs in Effect in FY 2013

Source: PRC-ACR2013-LR-6.

32 Docket Nos. MC2011-19 and R2011-3, Notice of the United States Postal Service of Filing of Contract and Supporting Data and 

 Request to Add Discover Financial Services Negotiated Service Agreement to the Market-Dominant Product List, January 14, 2011, at 

 2 (Docket Nos. MC2011-19 and R2011-3, Notice).

33 Discover earns rebates on all IMb mail pursuant to the agreement. Mail that qualifies for other promotions, such as the mobile 

 barcode promotion, or is not pre-barcoded with an IMb does not qualify for rebates pursuant to the NSA.

34 The NSA has a threshold adjustment mechanism aimed at maintaining Discover’s First-Class Mail revenue. In contract year 2, 

 Discover generated $1.1 million less First-Class revenue than in the baseline period. Consequently, the threshold adjustment was 

 activated. The First-Class Mail revenue adjustment increases the total revenue threshold by 0.65 percent of the decrease in First-Class 

 Mail revenue. The threshold increased by $718,323 in contract year 2 due to the First-Class Mail adjustment. $1,105,112 

 multiplied by 0.65 is $718,323.

35 The rebate threshold for contract year 2 is 115 percent of the Discover eligible revenue during the baseline period. The baseline 

 eligible revenue was $239.7 million. $239.7 million multiplied by 1.15 is $275.8 million. The revenue threshold also includes a 

 mechanism for encouraging DFS to maintain revenue for First-Class Mail. As detailed in Table III-8, DFS First-Class Mail revenue in 

 contract year 2 was below the First-Class Mail revenue in the baseline period. Thus, in contract year 2, the First-Class Mail threshold 

 adjustment mechanism increased the overall revenue threshold. The First-Class Mail revenue threshold adjustment for contract year 2 

 was $718,323, which was added to the unadjusted threshold of $275.8 million to make the overall threshold $276.5 million. 

($ Thousands)

FY 2012 FY 2013 Total

Discover $(4,338) $(6,861) $(11,199)

Valassis $ - $ - 
POSTAL REGULATORY COMMISSION 63

Because the NSA is targeted at maintaining or increasing the overall contribution from DFS’s volume, 

it is informative to evaluate how volume, revenue, and contribution changed from the baseline period 

to the contract year 1 period, and to the contract year 2 period. When the Postal Service proposed 

the DFS NSA, it used DFS’s FY 2010 volume as an estimated baseline. Table III-7 compares the total 

revenue and contribution generated by DFS in the baseline and first two contract years. Table III-8 

details the volume breakdown between First-Class Mail and Standard Mail during those same periods.

Table III-6

Calculation of DFS Contract Year 2 Rebate

Source: PRC-ACR2013-LR-6.

First Class Standard Total

Eligible Volume 211,338,333 883,592,442 1,094,930,775 

Rebate Per Piece $0.018 $0.006

Total Rebate $3,746,032 $5,487,186 $9,233,198 

Total Revenue Total Contribution

FY 2010 $194,903,075 $105,945,888 

Baseline $248,765,974 $134,769,988 

Contract Year 1 Before Rebate $270,905,476 $147,855,818 

Contract Year 1 After Rebate $265,281,522 $142,231,865 

Contract Year 2 Before Rebate $285,483,706 $175,079,248 

Contract Year 2 After Rebate $276,250,507 $165,846,050 

Table III-7

DFS Total Revenue and Contribution

Source: PRC-ACR2013-LR-6.

Note: baseline, contract year 1, and contract year 2 revenue and contribution do not 

 include any promotional discounts, such as summer sales and QR code discounts.
64 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Table III-8

DFS Total First-Class and Standard Mail Volume and Revenue

Source: PRC-ACR2013-LR-6.

In FY 2010, DFS mailed 224 million pieces of First-Class Mail and 604 million pieces of Standard Mail, 

for a total of 829 million pieces. In the baseline period used for calculating the rebate threshold of 

February 1, 2010 through January 31, 2011, DFS increased its First-Class Mail volume to 225 million 

and Standard Mail volume to 840 million, for a total of 1.065 billion pieces. In the 4 months between 

the beginning of FY 2010 and the beginning of the actual baseline period (February 1, 2010), DFS 

increased its volume by 236 million pieces. DFS further increased its volume by 83.2 million pieces in 

contract year 1. It increased volume by an additional 59.6 million pieces in contract year 2. 

Postal Service Calculation of Net Financial Benefit

In Docket No. R2011-3, the Postal Service estimated the agreement would generate an increase of 

$2 to $15 million in contribution over the 3-year span of the agreement using the methodology 

discussed below. Docket Nos. MC2011-19 and R2011-3, Notice at 5. The Postal Service provided 

estimates of DFS contract year 2 volumes as part of its Docket No. R2011-3 filing. Table III-9 details 

the DFS FY 2010 volume, the Postal Service’s estimate of DFS contract year 2 volume at the time of 

proposal, the actual baseline volume, and DFS’s contract year 2 volume.

First-Class Standard Total

Volume Revenue Volume Revenue Volume Revenue

FY 2010 224,761,744 $78,265,348 604,769,202 $116,637,727 829,530,946 $194,903,075 

Baseline 225,319,325 $81,533,029 840,100,963 $167,277,025 1,065,420,288 $248,810,053 

Contract Year 1 228,518,630 $81,961,772 920,182,042 $188,943,703 1,148,700,672 $270,905,476 

Contract Year 2 216,156,648 $79,445,741 992,100,690 $206,037,964 1,208,257,338 $285,483,706 

Note: baseline, contract year 1, and contract year 2 volume figures include all mail, including non qualifying discounted volume.

Table III-9

DFS Estimated and Actual Volumes

Source: PRC-ACR2013-LR-6.

Discover FY 2010 

Volume

Postal Service Projection 

of Contact Year 2 

Volume

Discover 

Pre-Implementation 

Volume - February 2010 

to January 2011

Contract Year 2 

Volume - April 2012 to 

March 2013

(1) (2) (3) (4)

First-Class 224,761,744 182,057,013 225,319,325 216,156,648

Standard - Low 604,769,202 722,927,665 840,100,963 992,100,690

Standard - High N/A 767,680,586 N/A N/A 

Total 829,530,946 

904,984,687 to 

949,737,598 1,065,420,288 1,208,257,338
POSTAL REGULATORY COMMISSION 65

In its FY 2013 ACR, the Postal Service estimates that the DFS NSA resulted in a net contribution 

increase of between $26.5 million and $31.9 million. It calculates net contribution by comparing 

contract year 2 actual results (column 4 above) with Postal Service projected year 2 volumes (column 

2 above). Table III-10 details the Postal Service estimate of net contribution.

The Postal Service’s net contribution method assumes that all volume greater than the projected 

contract year 2 volume is due to the rebate.36 For First-Class Mail, this amounted to 34.1 million pieces. 

The unit contribution of DFS’s First-Class letters is, on average, 26.0 cents per piece. Thus, the total 

contribution from the 34.1 million pieces was $8.9 million. The First-Class rebate was $3.7 million. The 

Postal Service estimates the net value after the First-Class rebate to be $5.1 million.

For Standard Mail, the Postal Service develops two alternative assumptions: Standard Mail – Low and 

Standard Mail – High. The Postal Service estimates that between 224 million and 269 million pieces of 

Standard Mail are due to the rebate. The unit contribution of DFS’s Standard letters is, on average, 12.0 

cents per piece. Thus, the 224 to 269 million incremental pieces had a contribution of $26.9 million to 

$32.2 million. The Standard Mail rebate was $5.5 million. The Postal Service estimates the net value after 

the Standard Mail rebate to be $21.4 million to $26.8 million.

The Postal Service combines its net value calculations for First-Class and Standard Mail and 

estimates that the DFS NSA increased net contribution by between $26.5 million and $31.9 million 

in contract year 2.

Table III-10

Postal Service Estimate of Net Contribution

YR 2 Projected 

Volume 

YR 2 Actual 

Volume

(1) (2) (3) (4) (5) (6) (7) (8) (9)

W/O Incentives 

(Before Rates) 

With Incentives 

(After Rates) Incremental Unit Rev/pc

Unit 

Cost/pc

Unit 

Contribution

Total 

Contribution Rebate Net USPS Value

First-Class 182,057,013 216,156,648 34,099,635 $0.368 $0.107 $0.260 $8,874,042 $3,746,032 $5,128,010

(Low Volume Estimate)

Standard Mail 722,927,665 992,100,690 269,173,025 $0.208 $0.107 $0.120 $32,239,679 $5,487,166 $26,752,513

Total 904,984,677 1,208,257,338 303,272,661 $32,467,425 $5,623,954 $31,880,522

(High Volume Estimate)

Standard Mail 767,680,586 992,100,690 224,420,104 $0.208 $0.088 $0.120 $26,879,484 $5,487,166 $21,392,318

Total 949,737,598 1,208,257,338 258,519,740 $30,430,399 $5,623,954 $26,520,328

Source: PRC-ACR2013-LR-6.

36 This includes 4.8 million First-Class Mail pieces and 108.5 million Standard Mail pieces ineligible for the discounts.
66 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Comments from Valpak

One commenter, Valpak, addressed the DFS NSA. In its reply comments, Valpak summarizes the net 

effect on contribution due to all market dominant NSAs from FY 2009 to FY 2013 as -$35.5 million. 

Valpak states that the “Postal Service has demonstrated that it has not yet learned to use its much 

vaunted ‘pricing flexibility’ to fashion profitable Market Dominant negotiated service agreements.” 

Valpak Reply Comments at 37. Valpak comments that the “time has come for the Commission to order 

the Discover NSA be terminated forthwith.” Id. at 38 (footnote omitted).

Commission Analysis

When proposing the NSA, the Postal Service used DFS’s FY 2010 volume to project what DFS would 

mail without an agreement in contract year 2. This projection is contained in Table III-9 

column 2. The Postal Service estimated that, without a rebate, DFS would increase its overall volume 

from 829 million to between 905 and 950 million pieces in contract year 2. The Postal Service uses the 

projected volume of between 905 and 950 million pieces as the starting point to measure the volume 

incentivized by the rebates. The Postal Service calculation assumes that all of the variation in volume 

between the projected year and contract year 2 was caused by the rebate.

As shown in Table III-9, DFS increased its volume by 236 million pieces in the 4 months between the 

proposal and implementation of the NSA, from 830 million pieces to 1.065 billion pieces. DFS further 

increased its volume by 59.6 million pieces to 1.208 billion pieces in contract year 2.

As detailed in Table III-9, column 3, the Postal Service assumes that between 259 million and 303 

million pieces were incentivized by the rebate. DFS’s volume increased by 83.2 million in contract year 

1 and 59.6 million in contract year 2. See Table III-9. The majority of the volume (237 million pieces) 

that the Postal Service assumes was incentivized by the rebate was mailed by DFS before the rebates 

were being offered.37

The Postal Service’s estimates of the NSA’s net benefits are not based on any quantitative factors.38

To develop its estimates, the Commission uses the accepted methodology, the purpose of which is 

to estimate mailer response to a lower price using quantitative inputs. The accepted methodology 

incorporates the contract year 2 rebated volume, the marginal rebate, and the Standard Regular 

37 As detailed in Table III-9, DFS volume increased from 830 million pieces in FY 2010 to 1.065 billion pieces in the baseline period, an 

increase of 236 million pieces. In Docket No. R2011-3, the Postal Service estimated that DFS volume would be 905 to 950 million 

pieces, as detailed in Table III-10. DFS mailed 1.208 billion pieces in contract year 2, an increase of 258 million to 304 million pieces 

as compared with the Postal Service’s projection of year 2 volume. As DFS mailed 1.065 billion pieces before the agreement began, 

DFS volume increased by 116 million and 160 million pieces compared to the Postal Service’s contract year 2 projections before the 

agreement began. Thus, between 38 percent and 62 percent of the volume increase the Postal Service estimates is due to the agreement, occurred before the agreement was implemented. The calculations are as follows: 116 million/303 million is 38 percent, and 

160 million/224 million is 62 percent.

38 The Postal Service’s method for estimating the net value of the DFS NSA is a function of the following inputs: DFS contract year 2 

 volumes projected in Docket No. R2011-3, DFS contract year 2 volumes, and estimated unit contribution. In Docket No. R2011-3, 

 the Postal Service provided a list of qualitative factors it used to estimate the DFS contract year 2 projected volumes. See Order No. 

 694 at 13. The Commission has previously encouraged the Postal Service to develop quantitative methods for estimating net value 

 of NSAs. See Docket No. RM2010-9, in which the Commission attempted to develop alternative quantitative methods for estimating 

 volume responses to pricing incentives.
POSTAL REGULATORY COMMISSION 67

and First-Class workshared subclass own-price elasticities.39 The Commission recognizes that 

the elasticity of individual mailers may differ from that of the subclass as a whole; however, the 

Commission methodology uses subclass elasticities because they are the only elasticity estimates 

produced by the Postal Service at this time.

In contract year two, 211.3 million First-Class Mail pieces qualified for the marginal rebate of 1.8 

cents per piece.40 Using the 2013 First-Class workshared subclass elasticity of 0.339, 3.5 million 

pieces were incentivized by the rebate. Therefore, the Postal Service gained $0.9 million in 

contribution from these pieces.

In contract year two, 883.5 million Standard pieces qualified for a 0.6 cent rebate.41 Using the 2013 

Standard Regular elasticity of -0.457, 12.2 million pieces were incentivized by the rebate. Thus, 

the Postal Service gained $1.5 million in contribution from these pieces. Using the Commission’s 

accepted methodology, the estimated increase in contribution from incentivized volume in 

contract year 2 of the DFS NSA is about $2.4 million. However, since the Postal Service paid rebates of 

$3.7 million for First-Class Mail volumes and $5.5 million for Standard Mail volumes, the estimated net 

benefit to the Postal Service of the NSA with DFS in contract year 2 was a negative $6,891,160.42

The Postal Service estimates that 34.1 million First-Class Mail pieces were incentivized by the 

rebate. DFS would need to have an elasticity of -3.33 to be incentivized to mail 34.1 million pieces 

by a marginal rebate of 1.8 cents. This is roughly 10 times the own-price elasticity of workshared 

First-Class Mail as a whole. The Postal Service estimates that over 224 million Standard pieces 

were incentivized by the rebate. DFS would need an elasticity of -5.03 to be incentivized to mail 

224 million pieces by a marginal rebate of 0.6 cents, roughly 11 times the own-price elasticity of 

Commercial Standard Regular Mail as a whole.

39 The Postal Service’s estimates of elasticity reflect subclasses, rather than products, that were used prior to the PAEA. Standard Regular 

 includes the following commercial Standard Mail products: Letters, Flats, and NFMs/Parcels. ECR refers to Enhanced Carrier Route. 

 It includes the following commercial products: Carrier Route, High Density and Saturation Letters, and High Density and Saturation 

 Flats and Parcels. The accepted methodology was developed in Docket No. MC2004-3. The 2013 Standard Mail Regular 

 elasticity is -0.457 and the First-Class Workshared Letters, Flats, and Cards elasticity is -0.339, as provided in the attachment to the 

 January 20, 2014 letter from Andrew German. The Postal Service provides its estimates of price elasticity pursuant to the

 Commission’s Periodic Data Reporting Rules.

40 See Table III-6, eligible First-Class volume.

41 See Table III-6, eligible Standard volume.

42 The formula for estimating the incremental volume incentivized by a rebate is Eligible Volume x [(1 - Revenue per piece)/(Revenue per 

piece - marginal rebate)] ^ own price elasticity. The incentivized volume is multiplied by the contribution per piece of the incentivized 

volume to calculate the increase in contribution due to the incentivized volume.
68 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Among other things, section 3622(c)(10) of title 39 requires that special classifications improve the 

net financial position of the Postal Service or improve operational performance, while not causing 

unreasonable harm to the marketplace. The DFS NSA, under the approach employed by the 

Commission, is estimated to have had a negative effect on the net financial position of the Postal 

Service in FY 2013. This does not mean that revenues did not cover attributable costs for this mail, 

rather the aggregate contribution was reduced from what it would have been absent the agreement. 

When approving the NSA, the Commission expressed reservations about the quantitative methods 

used by the Postal Service to estimate what DFS’s net contribution would be in absence of the NSA.43

It further noted that “[i]t is incumbent upon the Postal Service to develop a quantitative approach 

that incorporates the factors it is using to estimate volumes.” Id. at 14. Using the accepted elasticity 

test, the Commission concluded that the NSA was unlikely to improve the Postal Service’s net financial 

position using the approved methodology. Id. The Commission also evaluated the agreement 

using an analysis presented by the Public Representative. While the Commission did not endorse 

that method, it encouraged the Postal Service to explore that approach when analyzing similar 

agreements. Id. at 14-15. Recognizing that “[t]he context of the Postal Service’s proposal is important,” 

the Commission authorized the NSA to proceed, stating “allowing this negotiated service agreement 

to proceed will allow management to enhance its knowledge of potential tools to slow the overall 

declining trend for First-Class Mail volume.” Id. at 15. 

The Postal Service offers no statements in either the ACR or responses to CHIRs regarding what 

management may have learned from the DFS NSA. In the FY 2012 ACD, the Commission noted that 

the agreement had a negative effect on the net financial position of the Postal Service, and that the 

Postal Service should consider canceling the agreement if the results for contract year 2, which ended 

March 31, 2013, were similar. The Postal Service did not follow that recommendation.44 Further, 

given that contract year 3 terminates March 31, 2014, four days after the issuance of the ACD, the 

Commission finds it unnecessary to act on Valpak’s suggestion that the agreement be terminated. 

The Commission finds that, under the existing methodology, the DFS NSA would have satisfied section 

3622(c)(10) if the total rebate was less than $2.4 million in contract year 2.45 The agreement implemented 

by the Postal Service was designed to pay rebates for all of DFS’s qualifying volume, and in contract year 2 

the rebate was greater than the contribution incentivized by the agreement. As implemented by the Postal 

Service, the NSA is inconsistent with section 3622(c)(10). The DFS NSA completes its third and final contract 

year on March 31, 2014. The Commission directs the Postal Service to provide in its FY 2014 ACR, a detailed 

analysis of the lessons learned from the DFS NSA. Specifically, the Postal Service shall address: (1) how well 

the NSA achieved its goal of maintaining DFS’s total contribution from First-Class Mail and Standard Mail; (2) 

43 See Docket Nos. MC2011-19 and R2011-3, Order No. 694, Order Adding Discover Financial Services 1 Negotiated Service 

 Agreement to the Market Dominant Product List, March 15, 2011, at 13.

44 In March 2013, the Postal Service filed an amendment to the DFS contract. This amendment modifies the calculation of the adjusted 

 revenue threshold for contract year 3. For contract year 3, the DFS Priority Mail volume will be considered First-Class Mail, with the 

 average First-Class Mail revenue per piece, for threshold purposes. In Order No. 1720, the Commission approved this amendment to 

 the DFS NSA for contract year 3. The Postal Service will provide information on contract year 3 in June of FY 2014.

45 The contribution from the volume incentivized by the rebate was $2.4 million.
POSTAL REGULATORY COMMISSION 69

how well the NSA achieved its goal of providing an incentive for growth in net contribution beyond that; (3) 

the lessons the Postal Service has learned regarding methods for staunching First-Class Mail volume declines; 

and (4) what efforts the Postal Service has made to develop a net value method with quantitative inputs.

Valassis NSA

On April 30, 2012, the Postal Service filed notice of its agreement with Valassis.46 On August 23, 2012, 

in Order No. 1148, the Commission approved the Valassis NSA.47 Order No. 1448 was appealed to the 

United States District Court of Appeals. On November 15, 2013, the District Court denied the petition 

for review.48 In its ACR, the Postal Service states “Valassis did not send enough NSA-eligible volume to 

qualify for volume discounts, and paid published rates during FY 2013. Therefore, there are no further 

data to report.” Pursuant to the Valassis Agreement Part IV. Subpart G., “Valassis must initiate mailing 

Contract Pieces under this agreement within 90 days following the Effective Date of this agreement.” 

Valassis Request, Attachment B at 3. Further, Valassis Agreement Part IV. Subpart G.2. states that if 

Valassis does not mail 1 million pieces pursuant to the agreement in the first month, it must pay the 

Postal Service a one-time fee of $100,000. The Postal Service explained that “the Postal Service has 

not yet collected this payment, it is currently discussing the payment with Valassis.” Response to CHIR 

No. 4, question 14.

Comments from Newspaper Association of America

NAA filed comments regarding the Valassis agreement. The Postal Service and Valpak discussed the 

NAA comments in reply comments.

In its initial comments, NAA detailed how the Postal Service had not complied with the data collection 

and reporting requirements of Order No. 1448. NAA “urges the Commission to require the Postal 

Service to comply with its data collection and reporting obligations, and to provide fully the information 

required under Order No. 1448.” NAA Comments at 4-5.

In its reply comments, Valpak agreed with NAA that the Commission should require the Postal Service to 

file the data collection report immediately. Valpak notes that the failure of the Postal Service to file the 

data collection report “should demonstrate to the Commission that the Postal Service does not take the 

Commission’s statutory role and regulatory authority seriously.” Valpak Reply Comments at 21.

The Postal Service argues in its reply comments that the Periodic Data Collection report was not 

necessary. The Postal Service acknowledges that it did not file the data collection report, but states 

that “subsequent information filed in this ACR docket make[s] such a report unnecessary.” Postal 

Service Reply Comments at 13. The Postal Service adds “[a]s no contract pieces were mailed, there is 

no additional data for the Postal Service to report.” Id.

46 See Docket Nos. MC2012-14 and R2012-8, Notice of the United States Postal Service of Filing of Contract and Supporting Data 

 and Request to Add Valassis Direct Mail, Inc. Negotiated Service Agreement to the Market-Dominant Product List, April 30, 2012 

 (Valassis Request).

47 See Docket Nos. MC2012-14 and R2012-8, Order Approving Addition of Valassis Direct Mail, Inc. Negotiated Service Agreement to 

 the Market Dominant Product List, August 23, 2012 (Order No. 1448).

48 Newspaper Ass’n of America v. Postal Regulatory Comm’n, 734 F.3d 1208 (D.C. Cir. 2013).
70 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

49 The two market dominant products are: (1) Alliances with the Private Sector to Defray Cost of Key Postal Functions; and (2) Philatelic 

 Sales. Docket No. MC2012-24, Order Approving Mail Classification Schedule Descriptions and Prices for Nonpostal 

 Service Products, December 11, 2012, at 4. (Order 1575).

Commission Analysis

The Valassis agreement became effective “the day on which the Commission issues all necessary 

regulatory approval.” Valassis Request, Attachment B at 5. Order No. 1448 directs the Postal Service to 

file a data collection report within 60 days of the end of each contract year. Order No. 1448 at 41. The 

Postal Service shall file the required report for all subsequent contract years. In addition, Order No. 

1448 requires the Postal Service to “notify the Commission within 30 days of when the Valassis NSA 

becomes operational in a market.” Id. at 42. Within 30 days of the issuance of this ACD, the Postal Service 

shall notify the Commission of the markets in which the Valassis NSA is operational.

NONPOSTAL SERVICES

In FY 2013, nonpostal services49 generated $48.1 million in revenue and incurred $8.7 million in 

expenses, which resulted in a net income of $39.4 million. This figure represents a 23 percent 

decrease compared to FY 2012.

OTHER ISSUES

First-Class Mail Product Cost Coverage

Pitney Bowes argues that the disparity in unit contribution and cost coverage of First-Class SinglePiece and Presort Letters cannot be justified. Pitney Bowes Comments at 2. It believes this disparity 

harms the Postal Service financially and discourages the growth and retention of the Postal Service’s 

most profitable First-Class Mail product. Pitney Bowes suggests that the Postal Service should 

rebalance cost coverages and unit contributions among First-Class Mail products. Pitney Bowes 

contends that the Postal Service could increase total contribution from First-Class Mail by lowering 

prices on Presort Letters. Id. The Postal Service responds that the Commission’s findings in the FY 

2012 ACD—that the PAEA gives the Postal Service pricing flexibility, that the Postal Service has 

used discounts to mitigate price increases, and that the comments and reply comments provided 

insufficient information to conclude that differing price increases were unreasonable—continue to 

apply in FY 2013. Postal Service Reply Comments at 13-14.

Both Single-Piece Letters/Postcards and Presort Letters/Postcards, the products that contain the 

categories in question, covered costs in FY 2013. As the Commission noted in response to similar 

concerns expressed in the FY 2012 ACD proceeding, one objective of the PAEA was to allow the Postal 

Service pricing flexibility, subject to an inflation-based cap on price changes. See FY 2012 ACD at 82. 

That flexibility can be used to apply non-uniform price adjustments within a class. Id.; 39 U.S.C. 3622(b)

(8). The Commission continues to encourage the Postal Service to use its pricing flexibility to “balance its 

own needs with the operational realities of the mailing communities it serves.” Order No. 1926 at 168.
POSTAL REGULATORY COMMISSION 71

Metered Letter Prices

The Greeting Card Association (GCA) is concerned that the Metered Letter prices that went into effect 

January 26, 2014, fail to satisfy 39 U.S.C. 3622(b)(8), which requires that the system of rate regulation 

have as one of its objectives the establishment and maintenance of a just and reasonable schedule for 

rates and classifications. GCA Comments at 1. Additionally, GCA contends that, based on the limited 

information currently available, the Metered Letter prices have not incentivized greater use of meters; 

rather, mailers who were already using meters were rewarded with a discount. It further asserts that 

the rate structure of Metered Letters is irrational. Id.

GCA requests that the Commission require the Postal Service to provide certain information regarding 

Metered Letters in the FY 2014 ACR, including: (1) information on the effect of the differential 

between Stamped Letters and Metered Letters in stimulating new meter usage; (2) information on any 

significant increase in the volume of Metered Letters, and/or in the fraction of all Single-Piece Letters 

they represent; (3) information sufficient to establish the cost savings from converting a letter from 

stamped to metered postage payment; and (4) an explanation and justification for the seemingly 

irrational structure of the differential, whereby it is made to apply separately to each ounce increment 

up to the weight limit for Metered Letters. Id. at 1-2.

The Postal Service and Pitney Bowes oppose GCA’s request. They argue that the information GCA seeks 

would be relevant only if the rate differential between Stamped Letters and Metered Letters constituted 

a workshare discount. Postal Service Reply Comments at 7-8 and Pitney Bowes Reply Comments at 

2. The Postal Service contends that the Metered Letter price does not meet the statutory definition 

of “workshare discount” established by 39 U.S.C. 3622(e)(1). Postal Service Reply Comments at 8. 

Additionally, Pitney Bowes argues that GCA’s request is contrary to the objective established by 39 U.S.C. 

3622(b)(6) – to “reduce administrative burden.” Pitney Bowes Reply Comments at 2.

The Commission does not find GCA’s reasons for requiring the Postal Service to provide additional 

information regarding Metered Letters in the FY 2014 ACR compelling. Because the Commission 

has not determined that a worksharing relationship exists between Stamped and Metered Letters,50

information regarding the cost differential between Stamped and Metered Letters is not likely to aid 

the Commission in determining whether the rates and fees comply with the provisions of chapter 

36, United States Code. See 39 U.S.C. 3653(b)(1). Nonetheless, beginning this fiscal year, volume 

information for the new Metered Letters and Stamped Letters rate categories will be available in the 

billing determinants filed quarterly by the Postal Service. The billing determinants can be used to 

calculate the fraction of all Single-Piece Letters that Metered Letters represent.

50 See Order No. 1890 at 49-50 (discussing the findings required before the Commission can determine that the rates for Metered and 

 Stamped Letters establish a workshare discount).
72 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

GCA’s assertion that the rate structure for Metered Letters may be irrational is not well supported. As 

the Postal Service explains, only the price for one-ounce machinable pieces reflects separate pricing 

for Metered Letters and Stamped Letters. Postal Service Reply Comments at 8 n.23. The price for a 

one-ounce single-piece machinable Metered Letter is $0.48.51 The price for a one-ounce single-piece 

Stamped Letter is $0.49. Id. The lower Metered Letter price is consistent with the Postal Service’s goal 

of encouraging the use of meters rather than stamps. Id. at 8. For both Metered Letters and Stamped 

Letters, the price for each additional ounce is $0.21. See MCS at 8-9. Since costs associated with weight 

are not affected by the type of indicia used, it is reasonable for the Postal Service to charge the same 

price for additional ounces, regardless of whether it applies to Metered Letters or Stamped Letters.

Periodicals Price-Cost Ratios for Bundles and Containers

The pricing of Periodicals rate elements, specifically Periodicals price-cost ratios for bundles and 

containers, is another issue raised by a commenter. Discrete pricing for Outside County bundles, 

sacks, and pallets was introduced in Docket No. R2006-1. 

The prices, based on mail processing costs, and ratios of price to mail processing cost for each 

combination of item, presort level, and entry level are shown in the tables at the end of this section. 

These price-cost ratios are similar to worksharing discounts in the sense that they provide incentives 

for cost-reducing mail preparation behavior. Unlike worksharing discounts and passthroughs, pricecost ratios do not explicitly relate discounts to the costs avoided by additional mailer preparation. 

However, the prices reflect to varying degrees the processing costs imposed on the Postal Service by 

the mailer’s choice of presort bundle level and container. Price-cost ratios are used to describe how 

much of the cost is recognized in a given price element. 

Comments from Public Representative

The Public Representative notes that the Postal Service “reduced bundle, sack and pallet price cost 

ratios across the board this year.” The Public Representative concludes that the Postal Service “has 

taken the Commission’s suggestion into consideration.” PR comments at 39.

Commission Analysis

In FY 2013, the price-cost ratios for bundles, sacks, and pallets continued to be significantly below 

100 percent. As the Public Representative notes, many of these ratios increased in FY 2013. Pricecost ratios range from a low of 9.3 percent for a Mixed ADC pallet entered at the Origin Network 

Distribution Center (ONDC), to a high of 71.8 percent for an ADC pallet entered at the ONDC. Of the 

58 prices for bundles and containers, 35 (or over 60 percent) were priced at less than 40 percent of the 

cost imposed on the Postal Service.

The range of price-cost ratios for two similar mail preparation options, Mixed ADC pallets and ADC 

pallets, highlight the disparate effects of the FY 2013 Periodicals prices. The price for entering a Mixed 

ADC pallet was $3.56 in FY 2013. The Postal Service maintains a low price for Mixed ADC pallets to 

encourage mailers who would otherwise enter sacks to enter their mail in pallets. 

51 MCS section 1105.5 (Prices).
POSTAL REGULATORY COMMISSION 73

Operationally, Mixed ADC pallets and ADC pallets entered at ONDC facilities are handled nearly 

identically, as they are opened and the bundles contained inside are processed at the ONDC facility 

that received the pallet. The price of an ADC pallet entered at an ONDC was $34.375 in FY 2013. As a 

result of these price signals, mailers entered nearly 4 times as many Mixed ADC pallets as ADC pallets 

in FY 2013.

In the most recent market dominant CPI price adjustment, Docket No. R2013-10, the Postal Service 

used its pricing flexibility to increase the prices of pallets, on average, by 1.59 percent. The Postal 

Service increased sack prices, on average, by 1.62 percent. The Postal Service did not leverage its 

pricing flexibility to address the gap between the costs imposed by bundles and containers and the 

prices the Postal Service charges for these elements.

The Postal Service should work with mailers to identify and incentivize mail that can be efficiently 

processed by current Postal Service operations.

The Commission recommends the Postal Service leverage its pricing flexibility to improve Periodicals 

bundle and container pricing to incentivize more efficient mailer preparation and increase contribution 

from Periodicals. As part of the report required to be included in the FY 2014 ACR for Periodicals that 

is outlined above, the Postal Service must also include the progress in implementing the Commission’s 

recommendation set forth herein for improving bundle and container pricing.

Type of Workshare Discount Avoided Cost Passthrough

 Presorting (cents/piece) 

3-Digit Presort 1.20 1.70 70.6%

5-Digit Presort 1.30 12.40 10.5%

CR Basic 4.80 19.10 25.1%

High Density 1.70 2.50 68.0%

Saturation 1.40 3.40 41.2%

3-Digit Automation Letter 1.10 1.10 100.0%

5-Digit Automation Letter 0.20 2.04 9.8%

Barcoding (cents/piece)

Basic Automation Flats 1.60 8.78 18.2%

3-Digit Automation Flats 1.20 9.53 12.6%

5-Digit Automation Flats 0.60 5.86 10.2%

Dropship (cents/piece)

DDU Dropship 0.80 2.50 32.0%

Table III-11

Within County Passthroughs FY 2013

Source: PRC-ACR2013-LR-3.
74 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Type of Workshare Discount Avoided Cost Passthrough

Presorting (cents/piece)

Machinable Non-automation ADC Flats 3.6 5.5 65.5%

Machinable Non-automation 3D/SCF Flats 1.7 2.8 60.7%

Machinable Non-automation 5D Flats 10.3 8.4 122.6%

CR Basic 10.8 13.9 77.7%

High Density 3.3 2.5 132.0%

Saturation 2.1 3.4 61.8%

Machinable Automation ADC Flats 2.7 4.5 60.0%

Machinable Automation 3D/SCF Flats 1.6 2.6 61.5%

Machinable Automation 5D Flats 9.0 7.4 121.6%

Non-machinable Nonauto ADC Flats 12.1 9.5 127.4%

Non-machinable Nonauto 3D/SCF Flats 7.8 (2.5) -312.0%

Non-machinable Nonauto 5D Flats 12.3 13.0 94.6%

Non-machinable Automation ADC Flats 10.0 9.5 105.3%

Non-machinable Automation 3D/SCF Flats 6.4 (2.2) -290.9%

Non-machinable Automation 5D Flats 11.2 12.7 88.2%

Barcoding (cents/piece)

Machinable Automation MADC Flats 3.3 3.1 106.5%

Non-machinable Automation MADC Flats 4.7 0.3 1566.7%

Presorting Automation Letters (cents/piece)

ADC Automation Letter 4.1 1.5 266.3%

3-Digit Automation Letter 2.1 0.3 603.8%

5-Digit Automation Letter 6.4 2.0 313.8%

Table III-12

Outside County Passthroughs FY 2013

Source: PRC-ACR2013-LR-3.
POSTAL REGULATORY COMMISSION 75

Table III-13

Outside County Bundle Price-Cost Ratios FY 2013

Container 

Level

Bundle 

Level Price ($) Bottom-up Cost ($)

Price as Percent

of Cost

Mixed ADC

MADC 0.081 0.169 47.9%

ADC 0.213 0.465 45.8%

3-D/SCF 0.283 0.581 48.7%

5-D 0.292 0.629 46.4%

Firm Bundle 0.190 0.778 24.4%

ADC

ADC 0.118 0.263 44.9%

3-D/SCF 0.195 0.381 51.2%

5-D 0.211 0.419 50.4%

CR 0.333 0.607 54.9%

Firm Bundle 0.158 0.600 26.3%

3-D/SCF

3-D/SCF 0.132 0.263 50.2%

5-D 0.154 0.289 53.3%

CR 0.295 0.467 63.2%

Firm Bundle 0.146 0.465 31.4%

5-D/CR

5-D 0.149 0.263 56.7%

CR 0.156 0.249 62.7%

Source: PRC-ACR2013-LR-3. Firm Bundle 0.081 0.263 30.8%
76 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Table III-14

Outside County Sack Price-Cost Ratios FY 2013

Sack Level Entry Point Price ($)

Bottom-up 

Cost ($)

Price as

Percent of Cost

Mixed ADC

ONDC 0.449 2.449 18.3%

OSCF 0.449 1.883 23.8%

OADC 0.449 2.893 15.5%

ADC

OSCF 2.134 4.542 47.0%

OADC 2.134 3.824 55.8%

ONDC 2.134 $3.397 62.8%

DNDC 1.492 2.893 51.6%

DADC 0.853 1.883 45.3%

3-D/SCF

OSCF 2.238 5.155 43.4%

OADC 2.238 4.437 50.4%

ONDC 2.238 4.010 55.8%

DNDC 1.599 3.506 45.6%

DADC 1.279 2.844 45.0%

DSCF 0.853 1.883 45.3%

5-D/CR

OSCF 2.877 6.670 43.1%

OADC 2.877 5.874 49.0%

ONDC 2.877 5.400 53.3%

DNDC 2.132 4.841 44.0%

DADC 1.812 4.107 44.1%

DSCF 1.385 3.151 44.0%

DDU 0.959 2.117 45.3%

Source: PRC-ACR2013-LR-3.
POSTAL REGULATORY COMMISSION 77

Table III-15

Outside County Pallet Price-Cost Ratios FY 2013

Pallet Level Entry Point Price ($)

Bottom-up 

Cost ($)

Price as 

Percent of Cost

Mixed ADC

ONDC 3.560 38.258 9.3%

OADC 3.560 21.984 16.2%

OSCF 3.560 38.258 9.3%

ADC

OSCF 34.375 57.552 59.7%

OADC 34.375 54.623 62.9%

ONDC 34.375 47.892 71.8%

DNDC 23.717 38.258 62.0%

DADC 13.129 21.984 59.7%

3-D/SCF

OSCF 40.719 60.426 67.4%

OADC 40.719 57.497 70.8%

ONDC 40.719 50.765 49.6%

DNDC 25.199 41.131 53.3%

DADC 21.917 37.933 57.8%

DSCF 11.752 21.255 55.3%

5-D/CR

OSCF 53.370 104.413 51.1%

OADC 53.370 91.310 58.4%

ONDC 53.370 79.108 67.5%

DNDC 33.776 66.258 51.0%

DADC 31.975 63.615 50.3%

DSCF 21.599 42.728 50.6%

DDU 1.694 3.203 52.9%

Source: PRC-ACR2013-LR-3.
78 FY 2013 ANNUAL COMPLIANCE DETERMINATION 
POSTAL REGULATORY COMMISSION 79

CHAPTER 4

COMPETITIVE PRODUCTS

INTRODUCTION

In this chapter, the Commission reviews competitive products to determine whether any rates or fees 

in effect during FY 2013 were not in compliance with 39 U.S.C. 3633, which:

■ Prohibits subsidization of competitive products by market dominant products—section 3633(a)(1);

■ Requires that each competitive product cover its attributable costs—section 3633(a)(2); and

■ Requires that, collectively, competitive products cover an appropriate share of the Postal Service’s 

institutional costs—section 3633(a)(3).

The principal FY 2013 findings for competitive products are:

■ Revenues for competitive products, as a whole, exceeded the incremental costs of competitive 

products. Thus, market dominant products did not subsidize competitive products during FY 2013, 

satisfying section 3633(a)(1).

■ Revenues for the following four products did not cover attributable costs and thus, did not comply 

with section 3633(a)(2): (1) Parcel Return Service Contract 4; (2) International Priority Airmail (IPA); 

(3) International Air Parcel Post (at non UPU rates); and (4) International Money Transfer Service—

Outbound. The Commission directs the Postal Service to take corrective action.

■ Competitive products, collectively, satisfied the Commission’s 5.5 percent minimum contribution 

regulatory requirement. See 39 CFR 3015.7(c). As a result, competitive products complied with 

section 3633(a)(3) during FY 2013.

CROSS-SUBSIDY PROVISION: SECTION 3633(a)(1) 

In Order No. 399, the Commission approved the Postal Service’s hybrid incremental cost 

methodology.1 Under this methodology, the Postal Service aggregates the following three cost 

categories: (1) incremental costs for domestic competitive products; (2) attributable costs for 

international competitive products;2 and (3) competitive group specific costs.

1 Docket No. RM2010-4, Order Accepting Analytical Principles Used in Periodic Reporting (Proposals 22-25), January 27, 2010, at 

2-5 (Order No. 399).

2 Order No. 399 established that in lieu of incremental costs, international competitive mail would use attributable costs because 

incremental costs are not available for international products. ld. at 5.
80 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

For FY 2013, the hybrid incremental cost methodology produced incremental costs for competitive 

products, as a whole, of $10.1 billion. See Library Reference USPS-FY13-NP10. The total revenues for 

competitive products as a whole in FY 2013 were $13.7 billion. See PRC Financial Analysis Report, 

FY 2013. Accordingly, in FY 2013, revenues from competitive products exceeded the hybrid 

incremental costs.3 Consequently, the Commission finds that revenues from market dominant products 

did not subsidize competitive products, satisfying section 3633(a)(1).

PRODUCT COST COVERAGE PROVISION: SECTION 3633(a)(2)

Section 3633(a)(2) requires the revenues for each competitive product to cover attributable costs. 

Below, the Commission separately discusses the FY 2013 financial performance for the following five 

competitive product groupings: (1) competitive domestic products with rates of general applicability; 

(2) competitive domestic products consisting of negotiated service agreements;4 (3) competitive 

international products with rates of general applicability; (4) competitive international products 

consisting of negotiated service agreements; and (5) competitive nonpostal services.

Competitive Domestic Products with Rates of General Applicability

In FY 2013, there were 12 competitive domestic products with rates of general applicability. Those 

products were: (1) Priority Mail Express; (2) Priority Mail; (3) Parcel Select; (4) Parcel Return Service; (5) 

First-Class Package Service; (6) Standard Post;5 (7) Address Enhancement Service; (8) Greeting Cards 

and Stationery; (9) Competitive Ancillary Services; (10) Premium Forwarding Service; (11) Post Office 

Box Service; and (12) Shipping and Mailing Supplies.

In FY 2013, each competitive domestic product with rates of general applicability generated sufficient 

revenues to cover attributable costs. Collectively, all 12 products generated $11.5 billion in revenues, 

and incurred $8.6 billion in costs. Thus, the products had an aggregate contribution of $2.9 billion. 

See PRC Financial Analysis Report, FY 2013. The Commission finds that each competitive domestic 

product with rates of general applicability complied with section 3633(a)(2).

In the FY 2013 ACR, Parcel Select’s cost coverage appeared to be less than 100 percent and inconsistent 

with section 3633(a)(2). FY 2013 ACR at 48. However, the Postal Service’s investigation into a possible 

revenue understatement revealed that Parcel Select’s cost coverage exceeded 100 percent in FY 2013.6

3 The Public Representative also concludes that competitive products revenues exceed the FY 2013 hybrid incremental costs. 

 PR Comments at 45-46.

4 Negotiated service agreement means a written contract, to be in effect for a defined period of time, between the Postal Service and 

a mailer, which provides for customer-specific rates or fees and/or terms of service in accordance with the terms and conditions of the 

contract. See 39 CFR 3001.5(r).

5 Standard Post was a new competitive domestic product with rates of general applicability offered in FY 2013. See Docket No. 

MC2012-13, Order Conditionally Granting Request to Transfer Parcel Post to the Competitive Product List, July 20, 2012 (Order 

No. 1411). See also Docket No. CP2013-3, Order Approving Changes in Rates of General Applicability for Competitive Products, 

November 8, 2012 at 4 (renaming the product Standard Post). (Order No. 1536).

6 See Notice of the United States Postal Service of Revisions to the FY 2013 Annual Compliance Report – Errata, February 6, 2014.
POSTAL REGULATORY COMMISSION 81

Competitive Domestic Products Consisting of Negotiated Service Agreements

In FY 2013, there were 112 competitive domestic products consisting of negotiated service 

agreements (NSAs). Table IV-1 displays the 112 products by selected product groupings.

Pursuant to section 3633(a)(2), each domestic competitive NSA product must cover its attributable 

costs. The Commission finds that with the exception of Parcel Return Service Contract 4, each 

competitive domestic NSA product for which the Postal Service filed contract-specific data covered 

its attributable costs and complied with the statutory requirements of section 3633(a)(2). However, as 

discussed below under Competitive Domestic NSA Reporting Issues, the Commission was unable to 

make a definitive finding on 33 of the 34 First-Class Package Service NSA products because the Postal 

Service did not file contract-specific financial data for the products.

Parcel Return Service Contract 4

Parcel Return Service Contract 4 did not generate sufficient revenues to cover attributable costs in 

FY 2013. This contract was a new type of Parcel Return Service contract that was offered in FY 2013 

known as Parcel Return Service Full Network NSAs. For Parcel Return Service Full Network NSAs, the 

Postal Service returns contract pieces to the customer’s facility instead of a Postal Service facility (e.g., 

a delivery unit or a network distribution center).

Table IV-1

Competitive Domestic NSA Products in Effect During FY 2013

Source: Library Reference USPS-FY13-NP27; Responses to CHIR No. 2, question 2 and CHIR No. 5 question 12.

[1] With the exception of NSAs entered into under the Priority Mail - Non-Published Rates (NPR) product, each competitive 

 domestic NSA is a separate product.

[2] The Priority Mail - NPR product allows the Postal Service to enter into Priority Mail NSAs without filing the agreements 

 with the Commission for pre-implementation review. There were six Priority Mail - NPR NSAs in effect for FY 2013. 

See Docket Nos. MC2011-15/CP2011-51.

Competitive Domestic NSA Product Groupings Number of Products[1]

First-Class Package Service Contracts 34

Parcel Return Service Contracts 3

Parcel Select & Parcel Return Service Contracts 1

Parcel Select Contracts 7

Priority Mail - Non-Published Rates[2] 1

Priority Mail & First-Class Package Service Contracts 1

Priority Mail Contracts 45

Priority Mail Express & Priority Mail Contracts 9

Priority Mail Express Contracts 10

Priority Mail Express, Priority Mail, & First-Class Package Service Contracts 1

Total 112
82 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

The cost model for Parcel Return Service Full Network NSAs uses Parcel Select Non-Presort as a proxy 

for transportation costs. The Postal Service explains that the increase in the contract’s attributable 

costs is due primarily to increases in the costs for heavyweight non-NSA Parcel Select, particularly in 

Parcel Select Non-Presort.7 When Parcel Return Service Contract 4 was originally filed, the average 

size and weight of Parcel Select Non-Presort was approximately equivalent to the customer’s 

parcels. The Postal Service also explains that it is likely that some low-volume commercial Parcel 

Post pieces migrated to Parcel Select. Id. It indicates that these migrated pieces are heavier than the 

average Parcel Select pieces, and, because they are not dropshipped, travel further distances on the 

transportation network. Id.

Public Representative Comments

The Public Representative notes that Parcel Return Service Contract 4 did not cover costs in FY 2013. 

PR Comments at 51-52. He observes that Parcel Select Contract 4 is a 3-year contract with more 

than 2 years remaining in the contract. Consequently, the Public Representative recommends that 

the Commission direct the Postal Service to cancel the contract in accordance with Section 3 of the 

contract, which allows the Postal Service to cancel the contract with 30 days’ notice to its contracting 

partner. ld. at 52.

In response to the Public Representative, the Postal Service asserts that cancellation of Parcel 

Return Service Contract 4 is not warranted under the circumstances. Postal Service Reply 

Comments at 6.8 The Postal Service explains that the root of this contract’s cost coverage problem 

is the use of Parcel Select Non-Presort as a proxy, which was reasonable when approved, but has 

become less appropriate because the size characteristics of the proxy category have changed. ld. 

The Postal Service explains that reasonable adjustments to the contract’s costing model will 

demonstrate that revenues from the product can be expected to cover costs in future years. ld.

Commission Analysis

Based on the reported financial data, the Commission finds that the Parcel Return Service Contract 4 

appears to not have complied with section 3633(a)(2) in FY 2013. The Commission accepts the Postal 

Service’s explanation that the reported FY 2013 attributable costs for Parcel Return Service Contract 4 

do not accurately reflect the contract partner’s attributable costs and that the costing methodology 

for this contract should be revised to allow for adjustments to better reflect the contract partner’s 

mailpieces. The Postal Service states that it will request a rulemaking to change the cost methodology 

for this contract. Id. 

The Commission directs the Postal Service to develop a revised costing methodology that can be used for 

this contract and future Parcel Return Service Full Network contracts. The Postal Service should file the 

proposed methodology in a rulemaking proceeding within 90 days of the issuance of the FY 2013 ACD. If 

Parcel Return Service Contract 4 does not cover costs under the revised costing methodology, within 90 

7 Response to CHIR No. 2, question 2.

8 See also Response to CHIR No. 5, question 11.
POSTAL REGULATORY COMMISSION 83

days of the Commission’s decision on the proposed methodology, the Postal Service will have to revise the 

terms of, or terminate, the contract.

Competitive Domestic NSA Reporting Issues

Commission regulations require that the Postal Service file data with the Commission allowing for 

the evaluation of each competitive NSA for compliance with section 3633. See 39 CFR 

3050.21(g)(2). With the exception of 33 First-Class Package Service NSA products, the Postal Service 

provided total volume, revenue, and cost data for each competitive domestic NSA product that was 

in effect during FY 2013.9

The Postal Service noted that 33 of the 34 First-Class Package Service contracts in effect during 

FY 2013 paid published, not discounted, prices, and that the sole purpose of the contracts was to 

allow partners to use the PC Postage payment method during a time when this payment method 

was not authorized for First-Class Package Service rates. Response to CHIR No. 2, question 2. The 

Postal Service further explained that as of January 27, 2013, PC Postage is now an authorized payment 

method for First-Class Package Service, and thus, these types of First-Class Package Service contracts 

are no longer required. ld.

For those reasons, the Postal Service did not track these 33 First-Class Package Service NSA products. 

ld. In lieu of providing contract-specific financial data for these 33 First-Class Package Service NSA 

products, the Postal Service provided a workbook summarizing costs for all First-Class Package Service 

NSAs. ld.; see also Library Reference USPS-FY13-NP32.

The Commission recognizes the unique position of these First-Class Package Service NSA products 

and accepts the Postal Service’s rationale for reporting the financial data for these products with the 

First-Class Package Service product in this limited instance. However, the Commission must review 

each NSA product to determine compliance with section 3633(a)(2). Therefore, in future ACRs, the 

Commission directs the Postal Service to separately report the financial data for each First-Class Package 

Service NSA product, regardless of its rationale for treating the product as an NSA, or request a waiver prior 

to deciding not to collect data.

Since the Postal Service did not file contract-specific data for these 33 First-Class Package Service NSA 

products, the Commission cannot make a definitive finding pursuant to section 3633(a)(2) for these 

products. However, since each of the underlying 33 First-Class Package Service contracts paid published 

prices and those prices are found to satisfy section 3633(a)(2) in FY 2013, it is likely that each of these 33 

First-Class Package Service NSA products also satisfied section 3633(a)(2) in FY 2013.

9 In response to CHIR No. 5, question 12, the Postal Service discusses 24 additional, non-First-Class Package Services NSA products for which it did not provide financial data. It notes that 21 of the 24 products had no mailpieces shipped under the respective 

contracts in FY 2013. It further notes that contracts for the remaining three products were only in effect for less than 1 month during 

FY 2013 and that the mailers had another contract in effect for the rest of 2013. Consequently, for those three products, the Postal 

Service provided the financial data with the corresponding contract with the same mailer that was in effect for 11 months in FY 2013.
84 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Competitive International Products with Rates of General Applicability

Competitive international mail consists of 10 products featuring rates and fees of general 

applicability.10 These products are: (1) Outbound International Expedited Services; (2) Outbound 

Priority Mail International; (3) Inbound Air Parcel Post (at UPU rates); (4) Outbound Single-Piece 

First-Class Package International Service; (5) International Surface AirLift; (6) International Priority 

Airmail; (7) International Direct Sacks-M-Bags; (8) International Money Transfer Service-Outbound; (9) 

International Money Transfer Service-Inbound; and (10) International Ancillary Services.11

For FY 2013, the Commission concludes that each of the above-referenced competitive international 

mail products, with the exception of International Priority Airmail (IPA) and International Money 

Transfer Service (IMTS)-Outbound, satisfies the requirements of section 3633(a)(2).12 There is 

insufficient information to permit the Commission to determine whether the International Money 

Transfer Service (IMTS)-Inbound product satisfies section 3633(a)(2).13

International Priority Airmail

The IPA product reported a loss in FY 2013, resulting in a substantial decrease in the cost coverage 

compared to FY 2012. The decrease reflects both a 4.2 percent decrease in unit revenue and a 103.8 

percent increase in unit attributable cost between FY 2012 and FY 2013. Unit contribution decreased 

240.3 percent.

The Postal Service explains that it “continues to consider possible causes” for the decrease in the IPA 

product cost coverage compared to FY 2012, and that “identifying specific causes with small revenuereporting products is often difficult on a year-to-year basis.” FY 2013 ACR at 48. The Postal Service also 

states that it “continues to work on compensatory pricing for this small volume” product. Response to 

CHIR No. 6, question 5.

Nearly 97.7 percent of all IPA mail volume is entered through Global Plus Contracts, specifically, the 

Global Plus 1C and 2C products, which consist of NSAs. Postal Service Reply Comments at 7, n.21. The 

remaining 2.3 percent of IPA mail volume that is not entered through an NSA is reported as volume 

for the IPA product. There are no direct In-Office Cost System (IOCS) cost tallies of the IPA product 

volume.

10 Rates and fees of general applicability in effect during FY 2013 for competitive international mail products were established pursuant to 

 Order No. 1062. Docket No. CP2012-2, Order No. 1062, Order Approving Changes in Rates of General Applicability for 

 Competitive Products, December 21, 2011 (implemented January 22, 2012); and Order No. 1536, Docket No. CP2013-3, Order

 No. 1536, Order Approving Changes in Rates of General Applicability for Competitive Products, November 8, 2012 (implemented

 January 27, 2013).

11 The competitive International Ancillary Services product consists of the following services: Certificate of Mailing; Registered Mail; Return

 Receipt; Restricted Delivery; Insurance; and Customs Clearance and Delivery Fee (Inbound).

12 Unless stated otherwise, this section analyzes revenues and expenses for international mail products developed according to the 

“booked” accounting method. The use of booked revenues and expenses ensures that the Commission’s financial analyses are consistent 

with thePostal Service’s audited financial statements. The Postal Service also reports “imputed” revenues, presented in the FY 2012 ICRA. 

 Imputed revenues differ from booked revenues reported in the Postal Service’s financial statements and the RPW report.

13 As revenues for the IMTS-Inbound product are de minimus, the Commission is not pursuing development of cost and volume data in this

ACD.
POSTAL REGULATORY COMMISSION 85

According to the Postal Service, total IPA attributable costs are initially estimated for IPA volumes as a 

whole, i.e., both Global Plus NSA and non-NSA volumes. Attributable costs are then calculated for the 

NSAs and subtracted from the estimate of total IPA costs. Response to CHIR No. 3, question 11. The 

residual, i.e., total IPA attributable costs less NSA attributable costs, becomes the cost reported in the 

ICRA for the IPA product. Id. The Postal Service concludes that “any variance in the estimate of costs 

for NSAs that are part of Global Plus Contracts will have a magnified effect on the residual costs” of the 

IPA product.14

The Commission is skeptical that variance alone is the cause of the FY 2013 loss. IPA product costs 

are comprised predominantly of settlement charges and international air transportation, including 

transit and internal air conveyance charges. These costs account for nearly 90 percent of the total 

attributable product costs and are calculated using known rates and volumes.15 Any statistical 

variance caused by IOCS or TRACS sampling errors only affects slightly more than 10 percent of the 

IPA product’s attributable costs. Thus, the source of the substantial reduction in unit attributable cost 

for the IPA product in FY 2013 likely lies elsewhere.

Public Representative Comments

The Public Representative is the only party to comment on the IPA product. While acknowledging the 

challenges identified by the Postal Service in assessing the causes of the decrease in cost coverage 

for this small-volume product, the Public Representative finds the Postal Service’s definition of 

IPA “parent product” costs in its explanation confusing, and the methodology for calculating IPA 

costs undeveloped.16 The Public Representative also notes that unit revenue decreased in FY 2013 

compared to FY 2012, and this is of “particular concern” because of the 2.4 percent average decrease 

in IPA prices that became effective in FY 2014. As a result, the current “IPA prices are lower than those 

that failed to cover costs in FY 2013.” PR Comments at 48.

The Public Representative concludes that the IPA product does not comply with section 3633(a)(2) 

and recommends that the Commission order the Postal Service to further investigate the FY 2013 

decrease in unit revenue and increase in costs. Id. The Public Representative also suggests that the 

Commission request the Postal Service improve its methodology for calculating IPA costs. Id. Finally, it 

recommends that the Commission assess whether an increase in rates for the IPA product is necessary, 

in light of the 2.4 percent average decrease in IPA rates for FY 2014. Id.

14 Id. In its Reply Comments, the Postal Service concludes that “the initial estimate of ‘total’ IPA costs is overwhelmingly driven by NSA 

 pieces, and the remaining non-NSA [i.e., the IPA product] part is very difficult to capture for costing purposes.” Postal Service Reply 

 Comments at 7, n.21. The Postal Service also cites a “gross to net weight issue” that impacts IPA product costs. Specifically, “NSA 

 data are net weight and the RPW [presents] gross weight, which is used to cost the flows for the 

 residual products.” Response to CHIR No. 6, question 5.

15 Library Reference USPS-FY13-NP2 (Revised 2-6-14), Excel file Reports (Booked).xls, worksheet tab B Pages (c).

16 PR Comments at 48. In its Reply Comments, the Postal Service seeks to clarify its Response to CHIR No. 3, question 11, which 

 prompted the Public Representative’s concerns, in an extended footnote providing additional information on the development of costs 

 for the IPA product. Postal Service Reply Comments at 7, n.21.
86 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Commission Analysis

The Commission finds that the IPA product does not comply with section 3633(a)(2). The Commission 

therefore directs that the Postal Service report within 90 days and reconfirm that the IPA product will 

cover the projected attributable costs in FY 2014. The Postal Service shall also provide an analysis of the 

causes of the FY 2013 loss and decrease in cost coverage. In addition, the Postal Service is to recommend 

modifications to its current methodology of developing costs and, if necessary, propose the modifications 

in a rulemaking, so as to improve the reliability of such costs for the IPA product.

International Money Transfer Service—Outbound

Revenues for the IMTS-Outbound product were less than its attributable costs in FY 2013. According 

to the Postal Service, the “main change” between FY 2013 and FY 2012 was a 96 percent decrease 

in Outstanding MO [Money Orders] Taken Into Revenue. Response to CHIR No. 5, question 5(a). No 

explanation as to the cause(s) prompting this substantial decrease is provided.

Public Representative Comments

The Public Representative discusses the IMTS-Outbound and IMTS-Inbound products together. He 

notes the FY 2013 loss for the IMTS-Outbound product and the absence of transaction volumes 

and costs for the IMTS-Inbound product, which “once again” precludes the Commission from 

assessing whether the product complies with section 3633(a)(2). PR Comments at 49. The Public 

Representative recommends that the Commission take further steps to ensure it has the necessary 

information to evaluate cost coverage for the IMTS-Outbound and IMTS-Inbound products. Id. He 

also recommends that the Commission consider whether rate increases are necessary for both 

products. Id.

Commission Analysis

For International Money Transfer Service-Outbound , the Commission finds that in FY 2013, this product 

does not comply with section 3633(a)(2). In recent years, the IMTS-Outbound product has generated 

revenues in excess of its attributable costs. Accordingly, the Commission considers remedial price 

increases at this time to be premature. However, given the absence of information on the causes of 

the loss for the IMTS-Outbound product, the Commission directs that the Postal Service report within 90 

days on the causes of the FY 2013 loss and its plan to improve the financial results of the IMTS-Outbound 

product such that revenues exceed attributable costs.

Competitive International Products Consisting of Negotiated Service Agreements

Competitive international mail also includes products with rates and fees established pursuant to one 

or more NSAs. These agreements often require a minimum volume and/or revenue commitment by 

mailers or foreign postal operators in exchange for reduced rates from the Postal Service.

The Commission evaluates each competitive international product for its consistency with section 

3633(a)(2), which requires that the revenues for each product cover its attributable costs. In some 

cases, international NSAs that exhibit similar cost or market characteristics may be grouped together 

into a single product. The grouping of functionally equivalent NSAs was permitted to address 

administrative concerns involving product reporting and classification on the competitive product list. 
POSTAL REGULATORY COMMISSION 87

Such functionally equivalent international NSAs are collectively evaluated as a product for consistency 

with section 3633(a)(2). Each NSA within a product grouping must also cover its attributable costs.

To that end, the MCS specifically requires that the revenue for each international NSA, grouped by 

product under the organizational categories, cover its attributable costs: Inbound International 

Expedited Services, Inbound Direct Entry Contracts with Customers, Inbound Direct Entry Contracts 

with Foreign Postal Administrations, and International Business Reply Service Competitive Contracts.17 

Similarly, Governors’ Decisions for products established under the following categories authorize 

management to enter into NSAs for which the negotiated prices will generate sufficient revenues to 

cover attributable costs: Inbound Air Parcel Post (at non-UPU rates), Inbound Surface Parcel Post (at nonUPU rates), and Inbound Competitive Multi-Service Agreements with Foreign Postal Operators 1.18

The Postal Service reports financial results for competitive outbound and inbound international 

products consisting of NSAs. It also reports volume, revenue, and cost data on each competitive 

outbound and inbound international NSA. For FY 2013, the Postal Service provides such data for 

297 international NSAs, of which 276 feature negotiated rates for outbound mail and 21 feature 

negotiated rates for inbound mail. The financial results for competitive outbound and inbound 

international products consisting of NSAs that do not cover costs are discussed separately below.

Competitive Outbound International Products Consisting of NSAs

For FY 2013, the Postal Service reports financial results for all products in Table IV-2 under the 

column heading, Product Name. The Commission concludes that in FY 2013, the referenced competitive 

outbound international products consisting of NSAs provide contribution to the institutional costs of the 

Postal Service and therefore satisfy the requirements of section 3633(a)(2).

The FY 2013 financial results for each outbound NSA in these products show that 275 of the 276 NSAs 

generated sufficient revenues to cover their attributable costs. The one NSA for which revenue did 

not cover attributable costs is in the Global Plus 2C product.

17 See MCS sections 2515.6, 2515.4, 2515.5, and 2515.3.

18 See Docket Nos. MC2009-24 and CP2009-28, Request of the United States Postal Service to Add Royal Mail Inbound Air Parcel 

 Post Agreement to the Competitive Products List, and Notice of Filing (Under Seal) Contract and Enabling Governors’ Decision, 

 April 21, 2009; Docket Nos. MC2009-8 and CP2009-9, Request of United States Postal Service to Add Canada Post-United 

 States Postal Service Contractual Bilateral Agreement for Inbound Competitive Services to the Competitive Product List, and Notice 

 of Filing (Under Seal) the Enabling Governors’ Decision and Agreement, November 13, 2008; and Docket Nos. MC2010-34 

 and CP2010-95, Request of United States Postal Service to Add Inbound Competitive Multi-Service Agreements with Foreign 

 Postal Operators to the Competitive Product List, and Notice of Filing (Under Seal) of Enabling Governors’ Decision and 

 Negotiated Service Agreement, August 13, 2010.
88 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Global Plus 2C 

The Global Plus 2C product offers volume-based rates through NSAs to Postal Qualified Wholesalers 

(PQWs) and other high-volume mailers that market mailing services to their end-use customers 

who ship mail and articles via any combination of the following: International Priority Airmail (IPA), 

International Surface Air Lift (ISAL), Global Bulk Economy (GBE), Global Direct (GD), Global Express 

Guaranteed (GXG), Express Mail International (EMI), Priority Mail International (PMI), Commercial 

ePackets (CeP), and International Business Reply Service (IBRS). 

For FY 2013, the Global Plus 2C product, which is comprised of two NSAs, generated sufficient 

revenues as a whole to cover collective attributable costs. However, one NSA (the subject of Docket 

No. CP2012-10) spanned portions of two consecutive fiscal years: Quarters 2 – 4 (January through 

September, 2012) of FY 2012 and Quarter 1 (October through December, 2012) of FY 2013. The reported 

financial results for Quarter 1 of FY 2013 represent a continuation of quarterly losses in FY 2012 for this 

NSA.19 Therefore, the Commission finds that the Docket No. CP2012-10 NSA does not satisfy section 

3633(a)(2). Because this NSA terminated during FY 2013, no remedial action is required.

Table IV-2

FY 2013

Competitive Outbound International Products

 Grouped by Product Category

Product Category Product Name

Global Bulk Economy Contracts (Same)

Global Direct Contracts Global Direct Contracts 1

Global Expedited Package Services Contracts GEPS 3

Global Expedited Package Services—Non-Published Rates GEPS—NPR 2

GEPS—NPR 3

GEPS—NPR 4

Global Plus Contracts Global Plus 1C

Global Plus 2C

Global Reseller Expedited Package Contracts GREPS 1

GREPS 2

Priority Mail International Regional Rate Boxes—

Non-Published Rates (Same)

19 See FY 2012 ACD at 169 for a discussion of losses incurred in Quarters 2 – 4 of FY 2012 for Docket No. CP2012-10 NSA.
POSTAL REGULATORY COMMISSION 89

Competitive Inbound International Products Consisting of NSAs

Like competitive outbound international products, competitive inbound international products 

featuring negotiated rates are classified on the competitive product list under several categories. 

Table IV-3 below shows the competitive inbound international products organized by product 

category. As with competitive outbound international products, sometimes the product category is 

also the name of the competitive inbound international product.

For FY 2013, the Postal Service reports financial results for seven of the eight listed products in Table 

IV-3. No data are reported for Inbound Direct Entry Contracts with Customers. Of the seven active 

products, one does not satisfy the requirements of section 3633(a)(2), namely, Inbound Air Parcel Post 

(at non-UPU rates). The Postal Service also reports financial results for each of the 21 NSAs within 

these products. One NSA, with the China Post Group, which is part of Inbound Competitive Multi -Service 

Agreements with Foreign Postal Operators, does not satisfy 3633(a)(2). Each of these is discussed below.

Inbound Air Parcel Post (at non-UPU rates)

For the Inbound Air Parcel Post (at non-UPU rates) product, the Postal Service reports financial 

results for inbound air parcels from Royal Mail and collectively from several other European postal 

operators that are parties to the Agreement for the Delivery of Day-Certain Cross-Border Parcels (EPG 

agreement). Inbound Air Parcel Post from Royal Mail is entered pursuant to the Royal Mail Inbound 

Table IV-3

FY 2013

Competitive Inbound International Products 

Grouped by Product Category

Product Category Product Name

International Business Reply Service Competitive Contracts

International Business Reply Service Competitive 

Contracts 1

International Business Reply Service Competitive 

Contracts 3

Inbound Direct Entry Contracts with Customers (Same)

Inbound Direct Entry Contracts with Foreign Postal 

Administrations

Inbound Direct Entry Contracts with Foreign Postal 

Administrations

Inbound Direct Entry Contracts with Foreign Postal 

Administrations 1

Inbound International Expedited Services

Inbound International Expedited Services 2

Inbound Air Parcel Post (at non-UPU rates)

Royal Mail Group Inbound Air Parcel Post Agreement

Inbound Competitive Multi-Service Agreements with 

Foreign Postal Operators 1 (Same)
90 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Air Parcel Post Agreement, which is classified as a product on the competitive product list. Bilateral 

agreements for the entry of inbound air parcels from postal operators of the EPG-member countries 

of Belgium, Denmark, Germany, Finland, Sweden, Switzerland, Slovakia, and Slovenia were executed 

prior to the PAEA. FY 2013 ACR at 49. These agreements are not included on the competitive product 

list. Id.

For FY 2013, the Postal Service reports a loss for Inbound Air Parcel Post (at non-UPU rates) under 

the booked version of the ICRA, and a positive contribution to institutional cost under the imputed 

version.20 Id. Revenue from inbound air parcels entered pursuant to the bilateral agreement with 

Royal Mail exceeded attributable costs. As a result, the loss is caused solely by the financial results for 

inbound air parcels from EPG-member countries. The Postal Service states that “inbound rates for EPG 

air parcels tendered by [EPG-member] posts have not changed.” Id.

The Commission notes that under the booked version of the ICRA the FY 2013 loss is substantially less 

than the FY 2012 loss. In response to the FY 2012 loss, the Commission directed the Postal Service to 

report within 90 days regarding its plans to improve the financial results for Inbound Air Parcel Post (at 

non-UPU rates) and its plans to add EPG bilateral agreements to the competitive product list. FY 2012 

ACD at 172.

The Postal Service’s response to this directive informed the Commission of its implementation of 

a “performance action plan” for EPG parcels.21 That plan, designed to decrease penalty payments 

and increase revenue, included renovations to International Service Centers (ISCs), installation 

of additional sorting equipment, and consolidation of military mail operations at one ISC. Id. In 

addition, postal management set quarterly on-time service performance goals, and worked with each 

ISC to address unique issues and achieve improved performance. Id. While the Postal Service is not 

able to directly link any of these initiatives with reduced penalties and increased revenues, it observes 

that on-time delivery performance improved nearly 30 percent from October 2012 to October 2013, 

which reduces the number of EPG parcels subject to penalty payments. Id.

Public Representative Comments

The Public Representative notes that the cost coverage for the Inbound Air Parcel Post (at nonUPU rates) product improved dramatically in FY 2013, which “indicates that the Postal Service has 

made some of the changes necessary” so that revenues cover costs. PR Comments at 51. The Public 

Representative recommends that the Commission continue to monitor the progress of the Inbound 

Air Parcel Post (at non-UPU rates) product. Id.

20 Booked Expenses are the reported costs contained in the Postal Service’s trial balance for settlement payments. Imputed expenses for 

 settlement payments are calculated using the known rate for each country multiplied by the known units (number of pieces or pounds 

 of mail or both depending on the formula that applies for each country).

21 Docket No. ACR2012, Responses of the United States Postal Service to Commission Requests for Additional Information in FY 2012 

 Annual Compliance Determination, June 26, 2013, question 4. The Postal Service subsequently refers to this plan as the “EPG 

 continuous improvement plan.” Response to CHIR No. 5, question 3(a).
POSTAL REGULATORY COMMISSION 91

Commission Analysis

As noted above, current rates applicable to inbound air parcels from EPG member countries have not 

changed, in some cases for many years, and in FY 2013 revenues again failed to cover attributable 

costs. Such inbound air parcels rates appear to be inconsistent with U.S. postal policy, which is 

designed to “promote and encourage unrestricted and undistorted competition in the provision 

of international postal services and other international delivery services.” 39 U.S.C. 407(a)(2). The 

Commission considers this situation problematic. The continued entry of inbound air parcels at rates 

that do not cover costs means that domestic mailers are subsidizing the entry of such parcels.

The Commission concludes that Inbound Air Parcel Post (at non-UPU rates) does not comply with sections 

407(a)(2) and 3633(a)(2). Nevertheless, the Commission recognizes the substantial improvement in the 

FY 2013 financial results compared to FY 2012, and the improvement in on-time performance achieved 

through the EPG continuous improvement plan. The Commission therefore directs the Postal Service to 

pursue additional improvements in on-time performance through implementation of the EPG continuous 

improvement plan so as to improve the financial results for Inbound Air Parcel Post (at non-UPU rates) 

during FY 2014. In addition, the Commission directs the Postal Service to negotiate bilateral NSAs 

governing the entry of inbound air parcel with EPG-member countries so as to add such NSAs to the 

competitive product list.

Inbound Competitive Multi-Service Agreements with Foreign Postal Operators 1

The Inbound Competitive Multi-Service Agreements product consists of a number of bilateral NSAs with 

seven foreign postal operators for the entry of Inbound Express Mail Service (EMS), Inbound Air Parcel 

Post (ACP) and Inbound Surface Parcel Post (SCP) items.

For FY 2013, the Postal Service reports that the Inbound Competitive Multi-Service Agreements 

product as a whole generated sufficient revenues to cover collective attributable costs. However, one 

NSA with the China Post Group, which was the subject of Docket No. CP2011-68, spanned portions 

of two consecutive fiscal years: Quarters 2 – 4 (January through September, 2012) of FY 2012 and 

Quarter 1 (October through December, 2012) of FY 2013. The reported financial results for Quarter 

1 of FY 2013 represent a continuation of quarterly losses in FY 2012 for this NSA. The Commission 

therefore finds that the Docket No. CP2011-68 NSA does not satisfy section 3633(a)(2). No remedial action 

is required because this NSA terminated in FY 2013.

Nonpostal Services

In FY 2013, nonpostal services22 generated $94.6 million in revenue and incurred $32.0 million in 

expenses, which resulted in a net income of $62.6 million in FY 2013. This figure represents a 25 

percent decrease compared to FY 2012.

22 The nine competitive products are: (1) Advertising; (2) Licensing of Intellectual Property other than Officially Licensed Retail Products 

 (OLRP); (3) Mail Service Promotion; (4) Officially Licensed Retail Products (OLRP); (5) Passport Photo Service; (6) Photocopying 

 Service; (7) Rental, Leasing, Licensing or other Non-sale Disposition of Tangible Property; (8) Training Facilities and Related Services; 

 and (9) USPS Electronic Postmark (EPM) Program. Docket No. MC2010-24, Order 1575, Order Approving Mail Classification 

 Schedule Descriptions and Prices for Nonpostal Service Products, December 11, 2012, at 4.
92 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

The non-public financial data show that two products, the USPS Electronic Postmark (EPM) program 

and the Officially Licensed Retail Products (OLRP), failed to generate sufficient revenues to cover 

expenses. See Library Reference USPS-FY13-NP27. In FY 2013, the Postal Service permanently 

discontinued the EPM Program. See FY 2012 ACD and Response to CHIR No. 5, question 11. In FY 

2013 the Postal Service incurred expenses in continuing to provide EPM verification services related to 

a third party contract.23

The Postal Service in its Response to CHIR No. 5, question 8 stated that the FY 2012 OLRP inventory of 

digital postage scales, passport holders, stamp coil dispensers and Click-N-Ship Shipping Labels were 

low. Purchases intended to be made in late FY 2012 were delayed until FY 2013 causing the inventory 

expenses to be booked in FY 2013. This resulted in higher inventory costs in FY 2013 causing OLRP 

products to fail to cover costs in the current year. In FY 2014, the Postal Service expects OLRP 

products to replicate their historically positive cost coverage with no likelihood of a recurrence of the 

FY 2013 inventory timing issues. Id.

APPROPRIATE CONTRIBUTION PROVISION: SECTION 3633(a)(3)

Section 3633(a)(3) requires that the Commission ensure that all competitive products collectively 

cover an appropriate share of the institutional costs of the Postal Service. In implementing section 

3633(a)(3), the Commission has determined that if competitive products contribute at least 5.5 

percent toward the Postal Service’s total institutional costs, then competitive products, as a whole, 

cover an appropriate share of the Postal Service’s total institutional costs. See 39 CFR 3015.7(c).24 

In FY 2013, the Postal Service reported that total institutional costs were $33.1 billion.25 Therefore, in 

order to comply with section 3633(a)(3) for FY 2013, competitive products must contribute at least 

$1.8 billion toward the Postal Service’s institutional costs. In FY 2013, the total competitive products 

contribution was $3.9 billion (or 11.7 percent of institutional costs), which exceeds the $1.8 billion 

minimum contribution requirement.26

Therefore, the Commission finds that in FY 2013 competitive products satisfied section 3633(a)(3) by 

covering an appropriate share of the Postal Service’s institutional costs.

23 In Library Reference USPS-FY12-NP27 the Postal Service stated that EPM incurred expenses related to a third party contract to 

 provide EPM verification service for 7 years to customers that have already purchased EPMs. Order No. 1575, Appendix B at 13 

 describes EPM as a program allowing vendors to provide their customers with Postal Service-authorized timestamps for the purpose of 

 substantiating at a later time that the original form of the electronic information presented for time stamping had not been altered.

24 In Order No. 1449, the Commission reaffirmed that the appropriate share of institutional costs to be borne by competitive products 

 is 5.5 percent, subject to future revision, if necessary. See Docket No. RM2012-3, Order Reviewing Competitive 

 Products’ Appropriate Share Contribution to Institutional Costs, August 23, 2012, at 24-25 (Order No. 1449).

25 Library Reference USPS-FY13-1 (revised February 6, 2014).

26 The Public Representative also concludes that the Postal Service complied with section 3633(a)(3) in FY 2013. See PR Comments at 52.
POSTAL REGULATORY COMMISSION 93

ISSUES RAISED BY COMMENTERS

In its initial comments, United Parcel Service (UPS) raises three issues with competitive products.27 

These issues are: (1) the attribution of total postal costs; (2) the appropriate share of institutional 

costs; and (3) access to non-public data. Although UPS contends that these issues are “relevant to 

the Commission’s review,” it recognizes that the issues before the Commission are limited primarily to 

whether the rates in effect in FY 2013 complied with the statute. Id. at 1. UPS urges the Commission 

to consider these matters in future proceedings where the issues can be examined in greater detail. 

Id. Each issue is discussed below.

Attribution of Total Postal Costs

UPS questions whether competitive products are “shouldering a fair and equitable share of total 

postal costs.” Id. at 1. UPS states that it has these concerns because the total attributable costs, as a 

share of total postal costs, have fallen significantly since Docket No. R97-1.28

UPS contends that having a large amount of institutional costs creates the opportunity for the 

Postal Service “to avoid fiscal responsibility, to the detriment of itself, market dominant mailers and 

competitive products mailers, and competition, and is contrary to the PAEA.” ld. at 4. UPS cites 

statements from the Postal Service that it believes raise questions about the accuracy of the current 

cost allocation methods for total postal costs. Specifically, UPS contends that statements from the 

Postal Service concerning its capital commitments and expenditures, including package sorting 

investments, and enhancements to scanning and tracking systems, suggest that the Postal Service is 

treating all such costs as institutional. ld. at 5-6. UPS believes that these statements indicate that the 

Postal Service is categorizing costs as institutional that are generated by competitive products. ld.

UPS encourages the Commission to accelerate its efforts to improve cost attribution and to find other 

ways to improve attributable costing as a whole in light of changes taken place since PAEA, including the 

transfer of many products from the market dominant product list to competitive product list. ld. at 6.

PostCom Reply

PostCom agrees with UPS that the Postal Service must do more to properly track the attributable 

costs of its products, both market dominant and competitive. PostCom Reply Comments at 1.29 

PostCom believes that with the current lack of accurate cost attribution, neither mailers nor the 

Commission can determine whether each competitive product is covering the costs attributable to 

it in accordance with section 3633(a)(2). ld. at 2. PostCom states that it defies belief that none of the 

capital expenditures engaged in by the Postal Service over the past three years could be attributed to 

particular products. ld. Like UPS, PostCom encourages the Commission to accelerate and expand its 

efforts to improve attributable costing. Id. at 3.

27 Initial Comments of United Parcel Service on Postal Service’s FY2013 Annual Compliance Report, January 31, 2014 (UPS Initial 

 Comments).

28 UPS states that the cost attribution percentage has dropped from 65.1 percent in the Docket No. R97-1 proceedings to 54.2 in

 FY 2013. ld. at 2.

29 Docket No. ACR2013, Reply Comments of the Association for Postal Commerce, February, 14, 2014 (PostCom Reply Comments).
94 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

PostCom contends that the Postal Service should use IMb information and employ a bottom-up 

costing methodology to better understand cost drivers and allocate costs. ld. at 2. It asserts that 

bottom-up costing, when developed through IMb data, allows for more direct measurement of the 

activities performed in moving different types of mail through the system, from collection to delivery. 

ld. PostCom concludes that using a bottom-up approach would allow the Postal Service to price its 

products so that they cover their measured attributable costs. ld.

Postal Service Reply

The Postal Service contends that the decline in attributable costs, as a share of total costs, is due to 

massive volume declines, which reduce volume variable costs while leaving non-volume variable 

costs predominantly intact. Postal Service Reply Comments at 9. In addition, the Postal Service notes 

that total attributable costs have also fallen due to a substantial change in the mail mix from higher 

cost First-Class Mail pieces to lower cost Standard Mail pieces. ld., n.25.

The Postal Service asserts that attributable costs have not fallen as dramatically as UPS claims. 

ld. at 11, n.27. It asserts that a comparison of the attributable cost share of Docket No. R2006-1 (55.4 

percent) to FY 2013 (54.2 percent) shows only minimal decline.

The Postal Service counters UPS’s suggestion that costs for capital expenditures are being improperly 

treated as entirely institutional by explaining that once capital commitments are converted to actual 

capital purchases, the resulting depreciation expenses are attributed to both market dominant and 

competitive products using established distribution methodologies. ld. at 10-11, n.26.

The Parcel Shippers Association Reply 

PSA agrees with UPS that it is important to have accurate estimates of the cost of Postal Service 

products, and it supports measures that will improve cost attribution.30 However, PSA states that the 

mere fact that attribution levels have declined does not prove that cost measurements are flawed. 

Id. at 2. It states that there is a reasonable explanation for the decline with respect to competitive 

products. ld. PSA notes that the declining attribution levels are natural consequences of declining 

volumes, and of delivery costs becoming a larger proportion of total Postal Service costs over time. ld. 

PSA explains that fixed costs constitute a larger share of delivery costs than they do of other large cost 

segments, such as mail processing and transportation. ld.31

PSA agrees with UPS that competitive products should be charged for capital equipment used in the 

provision of those products. Id. at 5. It believes that UPS’s description of how capital costs are treated 

is incorrect. Id. at 6. Like the Postal Service, PSA explains that cost of capital equipment is allocated 

to both competitive and market dominant products through depreciation. Id. PSA contends that 

confusion with capital commitment expenditures is due to general confusion associated with the 

operation of the Competitive Products Fund. ld. PSA encourages the Commission to proceed quickly 

in Docket No. PI2013-1, to clarify the operation of the Competitive Product Fund. ld.

30 Reply Comments of the Parcel Shippers Association, February 14, 2014, at 1 (PSA Reply Comments).

31 UPS also references the current Docket No. PI2013-1 proceeding before the Commission and states that there is no transparency in 

 the statutorily mandated Competitive Products Fund. See UPS Initial Comments at 10, n.3.
POSTAL REGULATORY COMMISSION 95

Public Representative Reply

The Public Representative presents a chart showing that the institutional costs, as a share of total 

postal costs, have increased, on average, by 1.7 percent from FY 2007 to FY 2013. PR Reply Comments 

at 10-11. The Public Representative contends that this average annual increase in the institutional 

share supports UPS’s claim that attributable costs as a percentage of total costs are falling. ld. at 10.

Commission Analysis

Accurately attributing postal costs to products is critical. However, as UPS acknowledges, this is 

an issue that is more appropriately addressed in a future proceeding where it can be examined in 

greater detail. See UPS Initial Comments at 1. As UPS acknowledges, the issues currently before the 

Commission are limited primarily to whether the rates in effect in FY 2013 were in compliance with 

the statute. Id.

The issues raised in the comments do not warrant initiation of a proceeding to investigate the 

methodology the Postal Service uses to attribute total postal costs at this time. As the Postal Service 

states in its reply comments, the proportion of attributable costs has not fallen as much as UPS 

indicates when one compares the FY 2013 proportion to the R2006-1 proportion (54.2 percent and 

55.4 percent, respectively). See Postal Service Reply Comments at 11, n.27. Therefore, the basis for 

UPS’s claim that the attribution methodology should be investigated due to declining attributable 

costs proportions is unconvincing.

Parties alleging that the attribution of total postal cost methodology is not reliable must suggest 

improvements in order to merit consideration. Interested parties may submit petitions to investigate 

the cost attribution methodology used to develop the Annual Compliance Report data. See 39 CFR 

3050.11(a).

Appropriate Share of Institutional Costs

UPS asserts that the minimum contribution to institutional costs required of competitive products 

should be re-examined. UPS Initial Comments at 6. It contends that significant additions to the 

competitive products list, as well as significant increases in Competitive Product’s relative share of total 

revenue indicate that the current minimum contribution is in substantial need of revision. ld. 6-7.

UPS believes that market dominant mailers are footing a larger share of total institutional costs than 

is equitable or appropriate. ld. at 7. UPS notes that with the price adjustments that took effect on 

January 26, 2014, market dominant prices went up 5.9 percent, while competitive products prices 

went up 2.4 percent. ld. Additionally, UPS states that while the Postal Service is significantly increasing 

prices for market dominant products, it is reducing services for these products. ld. 

UPS elaborates that, on the contrary, while price increases for competitive products are minimal, the 

Postal Service is expanding the services that it offers for such products, for example, by offering Sunday 

delivery for an NSA partner and day-definite delivery and free insurance for Priority Mail. ld. at 8.
96 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

UPS recommends that the Commission initiate a proceeding to consider whether to reallocate 

institutional costs between market dominant and competitive products on a more equitable basis. 

ld. at 14.

Public Representative Reply 

The Public Representative notes that the Commission re-examined and affirmed the 5.5 percent 

minimum contribution percentage requirement in Docket No. RM2012-3. PR Reply Comments at 

12, n.13. The Public Representative states that the Commission’s affirmation was partly based upon 

data which showed that the competitive products’ share of institutional costs between FY 2007 and 

FY 2011 had not changed very much. ld. In order to evaluate UPS’s claim that the 5.5 percentage 

minimum contribution requirement is too low, the Public Representative examined competitive 

products’ contribution as a share of institutional costs since the PAEA was implemented. Id. at 11. 

He observes that there was a significant increase in the competitive products’ contribution as a 

share of institutional costs to nearly 12 percent in FY 2013. Id. at 12-13. The Public Representative 

concludes that the Commission should open a rulemaking to consider more appropriate allocations 

of institutional costs between market-dominant and competitive products and to re-examine the 

appropriate required percentage contribution to institutional costs from competitive products. 

ld. at 13.

PSA Reply

In response to UPS’s argument that the Postal Service increased competitive product prices by a 

smaller percentage than market dominant rates this year, PSA notes that while this is true for this year, 

competitive product rates of generally applicability have increased by more than the rate of inflation 

and average market dominant rate increases. PSA Reply Comments at 6.

PSA states that given the substantial increases that the Postal Service has implemented and the 

increases in competitive product contribution that have occurred since enactment of PAEA, it is 

evident that the Postal Service has appropriate incentives to increase competitive product contribution, 

and not reduce it. ld. at 7. PSA further notes that in view of actual experience, there is probably not a 

need for an appropriate share requirement at all. ld. at 8.

Commission Analysis

In Order No. 1449, the Commission reaffirmed that the appropriate minimum share of institutional 

costs to be borne by competitive products is 5.5 percent.32 In that order, the Commission noted that 

the law permits it to initiate a proceeding to change the competitive products’ minimum contribution 

requirement at any time. Order No. 1449 at 24. The Commission also noted that parties may petition the 

Commission to initiate a rulemaking proceeding if circumstances warrant. ld.

32 See Docket No. RM2012-3, Order Reviewing Competitive Products’ Appropriate Share Contribution to Institutional Costs, 

 August 23, 2012 (Order No. 1449).
POSTAL REGULATORY COMMISSION 97

UPS is not suggesting that the Commission consider this matter during this proceeding.33 The 

Commission is required by law to re-examine the appropriate share requirement again no later than 

2017. 39 U.S.C. 3633(b). Parties may petition the Commission to initiate such a proceeding prior to 2017.

Access to Non-public Data

UPS asserts that there has been a “dramatic decline” in public transparency since the PAEA was adopted, 

which has made it difficult to determine the causes of, and solutions to, the declining attribution rate 

as a share of total Postal Service costs. UPS Initial Comments at 8-9. Specifically, UPS notes that the 

Postal Service files individual competitive products’ costs and cost coverages, and the data underlying 

those figures, under seal. Id. at 9-10. It states that the only publicly filed information on competitive 

products’ cost attribution is a single line item for all domestic competitive products in the Postal 

Service’s Cost Segment and Components Report. Id. at 10; see Library Reference USPS-FY13-2 (Revised 

February 6, 2014).

UPS contends that a lack of public access to information is responsible for a noticeable decline in public 

participation on competitive products costing issues.34 Id. at 11. It claims that deadlines set by the 

PAEA are so short that there is hardly enough time for a party to obtain, review, and analyze materials 

filed under seal to determine whether to participate in a docket. Id. at 12. UPS concludes that a lack of 

access to data effectively denies the public its right to participate in Commission proceedings involving 

competitive products and precludes it from contributing to the Commission’s analysis of whether 

competitive products are in compliance with section 3633. Id. at 12-13.

In seeking non-public treatment for the materials that it files under seal, the Postal Service states that the 

designated materials consist of “commercial information concerning postal operations that under good 

business practice would not be disclosed publicly.” FY 2013 ACR, Attachment Two at 2.35 UPS contends 

that the Postal Service is not just any commercial enterprise, and asserts that the increased pricing 

flexibility of the PAEA requires increased public scrutiny. UPS Initial Comments at 10-11.

UPS also notes that the Commission has historically relied upon the contributions from members of 

the public to assist it in refining data collection methods and attribution methodologies. Id. at 13.36

UPS urges the Commission to initiate a proceeding to determine what information and materials the 

Postal Service must file publicly. Id. at 14.

33 Additionally, in Order No. 1449, the Commission observed that Section 3633(a) requires the Commission to set the appropriate 

 share through “regulations.” ld.

34 Valpak similarly notes that fewer parties are filing comments in the annual compliance reviews and asks the Commission to consider 

 whether these proceedings are serving the purpose for which they were intended by Congress. Valpak Direct Marketing Systems, Inc. 

 and Valpak Dealers’ Association, Inc. Reply Comments on the United States Postal Service FY 2013 Annual Compliance Report, 

 February 18, 2014 (Valpak Reply Comments), at 1, n 1.

35 See 39 U.S.C. 504(g)(1); 39 U.S.C. 410(c)(2); 5 U.S.C. 552(b)(3).

36 See, e.g., Docket No. 2006-1, Opinion and Recommendation, Vol. 1 (February 26, 2007) at 21-54, 77-79.
98 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

PSA Reply

In its reply comments, PSA asserts that the Commission rules, which combine substantial disclosure of 

competitive product information under seal with more limited public disclosure, strike an appropriate 

balance between disclosure and oversight. PSA Reply Comments at 5. PSA contends that UPS’ claims 

that the Postal Service withholds “almost all competitive product data from the public” and that “the 

public has no access to the information needed” to determine whether to participate in proceedings are 

overstated. Id. at 4. PSA notes that while the Postal Service does not provide attributable costs by cost 

segment and component for individual competitive products in the ACD, it does present substantial 

public information allowing interested parties to evaluate the accuracy of its costing methods in the 

summary description that it files annually with the Commission. Id. PSA notes that interested parties 

are free to petition the Commission to initiate rulemakings to improve costing methods or to request 

that the Commission change its disclosure rules. Id. at 5. However, it asserts that any petition to change 

the disclosure rules should not only describe the information to be disclosed, but also demonstrate that 

publicly traded companies are required to disclose the same or similar information. Id.

Postal Service Reply

The Postal Service contends that Commission procedures for protecting commercially-sensitive 

information and efforts at improving cost attribution are two disparate issues that should play no role 

in the Commission’s annual compliance determination. Postal Service Reply Comments at 12. It notes 

that efforts to improve cost attribution occur in rulemaking proceedings, for which the PAEA imposes 

no tight deadlines. Id. at 11-12. The Postal Service notes that private parties may participate in such 

proceedings. It states that private parties could, if necessary, obtain access to any data that is shielded 

for commercial purposes, subject to protective conditions. Id.

Commission Analysis

UPS acknowledges that the issues currently before the Commission in this proceeding are limited 

primarily to whether the rates in effect in FY 2013 were in compliance with the statute. Id. at 1.

Commission rules concerning the protection of non-public information are intended to strike an 

appropriate balance between public access to information and the commercial interests of the Postal 

Service and its partners or customers.37 Current rules permit parties to access non-public information 

subject to protective conditions. The Commission rejects the request to initiate a proceeding on the 

confidentiality rules at this time. However, as PSA points out, UPS is free to offer specific proposals to 

change the confidentiality rules. See 5 U.S.C. 553(e).

37 See Docket No. RM2008-1, Order No. 194, Second Notice of Proposed Rulemaking to Establish a Procedure for According 

 Appropriate Confidentiality, March 20, 2009.
POSTAL REGULATORY COMMISSION 99

CHAPTER 5

SERVICE PERFORMANCE

INTRODUCTION

39 U.S.C. 3652 (a)(2)(B)(i) requires the Postal Service to report on each market dominant product’s 

“level of service (described in terms of speed of delivery and reliability).” The Commission compares 

the information provided in the report against annual service performance targets established by the 

Postal Service to evaluate annual service performance for each market dominant product.1

First-Class Mail, Presorted Letters/Postcards met or exceeded annual service performance targets. 

Single-Piece Letters/Postcards, Flats, Parcels, Outbound Single-Piece First-Class Mail International, and 

Inbound Letter Post fell below targets. Standard Mail, High Density and Saturation Letters and Parcels 

met or exceeded annual service performance targets. High Density and Saturation Flats/Parcels, 

Carrier Route, Letters, and Flats fell below targets. Both Periodicals products, In-County Periodicals 

and Outside County Periodicals, showed significant improvement, but still did not meet annual 

service performance targets. Package Services, Bound Printed Matter Parcels and Media Mail/Library 

Mail met or exceeded annual service performance targets. Single-Piece Parcel Post (now Alaska 

Bypass Mail),2 Bound Printed Matter Flats, and Inbound Surface Parcel Post (at UPU rates) fell below 

targets. All Special Services products met or exceeded annual service performance targets.

Three events affect the interpretation of service performance results in FY 2013: (1) the 

implementation of the Postal Service’s Mail Processing Network Rationalization initiative; (2) changes 

to First-Class Mail service performance goals; and (3) continuing adoption of Full-Service Intelligent 

Mail barcode (IMb) service.

The Postal Service’s Mail Processing Network Rationalization initiative resulted in nationwide 

changes to service standards for its market dominant products beginning in FY 2012 and 

continuing into FY 2013.3 Most significantly for First-Class Mail, these changes included eliminating 

overnight service for inter-SCF mail, altering preparation requirements for presorted mail, and 

changing the eligibility for a 2-day service standard from mailpieces with a 12 hour or less drive time 

1 On an annual basis, the Commission compares a product’s on-time delivery with delivery goals established by the Postal Service. For

Special Services, the Commission evaluates performance data from metrics developed by the Postal Service applicable to each product.

2 Alaska Bypass Service was created when Single-Piece Parcel Post moved to the competitive product list.

3 See Docket No. N2012-1, Advisory Opinion on Mail Processing Network Rationalization Service Changes, September 28, 2012.
100 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

between origin Processing and Distribution Center or Facilities and Area Distribution Centers to those 

with a drive time of six hours or less. The changes also increased the delivery day range for End-toEnd Periodicals in the contiguous 48 states and revised the overnight service standard to exclude 

Periodicals entered at Network Distribution Centers and Auxiliary Service Facilities.4

In FY 2013, the Postal Service increased its annual service performance targets for domestic First-Class 

Mail.5 The overnight target increased from 96.65 percent to 96.70 percent. The 2-day target increased 

from 94.15 percent to 95.10 percent. The 3-5-day target increased from 92.85 percent to 95.00 percent.

The Postal Service continued to emphasize the importance of Full-Service IMb participation. In FY 

2013, there was steady improvement in the proportion of mail measured with an IMb for each class of 

market dominant mail. 

Every two years, the Commission assesses a special study of final delivery service performance to 

the remote locations of the Alaska, Honolulu, and Caribbean Districts.6 Since the special study was 

first conducted in FY 2011, the Postal Service has changed some service standards for Standard Mail, 

Periodicals Mail, and Package Services destinating to or originating from non-contiguous locations. 

Service performance results increased during the same time, likely as a result of the changes. The 

findings from the special study are discussed in Appendix B.

Participant Comments and Concerns on Service Performance

In FY 2013, one participant offered comments on service performance results for market dominant 

products. The Public Representative notes improved second quarter service performance results 

followed by a decline in the third and fourth quarters for Standard Mail products. He suggests 

this pattern is caused by seasonality and suggests the Postal Service should utilize its diagnostic 

capabilities to improve fourth quarter on-time delivery. PR Comments at 10. For Periodicals, he 

observes that most of the improvement in performance occurred in the second quarter which 

suggests, contrary to the Postal Service’s conclusion, that the continuous diagnostic tool may not be 

responsible for the improvement. He concludes that the Commission should ask the Postal Service to 

explain why continuous use of the diagnostic system does not improve quarterly results in Periodicals. 

Id. at 11. Similarly, for Package Services, the Public Representative finds that the performance 

data do not support the Postal Service’s claim that continuous use of its diagnostic tool improves 

performance. Id. at 12. Lastly, he asks the Postal Service to analyze the reasons Ancillary Services and 

PO Box Service reported declining results. He recommends the Postal Service take steps to improve 

these two Special Services products. Id. at 13.

4 The Postal Service changed the delivery day range for End-to-End Periodicals from 1-9 days to 2-9 days. The 1-2-day 

delivery range for destination entry Periodicals changed to 1-3 days. See 77 FR 31192, 31195 (May 25, 2012). 

5 Rule 3055.5 requires the Postal Service to alert the Commission of any change in goals, targets, or standards with regard to 

service performance.

6 See 39 CFR 3055.7.
POSTAL REGULATORY COMMISSION 101

MEASUREMENT SYSTEMS

The Postal Service uses a variety of measurement systems to measure service for each market 

dominant product. Table V-1 identifies each system used to measure those products reported in the 

Postal Service’s Annual Service Performance Report.

External First-Class Mail Measurement System (EXFC)

The EXFC is a sampling system managed by an independent contractor IBM. Delivery performance 

is measured from the street collection box to the delivery mailbox.7 When evaluating delivery 

performance, test mailers record the time they place First-Class Mail in the collection box. Those test 

mailpieces are sent to a nationwide panel of receivers who record when the mailpiece was delivered 

to their respective mailboxes. Actual transit time is then compared against First-Class Mail service 

standards. The EXFC provides quarterly service performance measurement scores at both the area 

and district level.

Intelligent Mail Accuracy and Performance Systems (iMAPS)

iMAPS provides an End-to-End service performance measurement by using documented mail arrival 

time at a designated postal facility to start a measurement clock, and an IMb scan by an external, thirdparty reporter to stop the clock. The measurement involves two distinct steps. The Postal Service 

obtains processing times based on IMb scans reported through the Seamless Acceptance and Service 

Performance (SASP) system. In FY 2013, the SASP system captured data from all Full-Service Intelligent 

Mail.8 This is combined with a “last mile” factor. The last mile factor is developed through scans by thirdparty reporters upon receipt of the mail. Service performance is measured by comparing the overall 

transit time to the service standards to determine the percent of mail delivered on time.

7 FY 2009 ACD at 49.

8 Library Reference USPS-FY13-29 at 2.

Single-Piece Presort

Letters Flats Parcels Letters Flats Parcels

First-Class EXFC EXFC PTS iMAPS

EXFC

by Proxy PTS

Periodicals iMAPS iMAPS

Standard SASP SASP iMAPS iMAPS PTS

Package Services PTS PTS iMAPS PTS

International Mail IMMS IMMS

Special Services Custom designed internally based measurement systems

Table V-1

Market Dominant Service Performance Measurement Systems

Source: Library Reference USPS-FY13-29; United States Postal Service, Service Performance Measurement, October 2007, at 6. 
102 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Product Tracking System (PTS)

For use with parcels, PTS is an internal measurement system used by the Postal Service that measures 

transit time from the time of mailing until the time of delivery. Measurements are based on Delivery 

Confirmation scans. Actual transit time is compared against service standards for the market 

dominant parcel products.

Seamless Acceptance and Service Performance 

The SASP system uses data provided by commercial mailers with Full-Service Intelligent Mail, such as 

acceptance time, payment, and verification, to enable the Postal Service to monitor service delivery 

and overall performance. Information collected also helps to determine address accuracy, verify mail 

preparation quality, and track individual pieces as they move through the mail system.

International Mail Measurement System (IMMS)

The IMMS measures the domestic leg of transit time for international mail. The IMMS is based on 

a system similar to the EXFC. For outbound letters, the system measures the time between the 

domestic collection point and the outbound International Service Center (ISC), and for inbound 

letters, it measures the time between the inbound ISC and the domestic delivery point.

Intelligent Mail Barcode (IMb)

In quarter 3 of FY 2011, the Postal Service began measuring Standard Mail, Periodicals, Package 

Services, and some First-Class Mail products with the IMb. Mailers were encouraged to participate 

in the Full-Service option of IMb, in part, because it provides data necessary to measure service 

performance.9 The Full-Service feature also allows the mailer to identify unique mailpieces 

throughout the mailstream and receive start-the-clock notifications, discounts, and automated 

address corrections.10

The Commission has been encouraging the Postal Service to increase IMb measurement across all 

product levels as it is generally positive for measuring and improving service performance. Since FY 

2011, the number of mailpieces measured by the IMb has increased. Figure V-1 illustrates this trend 

by showing the percentage of presort First-Class Mail, Standard Mail, Periodicals, and Bound Printed 

Matter Flats volume measured by IMb that has increased since 2011.

9 FY 2011 ACD at 63.

10 Id.
POSTAL REGULATORY COMMISSION 103

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Presort FCM Total Standard Periodicals BPM Flats

Percentage of Pieces Measured by Intelligent Mail barcode

FY 2011 FY 2012 FY 2013

Figure V-1

Percentage of Pieces Measured by Intelligent Mail Barcode

The Postal Service encountered problems in measuring service performance with the IMb despite the 

increases in pieces measured by it. For instance, the Postal Service stated that invalid or incomplete 

information used to identify Standard Mail products was provided by mailers, making it difficult 

to measure some Standard Mail at product levels. In FY 2012, the Postal Service included in its 

measurement Standard Mail pieces for which mailers did not supply enough information to identify 

the product. The Postal Service categorized this mail as either Standard Mail Mixed Product Letters 

or Standard Mail Mixed Product Flats.11 In FY 2013, the volume of mail categorized as Mixed Product 

Letters and Flats declined considerably. Mixed Product Letters decreased from 1,500 million pieces 

in the first quarter to 135 million pieces in the fourth quarter. Mixed Product Flats decreased from 

218.5 million pieces in the first quarter to 2.6 million pieces in the fourth quarter. The Postal Service 

states that in FY 2013, 19 percent of measurable Standard Mail letters and 5 percent of Full-Service 

Intelligent Mail Flats fell into these mixed product categories.12 

The decrease in volume for Mixed Product categories suggests that more Standard Mail mailers are 

providing proper piece-level documentation. The increase in the volume of identifiable mailpieces 

helps to improve performance measurement accuracy for individual Standard Mail products. 

The Postal Service acknowledges that measurable volumes for First-Class Mail Flats, Bound Printed 

Matter Flats, Standard Mail products, and DDU Entry Periodicals have been low since the onset of IMb 

measurement.13 For some products, such as First-Class Mail Flats, proxies are used because of the low 

volumes measured at district levels. 

11 FY 2012 ACD at 54.

12 Library Reference USPS-FY13-29.

13 Id. Percent Measured
104 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

SERVICE PERFORMANCE RESULTS BY CLASS

First-Class Mail

In FY 2013, First-Class Mail represented 42.1 percent of total mail delivered versus 43.5 percent in FY 

2012.14 Presorted Letters/Postcards made up the largest proportion, accounting for 61 percent of 

the First-Class Mail volume. Service performance for Single-Piece Letters/Postcards and Presorted 

Letters/Postcards continued to exceed that of other products in First-Class Mail.15 First-Class Mail 

Flats and Parcels continue to underperform and have not reached their 90 percent on-time delivery 

performance goals. See Table V-2. 

FY 2013 FY 2012 FY 2011

Target

Percent 

Target

Percent 

Target

Percent 

On-Time On-Time On-Time

Single-Piece 

Letters/Postcards

Overnight 96.70 96.8 96.65 97.0 96.5 96.7

2-day 95.10 96 94.15 95.6 94.15 94.2

3-5-day 95.00 92.5 92.85 93.2 92.95 91.9

Presort Letters/Postcards

Overnight 96.70 97.3 96.65 96.9 96.65 90.8

2-day 95.10 97.2 94.15 95.9 94.15 89.2

3-5-day 95.00 95.4 92.85 95.4 92.85 90.7

Flats

Overnight 96.70 86.6 96.65 89.8 96.65 90.3

2-day 95.10 84.4 94.15 85.0 94.15 84

3-5-day 95.00 77.6 92.85 80.0 92.85 80

Parcels

Overnight 96.70 89.8 96.65 89.8 96.65 90.3

2-day 95.10 89.1 94.15 85.8 94.15 83.2

3-5-day 95.00 88.8 92.85 88.4 92.85 86.6

Outbound Single-Piece First-Class Mail International

Overnight - 94.3

2-day - 92.7

3-5-day - 87.5

Combined 94.00 88.9 94.00 91.5 94.00 91.9

Inbound Single-Piece First-Class Mail International

Overnight - 92.3

2-day - 90.7

3-5-day - 86.5

Combined 94.00 88 94.00 90.5 94.00 91.9

Table V-2

Service Performance Results for First-Class Mail 

 Service performance results are reported using one decimal place while targets are reported using 

two decimal places. This captures the incremental increase in annual service performance targets.

*Numbers in red indicate service performance results that did not meet or exceed the annual service 

performance target.

14 See PRC-FinRpt13-LR-1; Docket No. ACR2012, Library Reference PRC-ACR2012-LR1.

15 Note that the Postal Service has increased the annual service performance targets for each domestic First-Class Mail product since 

 FY 2011.
POSTAL REGULATORY COMMISSION 105

Comparisons between FY 2012 and FY 2013 service performance must be viewed in light of service 

standard changes associated with the Mail Processing Network Rationalization initiative. The initiative 

changed service standards by shifting much of the volume of mail previously subject to the overnight 

service standard to either the 2-day or 3-5-day service standard. It also changed service standards by 

shifting much of the volume of mail previously subject to the 2-day service standard to the 3-5-day 

service standard. 

Single-Piece Letters/Postcards

In FY 2013, overnight and 2-day service performance met or exceeded service performance goals and 

remained similar to that of FY 2012. Although the actual level of service has been reduced and the 

volume of mail in the 3-5-day service standard category has increased, service performance for the 

3-5-day category decreased slightly versus last year and did not reach either the old FY 2012 service 

performance target of 92.85 percent or the new FY 2013 service performance target of 95.00 percent. 

Presorted Letters/Postcards

Presorted Letters/Postcards exceeded annual service performance goals for each service standard 

category in FY 2013. Mail Processing Network Rationalization caused a noticeable shift in volume 

between the overnight, 2-day, and 3-5-day service standard categories. Specifically, measured 

volumes with an overnight or 2-day service standard decreased, while the measured volumes in the 

3-5-day service standard category increased in comparison to FY 2011 and FY 2012 amounts. Figure 

V-2 illustrates that the shift in volume correlates to the implementation of service standard changes. 

Although the actual level of service provided has been modified, there has been no perceivable 

change in measured service performance. However, the change in service standards does make it 

difficult to directly compare FY 2012 and FY 2013 service performance results. 

-

1,000 

2,000 

3,000 

4,000 

5,000 

6,000 

7,000 

2012-Q1 2012-Q2 2012-Q3 2012-Q4 2013-Q1 2013-Q2 2013-Q3 2013-Q4

Millions of Pieces Measured

FCM Presort Letters/Cards: Measured Volume

Overnight 2-Day 3-5-Day

Figure V-2

First-Class Mail Presorted Letters/Postcards Pieces

Millions of Pieces Measured
106 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Flats

Service performance for First-Class Mail Flats did not meet annual on-time performance goals in FY 

2013. Service performance for Flats has not met annual targets for three consecutive years. Similar to 

First-Class Mail Presorted Letters/Postcards, the volume of First-Class Mail Flats with a 3-5-day service 

standard increased in FY 2013, corresponding to the Postal Service’s change in service standards 

associated with Mail Processing Network Rationalization. 

First-Class Mail Flats include both single-piece and presorted Flats. The Postal Service measures 

single-piece Flats through the EXFC system, while service performance for presorted Flats uses singlepiece as a proxy.16 A proxy is used because there is an insufficient number of pieces with a Full-Service 

IMb to make reliable service performance estimates.17 

The Northeast area, especially for the 3-5-day service standard category, has been a consistent 

underperformer and is a partial reason for below-target national scores.18 In quarters 1 through 4 of 

FY 2013, the Northeast area posted the lowest performance results relative to the other six measured 

service areas. The Postal Service mentions the impact of weather in quarters 1 and 2 as a partial 

reason for this service target not being met.19 Figure V-3 shows that since FY 2012, mail with a 3-5-day 

service standard originating from and destinating to the Northeast area has averaged 75.5 percent 

on-time versus 79.1 percent for the other areas with the same service standard. 

16 Library Reference USPS-FY13-29. See also United States Postal Service, Service Performance Measurement, June 2008, at 7 n.3, 

 attached to Docket No. PI2008-1, Order No. 83, Second Notice of Request for Comments on Service Performance Measurement 

Systems for Market Dominant Products, June 18, 2008.

17 Library Refernce USPS-FY13-29. The Postal Service states that 68 percent of First-Class Mail Flats were mailed at Single-Piece rates.

18 In FY 2013, measured Flats mail with a 3-5-day service standard from the Northeast represented 12.9 percent of total Flats with the 

 same service standard.

19 The Postal Service says 3-5-day single-piece mail utilizes the air transportation network, which is most susceptible to impact from 

 weather. During quarters 1 and 2 in FY 2013, Hurricane Sandy and Winter Storm Nemo paralyzed the East Coast and Northeast 

 corridor. Library Reference USPS-FY12-29.

Figure V-3

Standard Mail Flats Northeast Area 

Service Performance Results FY 2012—FY 2013

Percent On-Time

72.5 77.6 81.2 77.4

70.2 73.7 75.4 76.3

0

10

20

30

40

50

60

70

80

90

100

2012-Q1 2012-Q2 2012-Q3 2012-Q4 2013-Q1 2013-Q2 2013-Q3 2013-Q4

Percent On-time

Graph ^: Quarterly Service Performance

FY2012 - FY2013

Northeast 
POSTAL REGULATORY COMMISSION 107

Parcels

Service performance for Parcels also did not meet the annual service performance target in FY 2013. 

In quarter 1 of FY 2013, the Northeast area posted the lowest performance results among each service 

standard category—likely due to the effects of Hurricane Sandy.20 Service performance results for 

the overnight, 2-day, and 3-5-day service standards have shown steady improvement in FY 2013 

compared with FY 2012.

Single-Piece International Inbound and Outbound

In FY 2013, service performance for Inbound and Outbound Single-Piece First-Class Mail International 

did not meet the annual target of 94 percent on-time delivery. Unlike other products within FirstClass Mail, the annual targets have not increased from targets set in FY 2011. 

Only the service performance results for First-Class Mail Presorted Letters/ Postcards met or exceeded 

annual targets for overnight, 2-day and 3-5 day service standards. Service performance results for SinglePiece Letters/Postcards overnight and 2-day service standards met the annual target, but for 3-5 day 

service standards, the performance results were below the annual target. Service performance for Flats and 

Parcels remains well under target, as does service performance for all but overnight Outbound Single-Piece 

First-Class Mail. The Postal Service must improve performance for products that did not meet the annual 

targets. The Postal Service should take appropriate action to improve performance for these products.

Standard Mail

In FY 2013, Standard Mail products constituted 51.9 percent of total mail delivered and 46.7 percent 

of total mail measured by the Postal Service.21 Table V-3 shows that service performance for Standard 

Parcels and High Density and Saturation Letters met or exceeded the on-time delivery targets set 

by the Postal Service. High Density and Saturation Flats/Parcels and Letters did not meet on-time 

delivery targets. Performance for both Carrier Route and Flats did not meet on-time delivery targets, 

falling below 80 percent on-time delivery, but made meaningful increases in performance when 

compared to FY 2012.

20 Id.

21 PRC-FinRpt-13.
108 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

FY 2013 FY 2012 FY 2011

Target Percent On-Time Percent On-Time Percent On-Time

High Density and Saturation Letters 90.8 87.2 86.9 90.0

High Density and Saturation Flats/Parcels 87.0 90.8 76.6 90.0

Carrier Route 79.7 70.6 50.1 90.0

Letters 85.9 80.7 71.3 90.0

Flats 76.9 59.9 59.9 90.0

Parcels 98.7 N/A N/A 90.0

Mixed Product Letters 85.9 79.5 67.7 90.0

Mixed Product Flats 80.2 66.8 59 90.0

Table V-3

Service Performance Results for Standard Mail 

 Mixed Product Letters and Mixed Product Flats are not products, but are categories that account for Standard Mail 

Letters and Flats without proper documentation used to categorize a mailpiece. See Library Reference USPSFY13-29 at 10; FY 2012 ACD at 54.

High Density and Saturation Letters

Service performance for High Density and Saturation Letters has improved each year since FY 2011. 

In FY 2013, for the first time, service performance results exceeded the annual target of 90 percent 

on-time delivery. 

The Postal Service increased the scope of measurement for High Density and Saturation Letters by 

capturing product-level data from more regions and districts nationwide. Figure V-4 shows that for 

End-to-End measurement, the percentage of districts providing IMb data increased in FY 2013. The 

number of districts measuring the End-to-End 11-22-day service standard remains low, with only 15 

percent of districts providing IMb data to the Postal Service.

Figure V-4

District-Level IMb Coverage
POSTAL REGULATORY COMMISSION 109

High Density and Saturation Flats/Parcels

Table V-4 shows that only service performance results for destination entry mail with a 2-day, 3-4-day 

and 5-10-day service standard were measured. 

The amount of High Density and Saturation Flats/Parcels pieces measured by IMb grew considerably 

compared to FY 2012. In fact, the number of High Density and Saturation Flats/Parcels pieces 

increased 678 percent in FY 2013 as a result of better mailer identification.22 The Commission 

commends the Postal Service for increasing product-level IMb volume as it is generally positive for 

service performance measurement. 

Carrier Route

Service performance for Carrier Route mail increased compared to FY 2011 and FY 2012. Most of this 

improvement is due to the performance of its 3-4-day and 5-10-day destination entry mail. Figure V-5 

illustrates service performance for the destination entry and End-to-End components of this product. 

The figure also shows that the destination entry component had consistent increases in service 

performance in FY 2013. In contrast, mail measured End-to-End showed decreasing or inconsistent 

service performance results during the same time.

22 The percentage increase was calculated using the sum of the number of measured pieces in each of the 4 quarters of FY 2012 

 compared with the corresponding sum for FY 2013. See United States Postal Service, FY 2012 and FY 2013 Quarterly Service 

 Performance Reports.

Table V-4 

Service Performance Results for 

High Density and Saturation Flats/Parcels 

HDS Flats Components FY 2013 Q1 FY 2013 Q2 FY 2013 Q3 FY 2013 Q4

End-to-End 3-5-day N/A N/A N/A N/A

End-to-End 6-10-day N/A N/A N/A N/A

End-to-End 11-22-day N/A N/A N/A N/A

Destination Entry 2-day 94 94.2 94.4 94

Destination Entry 3-4-day 66.9 84 87.5 83.8

Destination Entry 5-10-day 80.5 89.4 91.7 92.9
110 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Figure V-5

 Carrier Route Service Perfomance Results

Figure V-6

 Standard Mail Letters Service Performance and IMb Volume

Letters

For Standard Mail letters, service performance and the volume of pieces measured by IMb have 

consistently increased over three consecutive years. In addition, all geographic areas for each 

component and service standard have provided IMb data used to measure service performance. 

Figure V-6 illustrates the increasing trend in both volume and service performance across eight 

consecutive quarters.

Source: United States Postal Service, FY 2012 and FY 2013 Quarterly Service Performance Reports. 

-

500 

1,000 

1,500 

2,000 

2,500 

3,000 

3,500 

4,000 

-

10.0 

20.0 

30.0 

40.0 

50.0 

60.0 

70.0 

80.0 

90.0 

100.0 

2012-Q1 2012-Q2 2012-Q3 2012-Q4 2013-Q1 2013-Q2 2013-Q3 2013-Q4

Measured Volume

Millions

% on-time

Figure ^

Overall Service Performance Result IMb Volume

Percent On-Time

Percent On-Time

Measured Volumes in

 Millions

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

3-5-Day End-toEnd 6-10-Day End-toEnd11-20-Day Endto-End Destination Entry 

2-Day

Destination Entry 

3-4-Day

Destination Entry 

5-10-Day

FY2013 Q1

FY2013 Q2

FY2013 Q3

FY2013 Q4

Note: Carrier Route service performance results were not available for 2-day destination entry.
POSTAL REGULATORY COMMISSION 111

The proportion of destination entry (96 percent of Standard Mail Letter volume) and End-to-End 

(4 percent of Standard Mail Letter volume) mail measured in FY 2013 remained consistent despite the 

significant increase in the volume of letters.

Flats

Standard Mail Flats on-time service performance increased significantly in FY 2013, from 59.9 percent 

to 76.9 percent. The annual volume of Flats measured by IMb increased from approximately 460 

million in FY 2012 to 2.1 billion in FY 2013. Figure V-7 illustrates the trend of measured mailpieces 

across eight quarters. The figure also reveals the sizeable proportion of destination entry mail versus 

End-to-End mail in measurement.

The End-to-End component of Standard Mail Flats did not show the same increase in service 

performance results as destination entry. In fact, in FY 2013, End-to-End 11-22-day service 

performance results decreased from 53.1 percent on-time delivery in quarter 1 to 50.6 percent in 

quarter 4. Figure V-8 shows that the overall score and increase in FY 2013 service performance results 

were mostly due to relatively better performance from destination entry mailpieces. 

Figure V-7

Type of Standard Mail Flats in Measurement

Figure V-8

Standard Mail Flats Service Performance

Percent On-Time

-

100 

200 

300 

400 

500 

600 

700 

2012-1 2012-2 2012-3 2012-4 2013-1 2013-2 2013-3 2013-4

Millions

Destination Entry End-to-End

Millions

-

20.0 

40.0 

60.0 

80.0 

100.0 

End-to-End 3-5-

Day

End-to-End 6-10-

Day

End-to-End 11-22-

Day

2-Day Dest Entry 3-5-Day Dest 

Entry

5-10-Day Dest 

Entry 

2013-1 2013-2 2013-3 2013-4

Note: Standard Mail Flats service performance results were not available for 2-day destination entry.
112 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Parcels

FY 2013 marked the first year service performance results were presented for Parcels. Only quarter 

1 and 2 results are included because there were no data for quarters 3 and 4. The Postal Service 

explains that “the volume of measurable pieces was very low” even for quarters 1 and 2.23 The 

Southern Area revealed very low measurable volume.24

Service Performance for High Density and Saturation Letters and Parcels exceeded the annual service 

performance goal of 90 percent on-time delivery, while service performance for Letters and High Density 

and Saturation Flats/Parcels was close to meeting the target. Flats and Carrier Route products had the 

lowest service performance scores among Standard Mail products despite significant improvement 

compared to FY 2011 and FY 2012. While IMb measurements increased for some products, the Postal 

Service should continue to address concerns of low IMb volumes or unavailable IMb data provided at the 

district level in order to assure reliable service measurement.

Periodicals

Table V-5 shows that annual service performance for Periodicals increased notably from FY 2012. 

The Postal Service previously asserted that increased volumes of Periodicals in measurement allow 

diagnostic tools such as Work-in-Process to provide managers with the visibility to quickly identify and 

improve work-flows issues.25 In addition, the diagnostic tool allows the Postal Service to track and 

troubleshoot problems in the network using information gathered through Intelligent Mail barcodes. 

The Postal Service maintains that use of processing equipment and its Work-in-Process diagnostic tool 

improved service performance in FY 2013.26 

23 United States Postal Service, Quarterly Performance for Standard Mail Parcels, Scores Report Quarter 2, May 13, 2013. 

24 The Southern Area includes 12 districts: Alabama, Arkansas, Dallas, Fort Worth, Houston, Louisiana, Mississippi, North Florida, 

 Oklahoma, Rio Grande, South Florida, and Suncoast.

25 See Docket No. ACR2012, Library Reference USPS-FY12-29.

26 FY 2012 ACD at 47; Docket No. ACR2012, Library Reference USPS-FY12-29; Library Reference USPS-FY13-29.

FY 2013 FY 2012

Target Percent 

On-Time Target Percent On-Time

Within County 91.0 82.0 91.0 68.7

Outside County 91.0 82.1 91.0 68.7

Table V-5

Annual Service Performance for Periodicals
POSTAL REGULATORY COMMISSION 113

Figure V-9 shows that in FY 2013, a steady increase in the percentage of Periodicals in measurement 

also accompanied an increase in service performance results (especially, within Outside County 

Destination Entry). It is difficult to determine that the gradual increase in service performance 

results is solely related to the increase in the percentage of Periodicals in measurement. First, more 

observations are needed to make such a determination. Second, another key component in assessing 

reliability of service performance results is the inclusion of measurable pieces at the district level. 

Periodicals results, unlike other products using IMb, are not presented at the district level, rather, only 

at the entry and area level. 

Figure V-9 also reveals a change in pieces measured by IMb one quarter before and after the 

implementation of service standard changes associated with Mail Processing Network Rationalization. 

The proportion of Periodicals in measurement doubled after service standard changes were 

implemented; however, no evidence suggests that the changes impacted service performance. 

The Postal Service did not meet its service performance goal for Periodicals. However, compared to FY 

2012, service performance results were significantly higher than in FY 2012. In addition, the proportion 

of Periodicals measured by IMb increased in FY 2013. The Postal Service must continue to improve service 

performance for Periodicals Mail.

Package Services

Table V-6 illustrates that the service performance for only two of the five Package Services products 

met their annual service performance targets. Bound Printed Matter Parcels and Media Mail/Library 

Mail met or exceeded the 90 percent on-time delivery target set for FY 2012 and FY 2013. Service 

performance for Inbound Surface Parcel Post (at UPU rates) was also relatively high and grew slightly 

closer to the annual on-time delivery target.

Figure V-9

Measured Pieces vs. Performance

46.3 

66.9 

83.1 84.6 81.4 85.2 87.8 87.0 

57.9 57.9 

66.6 66.6 63.1 66.8 65.1 71.5 

0

5

10

15

20

25

-

20.0 

40.0 

60.0 

80.0 

100.0 

2012-Q1 2012-Q2 2012-Q3 2012-Q4 2013-Q1 2013-Q2 2013-Q3 2013-Q4

Percent of Periodicals in Measurement

Percent On-Time Delivery

Measured Pieces vs. Performance

Performance -Outside County Dest Entry Performance -Outside County End-to-End Periodicals in Measurement
114 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Table V-6

Service Performance Results for Package Services

Table V-7

Service Performance Results for Bound Printed Matter Flats 

FY 2013 FY 2012

Target Percent On-Time Target Percent On-Time

Single-Piece Parcel Post 90 85.0 90 86.8

Bound Printed Matter Flats 90 62.6 90 54.3

Bound Printed Matter Parcels 90 98.4 90 94.4

Media Mail/Library Mail 90 93.3 90 92.7

Inbound Surface Parcel Post 

(at UPU rates) 90 87.8 90 86.8

In FY 2013, service performance for Bound Printed Matter Flats was well below other Package Services 

products for the second consecutive year. The Postal Service suggests that improved diagnostics and 

an increase in mailers utilizing Full-Service IMb should lead to improved service performance results 

in future years.28 As seen in Table V-7, for End-to-End BPM Flats, none of the 67 districts reported 

service performance results from quarter 2 FY 2012 to quarter 2 FY 2013. In quarter 3 FY 2013, results 

for End-to-End BPM Flats were provided by 97 percent of the districts and by quarter 4 all districts 

were providing data.

27 Single-Piece Parcel Post was moved to the competitive product category in January 2013. Results shown for FY 2013 include only 

 the portion of the year for which the product was categorized as market dominant. See Library Reference USPS-FY13-29 at 15.

28 See Library Reference USPS-FY13-29.

Percentage of Districts 

with IMb data

FY 2012 FY 2013

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Destination Entry 99% 99% 99% 100% 100% 100% 100% 100%

End-to-End 85% 0% 0% 0% 0% 0% 97% 100%

When Single-Piece Parcel Post was transferred to the competitive product list, Alaska Bypass Service 

remained on the market dominant product list.27 Upon transfer to the competitive product list, 

Single-Piece Parcel Post was renamed Standard Post, which the Postal Service is using as the proxy 

to measure service performance of Alaska Bypass Service. See USPS-FY13-29 at 17. For the limited 

time that Single-Piece Parcel Post was a market dominant product in FY 2013, its service performance 

remained close to the target for on-time delivery. Because Standard Post is a competitive product, 

and thus not subject to publicly reporting service performance results, it is an inappropriate proxy 

for Alaska Bypass Service. Accordingly, as noted below, the Postal Service is directed to develop an 

appropriate measurement system for Alaska Bypass Service. 
POSTAL REGULATORY COMMISSION 115

29 See Responses of the United States Postal Service to Questions 1-9 of Chairman’s Information Request No. 6, February 18, 2014, 

 question 9 (Response to CHIR No. 6). Docket No. N2012-2, United States Postal Service Request for an Advisory Opinion on 

 Changes in the Nature of Postal Services, May 25, 2012, at 1.

The overall service performance result for BPM Flats does not include four quarters of results from 

the End-to-End component in FY 2012 or FY 2013. Nevertheless, service performance for destination 

entry, which made up 95 percent of measured volume in FY 2013, has been consistently increasing. 

Part of the increase is due to the strong performance in the Eastern Area; it outperformed other 

geographic regions, increasing 54 percent from quarter 1 to quarter 4. 

As noted above, Single-Piece Parcel Post was transferred to the competitive product list in January 

2013. Until then, Single-Piece Parcel Post was used as a proxy to measure the service performance 

of Inbound Parcel Post (at UPU rates). Due to the transfer, in the FY 2012 ACD, the Commission 

instructed the Postal Service to “propose use of an appropriate measurement system or proxy 

for Inbound Surface Parcel Post (at UPU rates) for service performance measurement in FY 2013.” 

FY 2012 ACD at 61. The Postal Service continues to use Single-Piece Parcel Post as the proxy to 

measure service performance for Inbound Surface Parcel Post (at UPU rates).29 Single-Piece Parcel 

Post (renamed Standard Post) is now a competitive product for which no publicly available service 

performance data are available, so it is an inappropriate proxy for measuring the performance 

of Inbound Surface Parcel Post (at UPU rates). The Postal Service must propose an appropriate 

measurement system for Inbound Surface Parcel Post (at UPU rates). 

Service performance for Media Mail/Library Mail and Bound Printed Matter Parcels exceeded the Postal 

Service’s annual service performance target of 90 percent on-time delivery. Service performance for 

other products, such as Single-Piece Parcel Post and Inbound Surface Parcel Post, remained similar to FY 

2012 and close to the annual target. For Bound Printed Matter Flats, service performance results remain 

the lowest among Package Services products and the Postal Service continues to receive low volumes of 

measurable data from mailers. For this product, the Postal Service should develop strategies to enhance 

Full-Service mailer participation and increase service performance results.

Within 90 days of the issuance of this ACD, the Postal Service shall propose to the Commission appropriate 

measurement systems for both Inbound Surface Parcel Post (at UPU rates) and Alaska Bypass Service. 

Special Services

The Postal Service exceeded targets for each product within the Special Services category. Notably, 

service performance for Ancillary Services and Post Office Box Service has declined versus previous 

years. Table V-8 compares the most recent results to previous years and the annual target. 
116 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

FY 2013 FY 2012 FY 2011 Target

Ancillary Services 91.4 93.4 93.4 90.0

International Ancillary Services 99.3 99.6 99.6 90.0

Address List Services 100.0 83.3 93.3 90.0

Confirm 99.7 98.8 99.7 90.0

Money Orders 99.2 99.2 97.2 90.0

Post Office Box Service 90.9 92.6 93.1 90.0

Customized Postage - - - -

Stamp Fulfillment Service 99.5 96.7 - -

Table V-8

Service Performance Results for Special Services

CUSTOMER ACCESS

Introduction

Pursuant to 39 CFR 3055.91, the Postal Service must provide data to the Commission on the number 

and type of post offices, including post offices under emergency suspension as well as information 

on the number of collection boxes in its network. 39 CFR 3055.91 also requires the Postal Service to 

provide information about average customer wait time in line by fiscal quarter.

Pursuant to 39 CFR 3055.92, the Postal Service is to provide to the Commission a copy of its 

Customer Experience Measurement Instrument (CEM) (survey). Additional information such as the 

type of customer surveyed, the number of surveys initiated and received, and, where a question 

asked is subject to multiple responses, the number of responses for each question, disaggregated 

by each of the possible responses is also to be provided.

The Postal Service supplements its reporting with information on alternative access channels.

Maintaining adequate customer access continues to be important. Over the years, the Postal 

Service has reduced its retail network by either closing postal retail facilities or reducing hours of 

operation. The number of collection boxes and other collection points has been reduced. However, 

access to postal services has been supplemented with the addition and enhancement of alternative 

marketing channels.

Retail Facilities

Table V-9 provides the number of Postal Service retail facilities by type for FY 2011 through FY 

2013. The aggregate number of Postal Service-operated retail facilities (i.e., post offices stations and 

branches) has declined each year since FY 2011, although the rate of facility closings decreased in FY 

2013. The total number of non-Postal Service operated retail outlets increased from FY 2012 to FY 
POSTAL REGULATORY COMMISSION 117

2013. This increase can be primarily attributed to the establishment of 338 new Village Post Offices 

(VPOs). The number of contract postal units (CPUs) and community post offices (CPOs) together 

declined by 263 facilities from FY 2012 to FY 2013. The aggregate number of facilities in FY 2013 is 

35,434, sixty-five more than in FY 2012.

POStPlan

On May 25, 2012, the Postal Service requested an Advisory Opinion from the Commission on 

POStPlan, a proposal to realign the hours of operation at approximately 17,700 of its nearly 32,000 

post office retail locations to more closely reflect the workload at these offices.30 The Commission 

issued its Advisory Opinion on August 23, 2012.31

As a result of POStPlan, the hours of operation at nearly 13,000 post offices nationwide are being 

reduced to 6, 4, or 2 hours per weekday. In a few locations, hours of operation will increase. Table 

V-10 shows the total number of offices subject to POStPlan. Although POStPlan may reduce retail 

service and customer convenience at certain post offices by reducing weekday hours of operation, the 

Postal Service plans to maintain retail access to postal service in the following ways:

■ Post offices will continue to provide the same services they have always provided;

■ Access to Post Office boxes remains unchanged;

■ Collection boxes at Post offices remain in place;

■ Saturday hours are not to be affected; and

■ Post offices in the most remote and isolated locations will remain open at least 6 hours 

each weekday.

Table V-9

Postal Service Operational Retail Facilities

Note: These totals do not include offices under emergency suspension.

Source: USPS 2013 Annual Report to Congress at 34.

Facility Type FY 2013 FY 2012 FY 2011

FY 2013 

Change from 

FY 2012

FY 2012 

Change from 

FY 2011

Post Offices 26,670 26,755 26,927 (85) (172)

Classified Stations & Branches and Carrier 

Annexes 5,032 5,102 5,219 (70) (117)

Total Postal-managed 31,702 31,857 32,146 (155) (289)

Contract Postal Units 2,718 2,792 2,904 (74) (112)

Village Post Offices 385 47 - 338 47 

Community Post Offices 629 673 706 (44) (33)

Total Offices, Stations & Branches 35,434 35,369 35,756 65 (387)

30 Docket No. N2012-2, United States Postal Service Request for an Advisory Opinion on Changes in the Nature of Postal Services,

 May 25, 2012, at 1.

31 Docket No. N2012-2, Advisory Opinion on Post Office Structure Plan, August 23, 2012.
118 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

The Postal Service is implementing POStPlan in several phases. The first set of post offices 

transitioned under POStPlan were those offices to be upgraded to EAS Level 18, which entails 

increased administrative responsibilities for the Postmaster, but no change in hours of operation. The 

Postal Service is currently transitioning offices slated for reduction of operating hours where there 

is a current Postmaster vacancy. Finally, beginning on, or about September 2014, those offices with 

occupied Postmaster positions will begin to transition.

Table V-11 shows the progress in implementation of POStPlan through the end of FY 2013. The 

table demonstrates that just over 61 percent of the offices proposed for reduced hours have been 

transitioned. The implementation of POStPlan appears to be uniformly distributed among projected 

Level 2 (2-hours per weekday), Level 4 (4-hours per weekday) and Level 6 (6-hours per weekday). 

The Postal Service posts POStPlan Headquarters Status Updates on its website, as well as the dates 

of upcoming POStPlan community meetings, to inform the public of the status of potential changes 

in operating hours of their local post offices. The Postal Service states that as a result of POStPlan’s 

implementation, it has achieved $171 million in annual savings to date.32

32 United States Postal Service 2013 Annual Report to Congress, at 19; Library Reference USPS-FY13-17.

Table V-11

POStPlan Status at Year-End FY 2013 

Source: USPS FY 2013 Annual Report to Congress at 19, 48.

(Number of Offices)

Projected Office 

Level

As Proposed in 

N2012-2

Status as of 

EOFY 2013

Percent 

Converted

Level 2 1,891 1,090 57.6%

Level 4 6,837 4,203 61.5%

Level 6 4,333 2,692 62.1%

Total 13,061 7,985 61.1%

Table V-10

Proposed Changes in Hours of Operation Under POStPlan 

Number of Offices Percent of Total

Increase 73 0.4%

No Change 4,752 27.0%

Decrease 12,801 72.6%

Total 17,626 100.0%

Source: Library Reference USPS-LR N2012-2/11
POSTAL REGULATORY COMMISSION 119

Post Office Suspensions

Table V-12 shows the number of postal-operated retail facilities with suspended operations at the 

conclusion of FY 2013.

Table V-12

Number of Offices Under Suspension FY 2013 

Source: Response to CHIR No. 1, question 7, Library Reference USPS-FY13-43

Under Suspension 

at the Start of the 

Fiscal Year

Suspended 

During the 

Fiscal Year

Not Reopened/Closed 

During the 

Fiscal Year

Under Suspension 

at the End of 

Fiscal Year

Post Office 277 77 24 330

Station/Branch 59 28 3 84

Total 336 105 27 414

Table V-13 shows a breakdown of the 414 offices with suspended operations at the end of FY 2013 by 

the reason for the suspension. Postal Service Handbook PO 101 specifies the circumstances that may 

justify a suspension as including:

■ A natural disaster;

■ Termination of a lease or rental agreement when suitable alternate quarters are not available in 

the community, especially when the termination is sudden or unexpected;

■ Lack of qualified personnel to run the office;

■ Irreparable damage when no suitable alternate quarters are available in the community;

■ Severe damage to, or destruction of, the office;

■ Challenge to the sanctity of the mail; and

■ Lack of adequate measures to safeguard the office or its revenues.33

As shown in Table V-13, the leading cause of suspensions is lease expirations/terminations which 

account for 39 percent of the total. Lack of qualified personnel is the second leading cause at

23 percent.

33 United States Postal Service Handbook PO-101, October 2012, (USPS Handbook PO-101), at 39.
120 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Table V-13

Number of Offices Under Suspension 

Source: Response to CHIR No. 1, question 7, Library Reference USPS-FY13-43; Library Reference USPS-FY12-46.

Suspension Reason Number of Offices Percent of Total 

FY 2013

Lease Expiration/Termination 161 38.9%

Lack of Qualified Personnel 97 23.4%

Health/Safety 91 22.0%

Natural Disasters 37 8.9%

Other 5 1.2%

No Data 23 5.6%

Total 414 100.0%

The Postal Service’s formal discontinuance process is set out in USPS Handbook PO 101.34 The 

first step in investigating possible discontinuance is an official decision to undertake a feasibility 

study. This step involves, among other things, information gathering which includes customer 

questionnaires to gather additional information about a community, its postal customers and their 

access to delivery and retail services. After a Headquarters Review Coordinator confirms that the 

review complies with federal law and Postal Service policy, a formal proposal to discontinue the 

facility is prepared and forwarded to the district manager before it is issued. A community meeting 

can be held any time after the customer questionnaires have been sent out and before any final 

determination can be made.

If the proposed action appears warranted, a formal proposal to discontinue the facility is prepared 

and forwarded to the district manager before it is posted. A written copy of the proposal and an 

invitation for comments must be posted for at least 60 days in the retail facility under study and 

surrounding facilities. Comments received are then analyzed by management. After review by the 

district manager, the proposal may be allowed to continue or halted as unwarranted.

If the proposal is found to be warranted, then a final determination is prepared and posted for 

at least 30 days in the affected facilities where the proposal had originally been posted. The 

Postal Service then observes an additional 30 day waiting period. If there are no appeals to the 

Commission, the retail facility is officially discontinued, at the earliest, 60 days after the first day of 

posting of the final determination.

Data supplied by the Postal Service in this proceeding appear to indicate that as many as threequarters of offices remaining under suspension have entered the formal discontinuance process. 

However, some of these offices had been under study for possible discontinuance under previous 

facility reduction initiatives as evidenced by the fact that at least 52 of the offices currently under 

34 Id. at 29-33.
POSTAL REGULATORY COMMISSION 121

suspension have had Final Determinations issued, primarily in FY 2011, and yet remain in 

suspension.35 The discontinuance studies performed for these offices are over 2 years old and may 

have to be updated if the Postal Service chooses to proceed in discontinuing these offices. 

The Commission has recommended that the Postal Service proceed expeditiously in either discontinuing 

offices under suspension or reopening them.36 It reiterates that recommendation in this proceeding.

Delivery Points

Table V-14 provides the number of residential and business delivery points by delivery type for FY 

2010 through FY 2013. The change in delivery points among the years is also shown. There has been 

an upward trend, with an overall increase of 773,882 delivery points from FY 2012 to FY 2013. The 

growth in delivery points in FY 2013 is the result of an increase in residential delivery points. While 

business delivery points continued to decrease, the rate of decrease was lower in FY 2013 than in 

FY 2012. For FY 2013, the average pieces per delivery point was 1,036 as shown in Table V-15. In 

contrast, the USPS reported the average pieces per delivery point was 1,529 in FY 2000.37 There has 

been a steady decrease in the ensuing years.

35 See Library Reference USPS-FY11-44.

36 See Docket No. PI2010-1, Order No. 335, Notice and Order Providing an Opportunity to Comment, November 9, 2009, at 2.

37 FY 2012 ACD at 67.

Table V-14

Postal Service Delivery Point Statistics 

Source: USPS 2013 Annual Report to Congress at 34.

Residential Delivery Points FY 2013 FY 2012

FY 2013 

Change from 

FY 2012 FY 2011

FY 2012 

Change from 

FY 2011

City Delivery 81,297,883 81,040,591 257,292 80,792,112 248,479 

Rural 40,111,620 39,449,400 662,220 39,067,740 381,660 

PO Box 15,882,717 15,994,508 (111,791) 15,891,349 103,159 

Highway Contract 2,736,005 2,678,508 57,497 2,639,061 39,447 

Total Residential Delivery 140,028,225 139,163,007 865,218 138,390,262 772,745 

Business Delivery Points

City Delivery 7,554,231 7,525,979 28,252 7,487,332 38,647 

Rural 1,524,741 1,493,644 31,097 1,468,861 24,783 

PO Box 3,738,314 3,889,964 (151,650) 4,072,664 (182,700)

Highway Contract 74,922 73,957 965 72,872 1,085 

Total Business Delivery 12,892,208 12,983,544 (91,336) 13,101,729 (118,185)

Total Delivery Points 152,920,433 152,146,551 773,882 151,491,991 654,560 
122 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Table V-15

Annual Pieces Per Delivery Point 

Source: USPS 2013 Annual Report to Congress at 34.

 FY 2013 FY 2012 FY 2011 FY 2010 FY 2009 

No. of Pieces (Millions) 158,384 159,859 168,297 170,859 176,744

Pieces/Delivery Point 1,036 1,051 1,111 1,133 1,177

Wait Time in Line

Tables V-16 and V-17 illustrate wait time in line experiences at postal retail facilities. To provide 

insight into customer experiences at its retail outlets, the Postal Service, through the Retail Customer 

Experience (RCE) program, hires private “mystery shoppers” who test customer experiences at 

approximately 8,400 of its larger retail outlets. Table V-16 shows the average wait time in line by 

administrative area for FY 2013 and FY 2012. The average wait decreased across the board except in 

the Great Lakes region where it increased by 3 seconds.

Table V-16

Postal Service Identified

 Average Wait Time in Line

Source: Library Reference USPS-FY13-33.

Average Wait Time in Line

Area FY 2013 FY 2012

Capital Metro 2:19 2:22

Eastern 2:16 2:24

Great Lakes 2:00 1:57

Northeast 2:21 2:23

Pacific 3:19 3:25

Southern 2:22 2:33

Western 2:48 2:58

National 2:29 2:34
POSTAL REGULATORY COMMISSION 123

The Postal Service has emphasized its goal of lowering the average wait time to less than 5 minutes. 

According to the Postal Service, this is the ideal length of wait time between cost effectiveness, 

efficiency, and service. The Postal Service states that the primary source of their wait time in line 

data is the mystery shopper program. The Postal Service has explained that wait time in line data are 

obtained from the mystery shopper program and not the CEM survey.38 It further explained that the 

CEM separately asked questions about customers’ impressions of their visits, but this information is 

not used in calculating wait time in line. Thus, data from the mystery shopper program provides a 

measured time. 

Data from the CEM survey provides a customer’s impression of service, which is also useful. Table V-17 

summarizes the responses received from the CEM for small/medium businesses and residential post 

office users. A majority of respondents indicated that their wait time was in fact less than 5 minutes. 

However, there is still room left for improvement.

38 FY 2012 ACD at 69.

Table V-17

CEM Identified

Average Wait Time in Line

Small/Medium Business Residential

Wait Time in Line FY 2013 FY 2012 FY 2011 FY 2013 FY2012 FY 2011

Less than 1 minute 18.0% 18.1% 17.6% 19.0% 19.1% 18.5%

1-3 minutes 30.5% 30.5% 29.3% 31.6% 31.9% 30.7%

4-5 minutes 23.4% 23.3% 23.1% 24.1% 23.7% 23.6%

Subtotal 5 minutes or less 71.9% 71.9% 69.9% 74.7% 74.7% 72.8%

6-10 minutes 16.2% 16.0% 16.6% 15.0% 14.9% 15.5%

11-15 minutes 6.8% 6.9% 7.4% 5.8% 5.9% 6.4%

16 minutes or more 5.2% 5.3% 6.1% 4.5% 4.5% 5.3%

Total 100% 100% 100% 100% 100% 100%

Source: Library Reference USPS-FY13-33; FY 2012 ACD at 68.
124 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Collection Points

Collection points are an important access channel for Single-Piece First-Class Mail. Collection points 

are defined locations where a customer drops off mail for collection by the Postal Service. These can 

include collection boxes, mail chutes, firm pick-ups, Automated Postal Centers (APCs) drops, lobby 

drops, and mail collection racks. All collection points are required to be entered in the Collection 

Point Management System (CPMS) by the responsible district. Data contained in the CPMS database 

include collection point addresses, location-types (i.e., Business, Residential, Post Office Lobby, etc.), 

box types (standard, jumbo, snorkel, etc.), days of the week the point is accessed and the times 

(including the final collection time) it is accessed.

Table V-18 shows the number of collection points by location-type. Figure V-10 illustrates the decline 

in the number of collection points from 2000 to 2013.

Table V-18

Number of Collection Points by Location Type

Year

 Change in 

Number

Percent 

Change

 Change in 

Number

Percent 

Change

Location-Type 2013 2012 2006 2013-2006 2013-2012

Business 78,939 82,142 108,418 (29,479) -27.2% (3,203) -3.9%

Residential[1] 39,731 41,019 61,038 (21,307) -34.9% (1,288) -3.1%

Post Office Outside 42,996 45,167 53,665 (10,669) -19.9% (2,171) -4.8%

Post Office Lobby 38,709 39,236 37,110 1,599 4.3% (527) -1.3%

Customer Lobby 3,614 3,817 4,057 (443) -10.9% (203) -5.3%

Other 4,168 3,795 3,191 977 30.6% 373 9.8%

Contract Station 1,024 938 948 76 8.0% 86 9.2%

Mail Room 758 749 807 (49) -6.1% 9 1.2%

Customer Dock 314 262 464 (150) -32.3% 52 19.8%

Airport 150 152 152 (2) -1.3% (2) -1.3%

Government Building 316 275 68 248 364.7% 41 14.9%

Approved Shipper 118 99 0 118 N/A 19 19.2%

Grand Total 210,837 217,651 269,918 (59,081) -21.9% (6,814) -3.1%

[1] Collection boxes account for over 99% of residential collection points.

Source: Response to CHIR No. 2, question 6, Library Reference USPS-FY13-43.
POSTAL REGULATORY COMMISSION 125

Figure V-10

Total Collection Points

200,000	
  

225,000	
  

250,000	
  

275,000	
  

300,000	
  

325,000	
  

350,000	
  

2000	
  2001	
  2002	
  2003	
  2004	
  2005	
  2006	
  2007	
  2008	
  2009	
  2010	
  2011	
  2012	
  2013	
  

Total	
  Collec*on	
  Points	
  

Note: Collection boxes account for 75 precent of all collection points.

Figure V-11

Business and Residential Collection Points

Figure V-11 shows the total number of business and residential collection points in FY 2006 and FY 

2013. During this period, the number of business collection points declined by 27.2 percent and the 

number of residential collection points declined by 34.9 percent.
126 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Alternative Access

In addition to providing postal products and services at postal retail counters, the Postal Service 

has continued to expand postal access through additional marketing channels. In FY 2013, over 40 

percent of retail revenue was generated through means other than a postal retail counter. Figure 

V-12 identifies the FY 2013 revenue each retail channel generated. The channels represented on 

Figure V-12 are Post Offices’ walk-in revenue, which is Post Office walk-in revenue plus walk-in revenue 

from Contract Postal Units (CPUs), and Internet Access, which consists of “PC Postage” and “Click-NShip.” The last category, All Other, consists of “Stamps only sales by retail partners,” Automated Postal 

Centers (APCs), and “Stamps by mail/phone/fax.”

Figure V-12

Retail Revenue by Channel

The share of revenues derived from Automated Postal Centers (APCs) located in post office lobbies 

in larger facilities has declined from 3.2 percent in FY 2011 to 2.5 percent in FY 2013. The number of 

APCs has remained nearly constant over the years, as shown in Table V-19. Surveys distributed by 

the Postal Service indicated that upwards of 80 percent of small/medium business customers and 

residential customers find that a “self-service mailing and shipping center is easy to use.”

Source: CHIR No. 1, question 5; 2012 ACD at 72.

Note: WIR = Walk-In Revenue

11,073 11,003 11,374

4,857 4,088 3,261

2,303

2,359 2,319

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2013 2012 2011

Post Offices (WIR) Internet Access All Other

Retail Revenue by Channel

(in millions)

Millions
POSTAL REGULATORY COMMISSION 127

Table V-19

Number of Automated Postal Centers

FY Number of APCs

2013 2,166

2012 2,132

2011 2,143

2010 2,142

2006 2,164

Source: Response to CHIR No. 2, question 6; Library Reference USPS-FY13-43; 2012 ACD at72.

In its FY 2012 Annual Report to Congress, the Postal Service indicated that, in response to comments 

received, it planned to add APCs by early 2013.39 The data shown in Table V-19 indicate a net increase 

of only 34 APCs. Data provided by the Postal Service in FY 2012 ACD appeared to indicate that many 

of the APCs in service were nearing the end of their service lives.40 Thus, many of the newly installed 

APCs may have replaced existing units which were at the end of their useful service lives, rather than 

having been installed in new locations.

Contract Postal Units (CPUs) and Community Post Offices (CPOs) offer a range of postal services in 

addition to the sale of stamps. CPUs are usually located in a place of business and operated by a 

contractor who accepts mail from the public, sells postage and supplies, and provides special services 

(e.g., Postal Money orders or Registered Mail). CPOs provide services in a community where no post 

office exists.41 As indicated by Table V-20, the number of CPUs and CPOs is declining. Their respective 

revenue amounts are also decreasing.

39 United States Postal Service FY 2012 Annual Report to Congress at 47.

40 FY 2012 ACD at 73.

41 Glossary of Postal Terms, United States Postal Service, Publication 32, July 2013, at 45.

Office Type Total at Start of 

FY 2013 Closings Openings Total at End of FY 2013

Contract Postal Units 2,848 321 194 2,721

Community Post Offices 663 149 - 514

Total Contract Units 3,511 470 194 3,235

Table V-20

Number of Contract Postal Units (Non-Postal Managed)

Source: Response to CHIR No. 1, question 4.
128 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Village Post Offices (VPOs) provide a limited range of services that include selling First-Class Mail 

stamps, offering Priority Flat rate shipping products, delivering to P.O. boxes, and accepting mail. 

VPOs are part of the Postal Service’s “Approved Provider Network”-retail outlets for postal products 

and services that also include CPUs, Approved Shippers, stamps on consignment locations and 

CPOs.42 The first VPOs were initiated in 2011.43 VPOs are located in community businesses, town 

halls, and government centers. By being located at businesses and other places that customers 

already frequent, the Postal Service contends that VPOs will offer Postal Service customers timesaving convenience and in many instances longer hours of operation than regular Post Offices.44 As 

of December 31, 2013, there were a total of 382 VPOs open across the nation. Three hundred thirtyone opened in FY 2013. The states in which they are primarily located are Indiana, Kentucky, Virginia, 

Michigan, and Pennsylvania. These five states account for approximately 44 percent of the total VPOs 

in the nation. VPOs are limited substitutes for full service postal retail facilities.45

CUSTOMER EXPERIENCE

For market dominant products, 39 U.S.C. 3652 (a)(2)(B)(ii) requires the Postal Service to report 

“the degree of customer satisfaction with the service provided.” In FY 2011, the Postal Service 

implemented a new CEM system for gauging customer experience and satisfaction with sending and 

receiving mail, visiting the Post Office, and contacting the Post Office.46 The CEM system randomly 

selects residential and small/medium business customers and surveys them via online or hard copy. 

Large business customers were asked to complete an online survey only. CEM measures customer 

experience with market dominant products by asking survey participants to rate product satisfaction 

using a six-point scale: Very Satisfied, Mostly Satisfied, Somewhat Satisfied, Somewhat Dissatisfied, 

Mostly Dissatisfied, and Very Dissatisfied. Responses are broken down based on the type of customer: 

Residential, Small/Medium Business, and Large Business. A primary focus for the Postal Service has 

been to increase the share of Very/Mostly Satisfied responses.

Residential Customers

Approximately 302,000 residential (retail) customers participated in the CEM survey. The majority of 

residential customers responded positively when asked about their general Postal Service experience 

in FY 2013.47 For example, when asked “How satisfied are you with the Postal Service?”, 88.2 percent 

of respondents replied “Very Satisfied” or “Mostly Satisfied.” Relative to previous years, this number has 

remained consistent. 

42 Village Post Office fact sheet, available at http://about.usps.com/news/electronic-press-kits/expandedaccess/vpo-fact-sheet.htm

 (accessed March 6, 2014).

43 Docket No. N2011-1, Advisory Opinion on Retail Access Optimization Initiative, December 23, 2011, at 107 (RAOI Opinion).

44 FY 2012 ACD at 73

45 RAOI Opinion at 111.

48 FY 2013 ACR at 41.

47 A related measure of customer experience is provided by the mystery shopper program. The Overall Retail Experience score from the

 Retail Customer Experience mystery shoppers for FY 2013 was 92.86 percent. This score is the weighted average of four separate

 measures, wait time in line score (40 percent), HAZMAT score (15 percent), image score (20 percent), and promotion and 

 merchandising score (25 percent). 
POSTAL REGULATORY COMMISSION 129

Residential customers’ perception concerning post office contact have also remained constant. For 

example, when prompted to agree or disagree that their post office resolves issues in a prompt 

manner, 59 percent of customers in FY 2013 and 61 percent of customers in FY 2012 said they 

“Strongly Agree” or “Somewhat Agree.”

Respondents expressed general satisfaction with their experiences when visiting the post office. 

For instance, when asked to remember their most recent visits to a post office, the majority of 

respondents stated that the location and hours of operation were convenient. Table V-21 shows that 

in FY 2013, customers generally perceived the post office as convenient. 

Table V-21

Residential Responses to Questions

Source: Library Reference USPS-FY13-38.

Question Strongly 

Agree

Somewhat 

Agree

Neither Agree 

nor Disagree

Somewhat 

Disagree 

Strongly 

Disagree

Is the post office location 

convenient? 70.0% 22.9% 3.1% 2.7% 1.2%

Are hours of operation 

convenient? 58.9% 28.6% 4.3% 5.8% 2.4%

Is the mailbox collection 

schedule convenient? 56.8% 28.1% 9.4% 3.9% 1.9%

Is the location of mail 

collection boxes convenient? 56.8% 25.3% 8.0% 6.0% 3.9%
130 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Table V-22

CEM Results for Residential Customers

Table V-22 illustrates that in FY 2013, residential customers were generally satisfied with each market 

dominant product.

Small/Medium Business Customers

The Postal Service received nearly 300,000 survey responses from small/medium-size businesses.48 

Eighty-four percent of respondents answered that they were overall “Very” or “Mostly Satisfied” 

with the Postal Service this past year, the same amount as in FY 2012. In addition, 88.4 percent of 

respondents said they “Strongly Agree” or “Somewhat Agree” that clerks were friendly/courteous 

during their last visit to a post office. Survey responses regarding visits to a post office facility 

showed that small/medium size business customers were satisfied with their location, hours of 

operation, and collection box pick-up schedule and location. Table V-23 shows responses to several 

of these survey questions. 

48 Sixty percent of businesses employ 1 to 4 persons.

 Source: Library Reference USPS-FY13-38; Library Reference USPS-FY12-29; FY 2011 ACD at 90.

Mail Products and Services FY 2011 FY 2012 FY 2013

First-Class Mail 94.2 94.7 94.7

Single-Piece International 86.6 87.5 87.3

Standard Mail 84.1 84.8 85.1

Periodicals 87.0 88.0 88.0

Single-Piece Parcel Post 89.2 89.3 89.7

Media Mail 88.4 89.1 89.2

Bound Printed Matter 86.2 87.2 86.9

Library Mail 87 87.9 87.7
POSTAL REGULATORY COMMISSION 131

Table V-23

Small/Medium Business Reponses to Questions

Table V-24

CEM Results for Small/Medium Business Customers

The Postal Service received fewer positive survey responses regarding small/medium size business 

customers’ experiences with contacting a post office when compared to experiences in sending/

receiving mail and visiting a post office. For example, only 49 percent of respondents said that they 

“Strongly Agree” or “Somewhat Agree” when asked if the post office resolved their issue promptly in 

FY 2013. Positive responses to survey questions regarding resolving issues in a prompt manner have 

slightly declined from FY 2012 results. 

Table V-24 illustrates an increase in satisfaction by small/medium-size businesses for each market 

dominant product.

Source: Library Reference USPS-FY13-38; Library Reference USPS-FY12-29; FY 2011 ACD at 90.

Source: Library Reference USPS-FY13-38.

Mail Products and Services FY 2011 FY 2012 FY 2013

First-Class Mail 93.0 93.3 93.3

Single-Piece International 84.0 84.9 84.5

Standard Mail 87.0 87.9 88.0

Periodicals 85.1 86.1 86.0

Single-Piece Parcel Post 88.0 88.9 88.8

Media Mail 87.1 88.2 88.1

Bound Printed Matter 85.0 85.9 85.8

Library Mail 86.0 87.1 86.5

Question Strongly 

Agree

Somewhat 

Agree

Neither 

Agree nor 

Disagree

Somewhat 

Disagree 

Strongly 

Disagree

Is the post office location 

convenient? 67.0% 24.8% 3.8% 2.9% 1.4%

Are hours of operation 

convenient? 54.0% 30.9% 5.1% 7.0% 3.0%

Is the mailbox collection 

schedule convenient? 50.9% 29.0% 10.7% 5.6% 3.9%

Is the location of mail 

collection boxes convenient? 54.3% 25.2% 10.5% 5.6% 4.5%
132 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Table V-25

CEM Results for Large Business Customers

Large Business Customers

The Postal Service collected just over 3,400 survey responses from large businesses.49 The overall 

satisfaction of these businesses was lower than the satisfaction with the previous year’s customers; 

only 75 percent answered either very or mostly satisfied when asked “How satisfied are you with your 

most recent postal experience?” Dissatisfaction increased for large business customers this year. 

Relative to last year, all but the Standard Mail and Library Mail categories decreased in satisfaction as 

evidenced by Table V-25. 

49 Large businesses had 100 to more than 1,000 employees.

Source: Library Reference USPS-FY13-38; Library Reference USPS-FY12-29; FY 2011 ACD at 90.

Mail Products and Services FY 2011 FY 2012 FY 2013

First-Class Mail 92.1 91.2 91

Single-Piece International 89.2 87.4 87.8

Standard Mail 85.6 85.7 85.6

Periodicals 84.3 84.9 83.3

Single-Piece Parcel Post 87.5 87.1 86.1

Media Mail 86.7 85.9 85.9

Bound Printed Matter 84.1 83.5 82.1

Library Mail 86.8 87 87.7
POSTAL REGULATORY COMMISSION 133

APPENDIX A

EMPIRICAL REVIEW OF PRICE CAP APPLICATION

When the Postal Service adjusts market dominant prices, the Commission reviews the proposed set 

of rates for consistency with title 39 of the United States Code. The Commission’s rules for modern 

rate regulation require the use of a backward-weighted volume index (a Laspeyres index) for the 

pre-implementation review of proposed rate adjustments for consistency with 39 U.S.C. 3622(d), the 

statutory price cap. This index is used to calculate the percentage change in rates for each class by 

using the most recently available historical billing determinants to weight the percentage change of 

each rate cell. The price cap rules further instruct the Postal Service to make reasonable adjustments 

to the billing determinants to account for classification changes such as the addition, elimination, or 

redefinition of rate cells. See 39 CFR 3010.23(d). At the time the rules were proposed, several parties 

expressed concern that this approach might not accurately reflect the actual change in prices. The 

Commission took note of these concerns and stated its intent to monitor the effectiveness of the rules.1 

As part of the monitoring process, the Commission has included reviews of price adjustments in past 

ACDs. These “Appendix A” reviews consist of a comparison of the percentage change in rates for each 

class weighted using two different sets of billing determinants. The first of these was the historical 

billing determinants used in the Commission’s pre-implementation review (a Laspeyres index), and 

the second was the billing determinants from the first full year that the rates had been in effect (a 

forward-weighted, or Paasche, index).

Billing determinants can be thought of as a market basket of purchased postal services. In the Docket 

No. R2012-3 rate adjustments, the CPI cap was applied to the market basket of services purchased 

in FY 2012.2 If mailers purchased the exact same services in the full year that the new prices were 

in effect, then the new rates would produce the projected increases, consistent with the price cap. 

However, factors including the rate changes may affect the quantity and mix of purchased services. 

Thus, the market basket may change as a result of the new rates and other factors. In the past, the 

Appendix A analysis has used billing determinants that represent the market basket of purchased 

services at the new rates.

1 See Docket No. RM2007-1, Order No. 26, Order Proposing Regulations to Establish a System of Ratemaking, August 15, 2007,

at 33-36.37. See Docket No. RM2008-1, Order No. 194, Second Notice of Proposed Rulemaking to Establish a Procedure for 

According Appropriate Confidentiality, March 20, 2009.

2 The billing determinants used in Docket No. R2012-3 were from a hybrid year consisting of FY 2011 Q4 – FY 2012 Q3.
134 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

This year, the Commission is unable to perform a complete post-implementation review of the 

Docket No. R2012-3 rate adjustments. Unlike the previous rate adjustments, the Docket No. R2012-3 

adjustments included major classification changes. For instance, for First-Class Mail, the Postal Service 

changed the ounce increment for Presort Letters and Postcards from 1 ounce to 2 ounces. In order 

to estimate the impact of this combined rate and classification change, information on the volume of 

pieces containing between 1 and 2 ounces is necessary. This information is not currently available.3

Because of all the classification changes in Docket No. R2013-3, there are insufficient data to allow the 

Commission to conduct an accurate empirical review of the Docket No. R2012-3 market dominant rate 

adjustments at this time.

3 See Responses of the United States Postal Service to Questions 1-5 of Chairman’s Information Request No. 7, February 24, 2014, 

question 3.
POSTAL REGULATORY COMMISSION 135

APPENDIX B

SPECIAL STUDY OF DELIVERY PERFORMANCE IN

REMOTE LOCATIONS

Every two years, the Commission assesses a special study of final delivery service performance to the 

remote locations of the Alaska, Honolulu, and Caribbean Districts.1 Each offshore district has several 

processing facilities which serve the more rural areas.2 Service performance measuring the frequency 

of mail delivered and received within a product’s service standard is not weighted for all classes of 

mail.3 In FY 2013, there were more districts providing service performance results than the previous 

study in FY 2011. In some cases, these results met or exceeded Gateway service performance but for 

many products they did not.

In FY 2012 and FY 2013, the Postal Service made various modifications to Standard Mail, Periodicals 

Mail, and Package Services service standards designating to or originating from these non-contiguous 

locations “to more accurately reflect the service that the [Postal Service’s] network is presently capable 

of providing for mail outside the contiguous forty-eight states.”4 Specifically, the modifications more 

appropriately align the service standards with the use of modes of transportation that may not be 

available every day (e.g., certain boat and air-taxi services used by the Postal Service operate only on 

certain days of the week.)5

For Standard Mail, the maximum number of days to deliver increased from 10 to 14 days for 

destination entry mail, and from 22 to 27 days for End-to-End mail.6 For Periodicals Mail, the 

maximum number of days to deliver increased from 7 to 11 days for destination entry mail, and 

from 20 to 26 days for End-to-End. For Package Services, the maximum number of days to deliver 

destination entry mail increased from 8 to 12, and the maximum number of days to deliver End-toEnd mail increased from 20 to 26.7

 In these cases, comparisons to FY 2011 service performance results 

are reported with added consideration.

1 Library Reference USPS-FY13-29, Offshore Special Study Results at 1.

2 Alaska has six different primary postal facilities. Caribbean has two postal facilities for all postal processing. Honolulu has three 

primary postal facilities to process their designating mail. See Library Reference USPS-FY13-29, Offshore Special Study Results at 3.

3 Library Reference USPS-FY13-29,Offshore Special Study Results at 3.

4 77 FR 31195 (May 25, 2012).

5 Library Reference USPS-FY13-29, Offshore Special Study Results at 4.

6 The Postal Service stated that changes made to Standard Mail service standards in non-contiguous regions of the United States are 

unrelated to its network rationalization. They are made to more accurately represent the service that is actually being provided for 

mail subject to surface transportation. Docket No. N2012-1, Advisory Opinion on Mail Processing Network Rationalization Service 

Changes, September 28, 2012, at 51. (Docket No. N2012-1 Advisory Opinion).

7 See Docket No. N2012-1Advisory Opinion Docket at 49-54. 
136 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Single-Piece First-Class Mail Letters/Postcards/Flats

In FY 2013, most Single-Piece First-Class Mail Letters/Postcards/Flats service performance results were 

above 90 percent on-time. Table B-1 shows that most rural areas in Alaska do not have an overnight 

service standard and Honolulu and its rural areas, including Guam and the Samoa Islands, had 

relatively low 2-day and 3-5-day service performance results.

Alaska

There is no overnight service standard for rural ZIP Codes in Alaska; however, service performance 

results for overnight service at the Gateway increased compared to FY 2011. Results for mail delivered 

with a 3-5-day service standard were relatively lower in the rural ZIP Code areas of 998 and 999. The 

Postal Service explains that these two areas are extremely isolated from the Gateway where most of 

the 3-day mail originating from other Alaska ZIP Code areas is processed.8

Caribbean

Service performance for most mail with a 3-5-day service standard slightly decreased as compared 

to FY 2011 except rural ZIP Code area 008. Performance results for mail with an overnight or 2-day 

service standard remained steady when compared to FY 2011 results. Overnight service performance 

results from the Gateway remained better than rural performance with the same standard. 

Overnight 2-Day 3-5-day

FY11 FY13 FY11 FY13 FY11 FY13

Alaska 96.3 97.4 97.1 96.2 91.4 89.9

995 Gateway 96.3 97.4 99.3 99.4 90.5 87.6

995 Rural NSS NSS 97.9 97.8 93.7 95

996 NSS NSS 98.1 98 95.3 94.5

997 NSS NSS 92.9 93.4 92.9 93.4

998 NSS NSS 96.5 90.3 87.6 82.8

999 NSS NSS 98.5 95.4 89.1 85

Caribbean 93.8 94.5 96.3 98.8 85.7 83.4

009 Gateway 94.4 95.1 97.2 98.6 85.6 82.6

6 93.7 93.7 96.4 98.2 84.5 83.1

7 93.6 94.3 94.7 98.5 85.7 82.6

8 87.7 92.4 96 98.8 91.8 94.3

Honolulu 97.5 97.3 NSS 12.4 91.9 89.8

968 Gateway 97.7 97.2 NSS 12.4 86.3 86.5

96700-96798 Hawaiian 

Islands 97.5 97.4 NSS NSS 96 95.6

96799 American Samoa - NSS - 12.4 - 18.7

969 Guam 91.5 95.5 NSS NSS 82.8 56.4

NSS = No Service Standard

8 Offshore Special Study Results at 9.

Table B-1

Single-Piece First-Class Mail Letters/Postcards/Flats

Source: Offshore Special Study FY2013 at 8.
POSTAL REGULATORY COMMISSION 137

Honolulu

Honolulu service standards are different from most contiguous United States standards. For example, 

American Samoa does not have an overnight standard, but has a 2-day standard to/from itself and is 

the only 2-day service standard within the Honolulu district. When comparing service performance 

from the rural areas to the 968 Gateway, American Samoa and Guam significantly underperformed in 

the 3-5-day service standard. The Postal Service explained that American Samoa’s low score is likely 

due to limited air service to the island.9

Presort First-Class Mail Letters/Cards

The Postal Service measured service performance results using documented arrival times to start the 

clock and IMb scans by external reporters to stop the clock.10 Table B-2 shows that in most instances 

only 3-5-day service performance results were available.

9 Id. at 10. It is a 4-day service standard from the continental U.S. to ZIP Code Areas 967 as well as from 967 or 968 to 

 American Samoa.

10 Id. at 11.

Table B-2

Presorted First-Class Mail Letters/Postcards

Overnight 2-Day 3-5-day

FY11 FY13 FY11 FY13 FY11 FY13

Alaska 96.6 97.9 98.0 97.7 93.5 93.0

995 Gateway 96.6 97.9 No Data No Data 92.9 92.4

995 Rural NSS NSS 98.0 97.9 96.0 96.7

996 NSS NSS 98.0 97.7 95.9 96.5

997 NSS NSS No Data 95.2 94.4 95.2

998 NSS NSS No Data No Data 89.5 82.1

999 NSS NSS No Data No Data 87.7 79.7

Caribbean No Data No Data No Data No Data 85.3 90.2

009 Gateway No Data No Data No Data No Data 85.7 90.2

6 No Data No Data No Data No Data 83.7 89.4

7 No Data No Data No Data No Data 84.2 89.7

8 No Data No Data No Data No Data 92.1 96.7

Honolulu 96.3 99.3 NSS No Data 93.9 94.4

968 Gateway 97.0 99.2 NSS NSS 90.5 93.5

96700-96798 Hawaiian 

Islands 95.9 99.3 NSS NSS 95.9 97.9

96799 American Samoa - NSS - No Data - 45.8

969 No Data No Data NSS NSS 89.3 69.3

NSS = No Service Standard

No Data = No data for this service standard.

Source: Offshore Special Study Results at 11.
138 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Alaska

For overnight and 2-day service standards, there was either no service standard or no data available 

to compare to Gateway results. Three out of five rural districts performed better than the Gateway 

with a 3-5-day service standard. ZIP Codes 998 and 999 were again the lowest performers in Alaska. 

In addition, their results decreased as compared to FY 2011. The Postal Service explains, “Anchorage is 

the AADC for all parts of Alaska except ZIP Code Areas 998 and 999, where Seattle serves as the AADC. 

It is approximately 1,100 miles from Seattle to Ketchikan and another 288 from Ketchikan to Juneau 

which is significantly further away than the Anchorage AADC is to the rest of Alaska.”11

Caribbean

Similar to Alaska regions, there was no data provided for the overnight and 2-day service standards. 

Results for the 3-5-day service standard category; however, increased as compared to FY 2011. In 

addition, service performance results from rural districts were either similar to or exceeded results 

when compared to the Gateway.

Honolulu

Service performance results reach nearly 100 percent on-time delivery in Honolulu and its rural 

districts. Three-to-five-day results were also relatively high when compared to the Gateway and other 

rural districts such as American Samoa.

Standard Mail

Table B-3 shows service performance results for destination entry and End-to-End Standard Mail 

Letters and Flats. Service performance results were notably lower when compared to First-Class Mail 

and Periodicals despite FY 2013 Gateway results far exceeding those from FY 2011. The differences in 

results compared to FY 2011 are, in part, due to the change in service standards implemented by the 

Postal Service.

11 Library Reference USPS-FY13-29, Offshore Special Study Results at 12.
POSTAL REGULATORY COMMISSION 139

Letters Flats

Dest Entry Dest Entry E2E E2E Dest Entry Dest Entry E2E E2E 

FY 2011 FY 2013 FY 2011 FY 2013 FY 2011 FY 2013 FY 2011 FY 2013

Alaska 72.3 95.4 30.8 83.4 42.0 93.0 21.7 77.2

995 Gateway 80.3 97.8 31.5 84.7 46.1 92.8 27.8 76.3

995 Rural 75.3 97.7 31.6 86.5 36.8 92.9 18.0 77.0

996 66.8 96.9 28.1 84.2 41.4 92.1 14.0 77.1

997 65.0 96.8 36.4 87.0 32.6 93.1 21.9 79.9

998 42.4 80.5 22.1 71.3 N/A 96.3 N/A 79.7

999 54.3 76.1 31.7 62.2 N/A 94.7 N/A 75.0

Caribbean 68.6 89.4 34 71.7 56.8 81.2 29.4 63.9

009 Gateway 59.9 89.1 34.1 71.6 54.9 80.8 32.4 62.4

006 78.4 91.5 31.7 72.9 57.2 81.4 24.5 67.1

007 70.3 88.6 34.7 71.2 57.9 84.6 30.0 69.0

008 57.9 87.5 42.7 69.6 59.4 76.0 29.0 55.9

Honolulu 14.7 67.1 6.2 34.5 4 50.3 1.5 36.5

968 Gateway 14.2 67.4 7.4 33.1 7.1 58.3 2.6 40.4

96700-96798 Hawaiian Islands 15.1 67.5 5.7 35.3 2.7 49.1 1.0 35.0

96799 American Samoa - 25.1 - 14.0 - 11.7 - 8.0

969 0.3 24.9 4.8 21.9 1.2 19.4 1.2 25.6

Table B-3

Standard Mail Letters and Flats

Alaska

Similar to other classes of mail, service performance in rural Districts 998 and 999 was lower than 

performance in the Gateway for Standard Mail Letters. Scores for Flats, on the other hand, were 

significantly higher than the Gateway. A significant impact from service standard changes occurred in 

service performance results for District 998. Scores increased 38.1 percentage points for destination 

entry letters and 49.2 percentage points for End-to-End Letters delivery.

The entire Alaskan area saw considerable improvement in service performance results for Flats mail. 

The largest increase realized by the 996 district in End-to-End service performance underscores the 

significant change in results from FY 2011. The higher results in service performance measurement 

for destination entry letters are likely linked to increases in the maximum number of days to delivery 

from 10 to 14 days. Similarly, increases in End-to-End Letters are associated with increases in the 

maximum number of days to delivery from 22 to 27 days.
140 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Caribbean

In FY 2013, service performance results from rural districts were comparable to the Gateway for 

destination entry and End-to-End Letters except District 008, which underperformed other districts and 

the Gateway with 60 percent on-time delivery for End-to-End Flats. As compared to FY 2011, however, 

they were significantly higher. Gateway results for destination entry and End-to-End Letters climbed 49 

and 109 percent, respectively. Similar to the Alaskan region, the improvement in service performance 

scores are likely due to the change in service standards implemented by the Postal Service.

Honolulu

Service performance results for American Samoa and District 969 were well below Gateway results 

for all categories of Standard Mail Letters and Flats despite the changes in service standard.12 Service 

performance remains poor when compared to the other non-contiguous regions.

Periodicals

In FY 2013, service performance results were divided into destination entry and End-to-End delivery 

performance and reflect increases in delivery service standards. Table B-4 shows that for most 

districts, rural and Gateway, destination entry results outperformed End-to-End service performance 

levels. The table also highlights the significant change in performance results after the Postal Service 

implemented its service standard changes to more accurately reflect network capabilities.13

12 For destination entry mail, all of the Honolulu ZIP Code Areas have a 3-day service standard from the DSCF, excluding American 

Samoa. It is a 13-day Service Standard from the DNDC, with the exception of American Samoa, where it is 14 days. Id. at 15.

13 77 FR 31190 (May 25, 2012).

FY 11

Destination 

Entry FY 13

End-to-End 

FY 13

Alaska 63.1 87.4 80.1

995 Gateway 68.7 89.7 82.1

995 Rural 57.2 92.0 81.0

996 71.4 90.0 80.6

997 63.7 87.1 74.9

998 56.7 84.5 84.9

999 48.2 73.9 78.4

Caribbean 35.9 70.2 66.0

009 Gateway 41.8 66.9 65.0

006 34.1 70.0 67.6

007 43.7 72.3 71.4

008 16.7 76.2 57.5

Honolulu 70.7 63.4 38.5

968 Gateway 73.8 61 40.1

96700-96798 Hawaiian Islands 63.0 66.1 39.2

96799 American Samoa - 4.4 9.6

 969 80.4 16.5 24.2

Table B-4

Periodicals
POSTAL REGULATORY COMMISSION 141

Alaska

In FY 2013, rural area 995 had an overnight service standard, whereas the rest of the districts have a 

3-day service standard from the DSCF.14 Similar to FY 2011 the lowest service performance results 

were in rural District 999.

Caribbean

In FY 2013, overnight service standards are applied to Districts 006, 007, and 008 for mail entered into 

the DSCF and destination area distribution center (DADC) in San Juan.15 Rural District 008 has a 4-day 

service standard only for mail entered at the DADC. Service performance results for most districts 

outperformed the Gateway in destination entry and End-to-End mail.

Honolulu

Service performance results for American Samoa and rural District 969 were below the Gateway for 

both destination entry and End-to-End mail. There is an overnight service standard from the DSCF to 

Districts 967, 968, and 969 but not to American Samoa.16 For End-to-End processing, Districts 969 

and American Samoa receive an additional day for processing and transportation compared to the 

other districts.17

Package Services

Package Services measurement is based on retail Single-Piece Parcel Post through January 26, 2013, 

as well as Library Mail/Media Mail, and Bound Printed Matter Flats and Parcels.18 Table B-5 illustrates 

that the rural Districts of 008, the Hawaiian Islands, America Samoa and District 969 had much lower 

performance results compared to their gateway and region despite changes in service standards.

14 Id. at 16.

15 Id. at 17.

16 Id.

17 Id.

18 Id. at 18.
142 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

FY 2011 FY 2013

Alaska 25.5 77.9

995 Gateway 31.3 89.5

995 Rural 21.9 70.3

996 25.9 77.0

997 21.5 71.7

998 21.2 72.0

999 21.7 59.9

Caribbean 21.0 50.6

009 Gateway 19.8 53.6

006 23.9 51.5

007 24.4 53.2

008 7.7 28.5

Honolulu 6.40 33.7

968 Gateway 6.9 45.9

96700-96798 Hawaiian Islands 6.0 29.2

96799 American Samoa - 9.7

969 8.0 17.1

 Source: Offshore Special Study Results at 25-26.

Table B-5

Package Services

Alaska

For End-to-End mail, all rural districts receive the same service standard. District 999 is approximately 

30 percentage points lower than the Gateway and other districts. It also remained below the 

Gateway’s service performance.

Caribbean

A 2-day service standard from the DSCF applies to Districts 006, 007, and 009 but not to 008, which 

receives a 3-day standard. Service performance results from District 008 continued to rank lowest 

relative to the other districts and the Gateway.

Honolulu

Districts 967, 968, and 969 receive a 2-day service standard for Package Services mail sent from 

the DSCF; this does not apply to American Samoa.19 In FY 2013, service performance results far 

exceeded those from FY 2011; however, the scores are considerably lower than their non-contiguous 

counterparts. Persistently low results from the Gateway were even worse within rural districts despite 

changes in service standards.

19 Id. at 20.
POSTAL REGULATORY COMMISSION 143

APPENDIX C

COMMISSION DIRECTED UNDERTAKINGS THAT MAY RESULT IN 

FUTURE ANALYTICAL PRINCIPLE CHANGES 

STATUS LIST OF COMMISSION DIRECTED UNDERTAKINGS THAT MAY 

RESULT IN FUTURE ANALYTICAL PRINCIPLE CHANGES 

(FY 2012 ACD)

Service Measurement Proxy for Inbound Surface Parcel Post (at UPU rates)

■ With Alaska Bypass Service replacing Single-Piece Parcel Post on the market dominant product list, the 

Postal Service must propose use of an appropriate proxy for Inbound Surface Parcel Post (at UPU rates) 

for service performance measurement in FY 2013. FY 2012 ACD at 61.

▪ In the FY 2012 ACD, the Commission instructed the Postal Service to “propose use of an 

appropriate measurement system or proxy for Inbound Surface Parcel Post (at UPU rates) for 

service performance measurement in FY 2013.” Id. The Postal Service continues to use SinglePiece Parcel Post as the proxy to measure service performance for Inbound Surface Parcel Post 

(at UPU rates). Response to CHIR No. 6, question 9. 

Price Elasticity of Standard Mail Flats

■ Given the serious implications of the pricing of Standard Mail Flats, the Postal Service should derive 

elasticity estimates to provide for a more realistic assessment of the impact of price changes on 

contribution. FY 2012 ACD at 116.

▪ On January 27, 2014, Chairman’s Information Request No. 4 was issued to the Postal Service 

to clarify the basis of the Postal Service’s estimates in its FY 2013 ACR.1 On February 6, 2014, 

the Postal Service filed its responses to CHIR No. 4 that included its response to the above 

Commission recommendation pertaining to elasticity estimates for Standard Mail Flats.2 In 

its response to question 13, the Postal Service indicates that it re-estimates both aggregate 

and disaggregated shape-based (letters and non-letters) Standard Mail equations with new 

volume data that becomes available each quarter. However, “[t]o date, the disaggregated 

shaped-based equations have still not yielded results which would suggest that substituting 

the disaggregated elasticity estimates for the aggregate estimates would generate better 

forecasts or otherwise improve the assessment of the impact of price changes on contribution.” 

Id. question 3. 

1 Chairman’s Information Request No. 4, January 27, 2014 (CHIR No. 4).

2 Reponses of the United States Postal Service to Questions 1-20 of Chairman’s Information Request No. 4, February 6, 2014.
144 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Negative Passthrough for Standard Automation Mixed AADC Letters

■ Regarding the negative passthrough for Standard Automation Mixed AADC letters, the Postal Service 

should re-examine the anomaly to better understand the costs associated with these workshare 

categories. FY 2012 ACD at 123.

▪ In its FY 2013 ACR, the Postal Service indicates that “[i]t appears that the main factors that 

served to reduce the ‘OUT BCS SECONDARY’ productivity in FY2012 were temporary. See

Docket No. ACR2012, responses to CHIR No. 4, questions 18(a), 22, and 23. Thus, in FY2013 that 

productivity has increased to a level more in line with longer-term trends, which reduces the 

cost of sorting Automation Mixed AADC pieces.” FY 2013 ACR at 22 n.15. 

Cost Attribution for Products Handled by the Services Center

■ The Postal Service should provide an updated methodology for calculating the attributable costs of 

products handled by the Services Center in a rulemaking proceeding to change analytical principles 

prior to incorporating it into the FY 2013 ACR. The updated methodology should describe how the 

costs, revenues, and volumes are attributed to Stamp Fulfillment Services, Philatelic Services, and any 

other products handled at the Services Center. FY 2012 ACD at 143.

▪ On November 8, 2013, the Postal Service filed a petition pursuant to 39 CFR 3050.11 requesting 

the Commission initiate an informal rulemaking proceeding to consider three changes to 

analytical principles for use in periodic reporting.3 Subsequently, on November 12, 2013, 

the Postal Service filed an errata, revising its Docket No. RM2014-1 Petition to add Proposal 

Nine.4 The Postal Service indicates that Proposal Six will address the concerns raised by the 

Commission in the FY 2012 ACD. It proposes to update its methodology for calculating the 

costs for Philatelic Sales and handling costs of Stamp Fulfillment Services (SFS) in order to align 

the product description in the MCS. The Commission is reviewing these materials in Docket 

No. RM2014-1.

International Business Reply Mail Service Costs

■ With elimination of outbound International Reply Coupon Service, the Postal Service must report 

on the feasibility of providing separately reported costs for International Business Reply Mail 

Service in the FY 2013 ACR. FY 2012 ACD at 147.

▪ On June 26, 2013, the Postal Service filed responses to various issues that were requested by 

the Commission in its FY 2012 ACD.5 In its response, the Postal Service indicates that “[g]iven 

the small size of International Business Reply Mail Services..., and the resources that would be 

3 Docket No. RM2014-1, Petition of the United States Postal Service for the Initiation of a Proceeding to Consider Proposed Changes in 

Analytical Principles (Proposals Six Through Eight), November 8, 2013 (Docket No. RM2014-1 Petition).

4 Notice of the United States Postal Service of Revision to Add Proposal Nine to the Petition for Rulemaking – Errata, November 12, 

2013 (Revised Docket No. RM2014-1 Petition).

5 Docket No. ACR2012, Reponses of the United States Postal Service to Commission Requests for Additional Information in FY 2012 

Annual Compliance Determination, June 26, 2013 (Responses to FY 2012 ACD).
POSTAL REGULATORY COMMISSION 145

needed to calculate costs, the Postal Service submits that reporting the costs separately is not 

feasible.” Id. question 1. 

Package Intercept Service Costs

■ The Postal Service must file a methodology for estimating the attributable costs of Package Intercept 

Service in a rulemaking proceeding prior to incorporating the methodology in its FY 2013 ACR. FY 2012 

ACD at 163.

▪ The Postal Service proposed and the Commission accepted a methodology for estimating 

Package Intercept’s revenues, attributable costs, and volumes until the Postal Service’s 

technology allows the development of a more refined cost model.6 

Competitive Post Office Box Service Costs

■ The Postal Service must develop a costing methodology that adequately measures the 

attributable costs of the enhanced services for the competitive Post Office Box service. The 

Commission also directs the Postal Service to file the proposed methodology in a rulemaking 

proceeding prior to including the methodology in any future competitive rate adjustment for 

competitive Post Office Box service or in its FY 2013 ACR. FY 2012 ACD at 163.

▪ On November 8, 2013, the Postal Service filed a petition pursuant to 39 CFR 3050.11 requesting 

the Commission initiate an informal rulemaking proceeding to consider three changes to 

analytical principles for use in periodic reporting.7 Subsequently, on November 12, 2013, 

the Postal Service filed an errata, revising its Docket No. RM2014-1 Petition to add Proposal 

Nine.8 The Postal Service indicates that Proposal Seven will address the concerns raised by 

the Commission in the FY 2012 ACD. It proposes to update and improve the methodology for 

developing attributable costs for the enhancements to the competitive Post Office Box service. 

The Commission is reviewing these materials in Docket No. RM2014-1.

International Money Transfer Service Costs

■ The Postal Service must report on the feasibility of a special study designed to estimate the transaction 

volume and attributable costs of the IMTS-Inbound product within 90 days. The Postal Service is to 

report on estimating IMTS-Inbound transaction volumes based upon the POS system as presented 

in Proposal 11. The Postal Service shall also report on the feasibility of using revenues received from 

foreign postal operators as a basis for estimating IMTS-Inbound transaction volumes within 90 days. 

FY 2012 ACD at 166.

▪ On June 26, 2013, the Postal Service filed responses to various issues that were requested by 

the Commission in its FY 2012 ACD.9 In its response, the Postal Service indicates that “[it]...

6 See Docket No. CP2014-5, Order No. 1903, Order Approving Changes in Rates of General Applicability for Competitive Products, 

December 12, 2013, at 14-15. 

7 Docket No. RM2014-1 Petition. 

 8 Revised Docket No. RM2014-1 Petition.
146 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

attempted to separate Outbound and Inbound IMTS in the FY 2011 and FY 2012 Annual 

Compliance Reports. The attempt provided relatively volatile and problematic results. In 

conclusion, given the small number of transactions and revenue, the separation proposed in 

Proposal Eleven should not be implemented going forward. The Postal Service recommends 

combining Inbound and Outbound IMTS revenue, volume, and costs to produce more 

statistically valid numbers.” Id. question 2.

Global Plus and China Post Group NSA Costs

■ The Postal Service must modify its financial model for Global Plus and China Post Group NSAs to 

more accurately develop costs, or increase the contingency factor to accommodate costs that cannot 

be modeled, in order to ensure that negotiated prices can generate sufficient revenues to exceed 

attributable costs. FY 2012 ACD at 169-72.

▪ On August 16, 2013, the Postal Service filed a petition pursuant to 39 CFR 3050.11 requesting that 

the Commission initiate an informal rulemaking proceeding to consider four proposals to change 

the analytical methods approved for use in periodic reporting.10 In its Docket No. RM2013-6 

Petition, the Postal Service also sought clarification concerning the status of a proposal previously 

filed by the Postal Service as part of its June 26, 2013 response to a Commission request for 

additional information arising from the FY 2012 ACD.11 

▪ On August 20, 2013, the Commission issued Order No. 1814 initiating a rulemaking proceeding 

that treated the Postal Service’s request for clarification as a petition pursuant to 39 CFR 

3050.11, and treating the Revised Response to FY 2012 ACD, question 3 as Proposal Five to be 

reviewed in Docket No. RM2013-6.12 Proposal Five changes the current methodology based 

upon pounds for distributing settlement costs reported in the ICRA for Global Direct Outbound 

Admail to NSAs in the Global Plus products. The new methodology is based upon revenues.13 

▪ On February 4, 2014, the Commission issued Order No. 1983 approving Proposals One 

through Five.14 

9 Responses to FY 2012 ACD.

10 Docket No. RM2013-6, Petition of the United States Postal Service for the Initiation of a Proceeding to Consider Proposed Changes in 

 Analytical Principles (Proposals One through Four), August 16, 2013 (Docket No. RM2013-6 Petition).

11 Id. at 1; see Responses to FY 2012 ACD and Docket No. ACR2012, Revised Responses of the United States Postal Service to Commission Requests for Additional Information in FY 2012 Annual Compliance Determination, July 31, 2013 (Revised Responses to FY 2012 

ACD).

12 See Docket No. RM2013-6, Order No. 1814, Notice of Proposed Rulemaking on Analytical Principles Used in Periodic Reporting 

 (Proposals One through Five), August 20, 2013.

13 Proposal Five is described in the Postal Service’s Revised Response to FY 2012 ACD, question 3. 

14 See Docket No. RM2013-6, Order No. 1983, Order on Analytical Principles Used in Periodic Reporting (Proposals One through 

 Five), February 4, 2014.
POSTAL REGULATORY COMMISSION 147

Inbound Air Parcel Post and EPG Bilateral Agreements Plans

■ The Postal Service is directed to file a report within 90 days regarding its plans to improve the 

financial results for Inbound Air Parcel Post (at non-UPU rates) and its plans to add EPG bilateral 

agreements to the competitive product list. FY 2012 ACD at 172.

▪ On June 26, 2013, the Postal Service filed responses to various issues that were requested by 

the Commission in its FY 2012 ACD.15 In its response, the Postal Service indicates that “[it]...

is working to improve the overall performance of inbound air parcels under EPG agreements. 

The strategy for EPG is to renegotiate rates with our largest partners where there is a net 

benefit to the Postal Service, considering both inbound and outbound flows.” Id. question 4. In 

addition, the Postal Service states that “a performance action plan...[has been implemented]...

to address operational issues for EPG Parcels. The operational improvements will decrease 

penalty payments and result in increased revenue.” Id. Under the EPG arrangement, the Postal 

Service “does not believe it is in its best interest to cease its participation..., as this would have a 

negative effect on the Postal Service’s financial position.” Id. 

LIST OF COMMISSION DIRECTED UNDERTAKINGS THAT MAY RESULT IN 

FUTURE ANALYTICAL PRINCIPLE CHANGES (FY 2013 ACD)

Excess Passthroughs Resulting from Timing of Price Adjustments

■ Because the timing of price adjustments is not a statutory exemption for passthroughs over 100 

percent, the Postal Service should consider different approaches for setting workshare discounts, 

including projecting cost avoidances, that may reduce the number of discounts with passthroughs 

above 100 percent resulting from the timing of price adjustments. Alternatively, the Postal Service 

should consider revising the schedule of market dominant price adjustments. FY 2013 ACD at 14-15.

Investigation of Certain Additional Costs

■ The Commission encourages the Postal Service to investigate the additional costs it has listed, such 

as allied operations, manual processing, and transportation costs, to ensure the avoided costs model 

accurately reflects the additional cost savings for having more finely presorted mail. FY 2013 ACD at 25.

Further Derivation of Elasticity for Standard Mail Products

■ The Commission appreciates the Postal Service’s efforts to derive elasticity estimates as recommended 

in the FY 2012 ACD. Having these elasticity estimates would provide for a more realistic assessment 

of the impact of price changes on volume and total contribution. Therefore, the Postal Service should 

continue its efforts to derive elasticity estimates for Standard Mail products. FY 2013 ACD at 55.

15 Responses to FY 2012 ACD.
148 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Costing Methodology for Parcel Return Service Full Network Contracts

■ The Commission directs the Postal Service to develop a revised costing methodology that can be used 

for this contract and future Parcel Return Service Full Network contracts. The Postal Service should file 

the proposed methodology in a rulemaking proceeding within 90 days of the issuance of the FY 2013 

ACD. If Parcel Return Service Contract 4 does not cover costs under the revised costing methodology, 

within 90 days of the Commission’s decision on the proposed methodology, the Postal Service will have 

to revise the terms of, or terminate, the contract. FY 2013 ACD at 82-83.

Costing of IPA Product

■ The Commission therefore directs that the Postal Service report within 90 days and reconfirm that the 

IPA product will cover the projected attributable costs in FY 2014. The Postal Service shall also provide 

an analysis of the causes of the FY 2013 loss and decrease in cost coverage. In addition, the Postal 

Service is to recommend modifications to its current methodology of developing costs and, if necessary, 

propose the modifications in a rulemaking, so as to improve the reliability of such costs for the IPA 

product. FY 2013 ACD at 86.

Performance Measure for Inbound Surface Parcel Post/Alaska Bypass Service

■ Within 90 days of the issuance of this ACD, the Postal Service shall propose to the Commission 

appropriate measurement systems for both Inbound Surface Parcel Post (at UPU rates) and Alaska 

Bypass Service. FY 2013 ACD at 115. 
POSTAL REGULATORY COMMISSION 149

APPENDIX D

COMMENTERS

2013 ANNUAL COMPLIANCE DETERMINATION

Commenter Comment Citation Citation Short Form

American Catalog Mailers Association Initial Comments of the American Catalog 

Mailers Association (ACMA) ACMA Comments

January 31, 2014

American Catalog Mailers Association Reply Comments of the American Catalog 

Mailers Association (ACMA) ACMA Reply Comments

February 14, 2014

Association for Postal Commerce Reply Comments of the Association for Postal 

Commerce PostCom Reply Comments

February 14, 2014

Greeting Card Association Initial Comments of the Greeting Card 

Association GCA Comments

January 31, 2014

Magazine Publishers of America, Inc., 

and Alliance of Nonprofit Mailers

Reply Comments of Magazine Publishers 

of America, Inc., and Alliance of Nonprofit 

Mailers

MPA & ANM Reply 

Comments

February 14, 2014

Newspaper Association of America Comments of the Newspaper Association of 

America NAA Comments

January 31, 2014

Parcel Shippers Association Reply Comments of the Parcel Shippers 

Association PSA Reply Comments

February 14, 2014

Pitney Bowes Inc. Comments of Pitney Bowes Inc. Pitney Bowes Comments

January 31, 2014
150 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Commenter Comment Citation Citation Short Form

Pitney Bowes Inc. Reply Comments of Pitney Bowes Inc. Pitney Bowes Reply 

Comments

February 14, 2014

Pitney Bowes Inc. Supplemental Comments of Pitney Bowes 

Inc.

Pitney Bowes Supplemental 

Comments

March 4, 2014

Public Representative Public Representative Comments PR Comments

January 31, 2014

Public Representative Public Representative Reply Comments PR Reply Comments

February 14, 2014

Public Representative Public Representative Notice of Errata to 

Public Representative Reply Comments

PR Reply Comments—

Errata 

February 24, 2014

United Parcel Service

Initial Comments of United Parcel Service on 

Postal Service’s FY2013 Annual Compliance 

Report

UPS Initial Comments

January 31, 2014

United States Postal Service Reply Comments of the United States Postal 

Service

Postal Service Reply 

Comments

February 14, 2014

Valpak Direct Marketing Systems, Inc. 

and Valpak Dealers’ Association, Inc.

Valpak Direct Marketing Systems, Inc. and 

Valpak Dealers’ Association, Inc. Initial 

Comments on the United States Postal 

Service FY 2013 Annual Compliance Report

Valpak Comments

January 31, 2014

Valpak Direct Marketing Systems, Inc. 

and Valpak Dealers’ Association, Inc.

Valpak Direct Marketing Systems, Inc. and 

Valpak Dealers’ Association, Inc. Reply 

Comments on the United States Postal 

Service FY 2013 Annual Compliance Report

Valpak Reply Comments

February 18, 2014
POSTAL REGULATORY COMMISSION 151

APPENDIX E

ABBREVIATIONS

Long Version Abbreviation

Address Management Services AMS

Alliance of Nonprofit Mailers ANM

American Business Media ABM

American Catalog Mailer Association ACMA

Annual Compliance Determination ACD

Annual Compliance Report ACR

FY 2013 Annual Performance Plan FY 2013 Plan

FY 2014 Annual Performance Plan FY 2014 Plan

FY 2012 Annual Performance Report FY 2012 Report

FY 2013 Annual Performance Report FY 2013 Report

FY 2013 Annual Report to Congress FY 2013 Annual Report to Congress

Area Distribution Center ADC

Automated Area Distribution Center AADC

Automated Postal Center APC

Bound Printed Matter BPM

Bulk Metered Mail BMM

Chairman’s Information Request CHIR

Collect on Delivery COD

Collection Point Management System CPMS

Community Post Office CPO

FY 2010 Comprehensive Statement on Postal 

Operations 

FY 2010 Comprehensive Statement

Consumer Price Index for all urban consumers CPI-U

Contract Postal Unit CPU

Cost and Revenue Analysis CRA

Critical Entry Time CET
152 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

Long Version Abbreviation

Customer Experience Measurement CEM

Customer Supplier Agreement CSA

Deliveries per Work Hour DPWH

Delivery Bar Code Sorter DBCS

Delivery Point Sequence DPS

Destination Sectional Center Facility DSCF

Destination Area Distribution Center DADC

Destination Delivery Unit DDU

Destination Bulk Mail Center DBMC

Destination Network Distribution Center DNDC

Direct Marketing Association DMA

Educational, cultural, scientific or 

informational [value] 

ECSI

Every Door Direct Mail EDDM

Express Mail Service EMS

External First-Class Measurement System EXFC

Federal Employee Retirement System FERS

First-Class Mail International FCMI

Flats Sequencing System FSS

Foreign Post Settlement FPS

Global Bulk Economy GBE

Global Direct GD

Global Expedited Package Services GEPS

Global Expedited Package Service—Nonpublished Rates GEPS—NPR 

Global Reseller Expedited Package Services GREPS

Gross Domestic Product GDP

Integrated Financial Plan IFP

Intelligent Mail Barcode IMb

Intelligent Mail Accuracy and Performance 

System 

iMAPS

International Business Reply Service IBRS

International Cost and Revenue Analysis ICRA

International Mail Measurement System IMMS

International Money Transfer Service—

Inbound 

IMTS—Inbound 

International Money Transfer Service—

Outbound 

IMTS—Outbound

International Priority Airmail IPA
POSTAL REGULATORY COMMISSION 153

Long Version Abbreviation

International Service Center ISC

International Surface Air Lift ISAL

In-Office Cost System IOCS

Mail Classification Schedule MCS

Mailer Identification MID

Mixed Area Distribution Center Mixed ADC

National Association of Presort Mailers NAPM

Negotiated Service Agreement NSA

Network Distribution Center NDC

Not-Flat Machinable NFM

Office of Personnel Management OPM

Officially Licensed Retail Products OLRP

Occupational Safety and Health 

Administration 

OSHA

Origin Area Distribution Center OADC

Origin Bulk Mail Center OBMC

Origin Network Distribution Center ONDC

Origin Sectional Center Facility OSCF

Point of Service POS

Post Office Box PO Box

Postal Accountability and Enhancement Act PAEA

Postal Qualified Wholesaler PQW

Priority Mail International PMI

Processing and Distribution Center/Facility P&DC/F

Product Tracking System PTS

Qualified Business Reply Mail QBRM

Quality Link Measurement System QLMS

Postal Service Retirement Health Benefits Fund RHBF

Retail Access Optimization Initiative RAOI

Revenue, Pieces, and Weights RPW

Sectional Center Facility SCF

Securities and Exchange Commission SEC

Stamp Fulfillment Services SFS

Total Factor Productivity TFP

Transportation Cost System TRACS

Universal Postal Union UPU

Upgraded Flats Sorting Machine UFSM

Village Post Offices VPO

Voice of the Employee VOE
154 FY 2013 ANNUAL COMPLIANCE DETERMINATION 

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