POSTAL REGULATORY COMMISSION

Annual Compliance 

Determination Report

Fiscal Year 2018

April 12, 2019

Postal Regulatory Commission

Submitted 4/12/2019 2:53:14 PM

Filing ID: 108781

Accepted 4/12/2019
TABLE OF CONTENTS

Page

EXECUTIVE SUMMARY.......................................................................................................................................1

A. Principal Findings: Market Dominant Rate and Fee Compliance ..........................1

B. Principal Findings: Market Dominant Noncompensatory Products ....................2

C. Principal Findings: Competitive Products Rate and Fee Compliance..................3

D. Principal Findings: Service Performance and Customer Access............................3

E. Principal Findings: Flats Cost and Service Issues ........................................................4

CHAPTER 1: INTRODUCTION...........................................................................................................................5

A. Statutory Context......................................................................................................................5

B. Timeline and Review of Report...........................................................................................6

C. Focus of the ACR .......................................................................................................................6

D. Other Reports.............................................................................................................................6

E. Commission Responsibilities...............................................................................................6

F. Procedural History...................................................................................................................7

G. Methodology Changes.............................................................................................................8

H. Product Analysis .......................................................................................................................9

I. Service Performance ............................................................................................................ 10

J. Confidentiality ........................................................................................................................ 10

K. Requests for Additional Information............................................................................. 11

CHAPTER 2: MARKET DOMINANT PRODUCTS: PRICING REQUIREMENTS .............................. 12

A. Introduction............................................................................................................................. 12

B. The Class-Level Price Cap................................................................................................... 12

C. Workshare Discounts........................................................................................................... 12

1. First-Class Mail......................................................................................................... 13

2. Periodicals.................................................................................................................. 17

3. USPS Marketing Mail.............................................................................................. 22

4. Package Services...................................................................................................... 36

D. Preferred Rate Requirements........................................................................................... 39

CHAPTER 3: MARKET DOMINANT PRODUCTS: OTHER RATE AND FEE COMPLIANCE 

ISSUES .................................................................................................................................................................... 40

A. Introduction............................................................................................................................. 40

B. Noncompensatory Products.............................................................................................. 40

1. Periodicals.................................................................................................................. 40

2. USPS Marketing Mail Flats................................................................................... 47

3. USPS Marketing Mail Parcels.............................................................................. 72

4. Stamp Fulfillment Services.................................................................................. 78
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5. Market Dominant International Mail .............................................................. 79

6. Customized Postage ............................................................................................... 91

7. Stamped Envelopes ................................................................................................ 92

8. Media Mail/Library Mail ...................................................................................... 92

9. Domestic Market Dominant NSAs .................................................................... 94

C. Other Issues ............................................................................................................................. 97

1. First-Class Mail Product Cost Coverage Disparity...................................... 97

2. Status of ACR Docket.............................................................................................. 98

CHAPTER 4: COMPETITIVE PRODUCTS ................................................................................................... 99

A. Introduction............................................................................................................................. 99

B. Cross-Subsidy Provision: 39 U.S.C. § 3633(a)(1)...................................................... 99

C. Product Cost Coverage Provision: 39 U.S.C. § 3633(a)(2)...................................101

1. Competitive Domestic Products with Rates of General Applicability

......................................................................................................................................101

2. Competitive Domestic Products Consisting of NSAs ...............................102

3. Competitive International Products with Rates of General 

Applicability ............................................................................................................104

4. Competitive International Products Consisting of NSAs .......................109

5. Competitive Nonpostal Services......................................................................112

D. Appropriate Contribution Provision: 39 U.S.C. § 3633(a)(3).............................112

1. Comments on Appropriate Contribution Provision ................................113

2. Commission Analysis...........................................................................................114

E. Other Issues Raised by Commenters ...........................................................................117

1. United Parcel Service Comments ....................................................................118

2. Other Comments....................................................................................................124

CHAPTER 5: SERVICE PERFORMANCE ...................................................................................................127

A. Service Performance Results ..........................................................................................127

1. Introduction ............................................................................................................127

2. Measurement Systems ........................................................................................129

3. The Postal Service’s Responses to the Directives Related to First-Class 

Mail Single-Piece Letters/Postcards..............................................................138

4. FY 2018 Service Performance Results by Class.........................................163

5. Other Issues.............................................................................................................193

B. Customer Access ..................................................................................................................195

1. Introduction ............................................................................................................195

2. Retail Facilities.......................................................................................................196

3. Post Office Suspensions ......................................................................................198

4. Delivery Points.......................................................................................................202
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5. Collection Boxes.....................................................................................................203

6. Wait Time in Line..................................................................................................204

7. Alternative Access.................................................................................................205

C. Customer Satisfaction with Market Dominant Products .....................................208

1. Background .............................................................................................................208

2. Comments ................................................................................................................210

3. Commission Analysis...........................................................................................211

CHAPTER 6: FLATS COST AND SERVICE ISSUES.................................................................................213

A. Introduction...........................................................................................................................213

B. FY 2018 Results....................................................................................................................214

1. Bundle Processing.................................................................................................215

2. Low Productivity on Automation Equipment............................................216

3. Manual Sorting .......................................................................................................218

4. Productivity and Service Issues in Allied Operations .............................218

5. Increased Transportation Time and Cost....................................................220

6. Last mile/delivery.................................................................................................221

C. Comments...............................................................................................................................222

D. Next Steps and Status of Docket No. RM2018-1......................................................223

Appendix A—Key Commission Findings and Directives Requiring Postal Service Action for 

Annual Compliance Reports

Appendix B—Commenters 2018 Annual Compliance Determination

Appendix C—Acronyms and Abbreviations
EXECUTIVE SUMMARY

This report reviews the Postal Service’s performance in Fiscal Year (FY) 2018, fulfilling the 

Commission’s responsibility to produce an annual assessment of Postal Service rates and 

service mandated by Title 39, section 3653, of the United States Code (U.S.C.). 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.

Consistent with the approach adopted in past years, the Annual Compliance Determination

(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 2018 were not in compliance with chapter 36 of Title 

39 of the United States Code and whether any service standards in effect during FY 2018 

were not met. The Commission’s review in this year’s ACD is based on the rates approved 

in Docket No. R2018-1 and all the rates in effect during FY 2018 for Competitive Products.

The financial analysis that had been incorporated in ACDs prior to 2013 is expanded in the 

Financial Analysis of United States Postal Service Financial Results and 10-K Statement 2018. 

The Commission will also issue a separate report on the Postal Service’s FY 2018 Annual 

Performance Report and FY 2019 Performance Plan to fulfill its statutory responsibilities 

under 39 U.S.C. § 3653(c).

A. Principal Findings: Market Dominant Rate 

and Fee Compliance

In Chapter 2, the Commission identifies compliance issues related to 23 workshare 

discounts, finding that 3 of the discounts did not comply with section 3622(e). Workshare 

discounts that exceed avoided costs adversely affect Postal Service finances because they 

incentivize mailers to perform worksharing that the Postal Service could have done on a 

less costly basis.

 For 2 of the 3 workshare discounts that were not in compliance with section 3622(e), 

the prices approved in Docket No. R2019-1 align the discounts with avoided costs; 

therefore, no further action is required.

 For the 1 workshare discount remaining out of compliance with section 3622(e), the 

Postal Service must either align the workshare discount with its avoided cost in the 

next Market Dominant price adjustment or provide support for an applicable statutory 

exception.

Additionally, for the Periodicals class, the Commission finds that the Postal Service 

meaningfully addressed the FY 2017 ACD directives to report on the cost and contribution 

impact of worksharing and progress in improving pricing efficiency. The Commission 
Docket No. ACR2018 - 2 -

directs the Postal Service to continue reporting on Periodicals pricing issues in its FY 2019 

ACR.

B. Principal Findings: Market Dominant 

Noncompensatory Products

In Chapter 3, the Commission identifies 8 noncompensatory Market Dominant products: 

Periodicals In-County, Periodicals Outside County, USPS Marketing Mail Flats, USPS 

Marketing Mail Parcels, Inbound Letter Post, Media Mail/Library Mail, Stamp Fulfillment 

Services, and the Market Dominant negotiated service agreement (NSA) with PHI 

Acquisitions, Inc. (PHI).

With respect to Periodicals In-County and Periodicals Outside County, the Commission 

finds that additional transparency is necessary to hold the Postal Service accountable. The 

Commission will continue to explore cost and service issues related to flats in Docket 

No. RM2018-1.

For USPS Marketing Mail Flats, the Commission finds that an advanced remedy is needed to 

address the Postal Service’s continuing failure to comply with the Commission’s FY 2010 

ACD directive to increase the cost coverage as USPS Marketing Mail Flats remains in 

violation of 39 U.S.C. § 101(d). In the next generally applicable Market Dominant price 

adjustment, the Postal Service must propose a price increase for USPS Marketing Mail Flats 

that is at least 2 percentage points above the class average for the USPS Marketing Mail 

class. Additionally, the Postal Service must continue responding to the requirements of the 

FY 2010 ACD directive by reducing USPS Marketing Mail Flats’ costs and continue to 

comply with the FY 2015 directive. For USPS Marketing Mail Parcels, the Commission finds 

that revenue was not sufficient to cover attributable cost in FY 2018 and strongly 

recommends an advanced remedy in light of the repeated failure of USPS Marketing Mail 

Parcels to covers its costs.

For the Special Services product Stamp Fulfillment Services, the Commission finds that 

revenue was not sufficient to cover attributable cost in FY 2018.

For Inbound Letter Post, the Commission finds that FY 2018 revenue for Inbound Letter 

Post was not sufficient to cover attributable cost. The Commission recommends that the 

Postal Service, in coordination with the Department of State, negotiate bilateral and 

multilateral agreements that contain rates for UPU letter post mail that are more 

compensatory than terminal dues. The Commission further recommends that the Postal 

Service file rates for the Competitive Inbound Small Packets and Bulky Letters product as 

soon as possible.

For Media Mail/Library Mail, the Commission finds that the Postal Service’s approach to 

improve cost coverage through above-average price increases is appropriate and 
Docket No. ACR2018 - 3 -

encourages the Postal Service to explore opportunities to further reduce the unit cost of 

Media Mail/Library Mail.

For the PHI NSA, the Commission finds that the PHI NSA did not meet the criteria of 

39 U.S.C. § 3622(c)(10)(A) in Contract Year 4. The Postal Service terminated the agreement 

during Contract Year 4, therefore, the Commission finds that no further action is necessary.

C. Principal Findings: Competitive Products 

Rate and Fee Compliance

In Chapter 4, the Commission finds that revenues for 6 Competitive products did not cover 

attributable costs and, therefore, did not comply with 39 U.S.C. § 3633(a)(2). The 

Competitive products that did not cover attributable costs are: two domestic NSAs, 

International Priority Airmail (IPA), International Money Transfer Service—Inbound 

(IMTS—Inbound), International Ancillary Services, and Officially Licensed Retail Product 

(OLRP). The Commission directs the Postal Service to take corrective action, including 

monthly reporting, reporting on an investigation of cost estimates, reporting on an 

investigation of rate and revenue discrepancies, and provide an update on the status of the 

request to seek authority to terminate or renegotiate agreements.

D. Principal Findings: Service Performance 

and Customer Access

In Chapter 5, the Commission finds that FY 2018 service performance results decreased for 

a majority of products compared to FY 2017 results. Most products failed to meet their 

service performance targets for FY 2018.

 The Postal Service met its service performance targets for USPS Marketing Mail High 

Density and Saturation Letters, USPS Marketing Mail Parcels, Bound Printed Matter 

Parcels, and most Special Services products.

 Service performance results for all First-Class Mail products, both Periodicals 

products, USPS Marketing Mail High Density and Saturation Flats/Parcels, USPS 

Marketing Mail Carrier Route, USPS Marketing Mail Letters, USPS Marketing Mail 

Flats, USPS Marketing Mail Every Door Direct Mail—Retail, Bound Printed Matter 

Flats, Media Mail/Library Mail, and Post Office Box Service did not meet their 

targets.

In the FY 2017 ACD, the Commission directed the Postal Service to provide specific 

information developed from its First-Class Mail Single-Piece Letters/Postcards metrics as 

part of its FY 2018 ACR. The Postal Service has made progress in developing quantitative 

analysis linking its root cause assessments with the impact on service performance results 

for this product and other First-Class Mail and USPS Marketing Mail products.
Docket No. ACR2018 - 4 -

The Commission directs the Postal Service to continue reporting specific information 

developed from its First-Class Mail metrics within 90 days of the issuance of this report and 

as part of its FY 2019 ACR. Additionally, the Commission directs the Postal Service to 

provide more transparency regarding the progress and effects of its existing multi-year 

national service performance improvement strategies.

E. Principal Findings: Flats Cost and Service 

Issues

In Chapter 6, the Commission finds that unit costs for flats have continued to rise, 

contribution losses have continued to grow, and flats products have still not met their 

service performance targets. The Commission continues to be concerned that the Postal 

Service does not have a specific plan to address flats cost and service issues. In Docket 

No. RM2018-1, the Commission proposed reporting requirements to increase the 

transparency of information related to flats, and the accountability of the Postal Service 

when it reports on operational initiatives designed to reduce flats costs. This information 

should provide more insight into the specific areas that impact flats, as well as the impact 

of operational initiatives on flats costs and service issues over time. The Commission 

anticipates that the data reporting will lead to the development of measurable goals to 

decrease the costs and improve the service of flats. In the meantime, the Commission will 

continue to encourage the Postal Service to use its data to ensure it is making cost-effective 

decisions.
Docket No. ACR2018 - 5 -

CHAPTER 1: INTRODUCTION

A. Statutory Context

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

and Enhancement Act (PAEA),1 require ongoing, systematic reports and assessments of the 

financial and operational performance of the Postal Service. The first provision, 39 U.S.C. § 

3652, requires the Postal Service to file certain annual reports with the Commission, 

including an 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 Annual 

Compliance Determination (ACD) regarding whether rates were not in compliance with 

applicable provisions of Title 39 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.

The Commission has decided to again report separately on the Postal Service’s financial 

condition and its performance plans and program performance.2 It will issue both its 

financial analysis and its analysis of the performance plans and program performance, 

required by 39 U.S.C. § 3653(d), in the second quarter of 2019. This ACD focuses on the 

requirements of 39 U.S.C. §§ 3653(b)(1) and (b)(2).3

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

between Market Dominant and Competitive products. Sections 3622 and 3626 of Title 39 

pertain to rates and fees for Market Dominant products; section 3633 pertains to 

Competitive products.

In Chapter 2, the Commission evaluates the workshare discounts for Market Dominant 

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

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

compliance issues related to Market Dominant products’ rates and fees. Chapter 4 covers 

compliance issues related to the rates and fees of Competitive products. In Chapter 5, the 

Commission discusses service performance, customer access, and customer satisfaction.

Chapter 6 contains a follow-up discussion of the Commission’s directives in the FY 2015 

ACD regarding cost and service issues for flat-shaped mailpieces (flats).

 

1

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

2

See Notice Regarding the Postal Service FY 2018 Annual Performance Report and FY 2019 Annual Performance Plan, January 3, 2019 (Order 

No. 4967).

3

The Commission addresses only rates and fees that have been challenged by Commenters, or otherwise present compliance issues.
Docket No. ACR2018 - 6 -

There are three appendices to this ACD. Appendix A provides the status of Commissiondirected actions from past ACDs and new Commission-directed undertakings in this ACD. 

Appendix B contains a list of Commenters. Appendix C contains an index of acronyms and 

abbreviations.

B. Timeline and Review of Report

The Postal Service must file the ACR no later than 90 days after the end of each fiscal year 

(i.e., 90 days after September 30). The Commission must complete the ACD within 90 days 

of receiving the ACR. The Postal Service filed the FY 2018 ACR on December 28, 2018. On 

January 14, 2019, the Commission suspended operations due to a lapse in appropriations 

and reopened two weeks later on January 29, 2019. As a result of the two-week lapse in 

appropriations, the Commission issues this ACD on April 12, 2019.

C. 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 it avoided through the worksharing activity 

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

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

§ 3652(b).

D. Other Reports

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

Comprehensive Statement on Postal Operations, its FY 2019 Performance Plan, and its FY 

2018 Performance Report. 39 U.S.C. § 3652(g).

E. 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 or related regulations, and whether any 

service standards were not met. 39 U.S.C. § 3653(b). If the Commission makes a timely 

written determination of non-compliance, it is required to take such action as it deems 

appropriate. 39 U.S.C. § 3653(c).
Docket No. ACR2018 - 7 -

F. Procedural History

On December 28, 2018, the Postal Service filed its FY 2018 ACR, covering the period from 

October 1, 2017, through September 30, 2018.4 The ACR included an extensive narrative 

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. The library 

references also include the Postal Service’s “Roadmap Document” to the FY 2018 ACR, 

which contains a list of special studies and a discussion of obsolescence in accordance with 

39 C.F.R. § 3050.12.5

The Postal Service concurrently filed its 2018 Annual Report and Comprehensive Statement 

on Postal Operations as part of Library Reference USPS–FY18–17, December 28, 2018, to the 

FY 2018 ACR.6

On December 31, 2018, the Commission issued an order establishing Docket No. ACR2018 

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

general public, and establishing January 31, 2019 and February 11, 2019, as the deadlines 

for comments and reply comments, respectively.7 On January 29, 2019, due to the lapse of 

appropriations resulting in suspension of Commission operations, the Commission 

extended the deadline for filing comments to February 14, 2019, and the deadline for filing 

responses to February 25, 2019.8

On January 9, 2019, and January 10, 2019, United Parcel Service, Inc. (UPS) and the 

Association for Postal Commerce (PostCom), respectively, filed motions for access to

certain non-public library references filed as part of the FY 2018 ACR.9 On January 28, 

2019, the Postal Service filed responses to the motions, partially opposing the requests for 

 

4

FY 2018 Annual Compliance Report, December 28, 2018 (FY 2018 ACR). The Postal Service made other filings that revise the FY 2018 ACR and 

select library references. Notice of the United States Postal Service of Revisions to Certain Pages of the FY 2018 Annual Compliance Report –

Errata, February 11, 2019; Notice of the United States Postal Service of Revisions to Multiple Annual Compliance Report Folders – Errata, 

February 11, 2019. Unless otherwise noted, references to the Postal Service’s FY 2018 ACR are to its ACR and accompanying library references 

as revised.

5

Library Reference USPS–FY18–9, December 28, 2018.

6

2017 Annual Report and Comprehensive Statement of Postal Operations, December 28, 2018. The Postal Service includes as parts of Library 

Reference USPS–FY18–17 the FY 2018 Annual Performance Report and its FY 2019 Performance Plan.

7

Notice of Postal Service's Filing of Annual Compliance Report and Request for Public Comments, December 31, 2018 (Order No. 4960); see also

84 FR 826 (January 31, 2019). On January 3, 2019, the Commission established separate comment dates for the Postal Service’s FY 2018 

Performance Report and FY 2019 Performance Plan. See Order No. 4967.

8 Order Extending Comment Deadlines, January 29, 2019 (Order No. 4988).

9

United Parcel Service, Inc.’s Motion Requesting Access to Non-Public Materials Under Protective Conditions, January 9, 2019, at 1 (UPS Motion 

for Access); Motion of Association for Postal Commerce for Access to Nonpublic Materials, January 10, 2019, at 1 (PostCom Motion for Access).
Docket No. ACR2018 - 8 -

access to some of the library references.10 On January 30, 2019, PostCom filed a reply to the 

Postal Service’s opposition.11 On January 31, 2019, UPS filed a motion to supplement its 

motion for access,12 and on February 4, 2019, it filed a reply to the Postal Service’s 

opposition.13

On January 30, 2019, the Commission granted PostCom’s motion in part, allowing access to 

the library references to which the Postal Service did not oppose.14 On February 1, 2019, 

the Commission similarly granted UPS’s motion in part.15 On February 8, 2019, the 

Commission issued an order granting access to all of the library references requested in 

both UPS’s and PostCom’s motions.16

G. Methodology Changes

The FY 2018 ACR generally employs the methodologies used most recently by the 

Commission unless the Commission has approved a change in methodology.17 In this ACR 

proceeding, the Postal Service relies upon eight approved or partially approved 

methodology changes.18

Docket No. RM2018-5 (Proposal Two) proposed new sampling and weighting procedures 

for the city carrier portion of the In-Office Cost System (IOCS). The new sampling design 

includes the use of city carrier Time and Attendance Collection System (TACS) workhours 

to weight sampling data by zone (large and small) for weekday/Saturday IOCS morning 

readings and to create city carrier cost control totals for morning and afternoon costs and 

 

10 United States Postal Service Response to United Parcel Service Inc.’s Motion Requesting Access to Non-Public Materials Under Protective 

Conditions, January 28, 2019 (Response to UPS Motion for Access); United States Postal Service Response to Association for Postal Commerce’s 

Motion Requesting Access to Non-Public Materials Under Protective Conditions, January 28, 2019 (Response to PostCom Motion for Access).

11 Motion for Leave to Reply and Reply of the Association for Postal Commerce to United States Postal Service Response to Motion Requesting 

Access to Non-Public Materials, January 30, 3019 (PostCom Reply to Postal Service Opposition for Motion for Access).

12 United Parcel Service, Inc.'s Motion to Supplement its January 9, 2019 Motion Requesting Access to Non-Public Materials Under Protective 

Conditions, January 31, 2019 (UPS Motion to Supplement).

13 United Parcel Service, Inc.'s Motion for Leave to Reply and Reply to the United States Postal Service's Response to Motion Requesting Access 

to Non-Public Materials, February 4, 2019 (UPS Reply to Postal Service Motion for Access).

14 Order Granting in Part Motion for Access, January 30, 2019 (Order No. 4994).

15 Order Granting in Part Motion for Access, February 1, 2019 (Order No. 4996).

16 Order Granting Motions for Access, February 8, 2019 (Order No. 4998). The Commission also extended the deadline for UPS and PostCom to 

file initial comments to February 19, 2019, and extended the time for reply comments responding to issues raised in those comments to March 

1, 2019. Order No. 4998 at 28.

17 See FY 2018 ACR at 4-6.

18 Library Reference USPS–FY18–9, December 28, 2018. See Docket No. RM2018-4, Order on Analytical Principles Used in Periodic Reporting 

(Proposal One), July 13, 2018 (Order No. 4712); Docket No. RM2018-6, Order on Analytical Principles Used in Periodic Reporting (Proposal 

Three), July 19, 2018 (Order No. 4719); Docket No. RM2018-7, Order on Analytical Principles Used in Periodic Reporting (Proposal Four), August 

13, 2018 (Order No. 4757); Docket No. RM2018-8, Order on Analytical Principles Used in Periodic Reporting (Proposal Five), September 21, 

2018 (Order No. 4827); Docket No. RM2018-9, Order on Analytical Principles Used in Periodic Reporting (Proposal Six), August 28, 2018 (Order 

No. 4798); Docket No. RM2018-10, Order on Analytical Principles Used in Periodic Reporting (Proposal Seven), October 12, 2018 (Order No. 

4855); Docket No. RM2019-1, Order on Analytical Principles Used in Periodic Reporting (Proposal Eight), November 28, 2018 (Order No. 4894); 

Docket No. RM2018-5, Order Approving in Part Proposal Two, January 8, 2019 (Order No. 4972).
Docket No. ACR2018 - 9 -

day of week group (distinguishing Sundays/holidays from weekdays/Saturdays). 

Additionally, the Postal Service proposed that the Product Tracking and Reporting (PTR) 

scan data be used as the product distribution key for city carrier Sunday/holiday costs and 

as a methodology for city carriers acting as supervisors on Sundays/holidays costs.

The Commission approved the use of TACS workhours to develop Sunday and holiday city 

carrier cost control totals, the use of the PTR scan data as a distribution key for 

Sunday/holiday city carrier costs, and the sampling and weighting methodology for city 

carrier IOCS morning readings in small zones. Order No. 4972 at 29-30.

Additionally, the Postal Service identifies the methodological change regarding product 

costs discussed in response to Commission Order No. 3506,19 and the approach for 

reporting group incremental cost estimates used by the Commission in the FY 2017 ACD.20

As a result, the Postal Service’s FY 2018 CRA reports group incremental cost estimates 

when available as the attributable costs of combinations of products, including the Market 

Dominant classes. FY 2018 ACR at 5. As a consequence, the costs labeled as attributable 

costs in each row of the FY 2018 CRA are not directly comparable to costs reported with 

the same label in the CRAs filed prior to FY 2017. Id. at 6.

The Postal Service uses a new methodology to distribute the revenues received from 

inbound LC/AO mail, reported as the Inbound Letter Post and Inbound Market Dominant 

Multi-Service Agreements with Foreign Postal Operators 1 products.21 The Commission did 

not previously approve this new methodology. Although the Commission uses this 

methodology for assessing compliance in this ACD, it directs the Postal Service to file a 

petition for the initiation of a proceeding to consider this proposed change in analytical 

principles within 90 days of issuance of this ACD.

H. Product Analysis

The Postal Service provides an analysis of each Market Dominant product, including Special 

Services, and domestic and international NSAs active during FY 2018. 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 references to standards under 39 U.S.C. 

§ 3633 and 39 C.F.R. § 3015.7. Last, the Postal Service discusses two Competitive market 

tests conducted in FY 2018.22

 

19 Docket No. RM2016-2, Order Concerning United Parcel Service, Inc.’s Proposed Changes to Postal Service Costing Methodologies (UPS 

Proposals One, Two, and Three), September 9, 2016 (Order No. 3506); see also Docket No. RM2016-2, Notice of Errata, October 19, 2016.

20 Docket No. ACR2017, Annual Compliance Determination, March 29, 2018, at 8-10 (FY 2017 ACD).

21 See Responses of the United States Postal Service to Questions 1-28 of Chairman’s Information Request No. 6, February 8, 2019, question 17 

(Responses to CHIR No. 6).

22 FY 2018 ACR at 75.
Docket No. ACR2018 - 10 -

In addition, the Commission posts the most current workshare cost avoidance models on 

its website. The Commission used those models in its preparation of this ACD.

I. Service Performance

The ACR also included information regarding service performance, customer satisfaction, 

and consumer access, as required under 39 U.S.C. § 3652(a)(2) and 39 C.F.R. § 3055.23

J. 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 C.F.R. 

§ 3007.200. The application for non-public treatment must clearly identify all non-public 

materials and fulfill the burden of persuasion that the materials should be withheld from 

the public by showing that the information is commercially sensitive and by identifying the 

nature, extent, and likelihood of commercial harm that would result from disclosure. Id.

§ 3007.201. The FY 2018 ACR included such an application with respect to certain 

Competitive and international Market Dominant products. FY 2018 ACR at Attachment 2.

UPS and PostCom submitted motions for access to library references concerning these 

products, and the Postal Service opposed the motions in part. The motions included a list of 

non-public library references to which UPS and PostCom requested access, specified that 

access was necessary for the purpose of filing comments in this ACR, and provided the 

requisite statements of protective conditions and signed certifications from each individual 

for whom UPS and PostCom sought access. See Order No. 4998 at 16. Accordingly, the 

Commission found that the motions satisfied the Commission’s rules for seeking access to 

non-public information. Id.; 39 C.F.R. § 3007.301.

The Postal Service’s opposition to the motions failed to show good cause for denying access 

to the non-public library references. Order No. 4998 at 18-28. The Commission found that 

the presence of commercially sensitive information alone is not grounds to deny access, 

that Commission rules and protective conditions adequately safeguard the Postal Service 

and third parties from potential harms, and that granting access does not negatively impact 

the Postal Service’s ability to contract with customers. Id. The Commission found that 

“denying access to non-public materials would significantly restrict the ability of interested 

persons to comment on the Postal Service’s compliance under the PAEA.” Id. at 28. 

Accordingly, the Commission granted UPS’s and PostCom’s motions for access. Id. at 29.

 

23 FY 2018 ACR, chapter III.
Docket No. ACR2018 - 11 -

K. Requests for Additional Information

Twenty-six Chairman’s Information Requests (CHIRs) were issued with respect to the ACR 

from January 4, 2019, to April 5, 2019. The Postal Service responded to the CHIRs, often 

filing supplemental information in support of the responses.24

 

24 Several of the Postal Service’s CHIR responses were accompanied by motions requesting late acceptance. E.g., Motion of the United States 

Postal Service for Late Acceptance of Response to Question 16 of Chairman’s Information Request No. 1, January 28, 2019. Each of the Postal 

Service’s motions for late acceptance is granted.
Docket No. ACR2018 - 12 -

CHAPTER 2: MARKET DOMINANT

PRODUCTS: PRICING REQUIREMENTS

A. Introduction

The PAEA introduced three pricing requirements for Market Dominant products: a 

class-level price cap based upon changes in the consumer price index for all urban 

consumers (CPI-U), 39 U.S.C. § 3622(d)(2)(A), a cap on workshare discounts, id. 

§ 3622(e)(2), and a cap on preferred rates, id. § 3626 (a)(4)-(7). Chapter 2 discusses these 

requirements.

B. The Class-Level Price Cap

The Commission approved price adjustments that went into effect during FY 2018, which 

complied with the price cap provision, in accordance with 39 C.F.R. § 3010.23.25

C. Workshare Discounts

Workshare discounts provide reduced prices for mail that is prepared or entered in a 

manner that avoids certain activities the Postal Service would otherwise have to perform. 

These discounts are based on the estimated avoided costs that result from the mailer 

performing the activity instead of the Postal Service. 39 U.S.C. § 3622(e)(2) directs the 

Commission to ensure that workshare discounts do not exceed the costs the Postal Service 

avoids as a result of the worksharing activity.26 The statute provides four exceptions to this 

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

PostCom disagrees with the Commission’s requirements for reporting on passthroughs 

that exceed 100 percent, suggesting that it “causes the Postal Service to err on the side of 

reducing passthroughs below 100 [percent]” at the expense of the Postal Service’s pricing 

flexibility.27 PostCom points out that “despite estimated passthroughs that exhibit 

considerable volatility due to methodological changes, postal inefficiency, and normal 

variation, the Postal Service and the Commission continue to use only one technique –

higher prices – to attempt to achieve compliance[.]” PostCom Comments at 2. Furthermore, 

PostCom suggests that the PAEA “does not establish an absolute requirement that 

 

25 Docket No. R2018-1, Order on Price Adjustments for First-Class Mail, USPS Marketing Mail, Periodicals, Package Services, and Special Services 

Products and Related Mail Classification Changes, November 9, 2017 (Order No. 4215).

26 The workshare discount divided by the avoided costs and expressed as a percentage 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.

27 Comments of the Association for Postal Commerce, February 19, 2019, at 5-6 (PostCom Comments).
Docket No. ACR2018 - 13 -

workshare discounts never exceed 100 percent of avoided costs,” and therefore, the 

Commission should allow passthroughs to exceed 100 percent if one of the statutory 

exceptions applies, without encouraging the Postal Service to work towards reducing the 

passthrough amount. Id. at 4, 9. The Postal Service disagrees with PostCom’s suggestion 

that the Postal Service prioritizes pricing efficiency over operational efficiency and notes 

that its approach is consistent with the Commission’s direction and section 3622(e).28

The Commission analyzes discounts to determine whether they comply with applicable 

statutory provisions. Section 3653(b)(1) of Title 39 requires the Commission to base its 

determinations on rates and fees “in effect” during FY 2018. The prices in effect in FY 2018 

were the prices approved in Docket No. R2017-1 (through January 20, 2018) and R2018-1 

(after January 20, 2018). The discounts evaluated for compliance are the Docket No. 

R2018-1 prices. Workshare discounts that were not greater than the associated avoided 

costs were in compliance for FY 2018.

As the Commission has previously acknowledged, although passthroughs below 100 

percent are lawful, they send inefficient pricing signals to mailers. FY 2017 ACD at 15. 

Passthroughs set as close as possible to 100 percent to promote pricing efficiency, lower 

the total combined costs for mailers and the Postal Service, and encourage the retention 

and growth of the Postal Service’s most profitable products. In instances where the 

Commission finds that discounts set above avoided costs are nonetheless lawful because 

they promote operational efficiency (39 U.S.C. § 3622(e)(2)(D)), the Commission 

encourages the reduction of those discounts to promote pricing efficiency. If the 

operational efficiency results in cost savings to the Postal Service, the Postal Service should 

quantify the impact of the operational efficiency in its cost avoidance models. The 

Commission commends the Postal Service for reducing the number of passthroughs above 

100 percent in FY 2018. Two classes of mail are fully compliant with the section 

3653(b)(1) requirement—this has not been achieved by even one class of mail in any year 

since the Commission’s ACD began reporting on each class individually.

The sections below review, for each class of mail, workshare discounts that are greater 

than the avoided costs associated with the discounts.

1. First-Class Mail

No First-Class Mail workshare discounts exceeded the avoided costs of the corresponding 

mailer worksharing activity in FY 2018 and, therefore, all discounts were consistent with 

39 U.S.C. § 3622(e) in FY 2018. Tables II-1, II-2, and II-3 below demonstrate the compliance 

for this class.

Pitney Bowes Inc. (Pitney Bowes), NAPM, and Idealliance suggest that the workshare 

discounts for certain First-Class Mail products should be set closer to 100 percent of the 

 

28 Postal Service Reply to UPS and PostCom Comments, March 1, 2019, at 6-7 (Postal Service Reply Comments to UPS and PostCom).
Docket No. ACR2018 - 14 -

avoided costs.29 Pitney Bowes notes that all workshare discounts are in compliance with 

the worksharing provisions in 39 U.S.C. § 3622(e)(2), but suggests that “the rate design 

does not maximize pricing and operational efficiency as intended by the [PAEA].” Pitney 

Bowes Comments at 2. NAPM and Idealliance suggest that their members “could sell 

presort services to even more businesses if the incentive reflected the full costs avoided by 

the Postal Service,” which would result in a shift to more efficient products. 

NAPM/Idealliance Comments at 4.

In its reply comments, the Postal Service notes that these commenters do not dispute the 

compliance of the workshare discounts and states that it “will continue to seek 

opportunities to align workshare discounts with avoided costs where appropriate and 

advisable.”30

In this proceeding, the Commission evaluates workshare discounts for compliance with 

statutory provisions. The Commission finds the discounts for First-Class Mail were less than 

avoided costs and were thus consistent with 39 U.S.C. § 3622(e) in FY 2018.

 

29 See Comments of Pitney Bowes Inc., February 14, 2019, at 2 (Pitney Bowes Comments); Comments of the National Association of Presort 

Mailers and Idealliance, February 14, 2019, at 3-4 (NAPM/Idealliance Comments).

30 Reply Comments of the United States Postal Service, February 25, 2019, at 2-3 (Postal Service Reply Comments).
Docket No. ACR2018 - 15 -

Table II-1

First-Class Presorted Letters/Cards

Workshare Discounts and Benchmarks

Type of Worksharing

(Benchmark)

FY 2018

Year-End 

Discount

(Cents)

Unit Cost 

Avoidance

(Cents)

Passthrough

First-Class Mail Automation Letters: Barcoding & Presorting

Automation Mixed AADC Letters (Metered Letters) 4.6 6.7 68.7%

Automation AADC Letters (Automation Mixed AADC Letters) 1.6 2.4 66.7%

Automation 5-Digit Letters (Hybrid Automation AADC/3-Digit 

Letters) 3.0 3.4 88.2%

First-Class Mail Non-automation Letters: Barcoding

Non-automation Presort Letters (Metered Letters) 1.2 7.5 16.0%

First-Class Mail Automation Cards: Barcoding & Presorting

Automation Mixed AADC Cards (Non-automation Presort Cards) 0.6 1.0 60.0%

Automation AADC Cards (Automation Mixed AADC Cards) 0.6 0.7 85.7%

Automation 5-Digit Cards (Hybrid Automation AADC/3-Digit Cards) 1.1 1.1 100.0%

Source: PRC–LR–ACR2018/3.
Docket No. ACR2018 - 16 -

Table II-2

First-Class Mail Flats

Workshare Discounts and Benchmarks

Type of Worksharing

(Benchmark)

FY 2018

Year-End 

Discount

(Cents)

Unit Cost 

Avoidance

(Cents)

Passthrough

First-Class Mail Automation Flats: Barcoding & Presorting

Automation ADC Flats (Automation Mixed ADC Flats) 7.3 11.2 65.2%

Automation 3-Digit Flats (Automation ADC Flats) 3.9 5.0 78.0%

Automation 5-Digit Flats (Automation 3-Digit Flats) 11.9 17.2 69.2%

Source: PRC–LR–ACR2018/3.

Table II-3

First-Class Single Piece Letters/Cards

Workshare Discounts and Benchmarks

Type of Worksharing

(Benchmark)

FY 2018

Year-End 

Discount

(Cents)

Unit Cost 

Avoidance

(Cents)

Passthrough

First-Class Mail Single Piece Letters: Qualified Business Reply Mail Barcoding

QBRM (Handwritten Reply Mail) 1.5 1.8 83.3%

First-Class Mail Single Piece Cards: Qualified Business Reply Mail Barcoding

QBRM (Handwritten Reply Cards) 1.5 1.8 83.3%

Source: PRC–LR–ACR2018/3.
Docket No. ACR2018 - 17 -

2. Periodicals

a. Fiscal Year 2018 Periodicals Workshare Discounts

(1) Passthroughs over 100 percent

One In-County Periodicals workshare discount and eight Outside County Periodicals 

workshare discounts exceeded the avoided costs of the corresponding mailer worksharing 

activity in FY 2018. Table II-4 identifies these nine passthroughs.

Table II-4

Periodicals Workshare Discounts Exceeding Avoided Costs31

Type of Worksharing

Year End 

Discount 

(Cents)

Unit Cost 

Avoidance 

(Cents)

Passthrough

Outside County

Presorting 

Saturation 2.1 2.0 105.0%

Machinable Non-automation 3-Digit/SCF Flats 5.8 5.7 101.8%

Machinable Automation 3-Digit/SCF Flats 5.1 5.0 102.0%

Non-machinable Non-automation 5-Digit Flats 13.2 9.3 141.9%

Non-machinable Automation 5-Digit Flats 13.2 9.6 137.5%

Presorting Automation Letters 

Automation ADC Letters 3.7 1.8 205.6%

Automation 3-Digit Letters 2.0 0.4 500.0%

Automation 5-Digit Letters 6.8 2.2 309.1%

In-County

Presorting Automation Letters

Automation 3-Digit Letters 1.0 0.6 166.7%

Source: PRC–LR–ACR2018/5.

Workshare discounts are allowed to exceed avoided costs if a statutory exception applies. 

See 39 U.S.C. § 3622(e). The Postal Service justifies Periodicals workshare discounts that 

exceeded 100 percent passthroughs on the basis of 39 U.S.C. § 3622(e)(2)(C), which 

authorizes workshare discounts greater than avoided costs if provided in connection with a 

subclass that consists exclusively of mail matter with educational, cultural, scientific, or 

informational (ECSI) value. FY 2018 ACR at 38.

 

31 The Periodicals pricing structure differs from the other Market Dominant classes, in that it includes piece, pound, bundle, and container 

elements. See PRC–LR–ACR2018/5 for a comprehensive display of all Periodicals prices and worksharing relationships for FY 2018.
Docket No. ACR2018 - 18 -

(2) Commission Analysis

(a) Statutory Considerations for Passthroughs

Because the Periodicals class consists exclusively of ECSI mail, the Commission finds that 

the Periodicals workshare discounts that exceeded avoided costs in FY 2018 were 

consistent with 39 U.S.C. § 3622(e). However, given that the Periodicals class does not 

cover costs, sending efficient price signals is particularly important. Although 39 U.S.C. § 

3622(e) allows workshare discounts to exceed avoided costs if a statutory exception 

applies and does not prohibit the Postal Service from offering workshare discounts with 

passthroughs that are less than 100 percent, other statutory requirements and objectives 

focus on sending efficient pricing signals to mailers. This concept is relevant to all 

workshare discounts, including those in subclasses that consist exclusively of ECSI value. 

Generally, prices must “enable the Postal Service, under best practices of honest, efficient, 

and economical management, to maintain and continue the development of postal services 

of the kind and quality adapted to the needs of the United States.” 39 U.S.C. § 404(b). 

Moreover, the Market Dominant ratemaking system is designed to achieve nine objectives, 

of which one is “[t]o maximize incentives to reduce costs and increase efficiency.” 39 U.S.C. 

§ 3622(b)(1). Therefore, the Postal Service should, in all cases, consider whether such 

passthroughs send efficient pricing signals to mailers.

Inefficient pricing signals may contribute to Periodicals revenues not covering costs if the 

price does not incentivize mailers to prepare Periodicals mailings efficiently. Continued 

improvement of the relationship between discounts and avoided costs should signal to the 

mailer the mail preparation method that is most efficient for both the Postal Service and 

the mailer. The Commission emphasized in past ACDs that, as a general principle, 

passthroughs closer to 100 percent would send better pricing signals to mailers and would 

increase contribution and cost savings to the Postal Service.32

In Docket No. R2018-1, the Postal Service adjusted prices for sacks and trays to improve 

cost coverage, adjusted prices for bundles and pallets based on estimated bottom-up costs, 

and increased the price difference between Carrier Route and Machinable Automation 5-

Digit Flats to encourage preparation of more Carrier Route pieces.33 In Docket No. R2019-1, 

the Postal Service proposed above-average increases for trays and sacks to boost their cost 

coverage, proposed above-average increases for all bundles and pallet containers to raise 

their cost coverage and encourage operational efficiency, increased the price difference 

between basic Carrier Route and Machinable Automation 5-Digit Flats to encourage 

preparation of Carrier Route pieces, and increased piece prices to bring all workshare 

 

32 See Docket No. ACR2009, Annual Compliance Determination, March 29, 2010, at 76 (FY 2009 ACD); Docket No. ACR2010, Annual Compliance 

Determination, March 29, 2011, at 96-97 (FY 2010 ACD); Docket No. ACR2011, Annual Compliance Determination, March 28, 2012, at 108-110 

(FY 2011 ACD); Docket No. ACR2012, Annual Compliance Determination, March 28, 2013, at 100-101 (FY 2012 ACD); Docket No. ACR2013, 

Annual Compliance Determination, March 27, 2014, at 21-23 (FY 2013 ACD); Docket No. ACR2014, Annual Compliance Determination, March 

27, 2015, at 14-16 (FY 2014 ACD); Docket No. ACR2015, Annual Compliance Determination, March 28, 2016, at 17-19 (FY 2015 ACD); Docket No. 

ACR2016, Annual Compliance Determination, March 28, 2017, at 18-20 (FY 2016 ACD); FY 2017 ACD at 20-23.

33 Docket No. R2018-1, Notice of Market Dominant Price Adjustment, October 6, 2017, at 23.
Docket No. ACR2018 - 19 -

discount passthroughs down to 100 percent or below.34 While the Commission notes that 

some improvements have been made, continued improvement of Periodicals pricing 

efficiency would maximize contribution (or in this case, minimize negative contribution) 

and cost savings.

(b) Sending Efficient Pricing Signals

Since FY 2013, the Commission has highlighted the growing disparity between the Postal 

Service’s pricing signals that appear to encourage 5-Digit presortation and discourage 

Carrier Route presortation.35

Most Outside County Periodicals volume is presorted to Machinable Automation 5-Digit or 

Carrier Route Basic. Figure II-1 details changes in passthroughs for Carrier Route Basic and 

Machinable Automation 5-Digit piece presorting from FY 2008 to FY 2018.

Figure II-1

Carrier Route Basic and Machinable Automation 5-Digit Passthroughs

Source: PRC–LR–ACR2018/5.

 

34 Docket No. R2019-1, United States Postal Service Notice of Market-Dominant Price Change, October 10, 2018, at 25.

35 See FY 2013 ACD at 21; FY 2014 ACD at 15; FY 2015 ACD at 18; FY 2016 ACD at 19; FY 2017 ACD at 22.
Docket No. ACR2018 - 20 -

Comments. MPA and ANM contend that the Commission should require the Postal Service 

to set workshare passthroughs at or near 100 percent to promote lowest combined costs.36

They also state that passing through 100 percent of the Carrier Route Basic cost avoidance 

will translate into real, measurable cost savings and help the Postal Service retain the most 

efficient Periodicals mail. MPA/ANM Comments at 6. The Postal Service replies that 

passthroughs below 100 percent are permissible under the PAEA, and there is no statutory 

basis to force the Postal Service to pass through more of the cost avoidance than it 

currently does. Postal Service Reply Comments at 6. The Postal Service states that it will 

continue to use its pricing flexibility to encourage efficient preparation of Periodicals 

through price signals, workshare discount adjustments, and other initiatives consistent 

with statutory requirements. Id. at 6-7.

Commission Analysis. In FY 2018, the gap between the passthroughs for Machinable 

Automation 5-Digit and Carrier Route shrunk considerably. Both passthroughs are now 

under 100 percent.

However, prices that yield more passthroughs closer to 100 percent would further 

promote Periodicals pricing efficiency. Discounts are most efficient when they are set at 

their corresponding avoided costs. Passthroughs set under 100 percent generally reflect a 

situation where the discount offered to mailers is less than the Postal Service’s avoided 

cost. A discount that is “too small” discourages efficiency if a mailer could perform the work 

at a lower cost than the Postal Service, but does not do so because the cost to the mailer for 

performing the work required to receive the discount exceeds the amount of the discount.

b. Fiscal Year 2017 ACD Directives

In the FY 2017 ACD, the Commission directed the Postal Service to include an updated 

version of the FY 2017 ACD Periodicals Pricing Report in its FY 2018 ACR. FY 2017 ACD at 

24. The updated report was to include an analysis of how the pricing in Docket No. R2018-1 

impacted the cost, contribution, and revenue of Periodicals in FY 2018 and whether the 

new pricing improved the efficiency of Periodicals pricing in FY 2018. Id.

The Postal Service filed this updated report as Library Reference USPS–FY18–44, 

December 28, 2018, Update to Periodicals Pricing Report (Periodicals Pricing Report).

Comments. The Public Representative comments that she appreciates the provision of the 

Periodicals Pricing Report, which, together with the previous reports, allows for a better 

understanding of the dynamics and impacts of Periodicals pricing.37 She states that she 

does not have any recommendations specific to the Periodicals class at this time. PR 

Comments at 47.

 

36 Comments of MPA - The Association of Magazine Media and the Alliance of Nonprofit Mailers, February 14, 2019, at 2 (MPA/ANM 

Comments).

37 Public Representative Comments, February 14, 2019, at 47 (PR Comments).
Docket No. ACR2018 - 21 -

Commission Analysis. In the Periodicals Pricing Report, the Postal Service discusses two 

significant initiatives intended to improve Periodicals pricing: (1) pricing pieces, bundles, 

and containers closer to estimated unit processing costs to improve the efficiency signals 

given to customers, and (2) making modifications to the container preparation hierarchy to 

encourage the preparation of 5-Digit Carrier Routes pallets. Periodicals Pricing Report at 3.

The Postal Service states that by establishing prices at or near estimated unit processing 

costs, a customer’s mailing decisions will be based on the assessment of whether the 

customer or the Postal Service can perform necessary sortation more efficiently. Id. In 

Docket No. R2018-1, the Postal Service increased the price difference between Basic 

Carrier Route and Automation 5-Digit rates. Id. at 5. The Postal Service reports that, in the 

aggregate, customers responded to this incentive by increasing the volume of pieces not 

needing piece sortation (Carrier Route, High Density, and Saturation presorting) by 

approximately 1 percent. Id. The Postal Service also states that comparing Quarters 3 and 4 

of FY 2017 with Quarters 3 and 4 of FY 2018 indicates that the low cost preparation profile 

of Periodicals Outside County has increased. Id. at 6-7.

The Postal Service contends that the pricing incentives designed to encourage the 

preparation of 5-Digit Carrier Route pallets appear to be successful. Id. at 3. In comparing 

Quarter 3 of FY 2017 and Quarter 3 of FY 2018, the Postal Service states that the 

proportion of Periodicals mail prepared on 5-Digit Carrier Route pallets increased from 6.3 

percent to 10.1 percent. Id. However, the Postal Service provides that it is not feasible to 

isolate the impacts of these price changes from the multitude of other co-variates that 

affect customers’ mailing decisions and from the evolution of the Periodicals class. Id. at 4.

The data provided by the Postal Service show that the mail processing cost per piece, 

bundle, and container decreased after the price change in Docket No. R2018-1. Id. at 7. At 

the same time, the delivery and transportation cost per piece, bundle, and container 

increased.38 The revenue per piece, bundle, and container decreased. Id. at 8. In total, 

because the overall costs increased while the revenue decreased, Periodicals contribution 

deteriorated in FY 2018.

The Commission concludes that, on the whole, the Postal Service’s report meaningfully 

responds to the Commission’s directive. In the Periodicals Pricing Report, the Postal 

Service provided a robust narrative and workpapers containing quantitative analyses. By 

performing a quantitative analysis of changes in cost, contribution, and revenue after 

implementation of new prices, the Postal Service has begun to make progress in analyzing 

the pricing efficiency of Periodicals. Such analysis provides a useful tool for the Postal 

Service to more fully understand potential impacts of new prices on cost, revenue, and 

contribution. In future rate changes, such analysis can aid in increasing Periodicals pricing 

efficiency.

 

38 See PRC–LR–ACR2018/5, Excel file “FY18 Periodicals Cost Coverage.xlsx.”
Docket No. ACR2018 - 22 -

The Commission directs the Postal Service to provide an updated version of the Periodicals 

Pricing Report in its FY 2019 ACR. The report must include an analysis of how the pricing in 

Docket No. R2019-1 impacted the cost, contribution, and revenue of Periodicals in FY 2019 

and whether the new pricing improved the efficiency of Periodicals pricing in FY 2019.

3. USPS Marketing Mail39

Fourteen USPS Marketing Mail workshare discounts exceeded the avoided costs of the 

corresponding mailer workshare activity in FY 2018. These fourteen workshare discounts 

are in the Letters, Flats, Parcels, Carrier Route, and High Density and Saturation Letters 

products.

a. Letters

The following five workshare discounts for Letters exceeded avoided costs in FY 2018:

 Automation Mixed automated area distribution center (AADC) Letters

 Non-automation 3-Digit Non-machinable Letters

 Non-automation 5-Digit Non-machinable Letters

 Destination network distribution center (DNDC) dropship Letters

 Destination sectional center facility (DSCF) dropship Letters

Each is discussed below. All remaining discounts offered for Letters were less than or equal 

to avoided costs, and were thus consistent with 39 U.S.C. § 3622(e) in FY 2018.40 Table II-5

shows the workshare discounts for the Letters product for FY 2018.

 

39 In FY 2018, all USPS Marketing Mail commercial and nonprofit discounts were equal. See, e.g., Docket No. R2013-1, Order on Standard Mail 

Rate Adjustments and Related Mail Classification Changes, December 11, 2012, at 8 (Order No. 1573) (“[D]isparities between commercial and 

nonprofit discounts are impermissible unless supported by a rational justification that the differential treatment is ‘specifically authorized’ by 

another section of the statute.” (citation omitted)).

40 Pitney Bowes comments that discounts for USPS Marketing Mail Automation Letters (specifically, the discounts for Automation AADC Letters 

and Automated 5-Digit Letters) should be increased so that these discounts would be set closer to avoided costs. Pitney Bowes Comments at 1-

2. The Commission has noted before that workshare discounts set substantially below avoided costs send inefficient pricing signals to mailers 

and reduce pricing efficiency. See Chapter II.C., supra. The Commission therefore encourages the Postal Service to increase such discounts. 

Nevertheless, for purposes of compliance with 39 U.S.C. § 3622(e) such discounts are lawful. See id.
Docket No. ACR2018 - 23 -

Table II-5

USPS Marketing Mail Letters (Commercial and Nonprofit)

Workshare Discounts and Benchmarks

Type of Worksharing 

(Benchmark)

FY 2018

Year-End 

Discount

(Cents)

Unit Cost 

Avoidance

(Cents)

Passthrough

USPS Marketing Mail Automation Letters: Barcoding (Cents/Piece)

Automation Mixed AADC Letters

(Non-automation MAADC BC-Benchmark)

41 1.3 0.6 216.7%

USPS Marketing Mail Automation Letters: Presorting (Cents/Piece)

Automation AADC Letters (Automation Mixed AADC Letters) 1.3 1.8 72.2%

Automation 5-Digit Letters (Weighted Average Automation 

AADC & 3-Digit Letters)42 2.3 2.7 85.2%

USPS Marketing Mail Non-automation Letters: Presorting (Cents/Piece)

Non-automation AADC Machinable Letters

(Non-automation Mixed AADC Machinable Letters) 1.3 2.5 52.0%

Non-automation ADC Non-machinable Letters 

(Non-automation Mixed ADC Non-machinable Letters) 7.3 7.5 97.3%

Non-automation 3-Digit Non-machinable Letters

(Non-automation ADC Non-machinable Letters) 2.3 2.2 104.5%

Non-automation 5-Digit Non-machinable Letters

(Non-automation 3-Digit Non-machinable Letters) 7.1 7.0 101.4%

USPS Marketing Mail Letters: Dropship (Cents/Piece)

DNDC Letters (Origin Letters) 2.4 1.9 126.3%

DSCF Letters (Origin Letters) 3.1 2.3 134.8%

Source: PRC–LR–ACR2018/4.

(1) Automation Mixed AADC Letters

The passthrough for Automation Mixed AADC Letters was 216.7 percent in FY 2018, down 

from 1300.0 percent in FY 2017. FY 2018 ACR at 20. The Postal Service explains that this 

decrease was due to a significant increase in cost avoidance resulting from the 

methodology changes approved in Docket No. RM2019-1.43 Although this passthrough 

remains above 100 percent, the Postal Service justifies it pursuant to 39 U.S.C. 

 

41 See Order No. 4894 at 7-8.

42 See Docket No. RM2012-6, Order Revising Benchmark Used to Calculate the Costs Avoided by Automation First-Class 5-Digit Cards and 

Standard Regular 5-Digit Letter Mail, July 29 2013, at 5 (Order No. 1793).

43 Id.; see also Order No. 4894.
Docket No. ACR2018 - 24 -

§ 3622(e)(2)(D), asserting that it encourages mailers to provide Intelligent Mail barcodes 

(IMbs) on their mailpieces, which improves operational efficiency. FY 2018 ACR at 20. The 

Postal Service further states that Full-Service IMbs allow for data collection which provides 

insight into mail processing operations and can be used to improve mailers’ preparation 

processes.44 The Postal Service asserts that such implicit benefits are difficult to capture in 

the cost avoidance models. January 28 Responses to CHIR No. 3, questions 7.a.-b. The Postal 

Service expresses its intent to gradually lower this passthrough in the next Market 

Dominant price adjustment. Id. question 7.c.

The Public Representative agrees that this excessive passthrough has been substantially 

reduced as a result of the methodology changes approved in Docket No. RM2019-1. PR 

Comments at 59. She concludes that even though this passthrough continues to exceed 100 

percent, it is justified pursuant to 39 U.S.C § 3622(e)(2)(D). Id.

The Commission finds that the Automation Mixed AADC Letters discount was adequately 

justified pursuant to 39 U.S.C. § 3622(e)(2)(D) in FY 2018. The Postal Service should continue 

its FY 2016 commitment to align the discount with avoided cost.45

(2) Non-automation 3-Digit Non-machinable Letters and 

Non-automation 5-Digit Non-machinable Letters

The discounts for Non-automation 3-Digit Non-machinable Letters and Non-automation 5-

Digit Non-machinable Letters had passthroughs of 104.5 percent and 101.4 percent, 

respectively, in FY 2018. FY 2018 ACR at 20-21. In Docket No. R2019-1, the Postal Service 

reduced these discounts by 0.1 cents for Non-automation 3-Digit Non-machinable Letters 

and 0.3 cents for Non-automation 5-Digit Non-machinable Letters. Id. The Postal Service 

asserts that when the Docket No. R2019-1 prices take effect, both passthroughs will be at 

or below 100 percent. Id.

The Public Representative asserts that no statutory exception was cited to justify these 

excessive passthroughs, and they were therefore out of compliance for FY 2018. PR 

Comments at 63-64. Nevertheless, she agrees with the Postal Service that both of these 

passthroughs will have been brought into compliance once the Docket No. R2019-1 price 

adjustment is implemented. Id. at 64. Accordingly, she states that no further action is 

necessary to bring these passthroughs into compliance. Id.

The Commission finds that these discounts were not in compliance in FY 2018. Due to the 

discount approved in Docket No. R2019-1, the Commission finds that no further action is 

required for the Non-automation 3-Digit Non-machinable Letters and Non-automation 5-

Digit Non-machinable Letters discounts.

 

44 Responses of the United States Postal Service to Questions 1-20 of Chairman’s Information Request No. 3, January 28, 2019, question 7 

(January 28 Responses to CHIR No. 3).

45 See United States Postal Service FY 2016 Annual Compliance Report, December 29, 2016, at 39 (FY 2016 ACR).
Docket No. ACR2018 - 25 -

(3) DNDC and DSCF Dropship Letters

In FY 2018, the passthroughs for DNDC dropship Letters and DSCF dropship Letters were 

126.3 percent and 134.8 percent, respectively, down from 152.9 and 161.9 percent, 

respectively, in FY 2017. FY 2018 ACR at 19. The Postal Service justifies these excessive 

discounts pursuant to 39 U.S.C. § 3622(e)(2)(B), on the grounds that they are necessary to 

mitigate rate shock. Id. In Docket No. R2019-1, the Postal Service reduced both of these 

passthroughs by at least 10 percentage points.46 The Postal Service states that it intends to 

reduce these passthroughs by at least 10 percentage points in the next Market Dominant 

price adjustment. FY 2018 ACR at 19.

The Public Representative agrees that these excessive passthroughs are justified under 

39 U.S.C. § 3622(e)(2)(B). PR Comments at 60. She states that the Postal Service has 

followed through with its plan to reduce these passthroughs by at least 10 percentage 

points in each Market Dominant rate case. Id. at 59-60.

NAPM and Idealliance ask the Commission to consider whether further reductions in 

passthroughs for DNDC and DSCF dropship Letters might “have unintended adverse effects 

on the Postal Service’s operational efficiency.” NAPM/Idealliance Comments at 5-6.

The Postal Service replies that its approach to reducing passthroughs over time is 

consistent with the direction that has been provided by the Commission. Postal Service 

Reply Comments at 5. The Postal Service asserts that it “recognizes that a balance must be 

struck between encouraging efficient entry of Marketing Mail volume by mailers, exercising 

the Postal Service’s pricing flexibility subject to price cap limitations at the class level, and 

maintaining compliance with the Commission’s interpretation of the worksharing 

requirements of Section 3622(e).” Id.

The Commission concludes that a substantial one-time reduction in the DNDC and DSCF 

dropship Letters passthrough percentages would likely adversely affect users, and that the 

Postal Service took adequate steps in Docket No. R2019-1 to continue to phase out these 

excessive passthroughs. Thus, the Commission finds that these discounts were adequately 

justified pursuant to 39 U.S.C. § 3622(e)(2)(B) in FY 2018. The Commission expects the Postal 

Service to align these discounts with avoided costs consistent with its plan. If the Postal 

Service deviates from its plan, it must provide a detailed analysis and explanation in support 

of that deviation.

 

46 Docket No. R2019-1, Order on Price Adjustments for First-Class Mail, USPS Marketing Mail, Periodicals, Package Services, and Special Services 

Products and Related Mail Classification Changes, November 13, 2018, at 33 (Order No. 4875).
Docket No. ACR2018 - 26 -

b. USPS Marketing Mail Flats

Two workshare discounts for USPS Marketing Mail Flats exceeded avoided cost in FY 2018:

 Automation Mixed ADC Flats

 Automation 3-Digit Flats

All remaining discounts offered for USPS Marketing Mail Flats were less than or equal to 

avoided costs, and thus were consistent with 39 U.S.C. § 3622(e). Table II-6 shows the 

discounts for the USPS Marketing Mail Flats product for FY 2018.

Table II-6

USPS Marketing Mail Flats (Commercial and Nonprofit)47

Workshare Discounts and Benchmarks

Type of Worksharing

(Benchmark)

FY 2018

Year-End 

Discount

(Cents)

Unit Cost 

Avoidance

(Cents)

Passthrough

USPS Marketing Mail Automation Flats: Barcoding (Cents/Piece)

Automation Mixed ADC Flats (Non-automation Mixed ADC Flats) 3.6 1.9 189.5%

USPS Marketing Mail Automation Flats: Presorting (Cents/Piece)

Automation ADC Flats (Automation Mixed ADC Flats) 3.1 6.0 51.7%

Automation 3-Digit Flats (Automation ADC Flats) 6.7 6.5 103.1%

Automation 5-Digit Flats (Automation 3-Digit Flats) 10.7 12.9 82.9%

USPS Marketing Mail Non-automation Flats: Presorting (Cents/Piece)

Non-automation ADC Flats (Non-automation Mixed ADC Flats) 3.2 4.1 78.0%

Non-automation 3-Digit Flats (Non-automation ADC Flats) 5.2 5.6 92.9%

Non-automation 5-Digit Flats (Non-automation 3-Digit Flats) 8.4 9.7 86.6%

USPS Marketing Mail Flats: Dropship48 (Cents/Pound)

DNDC Flats (Origin Flats) 20.5 35.7 57.4%

DSCF Flats (Origin Flats) 26.1 38.6 67.5%

Source: PRC–LR–ACR2018/4.

 

47 Table II-6 does not list commercial and nonprofit discounts separately because in FY 2018 all commercial and nonprofit USPS Marketing Mail 

Flats discounts were set equal.

48 Passthroughs for these discounts use unit discounts and unit avoided costs. Consistent with Order No. 4227, the passthroughs are calculated 

using the total avoided costs divided by total pounds and the total discount divided by total pounds. See Docket No. RM2017-11, Order on 

Analytical Principles Used in Periodic Reporting (Proposal Seven), November 20, 2017 (Order No. 4227).
Docket No. ACR2018 - 27 -

(1) Automation Mixed ADC Flats

The passthrough for Automation Mixed ADC Flats was 189.5 percent in FY 2018, down 

from 190.0 percent in FY 2017. FY 2018 ACR at 21-22. The Postal Service justifies this 

excessive passthrough pursuant to 39 U.S.C. § 3622(e)(2)(D), on the grounds that it 

encourages mailers to place IMbs on mailpieces, which improves operational efficiency. Id. 

In Docket No. R2019-1, the Postal Service aligned this discount with its FY 2017 avoided 

cost.49 However, avoided costs increased 0.1 cents in FY 2018.50 Using the discount from 

Docket No. R2019-1, the passthrough drops significantly—down to 105.3 percent. FY 2018 

ACR at 21-22. The Postal Service elaborates that Full-Service IMbs allow for data collection 

which provides insight into mail processing operations and can be used to improve mailers’ 

preparation processes. See January 28 Responses to CHIR No. 3, question 8.a. (citing 

question 7a.-b.). The Postal Service asserts that these benefits are difficult to capture in the 

cost avoidance models. Id. The Postal Service expresses its intent to align this discount with 

its avoided cost in the next Market Dominant price adjustment. Id. question 8.d.

The Public Representative asserts that once the new rates approved in Docket No. R2019-1 

take effect, this passthrough will fall to 105.3 percent. PR Comments at 60. She concludes 

that “[because] the Postal Service will most likely file the next [M]arket [D]ominant rate 

case with existing avoided costs, . . . the Postal Service should be able to eliminate the 

excessive passthrough for this product in FY 2019.” Id. Therefore, she states that this 

passthrough is adequately justified under 39 U.S.C. § 3622(e)(2)(D). Id.

The Commission finds that the Automation Mixed ADC Flats discount was adequately justified 

pursuant to 39 U.S.C. § 3622(e)(2)(D) in FY 2018. Consistent with its plan, the Postal Service 

must either align the discount with its avoided costs in the next Market Dominant rate 

adjustment, or provide support for an applicable statutory exception.

(2) Automation 3-Digit Flats

The passthrough for Automation 3-Digit Flats was 103.1 percent in FY 2018, up from 72.4 

percent in FY 2017. FY 2018 ACR at 21. The Postal Service explains that a decrease in this 

rate category’s unit cost avoidance led to this passthrough exceeding 100 percent in FY 

2018. Id. When prices from Docket No. R2019-1 take effect, this passthrough will increase 

to 113.8 percent. Id. The Postal Service intends to realign this discount with its avoided cost 

in the next Market Dominant price adjustment, or else cite an appropriate statutory 

exception. Id.

The Public Representative asserts that the Postal Service does not cite any statutory 

exception for this excessive passthrough, and that it was therefore out of compliance for 

FY 2018. PR Comments at 65.

 

49 See Docket No. R2019-1, United States Postal Service Notice of Market-Dominant Price Change, October 10, 2018, at 16-18.

50 See Library Reference USPS–FY18–3, December 28, 2018, Excel file “FY18.3 Worksharing Tables.xlsx.”
Docket No. ACR2018 - 28 -

The Commission finds that the Automation 3-Digit Flats discount was not in compliance 

during FY 2018. The Postal Service must either align this discount with its avoided cost in the 

next Market Dominant price adjustment, or provide support for an applicable statutory 

exception.

c. Parcels

Three workshare discounts for Parcels exceeded avoided costs in FY 2018:

 Mixed NDC Machinable Barcoded Parcels

 Mixed NDC Irregular Barcoded Parcels

 Mixed NDC Barcoded Marketing Parcels

These discounts are discussed together below. All remaining discounts offered for Parcels 

were less than avoided costs, and thus were consistent with 39 U.S.C. § 3622(e). Table II-7

and Table II-8 show the discounts for the Parcels product for FY 2018.
Docket No. ACR2018 - 29 -

Table II-7

USPS Marketing Mail Parcels (Commercial and Nonprofit)

Presort and Barcode Workshare Discounts and Benchmarks

Type of Worksharing

(Benchmark)

FY 2018

Year-End 

Discount

(Cents)

Unit Cost 

Avoidance

(Cents)

Passthrough

Nonprofit USPS Marketing Mail Parcels: Presorting (Cents/Piece)

NDC Machinable Parcels (Mixed NDC Machinable Parcels) 39.6 55.8 71.0%

5-Digit Machinable Parcels (NDC Machinable Parcels) 28.6 82.3 34.8%

NDC Irregular Parcels (Mixed NDC Irregular Parcels) 25.0 30.0 83.3%

SCF Irregular Parcels (NDC Irregular Parcels) 38.1 66.1 57.6%

5-Digit Irregular Parcels (SCF Irregular Parcels) 16.2 91.0 17.8%

Nonprofit USPS Marketing Mail Parcels: Barcoding (Cents/Piece)51

Mixed NDC Machinable Barcoded Parcels

(Mixed NDC Machinable Non-barcoded Parcels) 5.8 4.1 141.5%

Mixed NDC Irregular Barcoded Parcels

(Mixed NDC Irregular Non-barcoded Parcels) 5.8 4.1 141.5%

USPS Marketing Mail Parcels: Presorting (Cents/Piece)

NDC Marketing Parcels (Mixed NDC Marketing Parcels) 33.4 43.0 77.7%

SCF Marketing Parcels (NDC Marketing Parcels) 31.4 39.6 79.3%

5-Digit Marketing Parcels (SCF Marketing Parcels) 9.3 87.3 10.7%

USPS Marketing Mail Parcels: Barcoding (Cents/Piece)

Mixed NDC Barcoded Marketing Parcels

(Mixed NDC Non-barcoded Marketing Parcels) 5.8 4.1 141.5%

Source: PRC–LR–ACR2018/4.

 

51 The Postal Service charges a surcharge for non-barcoded pieces.
Docket No. ACR2018 - 30 -

Table II-8

USPS Marketing Mail Parcels (Commercial and Nonprofit)

Dropship Workshare Discounts and Benchmarks52

Type of Worksharing

(Benchmark)

FY 2018

Year-End 

Discount

(Cents)

Unit Cost 

Avoidance

(Cents)

Passthrough

Nonprofit USPS Marketing Mail Machinable Parcels: Dropship (Cents/Pound)

DNDC Machinable Parcels (Origin Machinable Parcels) 24.5 52.8 46.4%

DSCF Machinable Parcels (Origin Machinable Parcels) 52.6 75.6 69.5%

DDU Machinable Parcels (Origin Machinable Parcels) 70.5 101.7 69.4%

USPS Marketing Mail Marketing Parcels: Dropship (Cents/Pound)

DNDC Marketing Parcels (Origin Marketing Parcels) 25.7 52.8 48.7%

DSCF Marketing Parcels (Origin Marketing Parcels) 52.2 75.6 69.1%

DDU Marketing Parcels (Origin Marketing Parcels) 74.1 101.7 72.9%

Nonprofit USPS Marketing Mail Irregular Parcels: Dropship (Cents/Pound)

DNDC Irregular Parcels (Origin Irregular Parcels) 24.5 52.8 46.4%

DSCF Irregular Parcels (Origin Irregular Parcels) 52.6 75.6 69.5%

DDU Irregular Parcels (Origin Irregular Parcels) 70.5 101.7 69.4%

Source: PRC–LR–ACR2018/4.

Mixed NDC Machinable Barcoded Parcels, Mixed NDC Irregular Barcoded Parcels, and Mixed 

NDC Barcoded Marketing Parcels. Mixed NDC Machinable Barcoded Parcels, Mixed NDC 

Irregular Barcoded Parcels, and Mixed NDC Barcoded Marketing Parcels each had a 

passthrough of 141.5 percent in FY 2018. FY 2018 ACR at 22. The Postal Service justifies 

these excessive passthroughs pursuant to 39 U.S.C. § 3622(e)(2)(D), on the grounds that 

they encourage mailers to pre-barcode parcels, thereby increasing operational efficiency. 

Id. In Docket No. R2019-1, the Postal Service reduced each of these passthroughs by at least 

10 percentage points. Order No. 4875 at 33-34. The Postal Service states that it intends to 

reduce these passthroughs by at least 10 percentage points in the next Market Dominant 

price adjustment. FY 2018 ACR at 22-23.

The Public Representative notes that while the Commission has previously accepted the 

Postal Service’s justification for these excessive passthroughs based on the Postal Service’s 

commitment to decrease them by at least 10 percentage points in each Market Dominant 

price adjustment, under the discounts and rates approved in Docket No. R2019-1 and the 

 

52 Passthroughs for discounts in this table use unit discounts and unit avoided costs. Consistent with Order No. 4227, the passthroughs are 

calculated using the total avoided costs divided by total pounds and the total discounts given divided by total pounds.
Docket No. ACR2018 - 31 -

unit avoided cost estimates from FY 2018, these passthroughs will only be reduced by 9.8 

percentage points. PR Comments at 61. In light of the Postal Service’s expressed intent to 

lower these passthroughs by at least 10 percentage points in the next Market Dominant 

price adjustment, she expresses the view that “it is reasonable to expect the Postal Service 

to modify discounts in the next [M]arket [D]ominant rate case to reduce these three 

passthroughs by the anticipated amount.” Id. Therefore, she states that these three 

passthroughs have been adequately justified in FY 2018 pursuant to 39 U.S.C. 

§ 3622(e)(2)(D). Id.

The Commission finds that the Mixed NDC Machinable Barcoded Parcels, Mixed NDC Irregular 

Barcoded Parcels, and Mixed NDC Barcoded Marketing Parcels discounts were adequately 

justified pursuant to 39 U.S.C. § 3622(e)(2)(D) in FY 2018. The Commission expects the Postal 

Service to follow its plan to reduce these passthroughs by at least 10 percentage points in 

future Market Dominant price adjustments.

d. Carrier Route

Two workshare discounts for Carrier Route Letters exceeded avoided costs in FY 2018:

 DNDC dropship Letters

 DSCF dropship Letters

These discounts are discussed together below. All remaining discounts offered for Carrier 

Route were less than avoided costs, and thus were consistent with 39 U.S.C. § 3622(e). 

Table II-9 shows the discounts for the Carrier Route product for FY 2018.
Docket No. ACR2018 - 32 -

Table II-9

USPS Marketing Mail Carrier Route (Commercial and Nonprofit)53

Dropship and Presort Discounts and Benchmarks

Type of Worksharing

(Benchmark)

FY 2018

Year-End 

Discount

(Cents)

Unit Cost 

Avoidance

(Cents)

Passthrough

USPS Marketing Mail Carrier Route Letters: Dropship (cents/piece)

DNDC Letters (Origin Letters) 2.7 1.9 142.1%

DSCF Letters (Origin Letters) 3.5 2.3 152.2%

USPS Marketing Mail Carrier Route Flats: Dropship (cents/pound)54

DNDC Flats (Origin Flats) 15.2 35.7 42.5%

DSCF Flats (Origin Flats) 20.0 38.6 51.8%

DDU Flats (Origin Flats) 36.6 43.7 83.8%

USPS Marketing Mail Carrier Route Flats: Presorting (cents/piece)

Origin Flats on 5-Digit Pallets (Other Origin Flats) 1.9 1.9 100%

DNDC Flats on 5-Digit Pallets (Other DNDC Flats) 1.9 1.9 100%

DSCF Flats on 5-Digit Pallets (Other DSCF Flats) 1.9 1.9 100%

DDU Flats on 5-Digit Pallets (Other DDU Flats) 1.9 1.9 100%

USPS Marketing Mail Carrier Route Flats: Dropship (cents/pound)55

DNDC Flats on 5-Digit Pallets (Origin Flats) 14.3 35.7 40.0%

DSCF Flats on 5-Digit Pallets (Origin Flats) 17.8 38.6 46.1%

DDU Flats on 5-Digit Pallets (Origin Flats) 22.3 43.7 51.1%

Source: PRC–LR–ACR2018/4.

Carrier Route Dropship DNDC and DSCF Letters. In FY 2018, passthroughs for Carrier Route 

Dropship DNDC and DSCF dropship Letters were 142.1 percent and 152.2 percent, 

respectively. FY 2018 ACR at 23. The Postal Service justifies these excessive passthroughs 

pursuant to 39 U.S.C. § 3622(e)(2)(B), on the grounds that they are necessary to mitigate 

rate shock. Id. In Docket No. R2019-1, the Postal Service reduced these passthroughs by at 

least 10 percentage points. Order No. 4875 at 34. The Postal Service states that it intends to 

reduce these passthroughs by at least 10 percentage points in the next Market Dominant 

price adjustment. FY 2018 ACR at 23.

 

53 Table II-9 does not list commercial and nonprofit discounts separately because in FY 2018 all commercial and nonprofit discounts for USPS 

Marketing Mail Carrier Route were set equal.

54 Passthroughs for these discounts use unit discounts and unit avoided costs. Consistent with Order No. 4227, the passthroughs are calculated 

using the total avoided costs divided by total pounds and the total discounts given divided by total pounds.

55 Passthroughs for these discounts use unit discounts and unit avoided costs. Consistent with Order No. 4227, the passthroughs are calculated 

using the total avoided costs divided by total pounds and the total discounts given divided by total pounds.
Docket No. ACR2018 - 33 -

The Public Representative notes that in FY 2018 the Carrier Route DNDC dropship Letters 

passthrough decreased by 34.4 percentage points compared to the year before, and the 

DSCF dropship Letters discount decreased by 28.8 percentage points. PR Comments at 62. 

She also notes the Postal Service’s representation that these passthroughs will decrease 

even further once the new discounts and rates approved in Docket No. R2019-1 take effect. 

Id. Therefore, she states that these passthroughs were adequately justified for FY 2018 

pursuant to 39 U.S.C. § 3622(e)(2)(B). Id.

The Commission finds that a substantial one-time reduction in these passthroughs would 

likely adversely affect users and that the Postal Service took adequate steps in Docket 

No. R2019-1 to phase out these excessive passthroughs. Thus, the Commission finds that the 

Carrier Route DNDC and DSCF dropship Letters discounts were adequately justified pursuant 

to 39 U.S.C. § 3622(e)(2)(B) in FY 2018. The Commission expects the Postal Service to align 

discounts with avoided costs consistent with its plan. If the Postal Service deviates from its 

plan, it must provide a detailed analysis and explanation in support of that deviation.

e. High Density and Saturation Letters

Two workshare discounts for High Density and Saturation Letters exceeded avoided costs 

in FY 2018:

 DNDC dropship Letters

 DSCF dropship Letters

These discounts are discussed together below. All remaining discounts offered for High 

Density and Saturation Letters were less than avoided costs, and thus were consistent with 

39 U.S.C. § 3622(e). Table II-10 shows the discounts for the High Density and Saturation 

Letters product for FY 2018.
Docket No. ACR2018 - 34 -

Table II-10

USPS Marketing Mail High Density and Saturation Letters (Commercial and Nonprofit)56

Dropship and Presort Discounts and Benchmarks

Type of Worksharing

(Benchmark)

FY 2018

Year-End 

Discount

(Cents)

Unit Cost 

Avoidance

(Cents)

Passthrough

USPS Marketing Mail High Density Letters: Presort (cents/piece)

High Density Letters (Carrier Route) 9.2 28.2 32.6%

USPS Marketing Mail High Density Letters: Dropship (cents/piece)

DNDC Letters (Origin Letters) 2.2 1.9 115.8%

DSCF Letters (Origin Letters) 2.8 2.3 121.7%

Source: PRC–LR–ACR2018/4.

In FY 2018, passthroughs for DNDC dropship Letters and DSCF dropship Letters were 

115.8 percent and 121.7 percent, respectively. FY 2018 ACR at 23-24. The Postal Service 

justifies these excessive passthroughs pursuant to 39 U.S.C. § 3622(e)(2)(B), on the 

grounds that they are necessary to mitigate rate shock. Id. at 24. In Docket No. R2019-1, the 

Postal Service reduced these passthroughs by at least 10 percentage points. Order No. 4875 

at 35. Using rates from Docket No. R2019-1, passthroughs for DNDC dropship Letters and 

DSCF dropship Letters will be 105.3 percent and 108.7 percent, respectively. FY 2018 ACR 

at 24. The Postal Service states that it intends to align these discounts with their avoided 

costs in the next Market Dominant price adjustment. Id. Once these discounts are aligned 

with their avoided costs, the Postal Service will have completed its multi-year plan with 

regard to these discounts.57

The Public Representative notes that in FY 2018 the High Density and Saturation DNDC 

dropship Letters discount decreased by 25.4 percentage points compared to the year 

before, and the High Density and Saturation DSCF dropship Letters discount decreased by 

25.9 percentage points. PR Comments at 62. She also notes the Postal Service’s 

representation that these discounts will decrease even further once the new discounts and 

rates approved in Docket No. R2019-1 take effect. Id. Therefore, she states that these 

passthroughs were adequately justified for FY 2018 pursuant to 39 U.S.C. § 3622(e)(2)(B). 

Id. at 62-63.

 

56 Table II-10 does not list commercial and nonprofit discounts separately because in FY 2018 all commercial and nonprofit discounts for USPS 

Marketing Mail High Density and Saturation Letters were set equal.

57 See FY 2016 ACD at 35 (“The Postal Service . . . commits to reducing these passthroughs by 10 percentage points in each subsequent Market 

Dominant price adjustment until each reaches 100 percent.”).
Docket No. ACR2018 - 35 -

The Commission finds that a substantial one-time reduction in these passthroughs would 

likely adversely affect users and that the Postal Service took adequate steps in Docket 

No. R2019-1 to phase out these excessive passthroughs. Thus, the Commission finds that the 

High Density and Saturation DNDC and DSCF dropship Letters discounts were adequately 

justified pursuant to 39 U.S.C. § 3622(e)(2)(B) in FY 2018. The Commission expects the Postal 

Service to align discounts with avoided costs consistent with its plan. If the Postal Service 

deviates from its plan, it must provide a detailed analysis and explanation in support of that 

deviation.

f. High Density and Saturation Flats

Table II-11 shows the discounts for the High Density, High Density Plus, and Saturation 

Flats for FY 2018. No workshare discounts in this category exceeded their avoided costs. 

Thus, all discounts were consistent with 39 U.S.C. § 3622(e).

The Commission finds that these discounts were in compliance in FY 2018.

Table II-11

USPS Marketing Mail High Density, High Density Plus, and Saturation Flats

(Commercial and Nonprofit)58

Dropship and Presort Discounts and Benchmarks

Type of Worksharing

(Benchmark)

FY 2018

Year-End 

Discount

(Cents)

Unit Cost 

Avoidance

(Cents)

Passthrough

USPS Marketing Mail High Density Flats: Presort (cents/piece)

High Density Flats (Carrier Route Flats) 4.7 7.3 64.4%

USPS Marketing Mail High Density, High Density Plus, and Saturation Flats 59

DNDC Flats (Origin Flats) 28.3 35.7 79.2%

DSCF Flats (Origin Flats) 37.0 38.6 95.9%

DDU Flats (Origin Flats) 35.1 43.7 80.3%

Source: PRC–LR–ACR2018/4.

 

58 Table II-11 does not list commercial and nonprofit discounts separately because in FY 2018 all commercial and nonprofit discounts for High 

Density, High Density Plus, and Saturation Flats were set equal.

59 Passthroughs for these discounts use unit discounts and unit avoided costs. Consistent with Order No. 4227, the passthroughs are calculated 

using the total avoided costs divided by total pounds and the total discounts given divided by total pounds.
Docket No. ACR2018 - 36 -

4. Package Services

No Package Services workshare discounts exceeded the avoided costs of the corresponding 

mailer worksharing activity in FY 2018 and, therefore, all discounts were consistent with 

39 U.S.C. § 3622(e) in FY 2018. Tables II-12, II-13, and II-14 below demonstrate the 

compliance for this class.

The Commission finds the discounts for Package Services were less than avoided costs and 

were thus consistent with 39 U.S.C. § 3622(e) in FY 2018.

Table II-12

Media Mail/Library Mail

Workshare Discounts and Benchmarks

Type of Worksharing

FY 2018

Year-End 

Discount 

(cents)

Unit Cost 

Avoidance 

(cents)

Passthrough

Media Mail: Presorting (Cents/Piece)

 Basic (Single-Piece) 12.0 26.5 45.3%

 5-Digit (Basic) 80.0 119.6 66.9%

Library Mail: Presorting (Cents/Piece)

 Basic (Single-Piece) 12.0 26.5 45.3%

 5-Digit (Basic) 76.0 119.6 63.5%

Source: PRC–LR–ACR2018/6.
Docket No. ACR2018 - 37 -

Table II-13

Bound Printed Matter Flats

Workshare Discounts and Benchmarks

Type of Worksharing

FY 2018

Year-End 

Discount 

(cents)

Unit Cost 

Avoidance 

(cents)

Passthrough

Presorting (Cents/Piece)a

Basic Flats (Single-Piece Flats) 58.0 See Note a N/A

Carrier Route Flats (Basic Flats) 14.0 14.6 96.1%

Presorting (Cents/Piece):aBasic, Carrier Route Flats (Single-Piece Flats)

Zones 1&2 5.2 See Note a N/A

Zone 3 7.1 See Note a N/A

Zone 4 5.8 See Note a N/A

Zone 5 7.3 See Note a N/A

Zone 6 8.1 See Note a N/A

Zone 7 7.8 See Note a N/A

Zone 8 8.0 See Note a N/A

Dropship (Cents/Piece)

Basic, Carrier Route DNDC Flats (Basic Origin Flats) 10.2 11.8 86.4%

Basic, Carrier Route DSCF Flats (Basic Origin Flats) 54.8 56.1 97.7%

Basic, Carrier Route DDU Flats (Basic Origin Flats) 70.5 84.9 83.0%

a

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, Library Reference 

USPS–T–38, May 3, 2006, at 8.

Source: PRC–LR–ACR2018/6.
Docket No. ACR2018 - 38 -

Table II-14

Bound Printed Matter Parcels

Workshare Discounts and Benchmarks

Type of Worksharing

FY 2018

Year-End 

Discount 

(cents)

Unit Cost 

Avoidance 

(cents)

Passthrough

Presorting (Cents/Piece)a

Basic Parcels (Single-Piece Parcels) 99.1 See Note a N/A

Carrier Route Parcels (Basic Parcels) 13.9 14.6 95.4%

Presorting (Cents/Piece):aBasic, Carrier Route Parcels (Single-Piece Parcels)

Zones 1&2 6.3 See Note a N/A

Zone 3 6.7 See Note a N/A

Zone 4 5.9 See Note a N/A

Zone 5 5.6 See Note a N/A

Zone 6 7.1 See Note a N/A

Zone 7 4.9 See Note a N/A

Zone 8 4.4 See Note a N/A

Dropship (Cents/Piece)

Basic, Carrier Route DNDC Parcels (Basic Origin Parcels) 10.2 11.8 86.4%

Basic, Carrier Route DSCF Parcels (Basic Origin Parcels) 54.8 56.1 97.7%

Basic, Carrier Route DDU Parcels (Basic Origin Parcels) 70.5 84.9 83.0%

a

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 USPS–T–38 at 8.

Source: PRC–LR–ACR2018/6.
Docket No. ACR2018 - 39 -

D. Preferred Rate Requirements

39 U.S.C. § 3626 identifies preferred rate requirements applicable to Periodicals, USPS 

Marketing Mail, and Package Services prices.

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

§ 3626, such as a 5-percent discount for nonprofit and classroom publications. In Docket 

No. R2018-1, prices for Periodicals were set to be consistent with statutory preferences for 

mail in that class. Order No. 4215 at 52.

39 U.S.C. § 3626(a)(6) requires nonprofit prices in USPS Marketing Mail to be set in relation 

to their commercial counterparts. In Docket No. R2018-1, nonprofit prices were set to yield 

average per-piece revenues of 60.0 percent of commercial per-piece revenues at the class 

level. Order No. 4215 at 44. The Commission calculates that the actual per-piece revenues 

from USPS Marketing Mail nonprofit pieces were 59.5 percent of the per-piece revenues of 

their commercial counterparts in FY 2018.60 As discussed in detail in Order No. 4400, 

changes in the mix of mail after price changes make it difficult to precisely attain the 60 

percent relationship required by law.61 The Commission finds that, in FY 2018, nonprofit 

average revenues per piece in USPS Marketing Mail were set as nearly as practicable to 60 

percent of their commercial counterparts.

One preferred rate requirement applies to Media Mail/Library Mail, a product in Package 

Services. Section 3626(a)(7) of Title 39 requires Library Mail prices to be set at 95 percent 

of Media Mail prices. Docket No. R2018-1 set these prices accordingly. Order No. 4215 

at 56.

The Commission finds that prices in FY 2018 were in compliance with all of the preferred rate 

requirements identified in 39 U.S.C. § 3626.

 

60 See PRC–LR–ACR2018/1.

61 See Docket No. RM2017-12, Order on Analytical Principles Used in Periodic Reporting (Proposal Eight), February 7, 2018 (Order No. 4400).
Docket No. ACR2018 - 40 -

CHAPTER 3: MARKET DOMINANT 

PRODUCTS: OTHER RATE AND FEE 

COMPLIANCE ISSUES

A. Introduction

Commenters raise other rate and fee compliance issues, including noncompensatory 

products and pricing issues related to cost coverage.

This Chapter begins with an analysis of noncompensatory products organized by class. It 

also includes a discussion of matters relating to NSAs, and other pricing issues.

B. Noncompensatory Products

1. Periodicals

a. FY 2018 Financial Results

The cost coverage for Periodicals decreased from FY 2017 to FY 2018, from 69.3 percent to 

67.5 percent. As Table III-1 illustrates, Periodicals cost coverage has declined from 83.0 

percent in FY 2007, resulting in a cumulative negative contribution of more than $6.7 

billion.
Docket No. ACR2018 - 41 -

Table III-1

Periodicals Cost Coverage, FY 2007–FY 2018 (Volume and $ in Millions)62

Fiscal Year Volume Revenue Attributable 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

2014 6,045 $1,625 $2,134 76.16% -$509

2015 5,838 $1,589 $2,101 75.64% -$512

2016 5,586 $1,507 $2,043 73.73% -$537

2017 5,301 $1,375 $1,983 69.31% -$609

2018 4,993 $1,277 $1,890 67.54% -$614

Total -$6,717

Source: PRC–LR–ACR2018/5.

Unit revenue for the Periodicals class as a whole decreased from 25.9 cents in FY 2017 to 

25.6 cents in FY 2018. FY 2018 ACR at 37. However, unit cost increased from 37.4 cents to 

37.9 cents during the same period. Id. at 37-38. Decreasing revenue coupled with 

increasing cost caused unit contribution to decline in FY 2018. Table III-2 details the unit 

cost, revenue, and contribution for Periodicals as a whole during the PAEA era.

 

62 In this Report, attributable cost means incremental cost. See Order No. 3506 at 125. The attributable cost for years before FY 2016 reflect the 

accepted methodology for those years and has not been recalculated.
Docket No. ACR2018 - 42 -

Table III-2

Periodicals Unit Cost, Revenue, and Contribution, FY 2007–FY 2018

Fiscal Year Unit Attributable Cost Unit Revenue Unit Contribution

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

2014 $0.3531 $0.2689 -$0.0842

2015 $0.3599 $0.2722 -$0.0877

2016 $0.3658 $0.2697 -$0.0961

2017 $0.3742 $0.2593 -$0.1148

2018 $0.3786 $0.2557 -$0.1229

Source: PRC–LR–ACR2018/5.

b. Comments

MPA and ANM contend that Periodicals’ cost coverage shortcomings stem from “the Postal 

Service’s continuously deteriorating efficiency in processing flats and a confounding 

inability (or unwillingness) to reduce flats costs despite repeated concerns raised by the 

Commission and affected mailers.” MPA/ANM Comments at 1. They also state that recent 

rate design changes have had little effect on Periodicals finances. Id at 6. The Postal Service 

replies that the rate design changes have resulted in modest improvements to Periodicals 

Outside County finances and the decline in cost coverage was less in FY 2018 than in 

previous years. Postal Service Reply Comments at 6.

c. Commission Analysis

Since FY 2007, Periodicals volume declined 43.2 percent, total revenue declined 41.6 

percent, total attributable cost declined 28.3 percent, and the Periodicals class accumulated 

negative contribution of over $6.7 billion.

As detailed in Table III-2, from FY 2017 to FY 2018, unit revenue decreased by 1.4 percent 

and unit attributable cost increased by 1.2 percent. The widening gap between unit 

revenue and unit attributable cost resulted in a lower unit contribution and an increasing 

total negative contribution for Periodicals.
Docket No. ACR2018 - 43 -

Decreases in both the average weight and advertising content of Periodicals mailings also 

affected Periodicals revenue in FY 2018. Periodicals prices are tied, in part, to the weight of 

the piece, and minor weight changes have a greater effect on the price paid by the mailers 

than on the cost incurred by the Postal Service. As the Postal Service explains, minor weight 

increases do not significantly affect cost within the weight range of typical mailpieces (3 to 

16 ounces) or the productivity of mail processing equipment.63 However, minor weight 

changes can have significant effects on revenue because the weight price element accounts 

for roughly 21 percent of Periodicals revenue. Average weight for Outside County 

Periodicals decreased from 5.96 ounces per piece in FY 2017 to 5.75 ounces per piece in 

FY 2018.64 Furthermore, advertising pounds, which pay higher prices, decreased from 37.5 

percent of total Outside County Periodicals pounds in FY 2017 to 35.8 percent in FY 2018.65

In Chapter 2, supra, the Commission provides a discussion of Periodicals worksharing 

incentives and the importance of sending efficient pricing signals to mailers.

d. Commission Analysis of Outside County Periodicals Unit 

Cost

The Periodicals class is comprised of two products: In-County66 and Outside County. In 

FY 2018, Outside County constituted 89.8 percent of Periodicals volume and 95.1 percent 

of Periodicals attributable cost.67 Because Outside County pieces incur most of the costs for 

the Periodicals class, operational initiatives focused on Outside County Periodicals have 

greater potential for cost savings for the Periodicals class as a whole. Table III-3 shows that 

Outside County Periodicals unit attributable cost increased by 0.62 cents from FY 2017 to 

FY 2018.

 

63 See Docket No. ACR2015, Annual Compliance Report, December 29, 2015, at 46 (identifying the following equipment: the Automated Flats 

Sorting Machine 100 (AFSM 100), Flats Sequencing System (FSS), Automation Parcel and Bundle Sorter (APBS), or Automated Package 

Processing System (APPS)).

64 See PRC–LR–ACR2018/5, Excel file “FY18 Periodicals Cost Coverage.xlsx.”

65 Id. In FY 2008, the average weight for Outside County Periodicals was 6.99 ounces per piece and advertising pounds were 41.7 percent of 

total Outside County Periodicals pounds.

66 The In-County product is typically used by smaller circulation weekly newspapers for distribution within the county of publication.

67 See PRC–LR–ACR2018/5, Excel file “FY18 Periodicals Cost Coverage.xlsx.”
Docket No. ACR2018 - 44 -

Table III-3

Change in Outside County Periodicals Unit Attributable Costs, FY 2008–FY 201868 (Cents)

Fiscal Year Mail 

Processing

Delivery Transportation Other Total

2008 12.23 8.06 3.52 10.12 33.93

2009 12.94 9.29 3.18 10.89 36.30

2010 12.02 9.68 3.59 11.09 36.38

2011 12.07 9.50 3.41 11.51 36.49

2012 12.41 9.57 3.90 11.87 37.74

2013 11.69 9.38 3.89 11.39 36.35

2014 12.25 9.63 3.83 11.82 37.53

2015 11.89 10.29 4.31 11.72 38.21

2016 12.08 10.44 4.68 11.52 38.71

2017 12.72 10.93 3.60 12.42 39.67

2018 12.55 11.22 4.13 12.40 40.29

Source: PRC–LR–ACR2018/5.

In FY 2018, the unit attributable costs for delivery and transportation increased, and mail 

processing and other unit attributable costs decreased.

Over the 10-year period beginning in FY 2008, mailer presortation of Outside County 

Periodicals has increased substantially. As Figure III-1 illustrates, 49.0 percent of mail 

volume was presorted to the Carrier Route level in FY 2008, whereas 61.2 percent of mail 

volume was presorted to the Carrier Route in FY 2018.

 

68 The figures in this table do not include piggybacks. A majority of the other costs are piggybacked onto mail processing, delivery, and 

transportation.
Docket No. ACR2018 - 45 -

Figure III-1

Change in Outside County Periodicals Mail Mix, FY 2008–FY 201869

Source: PRC–LR–ACR2018/5.

Mail processing unit costs are much lower for mailpieces presorted to the Carrier Route 

level than to the 5-Digit level. The Postal Service’s CRA does not report mail processing 

costs for Carrier Route presorted Periodicals separately from other presorted Periodicals, 

such as 5-Digit and 3-Digit, because they are not separate products. However, granular data 

from the Periodicals Pricing Report provide insight into the cost differentials for Carrier 

Route, 5-Digit, and 3-Digit.70

The data from the Periodicals Pricing Report show that the mail processing and delivery 

costs for Carrier Route pieces are significantly lower than the mail processing and delivery 

costs for 5-Digit pieces. The mail processing cost for pieces processed on the FSS is higher 

than the mail processing cost for both 5-Digit and Carrier Route pieces. Id. The delivery cost 

for pieces processed on the FSS is lower than the delivery cost for 5-Digit pieces. Id. The 

total cost (mail processing plus delivery) for pieces processed on the FSS is lower than the 

total cost for 5-Digit, but significantly higher than the cost for Carrier Route pieces.

 

69 With the implementation of Docket No. R2015-4 prices, some mailpieces that were previously Carrier Route were required to be prepared at 

the FSS level between FY 2015 and FY 2017. Hence, the Carrier Route and FSS pieces are aggregated to demonstrate the degree to which 

mailers prepared Outside County Periodicals mailings in FY 2017. See section III.B.2., infra.

70 See USPS–FY18–44, Excel file “ACD.Periodicals.Report Attach FY18.xlsx.”
Docket No. ACR2018 - 46 -

Since FY 2008, mail processing unit costs for flat-shaped mail have increased.71 Declining 

mail processing productivity contributed to this increase. Table III-4 details changes in 

productivity for selected flats processing operations since FY 2008.

Table III-4

Change in Productivity for Selected Flats Processing Operations, FY 2008–FY 2018

Operation Productivity

Change

Automated Flats Sorting Machine 100 (AFSM 100) Incoming Secondary -33%

Small Parcel Bundle Sorter (SPBS)/Automated Parcel Bundle Sorter (APBS) Incoming -17%

Automated Package Processing System (APPS) Incoming -49%

Flats Sequencing System (FSS)72-9%

Source: PRC–LR–ACR2018/5.

In FY 2010 and FY 2011, the Postal Service projected improved flats mail processing 

performance;73 however, the Postal Service has yet to achieve such productivity increases. 

Flats productivity has decreased since FY 2008. Although the changing Outside County 

Periodicals mail mix will likely result in less processing on the AFSM 100, SPBS/APBS, and 

APPS, Periodicals will continue to have cost coverage issues if the Postal Service does not 

address declining productivity.

Periodicals have consistently failed to cover costs, and the Commission has repeatedly 

encouraged the Postal Service to improve Periodicals cost coverage.74

In Chapter 6, the Commission explains its continued concerns with the Postal Service’s 

inability to quantify the cost savings of its initiatives to reduce costs for flats. The Commission 

describes an ongoing rulemaking intended to develop metrics to measure, track, and report 

on initiatives related to reducing the costs of flats. All of the recommendations pertaining to 

reducing flats costs in Chapter 6 apply to Periodicals.

 

71 For example, the piggybacked mail processing unit cost for USPS Marketing Mail Flats has increased from 22.89 cents in FY 2008 to 31.06

cents in FY 2018. Compare Docket No. ACR2008, Library Reference USPS–FY08–26, December 29, 2008, Excel file “shp08prc.xls,” tab “Flats (4),” 

cell BP25 with Library Reference USPS–FY18–26, December 28, 2018, Excel file “shp18prc.xlsx,” tab “Costs (All Shapes) W Final RF,” cell O73.

72 The FSS machine productivity is measured from its introduction in FY 2011.

73 See, e.g., Docket No. N2012-1, Direct Testimony of Frank Neri on Behalf of the United States Postal Service (USPS–T–4), December 5, 2011, at 

29-30 (projecting an increase in AFSM 100 productivity of 15 percent); Docket No. R2010-4, Responses of the United States Postal Service to 

Questions from the Bench at the Hearing for Mr. Neri, August 19, 2010, at 7 (“Expectations are for flats workhours to decline another 11 

percent in FY 2010.”); United States Postal Service Office of the Inspector General Report, Flats Sequencing System: Program Status and 

Projected Cash Flow, July 27, 2010, at 10 (Report Number DA-AR-10-007) (projecting that the lower bound or worst case scenario for the FSS 

would be a return on investment of 14.25 percent without transitional employees and 26.9 percent with transitional employees).

74 See FY 2009 ACD at 75; FY 2010 ACD at 94; FY 2011 ACD at 105-106; FY 2012 ACD at 95-97; FY 2013 ACD at 44-45; FY 2014 ACD at 40-41; FY 

2015 ACD at 50-51; FY 2016 ACD at 47-48; FY 2017 ACD at 50.
Docket No. ACR2018 - 47 -

2. USPS Marketing Mail Flats

a. Introduction

In FY 2018, USPS Marketing Mail Flats experienced the worst performance in both cost 

coverage and contribution since it was established as a product in FY 2007. USPS 

Marketing Mail Flats has never covered its costs, which led the Commission to issue one 

directive to improve the product’s cost coverage, and another directive to measure, track, 

and report on costs for all flat-shaped mail products, including USPS Marketing Mail Flats.75

Despite the Commission’s efforts, however, cost coverage and unit contribution for USPS 

Marketing Mail Flats have continued to decline.

The Postal Service has failed to meet the Commission’s directives to improve USPS 

Marketing Mail Flats’ cost coverage, or to provide a specific plan or method to measure, 

track, and report on cost issues for flat-shaped mail. The Commission has provided the 

Postal Service ample time to address these issues, and while the Postal Service 

implemented above-average price increases, unit cost increases have outpaced any unit 

revenue increases. The Commission now finds that it must take a more aggressive 

approach to mandating improvement in the cost coverage of USPS Marketing Mail Flats. As 

discussed in more detail in this chapter, the Commission directs the Postal Service to 

increase USPS Marketing Mail Flats’ prices in the next Market Dominant price adjustment 

by at least two percentage points above the average price increase for the USPS Marketing 

Mail class. However, the Commission’s new pricing directive alone will not remedy the cost 

coverage of USPS Marketing Mail Flats. The Postal Service still must aggressively reduce 

USPS Marketing Mail Flats’ costs.

b. Background—FY 2010 and FY 2015 Directives

In the FY 2010 ACD, the Commission determined that the prices in effect for USPS 

Marketing Mail Flats in FY 2010 did not comply with 39 U.S.C. § 101(d), which requires the 

costs of postal operations to be apportioned to postal users on a fair and equitable basis. 

FY 2010 ACD at 106. The Commission directed the Postal Service to increase this product’s 

cost coverage through a combination of above-average price adjustments (consistent with 

price cap requirements) and cost reductions, until such time that revenue exceeded 

attributable cost. Id. In addition, the Commission directed the Postal Service to provide the 

following information in each subsequent ACR:

 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

 A description of all costing methodology or measurement improvements made in 

the previous fiscal year and the estimated financial effects of such changes

 

75 See FY 2010 ACD at 105-07; FY 2015 ACD at 64, 160-182.
Docket No. ACR2018 - 48 -

 A statement summarizing the historical and current fiscal year subsidy for the Flats 

product, and the estimated timeline for phasing out this subsidy.

Id. at 107.

The Postal Service appealed the Commission’s FY 2010 ACD findings and directive.76 The 

court rejected the Postal Service’s contention that the Commission acted outside the scope 

of its statutory authority by considering the general standards of 39 U.S.C. § 101(d) in an 

ACD, “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 [was] appropriate 

to ameliorate that extremity . . . .” Id. at 1109. In response, the Commission issued Order 

No. 1427, clarifying that its analysis of the circumstances that trigger 39 U.S.C. § 101(d) 

depend on the totality of circumstances.77

In its FY 2012, FY 2013, and FY 2014 ACDs, the Commission found that the Postal Service 

made progress towards addressing the issues raised in the FY 2010 ACD, and concluded 

that no additional remedial actions beyond those prescribed in the FY 2010 directive were 

required.78

In FY 2015, the Commission found that sufficient progress was no longer being made, and 

required that the Postal Service develop a plan to measure, track, and report on cost and 

service issues related to flat-shaped products. FY 2015 ACD at 181. The response to the 

FY 2015 directive is discussed in more detail in Chapter 6 of this Report. In FY 2016 and 

FY 2017, the Commission found that no progress had been made toward addressing the 

FY 2010 ACD directive.79

c. Postal Service FY 2018 Results

In FY 2018, USPS Marketing Mail Flats had a cost coverage of 68.7 percent.80 As shown in 

Table III-5, cost coverage for USPS Marketing Mail Flats has steadily declined since 

FY 2013, when the cost coverage was 85.1 percent. In FY 2018, USPS Marketing Mail Flats 

had the lowest reported cost coverage ever. Volume decreased 18 percent between 

FY 2017 and FY 2018, but the total contribution for USPS Marketing Mail Flats in FY 2018 

was nevertheless $82.6 million worse than in FY 2017, reaching an all-time low of $751.5 

million.

 

76 See USPS v. Postal Regulatory Comm’n, 676 F.3d 1105 (D.C. Cir. 2012).

77 See Docket No. ACR2010-R, Order on Remand, August 9, 2012, at 4 (Order No. 1427).

78 See FY 2012 ACD at 116; FY 2013 ACD at 54; FY 2014 ACD at 47.

79 FY 2016 ACD at 57; FY 2017 ACD at 59.

80 The Commission’s cost coverage calculation differs from the Postal Service’s calculation (68.6 percent) because, unlike the Postal Service, the 

Commission includes fees in the revenue for each product. See PRC–LR–ACR2018/1.
Docket No. ACR2018 - 49 -

Table III-5

USPS Marketing Mail Flats Cost Coverage and Contribution, FY 2008–FY 2018

Fiscal Year Cost Coverage Contribution

(millions)

FY 2008 94.4% -$217.8

FY 2009 82.1% -$615.6

FY 2010 81.8% -$577.0

FY 2011 79.5% -$643.2

FY 2012 80.9% -$527.9

FY 2013 85.1% -$375.9

FY 2014 83.2% -$411.0

FY 2015 80.3% -$520.0

FY 2016 79.4% -$618.1

FY 2017 74.0% -$668.9

FY 2018 68.7% -$751.5

Total -$5,927.0

Source: PRC–LR–ACR2018/4.

The Postal Service ascribes the decrease in cost coverage to an increase in unit attributable 

cost of almost 13.4 percent since FY 2017, which overshadowed a 5.3 percent increase in 

unit revenue. FY 2018 ACR at 17. The Postal Service states that “[t]he year-over-year 

change in USPS Marketing Mail Flats costs continues to be affected by classification changes 

from the January 2017 implementation of Docket No. R2017-1 rates.” January 28 

Responses to CHIR No. 3, question 5. Specifically, the Postal Service notes that during 

Quarter 1 and part of Quarter 2 (specifically, the month of January 2017), data were under 

the old classification. Id. In addition, the Postal Service explains that the increase in unit 

attributable cost is “likely due in part to” the movement of volume from USPS Marketing 

Mail Flats to High Density Flats because of co-mailing.81 To support this claim of a change in 

mail mix driving changes in costs, the Postal Service points out that the High Density Flats 

product saw a 20 percent increase in volume from FY 2017 to FY 2018, while overall USPS 

Marketing Mail Flats’ volume declined. Id. at 17-18. The Postal Service does not provide any 

information or insight into the root causes of the increases in unit attributable cost. Instead, 

the Postal Service discusses the long-term trend toward more workshared mail within the 

product, and the potential migration of flat-shaped mail within the class. Id. at 18.

In addition, the Postal Service discusses the impact resulting from the introduction of FSS 

prices to the USPS Marketing Mail Flats product in FY 2016, and the subsequent removal of 

FSS prices from USPS Marketing Mail Flats in FY 2017. FY 2018 ACR at 33-35. While the 

migrations of mail volumes that resulted from the introduction, followed by the removal of 

 

81 FY 2018 ACR at 17. Co-mailing is the process of combining and sorting multiple mailpieces from different titles into a single mailing to receive 

larger discounts.
Docket No. ACR2018 - 50 -

FSS prices, do not directly affect FY 2018 data, the Postal Service discusses the fact that it 

resulted in relatively low cost Carrier Route pieces migrating, first into, and then out of, the 

USPS Marketing Mail Flats product. Id. at 33-34. The Postal Service asserts that this 

resulted in lower unit attributable costs for the USPS Marketing Mail Flats product in 

FY 2016 and FY 2017. Id. at 34-35. The Postal Service explains that the FY 2017 unit cost 

estimate contains one fiscal quarter of data during which FSS prices were still in effect, 

which may be “responsible for some portion of the observed unit cost increase for [USPS 

Marketing Mail] Flats in FY 2018.” Id. at 35.

Finally, the Postal Service discusses generally other purported contributing drivers to unit 

cost increases, including: (1) the impact of hourly labor costs on mail processing and city 

delivery costs; (2) the impact of an increase in accrued costs for surface transportation on 

unit transportation costs; (3) persistently declining volumes for USPS Marketing Mail Flats; 

(4) declining volume processed on the FSS; and (5) the shift in volume to city routes, which 

are more expensive, from rural routes, which are less expensive. January 28 Responses to 

CHIR No. 3, question 5; Responses to CHIR No. 6, questions 6-7.

d. Postal Service’s Response to FY 2010 ACD Directive

In its FY 2018 ACR, the Postal Service reports that it plans to increase prices for USPS 

Marketing Mail Flats by at least the Consumer Price Index – All Urban Consumers (CPI-U) 

multiplied by 1.05 in the next general Market Dominant price adjustment. FY 2018 ACR 

at 18, 25.

The Postal Service provides some of the information required by the Commission’s FY 2010 

ACD directive as detailed below. Specifically, it provides a description of operational 

changes designed to reduce USPS Marketing Mail Flats’ costs; a description of costing 

methodology changes made in FY 2018 that purportedly affect USPS Marketing Mail Flats’ 

costs; and the historical and current fiscal year subsidy for the USPS Marketing Mail Flats 

product. Id. at 23-35; Responses to CHIR No. 14, question 1. The Postal Service was unable 

to provide an estimated timeline for phasing out the subsidy. January 11 Responses to 

CHIR No. 1, question 14.

(1) Operational Changes Designed to Reduce Flats’ Costs

The Postal Service describes five ongoing steps, or initiatives, taken during FY 2018 

designed to make processing USPS Marketing Mail Flats more efficient. Those initiatives 

are: (1) Bundle Operation; (2) AFSM 100 Operations; (3) FSS Scorecard; (4) Service 

Performance Diagnostics Tool; and (5) Reduce Bundle Breakage. FY 2018 ACR at 26-32.

The Postal Service maintains that these initiatives are expected to improve efficiencies and 

productivities, as well as reduce overall costs for USPS Marketing Mail Flats. FY 2018 ACR 

at 26. However, the Postal Service is “still unable to provide an estimate of the financial 

impacts of these operational initiatives,” and contends that “it is quite difficult to come up 

with a unique set of reasonable assumptions about the future course of Flats costs.” 

FY 2018 ACR at 27; Reponses to CHIR No. 1, question 14. The Postal Service states that 

because cost savings programs or initiatives generally target one or more specific activities 
Docket No. ACR2018 - 51 -

to produce cost savings, it cannot isolate or identify savings for particular products. 

FY 2018 ACR at 27.

In FY 2018, the Postal Service began providing the Commission with existing metrics that it 

uses to monitor and gauge the operational impact of its initiatives.82 Some of these metrics 

showed negative results during FY 2018, while some improved. These reported results are 

discussed in more detail below.

For the Bundle Operation initiative, the Postal Service states that it introduced a new 

Enhanced Package Processing System (EPPS) in FY 2018, which sorts packages and 

bundles simultaneously.83 In addition, the Postal Service discusses the fact that it added 

1,024 sortation bins to the APBS fleet, and 426 bins to the APPS fleet in FY 2018. FY 2018 

ACR at 27-28. The Postal Service asserts that making the additional bins available reduces 

or eliminates the need for secondary sorts, thus reducing handling. Id. at 28. The Postal 

Service gauges the operational impact of adding bins by comparing the volume of mail 

finalized during the primary operation before and after the bins were added. January 28 

Responses to CHIR No. 3, question 2. The Postal Service estimates that after the bins were 

added an additional 38.9 million mailpieces were finalized on the APBS, and an additional 

15.6 million mailpieces were finalized on the APPS. Responses to CHIR No. 6, question 8.

For the AFSM 100 Operation initiative, the Postal Service states that in FY 2018 it removed 

10 AFSM 100 machines from processing plants in response to the declining productivity of 

the machine. Responses to CHIR No. 6, question 10 n.4. Since FY 2016, AFSM 100 

productivity has decreased from 2,148 pieces-per-hour to 1,777 pieces-per-hour. Id.,

question 10. The Postal Service notes that it began removing AFSM 100 machines in 

February 2017. Id. The Postal Service states that while it did not calculate a specific 

expectation associated with removing AFSM 100 machines, it did not expect productivity to 

decrease during this period. Id. The Postal Service states that it uses “pieces per hour . . . 

and service performance to gauge the operational impact of removing AFSM 100 

machines.” January 28 Responses to CHIR No. 3, question 4.

Next, the Postal Service provides the FSS Scorecard for FY 2018. FY 2018 ACR at 29. The 

Postal Service states that it uses the FSS Scorecard to develop a list of specific FSS facilities 

with the greatest opportunity for improvement. Id. The FSS Scorecard shows that in 

FY 2018, throughput-per-hour on FSS machines decreased; the percentage of pieces 

delivery-point-sequenced decreased; the percentage of mailpieces at-risk84 decreased; and 

 

82 FY 2018 ACR at 26-32; January 28 Responses to CHIR No. 3, questions 2-4; Responses to CHIR No. 6, question 8.

83 FY 2018 ACR at 27. The EPPS machine was introduced at the end of FY 2018, with only one machine being in operation for only one week.

January 28 Responses to CHIR No. 3, question 3. The Postal Service expects this machine to process 25,000 bundles and/or packages per hour; 

however, in FY 2018 the machine processed only 8,714 pieces per hour. See FY 2018 ACR at 28; January 28 Responses to CHIR No. 3, question 3.

84 Mailpieces at-risk are those pieces that did not follow the prescribed path of sortation on the FSS and require additional handling. Docket 

No. ACR2015, Responses of the United States Postal Service to Questions 1-23 of Chairman’s Information Request No. 4, January 22, 2016, 

question 13.
Docket No. ACR2018 - 52 -

leakage85 increased. FY 2018 ACR at 29. The Postal Service did not provide a plan to 

address the declining metrics shown on the FSS Scorecard, but instead indicates that it 

“intends to create a Headquarters Functional Review Team to evaluate the FSS operations 

in FY 2019.” January 28 Responses to CHIR No. 1, question 16. The Postal Service was 

unable to provide any additional information regarding the Headquarters Functional 

Review Team, such as when it will be created, what the objective of the Headquarters 

Functional Review Team will be, or if the Headquarters Functional Review Team will 

provide recommendations and if the Postal Service will implement those 

recommendations. Responses to CHIR No. 11, question 1.

With regard to the Service Performance Diagnostics (SPD) tool, the Postal Service states 

that it uses this tool, along with Informed Visibility (IV), to track and improve the flow of 

USPS Marketing Mail and Periodicals. FY 2018 ACR at 29. Specifically, the Postal Service 

monitors Work in Process (WIP) cycle time to measure the time between a mailpiece’s 

arrival at a plant and bundle-to-piece distribution. Id. at 29-30. In FY 2018, the median 

hours between operations increased by 4 hours for USPS Marketing Mail Flats, and 3 hours 

for Periodicals. Id. at 30. In FY 2019, the Postal Service states that it intends to decrease the 

WIP cycle time by “re-certifying plants in Lean Mail Processing and focusing on First-InFirst-Out (FIFO) discipline,”86 and by improving throughput on mail processing equipment. 

January 11 Responses to CHIR No. 1, question 18.

Finally, the Postal Service lists Reduce Bundle Breakage as an initiative intended to reduce 

costs. FY 2018 ACR at 30-32. The Postal Service states that it intends to work “with the 

mailing industry, through the Mailers Technical Advisory Committee, to study the causes 

and impacts of bundle breakage.” Id. at 30. Specifically, the Postal Service calculates that the 

incidence of bundle breakage in FY 2018 was 4.80 percent, compared to 2.82 percent in 

FY 2017. Id at 31. The Postal Service notes that beginning in Quarter 2 of FY 2018, it 

“bolstered its bundle breakage tracking,” adding the ability to detect pieces from broken 

bundles on additional machines. Id. In addition, the Postal Service is utilizing the Bundle 

Breakage Dashboard to determine the root cause of bundle breakage. Id. at 32. Finally, the 

Postal Service discusses that it is reviewing Bundle Leakage data to gain insight into 

improper flows and manual handlings of bundles. Id.

 

85 Leakage is a metric used by the Postal Service to identify “mailpieces that were FSS candidate pieces, but were processed on other 

automation equipment or dispatched to the delivery unit as working volume.” Docket No. ACR2017, Responses of the United States Postal 

Service to Questions 1-10 of Chairman’s Information Request No. 5, January 26, 2018, question 1.a.

86 In response to a CHIR which inquired about Lean Mail Processing not being an FY 2018 operational initiative, the Postal Service explains that it 

“focused on sustaining and refining previous projects instituted to standardize and improve[ ] the bundles and flats mail processing flows.” 

January 11 Responses to CHIR No. 1, question 17.
Docket No. ACR2018 - 53 -

(2) Costing Methodology Changes in FY 2018

The Postal Service states that there were no major costing methodology changes 

implemented in FY 2018 that factored into unit cost increases for USPS Marketing Mail 

Flats.87

(3) Historical and Current Fiscal Year Subsidies

The Postal Service provides the historic and current fiscal year subsidy for the USPS 

Marketing Mail Flats product. FY 2018 ACR at 32-36; Responses to CHIR No. 14, question 1. 

However, the Postal Service does not provide a timeline for phasing out the subsidy, and 

asserts that it is difficult to predict when the subsidy will be phased out. January 11 

Responses to CHIR No. 1, question 14. Specifically, the Postal Service is unable to determine 

how its most recent price adjustments will impact the subsidy. Id. In Docket No. R2018-1, 

the Postal Service increased USPS Marketing Mail Flats’ prices 0.231 percentage points 

above average, and in Docket No. R2019-1, the Postal Service increased USPS Marketing 

Mail Flats’ prices 0.139 percentage points above average.88

e. Comments on USPS Marketing Mail Flats

The Commission received comments from the Public Representative, the American Catalog 

Mailers Association (ACMA),89 MPA/ANM, Quad Graphics (Quad),90 and PostCom regarding 

the financial performance of USPS Marketing Mail Flats in FY 2018. The Postal Service filed 

reply comments related to USPS Marketing Mail Flats. The comments generally address 

USPS Marketing Mail Flats’ costs, as well as compliance with the Commission’s FY 2010 

USPS Marketing Mail Flats ACD directive and mail mix changes.

(1) Compliance with the Commission’s FY 2010 Flats ACD 

Directive and Issues Related to USPS Marketing Mail 

Flats’ Costs

The Public Representative, ACMA, MPA/ANM, Quad, and PostCom filed comments 

regarding the pricing and cost directives related to USPS Marketing Mail Flats. The Public 

Representative notes that the Postal Service’s scheduled rate increases provide a 

“necessary component of the Postal Service’s broader strategy to improve the cost 

coverage” of USPS Marketing Mail Flats. PR Comments at 43. Regarding costs for USPS 

Marketing Mail Flats, she concludes that no progress was made in FY 2018 toward 

addressing the issues raised in the FY 2010 ACD. Id. at 44. She notes that while the Postal 

 

87 FY 2018 ACR at 32. The Postal Service does, however, note two minor methodological changes that could have had small impacts on USPS 

Marketing Mail Flats’ costs. First, the Commission approved a reorganization of mail processing cost pools in Docket No. RM2018-10. See Order 

No. 4855. The Postal Service asserts that the financial impact of this change was small—estimated at less than 1 million dollars in FY 2017. 

FY 2018 ACR at 32-33. Second, the Commission approved (with modification) an update to the methodology used to divide city carrier costs in 

Docket No. RM2017-9. See Docket No. RM2017-9, Order on Analytical Principles Used in Periodic Reporting (Proposal Five), February 6, 2018 

(Order No. 4399). The Postal Service estimates that the impact of this proposal on USPS Marketing Mail Flats’ costs was “a slight decrease of 0.2 

cents.” FY 2018 ACR at 32-33.

88 Order No. 4215; Order No. 4875.

89 Initial Comments of the American Catalog Mailers Association (ACMA), February 14, 2019 (ACMA Comments).

90 Comments of Quad Graphics, February 14, 2019 (Quad Comments).
Docket No. ACR2018 - 54 -

Service reports on various operational initiatives related to reducing costs for flat-shaped 

products, those initiatives appear not to have been effective. Id. With regard to the Postal 

Service’s contention that a significant price increase could result in even steeper volume 

declines, she observes that the Postal Service appears to be facing a situation where the 

cost coverage for USPS Marketing Mail Flats is deadlocked. Id.

ACMA asserts that the incessant growth in costs for flat-shaped products, despite initiatives 

by the Postal Service to lower them, is making it clearer that the Postal Service is failing at 

its obligation to provide mailers with an efficient delivery service. See generally ACMA 

Comments. ACMA argues that “costs reported for the various flats categories raise serious 

questions of validity.” Id. at 2, 24. For example, ACMA shows that using a cost index it 

developed, factor prices91 for USPS Marketing Mail Flats increased 76.1 percent since 

FY 1998, while unit costs for USPS Marketing Mail Flats have risen 188.6 percent during the 

same period. Id at 6-9, 23-24. ACMA maintains that these cost increases are not due to lost 

scale economies. Id. at 9, 19-20. ACMA asserts that the solution is not to impose further rate 

increases, but for the Postal Service to re-engineer its processing operation. Id. at 25.

MPA/ANM similarly assert that the Postal Service’s performance with regard to controlling 

costs for flat-shaped products reached new lows in FY 2018. MPA/ANM Comments at 2-4. 

Like ACMA, MPA/ANM contend that cost increases cannot be attributed solely to the loss of 

economies of scale. Id. at 2-3.

PostCom maintains that while the Commission should be commended for its efforts in 

investigating cost issues with regard to flat-shaped products, those efforts have failed. 

PostCom Comments at 10. PostCom asserts that the Postal Service’s most recent responses 

to the Commission’s FY 2010 USPS Marketing Mail Flats Directives show performance 

declines in all relevant operational and service indices. Id. PostCom notes that while the 

Postal Service has enumerated a list of operational initiatives to implement, it has been 

unable to provide an estimate of the economic impact of these initiatives. Id. Thus, PostCom 

concludes that there is no reason to believe that the Postal Service’s planned operational 

initiatives will have any meaningful impact. Id. at 11. PostCom asserts that price increases 

are unlikely to make a difference without a sustainable path forward. Id. PostCom also 

specifically “urges the Commission to seek information that would allow a better 

understanding of changes in transportation costs, including but not limited to [Postal 

Service] information on capacity utilization and transportation productivity.” Id. at 12.

The Postal Service replies to comments regarding issues related to USPS Marketing Mail 

Flats’ costs. The Postal Service first contends that Docket No. RM2018-1, not a compliance 

proceeding, is the appropriate docket in which to address cost issues for flat-shaped 

products. Postal Service Reply Comments at 11-12. The Postal Service also contends that 

ACMA’s cost arguments do not present or discuss USPS Marketing Mail Flats’ unit cost 

 

91 ACMA defines factor prices as prices paid for inputs to production processes; these inputs include: labor, transportation, and equipment. 

ACMA Comments at 7 n.9.
Docket No. ACR2018 - 55 -

coverage adjusted for input factor price changes. Id. Once such an adjustment has been 

conducted, the Postal Service maintains that USPS Marketing Mail Flats’ unit costs 

increased only 28 percent between 2008 and 2018. Id. at 7-9. The Postal Service also 

contends that ACMA is wrong to dismiss the possibility of declines in economies of scale 

and density, in conjunction with increases in factor inputs, to explain the observed cost 

trends that have occurred with regard to USPS Marketing Mail Flats. Id. at 9-10. Finally, the 

Postal Service asserts that ACMA is incorrect when it states that the Postal Service’s scale of 

operations has not changed. The Postal Service asserts that the existing data on the 

question are actually to the contrary. Id. at 10-11.

(2) Mail Mix Changes

ACMA observes the existence of mail mix shifts within the USPS Marketing Mail class. First, 

ACMA notes that USPS Marketing Mail Flats once constituted the principal flat-shaped 

category within the USPS Marketing Mail class, but now constitutes just 30 percent of 

Non-Saturation flat-shaped volume. ACMA Comments at 3. ACMA asserts that USPS 

Marketing Mail Flats, Carrier Route Flats, and High-Density Flats are interdependent 

products, and they should be analyzed together for purposes of cost coverage. Id. at 3.

Second, ACMA notes that commercial mail volume for certain products is declining faster 

than nonprofit mail volume. ACMA Comments at 5, 14-15. ACMA asserts that these shifts 

are contributing to cost coverage issues for USPS Marketing Mail Flats. Id. ACMA asserts 

that USPS Marketing Mail Flats has become a predominantly nonprofit mail product, and its 

volume has shifted from cities to rural areas, which further affects its cost coverage. Id. 

at 15, 24-25. ACMA contends that such nonprofit mail has a societal benefit that is 

recognized by the PAEA, whether it is sent for purposes of soliciting funds, providing 

information, offering services, or some other similar purpose. See id. at 15. ACMA asserts

that as a matter of policy, understanding this fact should dampen any concern that USPS 

Marketing Mail Flats is noncompensatory. See id.

PostCom notes that the Postal Service has expressed the intent to evaluate combining USPS 

Marketing Mail Flats, Carrier Route Flats, and High-Density Flats into a single 

Non-Saturation flat-shaped product, and cites this fact as proof that the Postal Service is 

failing in its effort to control costs for flat-shaped products.92

Quad also addresses the Postal Service’s proposal to combine USPS Marketing Mail Flats, 

Carrier Route Flats, and High Density Flats into a single Non-Saturation flats product. Quad 

Comments at 1. Quad asserts that this would be ineffective because it would obscure reality 

with regard to unprofitable products and could diminish price signals to mailers that 

encourage profitable mail. Id. In addition, Quad notes “continued degradation” in the FSS 

 

92 PostCom Comments at 10 (citing FY 2018 ACR at 18). In the FY 2018 ACR, the Postal Service states that it “intends to evaluate combining 

Flats, Carrier Route Flats, and High Density Flats into a single Non-Saturation Flats product.” FY 2018 ACR at 18. The Commission notes that no 

proposal has been filed. Therefore, while the Commission notes the positions of these commenters, the Commission does not address the 

merits of any such proposal at this time.
Docket No. ACR2018 - 56 -

Scorecard, and asserts that the Postal Service needs to fix or remove the FSS rather than 

expect mailers to pay more for inefficient mail processing.93

f. Commission Analysis

The FY 2010 ACD directed the Postal Service to improve the cost coverage of USPS 

Marketing Mail Flats through a combination of cost reductions and above-average price 

increases. In addition, the Commission required the Postal Service to file data and 

information related to the intra-class cross-subsidy of USPS Marketing Mail Flats by other 

products within the USPS Marketing Mail class, as well as operational initiatives designed 

to reduce costs for this product and the cost impact of any cost methodology changes 

related to this product.

Consistent with the FY 2010 ACD Directive, the Commission first analyzes the cost 

coverage and unit contribution of USPS Marketing Mail Flats and the Postal Service’s 

progress at increasing the product’s cost coverage. Second, the Commission analyzes the 

intra-class subsidy provided to USPS Marketing Mail Flats by other products within the 

USPS Marketing Mail class. Third, the Commission examines USPS Marketing Mail Flats’ 

costs in more detail by reviewing actual unit cost results, and the Postal Service’s efforts to 

reduce costs through operational initiatives. Fourth, the Commission analyzes changes in 

unit revenues and the Postal Service’s price adjustments for USPS Marketing Mail Flats 

following the FY 2010 ACD. Finally, the Commission directs the Postal Service to improve 

this product’s cost coverage through an enhanced directive.

(1) FY 2018 Cost Coverage and Unit Contribution

In this section, the Commission analyzes the overall progress the Postal Service has made 

in improving the cost coverage and unit contribution for USPS Marketing Mail Flats. Cost 

coverage and unit contribution are both functions of cost and revenue; therefore, the 

Commission discusses trends in cost and revenue in this section. In sections (3) and (4) 

below, the Commission more specifically analyzes costs (along with the Postal Service’s 

efforts to reduce costs), as well as revenues (along with the Postal Service’s efforts to 

increase prices).

Despite the FY 2010 ACD directive to improve cost coverage, the cost coverage for USPS 

Marketing Mail Flats was 68.7 percent in FY 2018. The FY 2018 cost coverage is now the 

lowest recorded cost coverage for USPS Marketing Mail Flats since it was designated a 

product. This is the fifth consecutive year that cost coverage has declined. As shown in 

Table III-6, a significant increase in unit cost resulted in a unit contribution of -18.4 cents in 

FY 2018, a 4.9 cent decline from FY 2017. The Postal Service has also been unsuccessful in 

increasing unit revenues. Table III-6 shows that despite the Commission’s FY 2010 ACD 

directive, unit revenues have only increased 3.9 cents, or 10.7 percent, since FY 2010, while 

unit costs have increased, 14.1 cents, or 31.5 percent.

 

93 Id. at 1-2. The Commission discusses comments regarding the FSS in Chapter 6 of this Report.
Docket No. ACR2018 - 57 -

Table III-6

USPS Marketing Mail Flats Unit Revenue, Attributable Cost, and Contribution,

FY 2008–FY 2018

Fiscal Year

Unit

Revenue

(cents)

Unit

Attributable Cost

(cents)

Unit

Contribution

(cents)

FY 2008 36.7 38.9 -2.2

FY 2009 36.9 44.8 -7.9

FY 2010 36.6 44.8 -8.2

FY 2011 36.8 46.3 -9.5

FY 2012 37.6 46.5 -8.9

FY 2013 38.4 45.2 -6.8

FY 2014 40.4 48.5 -8.1

FY 2015 40.2 50.1 -9.9

FY 2016 37.5 47.3 -9.7

FY 2017 38.5 52.0 -13.5

FY 2018 40.5 58.9 -18.4

Source: PRC–LR–ACR2018/4.

Since FY 2015, when the Commission determined that the Postal Service was no longer 

making progress at improving cost coverage of USPS Marketing Mail Flats,94 underlying 

events have impacted this product’s cost coverage and unit contribution. Such events 

include the exigent surcharge that was in place from January 26, 2014 through April 10, 

2016,95 which had a positive impact on unit revenues, and the migration of Carrier Route 

volume to and from the USPS Marketing Mail Flats product as a result of FSS pricing, which 

occurred in FY 2016 and FY 2017, and which impacted unit costs and unit revenues. 

FY 2018 ACR at 33-35. FY 2018 represents the first full year of recent data for which the 

unit revenue and unit costs for USPS Market Mail Flats were not impacted directly by

underlying events.However, while the Carrier Route migration does not directly affect 

FY 2018 data, it does continue to impact the FY 2017 unit revenue and unit attributable 

cost data,96 so the Commission must continue to account for this when making 

comparisons between FY 2017 and other fiscal years.97

 

94 See FY 2015 ACD at 64.

95 See Docket No. R2013-11, Notice of the United States Postal Service of Removal of the Exigent Surcharge, February 25, 2016, at 1-2.

96 The inclusion of low cost and low priced FSS mail likely weighed down the unit revenue and unit costs for USPS Marketing Mail Flats in 

FY 2018.

97 In Quarter 1 of FY 2017, and the beginning of Quarter 2 (specifically, January 2017), FSS prices were still available. Therefore, FY 2017 USPS 

Marketing Mail Flats data include some lower cost, lower revenue volume that migrated from Carrier Route.
Docket No. ACR2018 - 58 -

For comparison purposes, the Commission normalizes the relevant data to remove the 

impact of the migration of Carrier Route volume by combining revenue, cost, and volume 

data for USPS Marketing Mail Flats and Carrier Route.98 Figure III-2 illustrates this

comparison of cost, revenue, contribution, and volume changes over time. By combining 

the two products, the influence of the migration between USPS Marketing Mail Flats and 

Carrier Route is eliminated and the Commission is better able to observe overall trends in 

unit cost, unit revenue, and unit contribution for flat-shaped mail.

Figure III-2

Combined USPS Marketing Mail Flats and Carrier Route Unit Revenue, Unit Cost, 

and Unit Contribution, FY 2012–FY 2018

Source: PRC–LR–ACR2018/4.

 

98 The Postal Service and commenters have asserted that these products share the same characteristics and the data can be combined for

analysis. See, e.g., ACMA Comments at 4; Docket No. ACR2010, United States Postal Service FY 2010 Annual Compliance Report, December 29, 

2010, at 31 n.10.
Docket No. ACR2018 - 59 -

As shown in Figure III-2, the combined unit contribution from USPS Marketing Mail Flats 

and Carrier Route was negative for the third time in FY 2018, with an all-time low unit 

negative contribution of -$0.054. From FY 2017 to FY 2018, combined unit revenue 

increased 1.3 percent, while combined unit cost increased 10.1 percent. As shown in Table 

III-6, the Postal Service has failed to reduce costs and/or increase revenue in a way that 

improves cost coverage and contribution for USPS Marketing Mail Flats as required by the 

FY 2010 ACD directive.

In the FY 2015 ACD, following decreases in unit contribution in FY 2014 and FY 2015, the 

Commission directed the Postal Service to measure, track, and report on cost issues related 

to all flat-shaped mail. FY 2015 ACD at 181. In response to this directive, the Postal Service 

indicated that it was unable to provide specific methods to measure or track the cost issues 

related to flat-shaped mail. See FY 2016 ACD at 170. As a result of the Postal Service’s 

response to the FY 2015 ACD directive, the Commission issued proposed rules that, in part, 

were designed to improve the transparency of flat-shaped mail costs and increase the 

accountability associated with operational initiatives aimed at improving efficiency and 

reducing costs for flat-shaped mail.99 Since the FY 2015 ACD directive, USPS Marketing Mail 

Flats’ contribution has continued to decline another 8.5 cents. The steps that the Postal 

Service has taken to improve cost coverage for this product have not been effective, and the 

Postal Service has been unable to quantify the financial effect of any of its cost reduction 

efforts.

Following the Commission’s directives in FY 2010 and FY 2015, stakeholders—specifically 

Valpak, the Public Representative, and PostCom—have continued to comment on the 

ineffectiveness of the Commission’s directives with respect to this product’s cost coverage. 

For example, in Docket No. ACR2014, Valpak observed that the Commission’s FY 2010 ACD 

directive was ineffective because of the continued decline of cost coverage, and PostCom 

stated that the Postal Service’s cost reduction efforts were counterproductive.100 In 

addition, Valpak commented that the Postal Service’s approach of pursuing only minimal 

increases in price above CPI-U was “woefully insufficient.” Docket No. ACR2014, Valpak 

Initial Comments at III-14. Valpak therefore urged the Commission to “issue a . . . remedial 

order requiring the Postal Service to rapidly and substantially increase prices for [USPS 

Marketing Mail] Flats, offset by reductions in price to products with the highest [cost] 

coverages [within the USPS Marketing Mail class], led by High Density [and] Saturation 

Letters[.]” Id. at II-11. In Docket No. ACR2016, Valpak argued that “the cost reduction 

portion of [the FY2010 ACD] remedy has been nonexistent—or entirely ineffective,” and 

the Public Representative stated that he “cannot conclude that the Postal Service fully 

 

99 See Docket No. RM2018-1, Notice of Proposed Rulemaking for Reporting Requirement Related to Flats, March 1, 2019 (Order No. 5004).

100 Docket No. ACR2014, Valpak Direct Marketing Systems, Inc. and Valpak Dealers’ Association, Inc. Initial Comments on the United States 

Postal Service FY 2014 Annual Compliance Report, February 2, 2015, at II-6 (Docket No. ACR2014, Valpak Initial Comments); Docket 

No. ACR2014, Initial Comments of the Association for Postal Commerce, February 2, 2015, at 2.
Docket No. ACR2018 - 60 -

followed the Commission’s directive regarding cost reduction . . . .”101 In another example, 

in Docket No. ACR2017, Valpak contended that the annual negative contribution from USPS 

Marketing Mail Flats will continue to accrue so long as the FY 2010 ACD directive is left 

unchanged.102

In the FY 2010 ACD, the Commission found that USPS Marketing Mail Flats presented an 

“extreme case” of deficient cost coverage, and the Commission directed the Postal Service 

to address the cost coverage of USPS Marketing Mail Flats through a combination of cost 

reductions and above-average price increases.103 Since the issuance of the FY 2010 ACD 

directive, the Commission has allowed the Postal Service ample time to address these 

issues. However, cost coverage improvement and contribution gains have rarely been seen, 

and the steps that the Postal Service has taken to address the cost coverage declines have 

been ineffective. Moreover, the Postal Service has been unable to explain the financial effect 

of its cost reduction efforts. Despite the directives in FY 2010 and FY 2015, USPS Marketing 

Mail Flats presents an even more “extreme case” of deficient cost coverage in FY 2018 than 

it did in FY 2010.

The Commission finds that the Postal Service has been unsuccessful in improving the cost 

coverage of USPS Marketing Mail Flats consistent with the FY 2010 ACD Directive.

(2) Intra-Class Cross-Subsidy

The Commission next analyzes the increasingly negative impact that USPS Marketing Mail 

Flats has on other products within the USPS Marketing Mail class. In the FY 2010 ACD, as 

part of its finding of noncompliance, the Commission analyzed the intra-class subsidy of 

USPS Marketing Mail Flats, specifically by USPS Marketing Mail Letters, and found that the 

rates for USPS Marketing Mail Flats “produced a substantial and growing cost coverage 

shortfall that burdened mailers of other [USPS Marketing Mail] products.”104 The 

Commission issued the FY 2010 ACD directive with the intent of reducing the contribution 

gap between these products, finding that the prices for USPS Marketing Mail Flats “did not 

comply with section 101(d) [and reflected] ‘an unfair and inequitable apportionment of the 

costs of postal operations to all [USPS Marketing Mail] users.’” Order No. 1427 at 8.

Section 101(d) of Title 39 requires that postal rates “be established to apportion the costs 

of all postal operations to all users of the mail on a fair and equitable basis.” In finding in 

the FY 2010 ACD that USPS Marketing Mail Flats violated section 101(d), the Commission 

 

101Docket No. ACR2016, Valpak Direct Marketing Systems, Inc. and the Valpak Franchise Association, Inc. Initial Comments on the United States 

Postal Service FY [2016] Annual Compliance Report, February 2, 2017, at 15; Docket No. ACR2016, Public Representative Comments, February 

2, 2017 (REVISED February 16, 2017) at 34.

102 Docket No. ACR2017, The Valpak Franchise Association, Inc. Reply Comments on the United States Postal Service FY 2017 Annual Compliance 

Report, February 12, 2018, at 2-3.

103 See FY 2010 ACD at 105-07; Order No. 1427 at 9-10. See also USPS v. Postal Regulatory Comm’n, 676 F.3d 1105, 1107-08 (D.C. Cir. 2012).

104 Order No. 1427 at 8; FY 2010 ACD at 15-16; 103-104.
Docket No. ACR2018 - 61 -

later identified numerous factors which, together constitute circumstances that would 

trigger section 101(d)’s applicability to a compliance determination:
Docket No. ACR2018 - 62 -

[A] significant and growing cost coverage shortfall; duration of the 

shortfall over a significant period; evidence that the cost coverage 

shortfall was likely to increase further; a significant adverse impact 

on users of other mail products (some of whom could be competitors 

of mailers of the subsidized mail product) requiring subsidization of 

the noncomplying product; failure of the Postal Service to address 

the shortfall by rate increases, cost decreases, or a combination 

thereof, despite the capability to do so; and failure of the Postal 

Service to provide an adequate explanation for not taking necessary

remedial steps designed to ameliorate the cost coverage shortfall.

Order No. 1427 at 9. After a review of the increasing cost coverage shortfall from USPS 

Marketing Mail Flats, the Commission determined that “the factors presented in the 

FY 2010 ACR constituted ‘extreme circumstances’ authorizing Commission action under 

§ 101(d).” Id. Moreover, the Commission determined that requiring the Postal Service to 

implement above-average price increases and cost reductions was appropriate given the 

magnitude of the cost coverage shortfall and the Postal Service’s continued failure to take 

“ameliorative steps to eliminate the shortfall and subsidies by improving cost coverage or 

[provide] an explanation justifying the failure to take ameliorative steps.” Id. at 12.

Figure III-3 shows that, despite the FY 2010 ACD Directive, the contribution gap105 between 

USPS Marketing Mail Letters and USPS Marketing Mail Flats has continued to increase at an 

accelerated rate. In FY 2010, the contribution gap between USPS Marketing Mail Letters 

and USPS Marketing Mail Flats was $0.168. In FY 2018, the contribution gap between these 

two products increased to $0.286. From FY 2010 to FY 2018, the contribution gap between 

USPS Marketing Mail Letters and USPS Marketing Mail Flats increased more than 70 

percent.

 

105 The contribution gap is calculated as the difference between the unit contribution made by USPS Marketing Mail Letters and the unit 

contribution made by USPS Marketing Mail Flats.
Docket No. ACR2018 - 63 -

Figure III-3

USPS Marketing Mail Flats and Letters Unit Contribution

and Contribution Gap FY 2010–FY 2018

Source: PRC–LR–ACR2018/4.

As demonstrated in Figure III-3 and Table III-5, in FY 2010 the cost coverage for USPS 

Marketing Mail Flats was 81.8 percent, the cumulative negative contribution for USPS 

Marketing Mail Flats over the years FY 2008 through FY 2010 was $1.4 billion, and the 

contribution gap between USPS Marketing Mail Letters and USPS Marketing Mail Flats was 

16.8 cents. FY 2010 ACD at 16, 105. Since the Commission issued the FY 2010 directive 8 

years ago, cost coverage has plummeted 13 percentage points to 68.7 percent, the 

cumulative contribution over the years FY 2008 through FY 2018 is $5.9 billion, and the 

unit contribution of USPS Marketing Mail Flats has decreased a disturbing 126 percent. 

During the same period, the cost coverage for USPS Marketing Mail Letters grew 13 

percentage points to 195 percent in FY 2018, the cumulative contribution over the years 

FY 2008 through FY 2018 was over $50.6 billion, and the unit contribution of USPS 

Marketing Mail Letters has increased 17 percent, which amounts to a 1.5 cent increase.

The Commission finds that USPS Marketing Mail Flats continue to violate 39 U.S.C. § 101(d). 

The Commission finds that USPS Marketing Mail Flats has an unacceptable deficient cost 

coverage that continues to constitute an intra-class subsidy that unfairly burdens other 

mailers within the USPS Marketing Mail class.
Docket No. ACR2018 - 64 -

(3) Unit Costs and FY 2018 Operational Initiatives to 

Reduce Costs

As shown above in Table III-4, from FY 2017 to FY 2018, USPS Marketing Mail Flats’ unit 

costs have increased 6.9 cents, or 13.4 percent. From FY 2010 to FY 2018, unit costs have 

increased 14.1 cents, or 31.4 percent. In this section, the Commission responds to trends 

identified by the Postal Service and commenters that are alleged to explain increases in 

unit cost for USPS Marketing Mail Flats. The Commission then reviews the operational 

changes/initiatives identified by the Postal Service that are intended to reduce costs for 

USPS Marketing Mail Flats. Based on these considerations, the Commission assesses the 

effectiveness of the Postal Service’s efforts to reduce costs.

(a) Trends Identified by the Postal Service and 

Commenters

The Postal Service and commenters identify several potential drivers that could have 

contributed to unit cost increases in FY 2018. First, the Postal Service suggests that costs 

for USPS Marketing Mail Flats were impacted by mail mix changes, both within the USPS 

Marketing Mail Flats product, and within the USPS Marketing Mail class more broadly. 

FY 2018 ACR at 17-18. Specifically, the Postal Service suggests that High Density Flats are 

becoming a greater share of flat-shaped volume within the USPS Marketing Mail class. Id. 

The Postal Service also suggests that low-cost DSCF-entry mail is migrating from USPS 

Marketing Mail Flats to High Density. Id. at 18. The Postal Service supports this claim by 

asserting that DSCF-entry volume within the USPS Marketing Mail Flats product is 

declining, and DSCF-entry volume within the High Density product is increasing. Id.

Contrary to the Postal Service’s assertion, however, the Commission finds that the 

proportion of DSCF-entry mail in the USPS Marketing Mail Flats product is actually 

increasing slightly, not decreasing. Specifically, in FY 2014, 50 percent of USPS Marketing 

Mail Flats were entered at a DSCF, while in FY 2018, 52 percent of USPS Marketing Mail 

Flats were entered at a DSCF, a 2 percentage point increase. See PRC–LR–ACR2018/4. It 

appears that DSCF-entry within the USPS Marketing Mail Flats product was impacted by 

the existence of DFSS-entry discounts in FY 2015, FY 2016, and FY 2017.106 However, from 

FY 2014 to FY 2018, unit costs rose 21.5 percent; therefore, it is unlikely that the volume of 

DSCF-entered mail is the primary driver of increased unit costs. The Commission also notes 

that the passthrough for DSCF-entered USPS Marketing Mail Flats in FY 2018 was 67.5 

percent.107 The Postal Service has the ability to increase this discount to incentivize more 

low-cost DSCF-entered volume.

Second, ACMA contends that nonprofit volume is making up a larger proportion of the 

USPS Marketing Mail Flats product, which negatively impacts the overall cost coverage of 

 

106 Id. The vast majority of FSS facilities are co-located with a DSCF or have bundle sorting capabilities, and in those facilities, DFSS functions like 

a DSCF. Docket No. R2015-4, Response of the United States Postal Service to Questions 1-5 of Chairman’s Information Request No. 1, question 

5, January 30, 2015.

107 See Library Reference USPS–FY18–3, Excel file “FY18.3 WorksharingTables.xlsx,” December 28, 2018.
Docket No. ACR2018 - 65 -

USPS Marketing Mail Flats. ACMA Comments at 5. The Commission notes that in FY 2015, 

nonprofit mail constituted 22 percent of total USPS Marketing Mail Flats volume, while in 

FY 2018 nonprofit mail constituted 26 percent of total USPS Marketing Mail Flats volume. 

See PRC–LR–ACR2018/4. However, as ACMA demonstrates, the cost coverage for 

commercial USPS Marketing Mail Flats is also substantially below 100 percent. ACMA 

Comments at 4. Therefore, simply identifying the relative proportions of commercial and 

nonprofit mail within the USPS Marketing Mail Flats product does little to solve the 

systemic problem of the product’s cost coverage.

Finally, the Postal Service and ACMA discuss a range of other drivers contributing to unit 

cost increases. ACMA cites to cost drivers such as: volume shifting from cities to rural 

areas; factor price increases; and increasing casing time for flat-shaped mail. ACMA 

Comments at 9-13. The Postal Service discusses cost drivers such as: the impact of hourly 

labor costs on mail processing and city delivery costs; the impact of an increase in accrued 

costs for surface transportation on unit transportation costs; persistently declining 

volumes for USPS Marketing Mail Flats; declining volume processed on the FSS; and the 

shift in volume to city routes, which are more expensive. January 28 Responses to CHIR 

No. 3, question 5; Responses to CHIR No. 6, questions 6-7.

While the Postal Service and commenters provide possible reasons why costs have 

increased and cost coverage has declined, the Postal Service has failed to provide any 

solutions or plans to address any of these cost drivers. As stated previously, under the 

FY 2010 ACD directive, the Postal Service could have improved USPS Marketing Mail Flats’ 

cost coverage by focusing on higher-than-average price adjustments and/or by reducing 

the costs associated with the product. This two-pronged approach recognized that the 

Postal Service has the ability to make operational decisions to efficiently process, transport, 

and deliver the mail in a way that reduces costs.

(b) The Postal Service’s Operational 

Changes/Initiatives

The Commission next reviews the operational changes and/or initiatives undertaken by 

the Postal Service in an effort to reduce USPS Marketing Mail Flats’ costs. In FY 2018, the 

Postal Service continued previous operational initiatives but it did not propose any new 

initiatives. As discussed in more detail above, the initiatives undertaken focused on Bundle 

Operations, AFSM 100 Operations, monitoring the FSS Scorecard, monitoring WIP cycle 

times, and reducing bundle breakage. See section III.B.1.d(1), supra.

Despite outlining its operational initiatives, the Postal Service admits that it is “still unable 

to provide an estimate of the financial impacts of these operational initiatives,” and the 

Postal Service contends that “it is quite difficult to come up with a unique set of reasonable 

assumptions about the future course of Flats costs.” FY 2018 ACR at 27; Reponses to CHIR 

No. 1, question 14. As previously noted, USPS Marketing Mail Flats’ costs increased more 

than 13 percent since FY 2017. Since the FY 2010 ACD directive, USPS Marketing Mail Flats’ 

costs have increased more than 30 percent. As many commenters point out, it is clear that 
Docket No. ACR2018 - 66 -

the Postal Service’s initiatives have not been effective in reducing USPS Marketing Mail 

Flats’ costs. See, e.g., PR Comments at 44.

As the Commission has stated in previous ACDs, the Postal Service’s cost savings initiatives 

should have specific and measurable targets by which the benefits of the programs can be 

evaluated.108 The Postal Service must implement initiatives that will have a measurable 

impact on reducing USPS Marketing Mail Flats’ costs. However, the Postal Service has not, 

despite Commission direction, provided estimates as to the financial impacts of its 

operational changes intended to reduce costs.

The Commission finds that the Postal Service’s cost-reduction efforts with regard to USPS 

Marketing Mail Flats have been unsuccessful. In Chapter 6, the Commission explains its 

continued concerns with the Postal Service’s inability to quantify the cost savings of its 

initiatives to reduce costs for flat-shaped mail products. The Commission describes an ongoing 

rulemaking that is designed to develop metrics to measure, track, and report on initiatives 

related to reducing the costs of flat-shaped mail products.

(4) Unit Revenue and Above-Average Price Adjustments

Despite the Commission’s FY 2010 directive, the cumulative shortfall in contribution for 

USPS Marketing Mail Flats from FY 2008 through FY 2018 has grown to $5.9 billion. As 

discussed above, the Postal Service has been woefully unsuccessful in reducing the costs of 

USPS Marketing Mail Flats. In this section, the Commission analyzes the Postal Service’s 

efforts to improve cost coverage through price increases. First, the Commission looks at the 

changes in unit revenues since the FY 2010 ACD directive. Second, the Commission reviews 

the Postal Service’s price adjustments for USPS Marketing Mail Flats since the FY 2010 ACD 

directive. Third, the Commission reviews the estimated impact of the Docket No. R2018-1 

price adjustment on USPS Marketing Mail Flats’ contribution, holding unit costs constant.

(a) Changes in Unit Revenues

The Postal Service has proposed above-average price increases for USPS Marketing Mail 

Flats in each Market Dominant price adjustment since the FY 2010 ACD directive. However, 

because of changes in the mail mix, above-average price increases for the product have not 

translated to above-average unit revenue increases. Figure III-4 shows the actual unit 

revenues of USPS Marketing Mail Flats, as well the estimated unit revenues if unit revenues 

had increased consistent with the change in CPI-U each year following the FY 2010 ACD 

directive. As shown in Figure II-4, the actual unit revenue for USPS Marketing Mail Flats has 

increased from 36.7 cents in FY 2010 to 40.5 cents in FY 2018, a 10.4 percent increase.109

However, if unit revenues had increased at the same rate as CPI-U over the same period, 

unit revenues would have increased 14.9 percent, or an additional 1.7 cents. This means 

that in FY 2018 unit revenues would have been 42.1 cents—1.7 cents higher than the actual 

 

108 See FY 2012 ACD at 116; FY 2013 ACD at 54; FY 2014 ACD at 48; FY 2015 ACD at 64; FY 2016 ACD at 56, 171; FY 2017 ACD at 58, 182.

109 In FY 2014 and FY 2015, the exigent surcharge was in effect. See Docket No. R2013-11, Order Granting Exigent Price Increase, December 24, 

2013 (Order No. 1926). This surcharge was removed in FY 2016. See Docket No. R2013-11, Order on Removal of the Exigent Surcharge and 

Related Changes to the Mail Classification Schedule, March 29, 2016 (Order No. 3186). The existence of the exigent surcharge explains the 

increase in actual unit revenues in FY 2014 and FY 2015, as well as the reduction in actual unit revenues in FY 2016.
Docket No. ACR2018 - 67 -

FY 2018 unit revenue. This increase in unit revenue would have resulted in a 1.7 cent 

improvement in unit contribution, and a 2.9 percentage point increase in cost coverage. See 

PRC–LR–ACR2018/4.

Figure III-4

USPS Marketing Mail Flats Actual and Estimated Unit Revenue

Source: PRC–LR–ACR2018/4.

The Postal Service must remain cognizant of mail mix changes when proposing prices, and 

do its best to meet the requirements of the price cap while maximizing unit revenue 

increases within the product. In response to a CHIR, the Postal Service was unable to 

explain how its Docket No. R2018-1 price adjustment increased pricing efficiency within 

this product.110 In addition to any above-average price adjustments, the Postal Service is 

also able to make pricing decisions that incentivize mailers to workshare their mail, which 

can directly affect the makeup of the mail mix.111 While the mail mix does impact a 

product’s cost and revenue, the Postal Service has the ability to leverage its pricing 

flexibility in order to match its operations and adjust workshare discounts in a way that 

sends price signals that drive changes in the mail mix. In Order No. 4257, the Commission 

 

110 Responses of the United States Postal Service to Questions 1-6 of Chairman’s Information Request No. 17, March 1, 2019, question 3 

(Responses to CHIR No. 17). In its response, the Postal Service states “the pricing in response to underwater products was not necessarily 

efficient.” Id.

111 In accordance with ECP, prices are most efficient when workshare discounts are set equal to avoided costs. See Docket No. RM2017-3, Order 

on the Findings and Determination of the 39 U.S.C. § 3622 Review, December 1, 2017, at 135-136 (Order No. 4257).
Docket No. ACR2018 - 68 -

provided a robust analysis of pricing efficiency and Efficient Component Pricing (ECP). 

Order No. 4257 at 130-39. The Commission determined that “the Postal Service was able to 

adjust prices to achieve ECP and did not do so during the PAEA era.” Id. at 139. One of the 

benefits of ECP is that worksharing choices do not lead to large swings in cost coverage.

(b) Price Adjustments since FY 2010 ACD

Next, the Commission reviews the price adjustments the Postal Service has pursued for 

USPS Marketing Mail Flats since the FY 2010 ACD directive. Consistent with the FY 2010 

ACD directive, the Postal Service has committed to increasing USPS Marketing Mail Flats’ 

prices by 1.05 times CPI-U. FY 2018 ACR at 25. In Docket No. R2018-1, the Postal Service 

increased USPS Marketing Mail Flats prices 0.231 percentage points above average, which 

equated to 1.08 times Overall USPS Marketing Mail Pricing Authority. See PRC–LR–

ACR2018/4. Figure III-5 compares the price increases for USPS Marketing Mail Flats to the 

rest of the USPS Marketing Mail class in each price adjustment following the FY 2010 ACD 

directive.

Figure III-5

USPS Marketing Mail Price Increases in Docket Nos. R2012-3 through R2019-1,

Both Class-Wide and for Flats

Source: PRC–LR–ACR2018/4.

Despite the declining cost coverage and rising unit costs of USPS Marketing Mail Flats, 

Figure III-5 shows that the Postal Service has given USPS Marketing Mail Flats price 

adjustments which were only minimally above average in five out of the past seven price 

adjustments. See PRC–LR–ACR2018/4. As demonstrated in Figure III-5, the Postal Service 

made two price adjustments for USPS Marketing Mail Flats that were more than minimally 

above average in Docket Nos. R2015-4 and R2017-1. In these dockets, however, the Postal 

Service made structural changes to the USPS Marketing Mail Flats product by adding and 
Docket No. ACR2018 - 69 -

then removing FSS prices.112 These structural changes caused a migration of volume 

between USPS Marketing Mail Flats and Carrier Route, which may have contributed to the 

materially above-average price increases for USPS Marketing Mail Flats in these dockets. 

For example, in Docket No. R2017-1, USPS Marketing Mail Flats received a 2.522 percent 

price increase (1.622 percentage points above average), but Carrier Route received 

a -3.032 price change (3.932 percentage points below average), and the volume-weighted 

average price increase of the two products together was -1.128 percent (2.028 percentage 

points below average). Order No. 3610 at 29; PRC–LR–ACR2018/4.

(c) Estimated Impact of Docket No. R2018-1 Price 

Adjustment and Other Scenarios

In FY 2018, the Postal Service proposed, and the Commission approved, a price increase of 

2.167 percent for USPS Marketing Mail Flats. See Order No. 4215 at 37. This increase was 

0.231 percentage points above average. Id. In this year’s ACD proceeding, a CHIR was 

issued asking the Postal Service to provide estimates of the impact of both a 2 and a 4 

percentage point above-average price increase for USPS Marketing Mail Flats.113 Table III-7 

shows the contribution estimates provided by the Postal Service for FY 2018.114 These 

estimates covered four scenarios: (1) no price adjustment in FY 2018; (2) the Docket 

No. R2018-1 price increases as proposed; (3) a 2 percentage point above-average price 

increase; and (4) a 4 percentage point above-average price increase. These estimates use 

FY 2018 costs115 and FY 2018 price elasticities.116

 

112 See Docket No. R2015-4, Order on Revised Price Adjustments for Standard Mail, Periodicals, and Package Services Products and Related Mail 

Classification Changes, May 7, 2015, at 19 (Order No. 2472); Docket No. R2017-1, Order on Price Adjustments for First-Class Mail, Standard 

Mail, Periodicals, and Package Services Products and Related Mail Classification Changes, November 15, 2016, at 13-14 (Order No. 3610).

113 Chairman’s Information Request No. 17, February 22, 2019, question 1 (CHIR No. 17).

114 The Postal Service constructed various scenarios to respond to CHIR No. 17. The estimates cited here assume a 2 percentage point aboveaverage price increase that was implemented on October 1, 2017, i.e., the price adjustment was in effect for the entire fiscal year, and that 

price increases for the class are restricted by the price cap. Other scenarios include an implementation date of January 22, 2018 and aboveaverage price increases for USPS Marketing Mail Flats that are not restricted by the price cap. See Responses to CHIR No. 17, Excel file 

“ChIR.17.Q.1t3.MM Scenarios.xlsx.”

115 The Postal Service’s analysis assumes that the FY 2018 cost effects of volume changes can reasonably be approximated by multiplying the 

new volumes by the same unit attributable costs appearing in the FY 2018 CRA. See Responses to CHIR No. 17.

116 See United States Postal Service, Postal Service Econometric Estimates of Demand Elasticity for All Postal Products, FY 2018, January 28, 

2019. The Postal Service also notes that “[t]he contribution impacts do not take into account that, when Flats are subject to an above-average 

price increase, Flats[’] volume will decline by more than otherwise. This may lead to the loss of contribution in other mail classes that are 

stimulated by Flats[’] volume.” Responses to CHIR No. 17, question 1.
Docket No. ACR2018 - 70 -

Table III-7

USPS Marketing Mail Flats and USPS Marketing Mail Class-Wide Estimated Contribution Using 

Select Scenarios (in Thousands)

Scenarios

Estimated USPS 

Marketing Mail 

Total FY2018 

Contribution 

Improvement 

Over Base Year 

Estimated USPS 

Marketing Mail 

Flats FY 2018 

Contribution

Improvement 

Over Base Year 

No FY 2018 Price Adjustment 

(Base Year) $ 4,742.91 $ (767.45)

Docket No. R2018-1 Price 

Adjustment $ 4,965.90 $222.99 $ (745.66) $ 21.79

2 Percentage Point Above 

Average Price Increase for Flats $ 4,976.60 $233.69 $ (709.12) $ 58.33

4 Percentage Point Above 

Average Price Increase for Flats $ 4,997.85 $254.94 $ (632.82) $134.63

Source: PRC–LR–ACR2018/4.

As shown in Table III-7, the Docket No. R2018-1 price adjustment (as proposed), is 

estimated to have a positive impact on both USPS Marketing Mail class-wide contribution, 

and USPS Marketing Mail Flats’ contribution in FY 2018. In addition, Table III-7 shows that 

if USPS Marketing Mail Flats prices increased at least 2 percentage points above average, 

FY 2018 contribution for USPS Marketing Mail and USPS Marketing Mail Flats would have 

improved even more. Finally, Table III-7, shows that if price increases for the USPS 

Marketing Mail Flats product were at least 4 percentage points above average, contribution 

from USPS Marketing Mail and USPS Marketing Mail Flats would have improved at a higher 

rate in FY 2018. These scenarios, which use reasonable and known assumptions, indicate 

that increasing prices for USPS Marketing Mail Flats 2 or 4 percentage points above 

average would likely have a positive impact on the overall contribution of USPS Marketing 

Mail generally, and the USPS Marketing Mail Flats product, in particular.

The Commission finds that the Postal Service has the capability to propose a more-thanminimal above-average price increase for USPS Marketing Mail Flats that will improve unit 

revenues and contribution in a meaningful way.

(5) FY 2018 Directive

As a result of the Postal Service’s failure to comply with the Commission’s FY 2010 ACD 

directive to increase the cost coverage of USPS Marketing Mail Flats, and because the 

product continues to violate 39 U.S.C. § 101(d), the Commission directs corrective action. 

The Commission makes this determination based on its past ACD findings, as well as the 

analysis above that shows continued cost coverage declines, substantial unit cost increases, 

insufficient cost reductions, inadequate unit revenue increases, and persistent unit 

contribution declines. In addition, the Commission’s analysis shows that the intra-class 

cross-subsidy has grown within the USPS Marketing Mail class, the Postal Service has been 
Docket No. ACR2018 - 71 -

unable to measure the impact of operational initiatives on USPS Marketing Mail Flats’ costs, 

and minimal above-average price adjustments have been insufficient to outweigh unit cost 

increases. The Postal Service also has not been able to provide the Commission with insight 

into the anticipated impact of cost reduction initiatives in FY 2019.

The Commission determines that requiring a price adjustment for USPS Marketing Mail 

Flats of at least 2 percentage points above average is an appropriate remedy given the 

extreme case presented by this product’s cost coverage shortfall and the likelihood that a 

price increase of at least 2 percentage points above the class average will have a positive 

cost coverage effect on the USPS Marketing Mail Flats product. As discussed above, the 

Postal Service’s current schedule of above-average price increases has not resulted in unit 

revenue increases that outpace unit cost increases. Based on the scenario analysis provided 

by the Postal Service, a 2 percentage point above-average price increase will result in 

improved contribution and cost coverage compared to the minimal above-average price 

increases that the Postal Service has thus far pursued. The Postal Service’s scenario 

analysis also estimates even greater contribution gains from a 4 percentage point aboveaverage price increase for USPS Marketing Mail Flats and while the Commission is directing 

a 2 percentage point above-average price increase, it will monitor whether a further 

regulatory action is needed in the next fiscal year’s ACD.

Therefore, the Commission determines that a 2 percentage point above-average price 

increase for USPS Marketing Mail Flats is appropriate to move the product towards 

compliance with section 101(d) over time. However, the Commission recognizes that price 

increases alone will not result in the product’s compliance with section 101(d). The Postal 

Service must continue to pursue cost reductions because the full solution must come from a 

combination of revenue increases and cost reductions. Nevertheless, price adjustments, 

which are more than minimally above average, are likely to have positive results on cost 

coverage.

The Commission finds that the issues raised in the FY 2010 ACD regarding USPS Marketing 

Mail Flats have significantly worsened, continuing a downward trend that began to 

accelerate in FY 2014. Despite the Postal Service’s efforts to reduce USPS Marketing Mail 

Flats’ costs through operational initiatives—efforts it is unable to measure—unit costs 

increased substantially over the last fiscal year. From FY 2010 to FY 2018, the cost coverage 

for USPS Marketing Mail Flats has decreased 13.1 percentage points. In addition, the Postal 

Service remains unable to predict, using reasonable assumptions, when the USPS Marketing 

Mail Flats product will cover costs, or what the impact is of any of the Postal Service’s cost 

saving initiatives. Furthermore, in the last two Market Dominant price adjustments the Postal 

Service has chosen to increase USPS Marketing Mail Flats’ prices only minimally above 

average. As the Commission has found before, it has broad authority to develop and 

implement a remedy to address an “extreme case” of a violation of 39 U.S.C. § 101(d).117 The 

remedy that the Commission implemented in its FY 2010 ACD has proven insufficient to rectify 

 

117 See Order No. 1427; see also USPS v. Postal Regulatory Comm’n, 676 F.3d 1105, 1107-08 (D.C. Cir. 2012).
Docket No. ACR2018 - 72 -

the inadequate cost coverage of USPS Marketing Mail Flats. The Postal Service has chosen to 

pursue only minimal above-average price increases for this product, and it has been unable to 

reduce the product’s costs. USPS Marketing Mail Flats continues to constitute an “extreme 

case” of deficient cost coverage. Therefore, the remedy must be advanced. In the next 

generally applicable Market Dominant price adjustment, the Postal Service must propose a 

price increase for USPS Marketing Mail Flats that is at least 2 percentage points above the 

class average for the USPS Marketing Mail class. Additionally, the Postal Service must 

continue responding to the requirements of the FY 2010 ACD directive by reducing USPS 

Marketing Mail Flats’ costs and providing required documentation of those efforts in future 

Annual Compliance Reports. Moreover, the Postal Service must continue to comply with the 

FY 2015 directive, as further discussed in Chapter 6 of this report.

3. USPS Marketing Mail Parcels

a. Introduction

In FY 2018, the cost coverage and contribution for USPS Marketing Mail Parcels also 

continued to decline. In past ACDs, the Commission has approved the Postal Service’s 

approach to improve USPS Marketing Mail Parcels cost coverage through above-average 

price increases, as well as its approach to expend a reasonable amount of resources to 

reduce unit costs. FY 2017 ACD at 63. Despite these efforts, however, cost coverage and 

unit contribution for Parcels have worsened.

b. Postal Service FY 2018 Results

In FY 2018, USPS Marketing Mail Parcels had a cost coverage of 58.5 percent,118 down 5.9 

percentage points from FY 2017. In FY 2018, USPS Marketing Mail Parcels’ volume declined 

14.6 percent, continuing a decline which started in FY 2013. Unit revenue increased by 7.3 

percent, but unit attributable cost increased by 18.2 percent from the previous fiscal year. 

This resulted in a 24.2 cent decrease in unit contribution from FY 2017 to FY 2018. The 

total contribution of USPS Marketing Mail Parcels declined $4.6 million in FY 2018 to -

$30.4 million. FY 2018 ACR at 14-15.

The Postal Service states that the increase in unit revenue was driven by an increase in the 

average weight-per-piece, from 5.6 ounces in FY 2017 to 6.0 ounces in FY 2018. FY 2018 

ACR at 15. The Postal Service further notes that the increase in unit attributable cost was 

driven by USPS Marketing Mail Parcels’ volume trending toward more origin entry and 

away from finer presort levels. Id.

c. Comments on USPS Marketing Mail Parcels

The Public Representative comments on the Commission’s FY 2017 ACD directive, which 

required the Postal Service to explore and implement opportunities to further reduce the 

unit cost of USPS Marketing Mail Parcels. PR Comments at 38. She notes the Postal Service’s 

 

118 The Commission’s cost coverage calculation differs from the Postal Service’s calculation (57.5 percent) because the Commission includes fees 

in the revenue for each product and the Postal Service does not.
Docket No. ACR2018 - 73 -

claim that it has planned improvements to USPS Marketing Mail Parcels processing but 

opportunities to achieve cost improvements are limited due to the product’s relatively 

small volume. Id. (citing FY 2018 ACR at 17). She states that “[c]onsidering that in FY 2018, 

cost-per-piece increased by more than 18 percent, while in FY 2017, it increased by only 

3.6 percent, [she] has doubts about the effectiveness of the Postal Service’s efforts to 

decrease USPS Marketing Mail Parcels’ unit costs.” Id. She “strongly suggests that the Postal 

Service provide a detailed explanation of the reasons why [its] measures were not effective 

in FY 2018, as well as the list of steps it plans to take that will ensure a downward trend in 

cost-per-piece.” Id. She also comments on the drivers of the increase in average weight-perpiece and suggests that the increase in the share of Nonprofit Irregular Parcels in FY 2018 

may have contributed to the increase in FY 2018. Id at 37. She states that she cannot 

conclude that the Postal Service’s explanation with regard to USPS Marketing Mail Parcels 

is sufficient to justify noncompliance. Id.

d. Commission Analysis

In FY 2018, USPS Marketing Mail Parcels did not produce sufficient revenues to cover its 

attributable costs. The Commission has previously directed the Postal Service to utilize its 

intra-class pricing flexibility to eliminate the intra-class cross-subsidy for this product. 

FY 2010 ACD at 108. However, the cost coverage and contribution of USPS Marketing Mail 

Parcels has continued to decline. The Commission analyzes the Postal Service’s progress in 

FY 2018 toward improving cost coverage for USPS Marketing Mail Parcels below. First, the 

Commission reviews the Postal Service’s FY 2018 performance with regard to cost 

coverage for USPS Marketing Mail Parcels and analyzes several relevant factors that impact 

cost coverage. Second, the Commission reviews the Postal Service’s efforts to reduce USPS 

Marketing Mail Parcels’ unit costs. Third, the Commission analyzes the Postal Service’s 

price adjustments for USPS Marketing Mail Parcels. Fourth, the Commission directs the 

Postal Service to improve this product’s cost coverage and recommends a price increase of 

at least 2 percentage points above average in the next Market Dominant price adjustment.

(1) FY 2018 Results

In this section, the Commission first reviews trends in unit revenue, unit cost, weight and 

volume. Next, the Commission analyzes changes in mail mix, specifically related to 

worksharing. Finally, the Commission reviews classification changes and their effect on 

costs.

Table III-8 displays the unit revenue, unit attributable cost, unit contribution, volume, and 

average weight-per-piece for USPS Marketing Mail Parcels from FY 2014 through FY 2018.
Docket No. ACR2018 - 74 -

Table III-8

USPS Marketing Mail Parcels Financial Comparison, FY 2014–FY 2018

FY 2014 FY 2015 FY 2016 FY 2017 FY 2018

Percent 

Change 

FY 2014 to 

FY 2018

Percent 

Change 

FY 2017 to 

FY 2018

Unit Revenue $1.09 $1.09 $1.20 $1.16 $1.24 13.8% 6.9%

Unit Attributable 

Cost $1.56 $1.48 $1.86 $1.79 $2.12 35.9% 18.4%

Unit Contribution -$0.46 -$0.39 -$0.66 -$0.64 $-0.88 91.3% 37.5%

Volume 

(thousands) 65,846 60,420 44,767 40,582 34,650 -47.4% -14.6%

Average Weight Per 

Piece (ounces) 5.60 5.62 6.13 5.63 5.97 6.6% 6.0%

Source: PRC–LR–ACR2018/4.

As demonstrated in Table III-8, both unit revenue and unit attributable cost for USPS 

Marketing Mail Parcels increased from FY 2017 to FY 2018. However, unit revenues 

increased 8 cents, while unit costs increased 33 cents, resulting in unit contribution 

decreasing 24 cents. The unit revenue increase was correlated with an increase in average 

weight-per-piece. Unit revenue and average weight have changed in the same direction 

every year except FY 2015. Therefore, because prices are higher for heavier pieces, changes 

in average weight-per-piece are a driver of changes in unit revenue. The Postal Service 

states that the effect of increases in average weight-per-piece “probably had a minimal 

impact on attributable costs,” because “[i]n relative terms, more origin entry and less 

presorting likely had much more of an effect on the increase in attributable costs, 

compared to a 6 percent increase in unit weight.” January 11 Responses to CHIR 1, 

question 19.

In response to the Postal Service assertion that more origin entry and less presorting likely 

effected attributable costs, the Commission reviews mail mix changes from FY 2015 

through FY 2018. Table III-9 shows the relative percentages of less-workshared and moreworkshared mail from FY 2015 through FY 2018.119

 

119 Less-dropshipped includes non-dropshipped and DNDC mail. More-dropshipped includes DSCF and DDU mail. Less-Presorted includes MNDC 

and NDC mail. More-Presorted includes SCF and 5-Digit mail.
Docket No. ACR2018 - 75 -

Table III-9

USPS Marketing Mail Parcels Workshare Comparison FY 2015–FY 2018

FY 2015 FY 2016 FY 2017 FY 2018

Less-Dropshipped (none and DNDC) 48.4% 49.9% 51.6% 58.6%

More-Dropshipped (DSCF and DDU) 51.6% 50.1% 48.4% 41.4%

Less-Presorted (MNDC and NDC) 36.5% 42.0% 41.3% 49.7%

More-Presorted (SCF and 5-Digit) 63.5% 58.0% 58.7% 50.3%

Source: PRC–LR–ACR2018/4.

As shown in Table-III-9, in each year since FY 2015, the proportions of less-dropshipped 

mail and less-presorted mail have increased. FY 2017 was the first year that lessdropshipped mail constituted the majority of USPS Marketing Mail Parcels, and in FY 2018 

less-presorted mail made up the majority of USPS Marketing Mail Parcels. This supports 

the Postal Service’s claim that volume is trending toward more origin entry and away from 

finer presort levels. FY 2018 ACR at 15. However, it also highlights the inefficient price 

signals the Postal Service has sent for USPS Marketing Mail Parcels. For example, in 

FY 2018 the presorting passthroughs for 5-digit Machinable Parcels, 5-Digit Irregular 

Parcels, and 5-Digit Marketing Parcels were 34.8 percent, 17.8 percent, and 10.7 percent, 

respectively.120 Similarly, the dropship passthroughs for Nonprofit Machinable and 

Irregular Parcels, and Commercial and Nonprofit Marketing Parcels, were 69.4 percent and 

72.9 percent, respectively. Id.

As discussed previously with respect to USPS Marketing Mail Flats, the Postal Service has 

the ability to make pricing decisions that send price signals that incentivize mailers to 

workshare their mail and can directly affect mail mix changes.121 With respect to USPS 

Marketing Mail Parcels, the Postal Service attributes the increase in unit attributable cost to 

USPS Marketing Mail Parcels’ volume trending toward more origin entry and away from 

finer presort levels. As shown in Table III-9, these trends are occurring, yet the fact that the 

mail mix is changing towards less presorting does not render the Postal Service without 

remedy to address the impact on costs. The Postal Service could mitigate the cost coverage 

impact of “more origin entry and less presorting” by sending efficient price signals to 

mailers and increasing workshare discounts so that passthroughs are closer to 100 

percent.

In addition to analyzing the trends in workshared mail, the Commission reviews 

classification changes and their effect on costs. In FY 2012, the Commission approved the 

 

120 Library Reference USPS–FY18–3, Excel file “FY18.3 WorksharingTables.xlsx,” December 28, 2018.

121 In accordance with ECP, prices are most efficient when workshare discounts are set equal to avoided costs. See Order No. 4257 at 135-136.
Docket No. ACR2018 - 76 -

reclassification of some USPS Marketing Mail Parcels to the Competitive Product list.122

Together, Table III-10 and Table III-11 illustrate the effect of reclassification on the 

financial performance of USPS Marketing Mail Parcels since FY 2012.

Table III-10

USPS Marketing Mail Parcels Commercial to Nonprofit Volume Distributions, 

FY 2012 and FY 2018

FY 2012 FY 2012

Distribution

FY 2018 FY 2018

Distribution

Commercial Volume 285,925,057 94.2% 21,081,068 60.8%

Nonprofit Volume 17,633,585 5.8% 13,568,569 39.2%

Total Volume 303,558,642 100.0% 34,649,637 100.0%

Source: PRC–LR–ACR2018/4.

Table III-10 displays the distribution of commercial and nonprofit volumes within USPS 

Marketing Mail Parcels for FY 2012 and FY 2018. The proportion of nonprofit mail is 6.8 

times greater in FY 2018 than in FY 2012. The significance of this fact is that pursuant to 

the PAEA, nonprofit mail is typically priced lower than commercial mail. See 39 U.S.C. 

§ 3626(a)(6). Therefore, a higher proportion of nonprofit mail typically results in lower 

unit revenue compared to commercial mail.

Table III-11

USPS Marketing Mail Parcels Commercial to Nonprofit FY 2018 Unit Cost Comparison

Volume 

(000)

Revenue 

(000)

Unit 

Revenue

Weight 

per Piece 

(ounces)

Attributable 

Cost (000)

Unit 

Cost

Unit 

Contribution

Commercial 

Parcels 21,081 22,581 $1.07 5.61 42,039 $1.99 ($0.92)

Nonprofit 

Parcels 13,569 20,404 $1.50 6.53 31,390 $2.31 ($0.81)

Parcels 34,650 42,985 $1.24 5.97 73,430 $2.12 ($0.88)

Source: PRC–LR–ACR2018/4.

Table III-11 displays the unit costs, revenue, and contribution for commercial and 

nonprofit USPS Marketing Mail Parcels. It shows that unit cost for nonprofit mail is much 

higher than for commercial mail ($2.31 compared to $1.99). This shows that the transfer of 

a significant portion of commercial volume from USPS Marketing Mail Parcels to the 

 

122 On March 2, 2011, the Commission conditionally approved the Postal Service’s request to transfer commercial USPS Marketing Mail Parcels 

to the Competitive Product list. See Docket No. MC2010-36, Order Conditionally Granting Request to Transfer Commercial Standard Mail 

Parcels to the Competitive Product List, March 2, 2011 (Order No. 689). However, the Commission required a price adjustment as a condition of 

transfer. See Docket No. CP2012-2, Order Approving Changes in Rates of General Applicability for Competitive Products, December 21, 2011 

(Order No. 1062). Because the new rates took effect on January 22, 2012, the data do not fully reflect the reclassification until FY 2013. Id. at 1.
Docket No. ACR2018 - 77 -

Competitive Product list has resulted in lower revenues as nonprofit USPS Marketing Mail 

Parcels make up a larger percentage of the remaining volume.

(2) Cost Reduction Efforts

In the FY 2017 ACD, the Commission stated that “the Postal Service should expend a 

reasonable amount of resources given the size of the product to explore and implement 

opportunities to further reduce the unit cost of USPS Marketing Mail Parcels and report on 

those opportunities and results in the FY 2018 ACR.” FY 2017 ACD at 63. The Postal Service 

states that, in response to the Commission’s recommendation, it added bins on the APBS, 

which will likely contribute to improving parcel processing. FY 2018 ACR at 17. The Postal 

Service also notes that “planned improvements discussed in the Annual Report on Service 

Performance should contribute to the Postal Service’s ongoing efforts to improve parcel 

processing.” Id. The Postal Service explains that it has limited opportunities to achieve 

substantial cost improvements because of the product’s small volume. Id.

The Commission recognizes the limited opportunities the Postal Service has to significantly 

reduce costs due to the size of the product. Therefore, the Commission continues to 

encourage the Postal Service to explore and implement opportunities to reduce USPS 

Marketing Mail Parcels unit cost.

(3) Estimated Impact of Docket No. R2018-1 Price 

Adjustment and Other Scenarios

Next, the Commission reviews the Docket No. R2018-1 price adjustment for USPS 

Marketing Mail Parcels and its impact on contribution. In Docket No. R2018-1, the 

Commission approved a price increase for USPS Marketing Mail Parcels of 2.768 percent, 

which was 0.832 percentage points higher than the average price increase for the USPS 

Marketing Mail class of 1.936 percent.123 The Postal Service states that it will continue 

proposing above-average price increases to improve the cost coverage for USPS Marketing 

Mail Parcels. FY 2018 ACR at 16.

In this year’s ACD proceeding, a CHIR was issued asking the Postal Service to provide 

estimates of the impact of both a 2 and a 4 percentage point above-average price increase 

for USPS Marketing Mail Parcels on contribution. CHIR No. 17, question 2. In response, the 

Postal Service estimates using FY 2018 costs124 and FY 2018 price elasticities125 that the 

Docket No. R2018-1 price change increased USPS Marketing Mail’s class-wide contribution 

by $223.0 million, and USPS Marketing Mail Parcels’ contribution by $1.22 million. See

PRC–LR–ACR2018/4. In addition, the Postal Service estimates that if the Parcels product 

were to have had its price increased by a 2 percentage points above the class-average price 

 

123 See Order No. 4215 at 37. Most recently, in Docket No. R2019-1, the Commission approved a price increase for USPS Marketing Mail Parcels 

of 2.691 percent, 0.209 percentage points higher than the average price increase for the USPS Marketing Mail class of 2.482 percent. See Order 

No. 4875 at 28.

124 The Postal Service constructed various scenarios to respond to the Commission’s request. CHIR No, 17, question 2; see e.g., section 

B.2.f.(4)(c) n.114.

125 See Postal Service Econometric Estimates of Demand Elasticity for All Postal Products, FY 2018, January 28, 2019.
Docket No. ACR2018 - 78 -

increase in Docket No. R2018-1, it would have had negligible effects on the overall 

contribution of the USPS Marketing Mail class because of USPS Marketing Mail Parcels’ very 

low volume. Since increasing USPS Marketing Mail Parcels prices has little impact on price 

adjustments for other products within the USPS Marketing Mail class, the Commission 

recommends that the Postal Service more aggressively increase USPS Marketing Mail 

Parcels prices.

(4) FY 2018 Directive

The Commission continues to be concerned about the repeated failure of USPS Marketing 

Mail Parcels to cover its costs. The Commission recognizes the steps the Postal Service has 

taken to improve this product’s cost coverage. Nevertheless, the fact remains that there is 

an ongoing cost coverage shortfall that has existed for a significant period of time, and the 

Postal Service’s approach to improving cost coverage appears to be inadequate. Although 

the Commission has not found the rates for this product out of compliance with 39 U.S.C. 

§ 101(d), it is monitoring the growing cost coverage shortfall.

The Commission finds that FY 2018 revenue for USPS Marketing Mail Parcels was not 

sufficient to cover attributable cost. The Postal Service’s approach to improving cost coverage 

through above-average price increases in future Market Dominant price adjustments is 

appropriate, yet still inadequate. The Commission strongly recommends that the Postal 

Service increase USPS Marketing Mail Parcels’ prices by at least 2 percentage points above the 

average price increase for the USPS Marketing Mail class. If the Postal Service chooses not to 

increase USPS Marketing Mail Parcels’ prices by at least 2 percentage points above average, it 

must provide an estimate of the impact of the price increase it proposes on USPS Marketing 

Mail’s class-wide contribution and USPS Marketing Mail Parcels’ specific contribution, as well 

as the impact of a 2 percentage point above-average price increase on USPS Marketing Mail’s 

class-wide contribution and USPS Marketing Mail Parcels’ specific contribution. In addition to 

above-average price increases, the Postal Service should continue to expend a reasonable 

amount of resources given the size of the product to explore and implement opportunities to 

further reduce the unit cost of USPS Marketing Mail Parcels and report on those opportunities 

and results in the FY 2019 ACR.

4. 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 SFS Center in Kansas City, Missouri. It was added 

to the Mail Classification Schedule as a Market Dominant product in FY 2010. Cost has 

exceeded revenue and, consequently, cost coverage has been below 100 percent each year 

since its introduction. Cost coverage showed steady improvement each year through 

FY 2017. See Table III-12. However, in FY 2018, cost coverage declined to 87.4 percent.
Docket No. ACR2018 - 79 -

Table III-12

SFS Cost Coverage, FY 2014–FY 2018

Fiscal Year

Revenue

(in Millions)

Attributable Cost 

(in Millions) Cost Coverage

FY 2014 $3.5 $4.3 82.3%

FY 2015 $3.9 $4.6 85.1%

FY 2016 $3.7 $4.3 87.3%

FY 2017 $3.9 $4.0 97.2%

FY 2018 $3.9 $4.4 87.4%

Source: PRC–LR–ACR2018/7.

The Postal Service attributes the decline in cost coverage to a cost increase of about $0.4 

million. FY 2018 ACR at 41-42. The Postal Service states that the 3.5 percent price increase 

for SFS, recently approved by the Commission in Docket No. R2019-1, is an effort to 

improve the cost coverage. Id. at 42. The Postal Service states that the higher than average 

increase is consistent with the Commission’s comments in the FY 2012 ACD, stating that 

the SFS product “promotes the objectives of reducing costs and increasing efficiency.” Id. 

(quoting FY 2012 ACD at 142).

The Commission finds that FY 2018 revenue for SFS was not sufficient to cover attributable 

cost. However, the financial performance of SFS does not entirely capture the value that the 

Services Center adds to the Postal Service and to other Postal Service products. Although SFS 

does not cover its attributable cost, by providing a mechanism for the centralized ordering of 

stamps, it reduces the costs associated with the retail purchases of stamps. The Commission 

urges the Postal Service to continue its efforts to improve cost coverage for SFS.

5. Market Dominant International Mail

Market Dominant international mail is comprised of nine products: Inbound Letter Post, 

Outbound Single-Piece First-Class Mail International, International Ancillary Services, 

International Reply Coupon Service, International Business Reply Mail Service, Inbound 

Market Dominant Multi-Service Agreements with Foreign Postal Operators 1, Inbound 

Market Dominant Exprès Service Agreement 1, Inbound Market Dominant Registered 

Service Agreement 1, and Inbound Market Dominant PRIME Tracked Service Agreement.

In FY 2018, Inbound Letter Post and International Registered Mail, a component of 

International Ancillary Services, did not cover their attributable costs.
Docket No. ACR2018 - 80 -

a. New Methodology to Distribute International Revenue

(1) Background

The Postal Service uses a new methodology to distribute the revenues received from 

inbound LC/AO126 mail, reported as the Inbound Letter Post and Inbound Market Dominant 

Multi-Service Agreements with Foreign Postal Operators 1 products. In the FY 2017 ACD, 

the Commission directed the Postal Service to update the Commission on the status of the 

Postal Service’s investigation of a shape-based costing methodology for inbound LC/AO 

mail. FY 2017 ACD at 69. In Docket No. RM2018-8, the Postal Service requested approval of 

a shape-based costing methodology for inbound LC/AO mail.127 The Postal Service 

proposed to distribute the revenue it receives from inbound LC/AO dispatches to the 

shapes of the underlying pieces (letters, flats, and small packets/bulky letters). Order No. 

4827 at 8. Specifically, the Postal Service proposed to distribute revenue for each dispatch 

proportionally based on the weight of each shape in the dispatch. Id. The Commission 

approved this methodology, but directed the Postal Service to investigate improving the 

revenue distribution by using both piece and weight data, and to provide an update of its 

investigation in the FY 2018 ACR. Id. at 16-18.

The Postal Service investigated this approach, and instead of applying the methodology 

approved by the Commission in Order No. 4827, it incorporated a new revenue distribution 

methodology that uses both piece and weight data in the ICRA report for its FY 2018 ACR. 

FY 2018 ACR at 11-12. For those dispatches that pay only a per-kilogram price, revenue is 

distributed to shapes based solely on weight. January 11 Response to CHIR No. 1, question 

4. For those dispatches for which both per-item and per-kilogram prices were paid and 

were received prior to February 2018, the Postal Service first calculates per-kilogram 

revenue based on per-kilogram price and distributes that revenue to shapes based on the 

weight distribution. Id.; see Responses to CHIR No. 6, question 17. The Postal Service then 

subtracts per-kilogram revenue from total revenue to estimate per-item revenue, and 

distributes per-item revenue to shapes based on the distribution of each shape in the 

dispatch. Id. For those dispatches that pay both per-item and per-kilogram prices and were 

received after February 2018, per-item revenue and per-kilogram revenue are calculated 

separately and distributed in the manner described above. Id.

(2) Commission Analysis

The methodology the Postal Service uses to distribute revenue for inbound LC/AO mail 

appears to improve the accuracy of the revenue estimates. However, the Commission did 

not previously approve this new methodology. Accordingly, although the Commission uses 

this methodology for assessing compliance in this ACD, the methodology must be 

 

126 LC/AO is an abbreviation for “lettres et cartes” and “autres objets,” and is French for “letters and cards” and “other objects.” LC/AO refers to 

international letters, cards, flats, bulky letters, and small packets, whether under the Universal Postal Union (UPU) terminal dues system or 

bilateral or multilateral agreements. Inbound LC/AO contrasts with Inbound Letter Post, which refers to the Postal Service product consisting of 

letters, cards, flats, bulky letters, and small packets received under the terminal dues system. See Mail Classification Schedule (MCS), Section 

1130.

127 Order No. 4827.
Docket No. ACR2018 - 81 -

thoroughly reviewed by the Commission and stakeholders through a docketed proceeding 

before it can be used in future ACRs.

For purposes of this ACD, the Commission accepts the Postal Service’s revenue distribution for 

inbound LC/AO mail. The Commission concludes however, that this is a change in analytical 

principles that the Commission has not approved and directs the Postal Service to file a 

petition for the initiation of a proceeding to consider this proposed change in analytical 

principles within 90 days of issuance of this ACD.

b. Inbound Letter Post

(1) Background

Inbound Letter Post consists of inbound mail for which foreign postal operators reimburse 

the Postal Service at terminal dues for the delivery of foreign-origin mail.128 Terminal dues 

are prices set by the Universal Postal Union (UPU).129

The Commission reviews the compliance of the Inbound Letter Post product on an annual 

basis. The Inbound Letter Post product has never covered its cost, and the Commission has 

consistently recommended the Postal Service take actions to improve the profitability of 

this product.

On August 23, 2018, President Donald J. Trump issued a presidential memorandum with 

the subject title Modernizing the Monetary Reimbursement Model for the Delivery of Goods 

Through the International Postal System and Enhancing the Security and Safety of 

 

128 Mail Classification Schedule, Section 1130. The Inbound Letter Post product refers to international mail that is not classified as Parcel Post or 

express mail (EMS and Global Express Guaranteed). It consists of mail items similar to domestic First-Class Mail, Periodicals, USPS Marketing 

Mail, BPM Flats/Parcels, and Media Mail/Library Mail, weighing up to 4.4 pounds (2 kilograms). All Inbound Letter Post mail is inbound LC/AO 

mail.

129 The UPU is a United Nations specialized agency comprising 192 member countries, including the United States. Member countries negotiate 

international agreements governing the exchange of international mail, including applicable rates for the delivery of international mail. 

Terminal dues are also referred to as default UPU default rates, because they apply in the absence of an agreement between or among postal 

operators establishing other rates.
Docket No. ACR2018 - 82 -

International Mail.130 Specifically, the memorandum noted that the current terminal dues 

do not fully reimburse the Postal Service for the cost of delivering foreign-origin mail. 

Presidential Memorandum at section 2(c)(i)(A). Additionally, the Presidential 

Memorandum noted that the “current terminal dues rates undermine the goal of 

unrestricted and undistorted competition in cross-border delivery services because they 

disadvantage non-postal operators seeking to offer competing collection and outward 

transportation services for goods covered by terminal dues in foreign markets.”131

The Presidential Memorandum then outlined policies relating to inbound international 

mail and terminal dues. Specifically, the Presidential Memorandum stated that it is the 

policy of the executive branch to support “a system of unrestricted and undistorted 

competition between the United States and foreign merchants. Such efforts include: (i) 

ensuring that rates for the delivery of foreign-origin mail containing goods do not favor 

foreign mailers over domestic mailers; [and] (ii) setting rates charged for delivery of 

foreign-origin mail in a manner that does not favor postal operators over non-postal 

operators[.]”Id., section 2(d).

On October 17, 2018, in a statement from the White House Press Secretary, President 

Donald J. Trump concurred “with the Department of State’s recommendation to adopt selfdeclared rates for terminal dues as soon as practical, but no later than January 1, 2020.”132

The Department of State also filed notice of the withdrawal of the United States from the 

UPU in one year, as set forth in the UPU Constitution. See id. The President instructed the 

Department of State to “negotiate bilateral and multilateral agreements that resolve the 

problems discussed in the Presidential Memorandum. If negotiations are successful, the 

Administration is prepared to rescind the notice of withdrawal and remain in the UPU.” Id.

The Postal Service states that it is working with the Administration to move to a system of 

self-declared rates for Inbound Letter Post mail. FY 2018 ACR at 10.

(2) FY 2018 Financial Results

In FY 2018, revenue for Inbound Letter Post did not cover attributable cost. Cost coverage 

increased from 67.2 percent in FY 2017 to 83.8 percent in FY 2018.133 Total contribution 

 

130 Presidential Memorandum for the Secretary of State, Secretary of the Treasury, Secretary of Homeland Security, Postmaster General, and 

Chairman of the Postal Regulatory Commission, August 23, 2018 (Presidential Memorandum) (available at: 

https://www.whitehouse.gov/presidential-actions/presidential-memorandum-secretary-state-secretary-treasury-secretary-homeland-securitypostmaster-general-chairman-postal-regulatory-commission/).

131 Presidential Memorandum, section 2(c)(i)(B). The Presidential Memorandum defines “postal operator” to mean a “governmental or nongovernmental entity officially designated by a [UPU] member country to operate postal services and to fulfill the related obligations arising out 

of the Acts of the UPU on its territory.” Id., section 1(c). It also defines “non-postal operator” to mean a “private express carrier, freight 

forwarder, or other provider of services for the collection, transportation, and delivery of international documents and packages, other than a 

postal operator.” Id., section 1(b).

132 Statement from the Press Secretary, October 17, 2018 (available at: https://www.whitehouse.gov/briefings-statements/statement-presssecretary-38/).

133 Response to Chairman’s Information Request 20, March 4, 2019, question 1 (Response to CHIR No. 20); FY 2018 ACR at 9.
Docket No. ACR2018 - 83 -

increased from negative $143 million in FY 2017 to negative $81.7 million in FY 2018.

134

The Postal Service notes that Inbound Letter Post covered a greater proportion of its 

attributable costs in FY 2018 than in previous fiscal years. FY 2018 ACR at 10. The Postal 

Service attributes the product’s financial performance to its “unique pricing regime,” as it 

has in past years. Id. The Postal Service states that it “does not independently determine 

the prices [paid by foreign postal operators] for processing and delivery of foreign origin 

mail” in the United States. Id. The Postal Service explains that these prices are set according 

to a UPU terminal dues formula established in the Universal Postal Convention. Id. The 

Postal Service states that the January 2018 and January 2019 increases in terminal dues 

should improve cost coverage for Inbound Letter Post in FY 2019. Id. Additionally, the 

Postal Service notes that it has been collaborating with other federal agencies, including the 

Department of State, to improve cost coverage for Inbound Letter Post, and that it is 

working to “move to a pricing regime of self-declared rates for Inbound Letter Post[.]” Id.

The Postal Service also states that if all revenue flows related to inbound LC/AO mail135

were considered, then inbound LC/AO mail would cover its attributable costs. Id. at 11. The 

Postal Service states that revenues from Inbound Letter Post, International Registered Mail, 

the PRIME Exprès Service Agreement, the PRIME Tracked Service Agreement, the PRIME 

Registered Service Agreement, and the Inbound Market Dominant Multi-Service 

Agreements with Foreign Postal Operators 1 products collectively would cover costs.136

(3) Comments on Inbound Letter Post

The Small Business & Entrepreneurship Council (SBE Council) and the Public 

Representative commented on Inbound Letter Post. The SBE Council expresses concern 

regarding the Postal Service’s “below-cost pricing” for Inbound Letter Post.137 The SBE 

Council states that it is “fundamentally unfair and irrational that foreign mailers continue 

to be charged far lower rates by the [Postal Service] to complete deliveries within the U.S. 

in comparison to the prices that American businesses face to send items from one domestic 

location to another.” Id. The SBE Council calls on the Commission to seek appropriate 

remedies, which include “imploring that the [Postal Service] work in close coordination 

with the Secretary of State to ensure a non-discriminatory pricing system that will provide 

domestic sellers a level playing field in reaching domestic consumers.” Id.

 

134 Response to CHIR No. 20, question 1; PRC–LR–ACR2018/1 Excel file “18 Summary_LR1.xlsx,” tab “FCM_Fees,” cell H56. The Postal Service 

notes that a change in costing methodology resulted in different estimates for contribution for FY 2017, which the Postal Service filed under 

seal in Docket No. RM2018-8. See Response to CHIR No. 20, question 1. In its Response to CHIR No. 20, the Postal Service publicly filed updated 

FY 2017 data for Inbound Letter Post that applied the approved costing methodology. Id.

135 The Postal Service uses the term “Inbound Letter Post” interchangeably to refer to both the Inbound Letter Post product and to all inbound 

LC/AO mail, including inbound LC/AO mail not entered at terminal dues.

136 Id. The Postal Service cites a table that it provided in Library Reference USPS–FY18–NP9 as supporting the statement that all revenue flows 

related to inbound LC/AO mail would cover inbound LC/AO costs. Id.

137 Comments of Small Business & Entrepreneurship Council, January 31, 2019, at 2 (SBE Council Comments).
Docket No. ACR2018 - 84 -

The Public Representative notes that Inbound Letter Post cost coverage increased to 83.8 

percent in FY 2018, which is higher than the product’s cost coverage in FY 2017. PR 

Comments at 29-30. She states that this cost coverage is a marked improvement over 

recent fiscal years and is at its highest level since FY 2011. Id. at 30.

The Public Representative notes that terminal dues increased in January 2018 and suggests 

that, although the new prices did not bring the product into compliance, the progressive 

price increases and continued implementation of the new costing methodology should 

bring Inbound Letter Post cost coverage closer to 100 percent. Id. at 33.

The Postal Service states that it has taken action to address issues related to the Inbound 

Letter Post product. Postal Service Reply Comments at 7. Specifically, the Postal Service 

notes that it requested a transfer of Inbound Letter Post small packets and bulky letters 

from the Market Dominant Inbound Letter Post product to the Competitive Product list, “as 

a precursor to establishing self-declared rates” for Inbound Letter Post small packets and 

bulky letters. Id. The Postal Service states that it is developing a proposal for self-declared 

rates for Inbound Letter Post small packets and bulky letters, which will improve the 

pricing regime for Inbound Letter Post. Id.

(4) Commission Analysis

The Commission acknowledges the increase in cost coverage for Inbound Letter Post from 

67.15 percent in FY 2017 to 83.78 percent in FY 2018.138 The Commission further 

acknowledges the 42.8 percent improvement in contribution from negative $143 million in 

FY 2017 to negative $81.7 million in FY 2018.139 These improvements are in large part due 

to higher terminal dues that were in effect during Quarters 2-4 of FY 2018. However, 

despite these improvements, Inbound Letter Post continues to be noncompensatory.

In Order No. 4980, the Commission conditionally approved the transfer of Inbound Letter 

Post small packets and bulky letters from the Market Dominant Inbound Letter Post 

product to the Inbound Letter Post Small Packets and Bulky Letters product on the 

Competitive Product list pending the proposal, review, approval, and implementation of 

new prices.140 Removal of small packets and bulky letters from the Inbound Letter Post 

product should improve the financial performance of the Inbound Letter Post product. 

Additionally, the terminal dues increases that went into effect in January 2019 should also 

improve Inbound Letter Post cost coverage. The extent of any further improvement in cost 

coverage will depend on Inbound Letter Post quality of service, which is linked to terminal 

dues; changes in costs; and Special Drawing Right (SDR)/U.S. dollar exchange rate 

fluctuations.141

 

138 Response to CHIR No. 20, question 1; PRC–LR–ACR2018/1, Excel file “18 Summary_LR1.xlsx,” tab “FCM_Fees,” cell L56.

139 Responses to CHIR No. 6, question 1; PRC–LR–ACR2018/1, Excel file “18 Summary_LR1.xlsx,” tab “FCM_Fees,” cell H56.

140 Docket No. MC2019-17, Order Conditionally Approving Transfer, January 9, 2019, at 22-23 (Order No. 4980).

141 A SDR is a reserve asset that the International Monetary Fund (IMF) created to serve as a unit of account for the IMF and some international 

organizations, including the UPU. Its value is based on a basket of five major currencies: the U.S. dollar, the Euro, the Chinese renminbi, the 
Docket No. ACR2018 - 85 -

The Commission reiterates its concern regarding the UPU pricing regime that results in 

noncompensatory terminal dues. FY 2017 ACD at 68; FY 2016 ACD at 66. The Commission 

also reiterates its concern that domestic mailers are subsidizing the entry of Inbound 

Letter Post by foreign postal operators who use the same postal infrastructure but bear 

none of the burden of contributing to its institutional costs. Id. Because UPU terminal dues 

are not equivalent to domestic postage rates in the destination country, the Commission 

considers them discriminatory. See id. Copenhagen Economics quantified the impact of the 

UPU terminal dues negotiated at the 2016 UPU Congress that took effect in January 

2018.142 It concluded that these rates would result in a global net financial transfer among 

designated postal operators that ranges from 2.1 billion to 2.4 billion SDR in 2018 to 2.8 

billion to 4 billion SDR in 2021.

143

Furthermore, the Commission notes that terminal dues are only available to designated 

operators,144 and that non-designated operators that provide similar international mailing 

services to Inbound Letter Post are not able to access these terminal dues for inbound 

mailpieces to the United States. The Commission recommends that as the Postal Service 

works with the Administration to move towards a system of self-declared rates, it ensures 

that self-declared rates are consistent with all statutory requirements of 39 U.S.C. 

§ 3633(a) and policies outlined in the Presidential Memorandum, including that the selfdeclared rates do not favor designated operators over non-designated operators.

The Commission finds that FY 2018 revenue for Inbound Letter Post was not sufficient to 

cover attributable cost. The Commission recommends that the Postal Service, in coordination 

with the Department of State, negotiate bilateral and multilateral agreements that contain 

rates for UPU letter post mail that are more compensatory than terminal dues. The 

Commission further recommends that the Postal Service file rates for the Competitive Inbound 

Small Packets and Bulky Letters product as soon as possible.

 

Japanese yen, and the British pound sterling. On March 4, 2019, the IMF exchange rate for one SDR was $1.3922 U.S. dollars (available at:

http://www.imf.org/external/np/fin/data/rms_five.aspx).

142 See Copenhagen Economics, Terminal Dues: Impact on financial transfers among designated postal operators of the Universal Postal Union 

2018-2021 cycle agreements, September 22, 2017 (available at: 

https://www.prc.gov/sites/default/files/reports/Terminal%20Dues_Impact%20on%20financial%20transfers_FINAL%2022%20September%2020

17.pdf).

143 A global net financial transfer is the difference between the actual compensation that designated postal operators receive from delivering 

inbound cross-border letter mail at UPU terminal dues and the compensation that they would require in a situation without the UPU terminal 

dues system in place (i.e., domestic postage rates).

144 Designated operators are “any governmental or non-governmental entity officially designated by the member country to operate postal 

services and to fulfill the related obligations arising out of the Acts of the [Universal Postal Union] on its territory.” Convention Manual, Article 

1.12, 2018 (available at: http://www.upu.int/uploads/tx_sbdownloader/actManualsInThreeVolumesConventionManualEn.pdf).
Docket No. ACR2018 - 86 -

c. Quality of Service Link to UPU Terminal Dues

(1) Background

The Postal Service did not maximize revenue for Inbound Letter Post in FY 2018. Under the 

UPU Quality Link Measurement System (QLMS), terminal dues can be adjusted downward 

if the Postal Service does not achieve the UPU-established annual service performance 

target; they can also be adjusted upward if the Postal Service achieves or exceeds the 

target.145 In FY 2018, the Postal Service did not achieve the annual target.146 The Postal 

Service also reported the amount of its forfeited revenue due to not meeting the UPU 

service performance target.147 Based on the Calendar Year (CY) 2018 service performance 

results available to date, the Postal Service’s service performance for Inbound Letter Post 

under QLMS decreased from CY 2017 and the amount of forfeited revenue increased.

148

In CY 2018, nine UPU members began participating in the Quality of Service Link, including: 

Belarus, Bosnia and Herzegovina, China, Kazakhstan, Lebanon, Malaysia, Russia, Thailand, 

and Turkey.149 The Postal Service states that inbound mail volume from these countries 

“often arrives with improper format separation[,]” which “often results in delays, especially 

where packets are processed in different facilities from letters and flats.”150 The Postal 

Service states that it is attempting to mitigate the impact of improper format separation by 

reporting these issues to the transgressing posts for correction and by having International 

Service Centers (ISC) personnel separate formats prior to offloading the sacks for 

processing.151

The Postal Service detailed various steps it is taking to improve its service performance for 

Inbound Letter Post in its FY 2018 Service Performance Report.152 These steps include: 

“regular communications with key ISC personnel[;]” individual ISC projects and initiatives 

to improve performance; and a Black Belt Lean Six Sigma project to improve inbound 

international letter performance.153

 

145 Responses of the United States Postal Service to Questions 1-10 of Chairman’s Information Request No. 14, February 22, 2019, question 9, 

Revised Response of the United States Postal Service to Chairman’s Information Request No. 1, question 5 (Responses to CHIR No. 14).

146 Id. See Library Reference USPS–FY18–NP32, January 11, 2019, file “USPS-FY18-NP32.Preface.pdf;” Library Reference USPS–FY18–NP37, 

February 8, 2019, file “USPS-FY18-NP37.Q20ChIR6.Preface.pdf.”

147 USPS–FY18–NP32, file “USPS-FY18-NP32.Preface.pdf;” USPS–FY18–NP37, file “USPS-FY18-NP37.Q20ChIR6.Preface.pdf.”

148 See USPS–FY18–NP32, file “USPS-FY18-NP32.Preface.pdf;” USPS–FY18–NP37, file “USPS-FY18-NP37.Q20ChIR6.Preface.pdf.”

149 Universal Postal Union, UPU QS Link – participation 2018 (available at: 

http://www.upu.int/fileadmin/documentsFiles/activities/letterPostDevelopment/participationQlugEn.pdf).

150 Responses to CHIR No. 14, question 9, Revised Response of the United States Postal Service to Chairman’s Information Request No. 3, 

question 14.

151 Responses to CHIR No. 14, question 9, Revised Response of the United States Postal Service to Chairman’s Information Request No. 7, 

question 2.

152 Library Reference USPS–FY18–29, December 28, 2018, file “FY18-29 Service Performance Report.pdf,” at 8. See January 28 Responses to 

CHIR No. 3, question 16.

153 USPS–FY18–29, file “FY18-29 Service Performance Report.pdf,” at 8; January 28 Responses to CHIR No. 3, question 16.
Docket No. ACR2018 - 87 -

(2) Commission Analysis

The Commission concludes that the Postal Service’s service performance for Inbound 

Letter Post declined in FY 2018. As a result of decreased service performance and 

increased Inbound Letter Post volume in FY 2018, the Postal Service forfeited more 

revenue than in FY 2017 for not meeting the UPU service performance target.

The Postal Service states that it is taking steps to address its declining service performance 

for Inbound Letter Post mailpieces. These steps include increased coordination between 

ISCs and headquarters and optimizing placement of radio-frequency identification readers 

to better track the movement of mail and identify points of failure in the system.154 The 

Postal Service is also reviewing inbound mail flows to “identify potential opportunities for 

delays, rework, or other inefficiencies[, and] will devise solutions to eliminate these 

inefficiencies, pilot them, and review results.” January 28 Responses to CHIR No. 3, 

question 16.b.

However, the steps outlined by the Postal Service do not appear to address the issue that 

large volumes of inbound mailpieces are not properly separated by format by the 

dispatching postal operator, which the Postal Service cites as the cause for the decline in 

service performance.

The Commission directs the Postal Service to provide both International Mail Measurement 

System (IMMS) and QLMS CY 2018 and CY 2019 performance reports for Inbound Letter Post, 

aggregations of weekly failure reports, and an analysis of the failures and steps being taken to 

improve service performance in the FY 2019 ACR. The Commission also directs the Postal 

Service to state in its FY 2019 ACR whether it forfeited revenue in CY 2018 and CY 2019 based 

on its QLMS results for the Inbound Letter Post product. If the Postal Service forfeited revenue 

in CY 2018 and CY 2019, the Commission directs the Postal Service to provide the forfeited 

amounts for CY 2018 and for CY 2019 based on all results available to date and explain how 

this amount is calculated based on service performance results.

d. Inbound Letter Post Data Required by 39 C.F.R. 

§ 3050.21(l)

(1) Background

In Docket No. RM2018-2, the Commission revised its periodic reporting requirements 

codified in 39 C.F.R. part 3050.155 These revised annual reporting rules require the Postal 

Service to provide Inbound Letter Post revenue, volume, attributable cost, and contribution 

data by UPU country group and by shape. Order No. 4836 at 13, 29; see 39 C.F.R. 

§ 3050.21(l). The Postal Service filed the newly required Inbound Letter Post data by UPU 

country group and by shape for FY 2017 and FY 2018 and provided Inbound Letter Post 

 

154 USPS–FY18–29, file “FY18-29 Service Performance Report.pdf,” at 8; January 28 Responses to CHIR No. 3, question 16.

155 Docket No. RM2018-2, Order Amending Rules for Periodic Reporting, September 25, 2018, at 1 (Order No. 4836).
Docket No. ACR2018 - 88 -

data by UPU country group for FY 2014, FY 2015, and FY 2016 under seal in USPS–FY18–

NP9.156

(2) Comments

UPS observes that, in Docket No. RM2018-2, the Commission did not specify that the Postal 

Service publicly file newly required Inbound Letter Post revenue, volume, attributable cost, 

and contribution data by UPU country group and by shape and that the Postal Service chose 

to report this data under seal.157 UPS Comments at 18. UPS asserts that there is “nothing 

competitively sensitive about the top-line, aggregated revenue, volume, attributable cost, 

and contribution data for Inbound Letter [P]ost.” Id. (internal quotation marks omitted). 

UPS notes that some “‘country group’ data may indirectly disclose data regarding the Postal 

Service’s international partners.” Id. UPS states that such data should be aggregated to the 

extent there is “a legitimate confidentiality concern and then disclosed.” Id. UPS asserts that 

it is prepared to submit a motion to unseal such data pursuant to 39 C.F.R. § 3007.400 if 

necessary. Id. at 18-19. In addition, UPS requests that “the Commission review the Postal 

Service’s non-public treatment of international competitive data, and order the Postal 

Service to disclose its international competitive data to the extent that it does not meet the 

Commission’s standards for non-public treatment[.]” Id. at 19.

In its reply comments, the Postal Service states that to the extent that “‘top-line, 

aggregated’ revenue, volume, cost, and contribution” data have been publicly reported in 

the CRA report, the Postal Service does not disagree that there is nothing commercially 

sensitive about that data. Postal Service Reply Comments to UPS and PostCom at 5. The 

Postal Service contends that UPS concedes that Inbound Letter Post data aggregated by 

country group may result in potentially harmful disclosure regarding international 

partners. Id. The Postal Service states that this concern is magnified now that Inbound 

Letter Post small packets and bulky letters have been conditionally transferred from 

Market Dominant to Competitive Product lists. Id.

(3) Commission Analysis

When issuing the new periodic reporting rules in Order No. 4836, the Commission did not 

direct the Postal Service to file the aggregated Inbound Letter Post revenue, volume, 

attributable cost, and contribution data publicly. See Order No. 4836 at 21. Instead, the 

Commission stated that “[t]o the extent that the Postal Service believes that public 

disclosure of Inbound Letter Post data separated by UPU country group and shape would 

cause a commercial harm, [the Postal Service] could file an application for non-public 

treatment pursuant to [39 C.F.R.] §§ 3007.200 and 3007.201[.]” Id. The Commission also 

 

156 FY 2018 ACR at 12. On December 13, 2018, the Postal Service filed a motion requesting a partial waiver of 39 C.F.R. § 3050.21(l). Motion of 

the United States Postal Service for Partial Waiver of Rule 3050.21(l) Regarding Inbound Shape Data, December 13, 2018. The Postal Service 

requested a partial waiver of the requirement to report Inbound Letter Post revenue, volume, attributable costs, and contribution data by 

shape for fiscal years prior to FY 2017 as the Postal Service asserted that such data was unavailable. Id. at 1. The Commission granted the Postal 

Service’s motion. Order Granting Partial Waiver, December 21, 2018, at 1-2 (Order No. 4943).

157 Initial Comments of United Parcel Service, Inc. on United States Postal Service’s Annual Compliance Report for Fiscal Year 2018, February 19, 

2019, at 18 (UPS Comments).
Docket No. ACR2018 - 89 -

noted that, if the Postal Service filed the required data under seal, there are procedures in 

place for participants or the Commission to unseal material filed non-publicly by the Postal 

Service. Id; see 39 C.F.R. §§ 3007.103, 3007.104, 3007.400. The Commission stated that it 

“will address the non-public status of data filed under [39 C.F.R. § 3050.21(l)], if and when 

the Postal Service files the data under seal and if the Commission issues a preliminary 

determination concerning the appropriate degree of protection, if any, to be accorded to 

the materials filed under seal.” Id.

As part of the ACD, the Commission analyzes the Inbound Letter Post revenue, volume, 

attributable cost, and contribution data, by UPU country group and by shape, in Library 

Reference PRC–LR–ACR2018/NP3. The Commission’s library reference modifies the data 

provided in USPS–FY18–NP9 to exclude data for international mail products other than the 

Inbound Letter Post product, such as Inbound International Registered Mail and Market 

Dominant NSAs.158 In addition, PRC–LR–ACR2018/NP3 also includes product-specific costs 

in addition to the volume variable costs the Postal Service provided to determine 

attributable costs for Inbound Letter Post. The Commission’s analysis identifies some 

trends specific to certain shapes and for mailpieces originating from specific UPU country 

groups.

Because the Postal Service filed the underlying data under seal, the Commission files both 

the Inbound Letter Post data and the analysis contained in PRC–LR–ACR2018/NP3 under 

seal. However, concurrent with the FY 2018 ACD, the Commission is issuing a preliminary 

determination to unseal its analysis and PRC–LR–ACR2018/NP3.159

e. International Ancillary Services

(1) Background

International Ancillary Services consists of International Certificate of Mailing, 

International Registered Mail, International Return Receipt, and Customs Clearance and 

Delivery Fee. Mail Classification Schedule, Section 1510. In FY 2018, the International 

Ancillary Services product as a whole covered its attributable cost. FY 2018 ACR at 41. 

However, one component of the product, International Registered Mail, did not cover its 

attributable cost.

The Postal Service states that International Registered Mail did not cover its costs “by a 

small amount.” FY 2018 ACR at 43. The Postal Service also states that the additional 

payment per item for Inbound International Registered Mail increased from 0.69 SDR to 

1.10 SDR in CY 2018 and to 1.20 SDR in CY 2019, which should help to improve cost 

 

158 The Postal Service revised the data it provided in USPS–FY18–NP9 to exclude M-Bag data. Responses to CHIR No. 3, question 13; see Library 

Reference USPS–FY18–NP34, January 28, 2019, Excel file “ChIR.3.Q.13 IB LP Shape.Group.FY18.xlsx,” tab “Summary.”

159 Notice of a Preliminary Determination to Unseal Library Reference PRC–LR–ACR2018/NP3, April 12, 2019 (Order No. 5055).
Docket No. ACR2018 - 90 -

coverage. Id. The Postal Service also points out that the pre-UPU Istanbul Congress rates 

were in effect during the first quarter of FY 2018.160

The Postal Service notes that its participation in the voluntary supplementary 

remuneration for inbound registered items furnished additional revenue for inbound 

registered items. FY 2018 ACR at 43. The Postal Service further notes that, during FY 2018, 

additional foreign postal operators became parties to the Inbound Market Dominant 

Registered Service Agreement 1 multilateral agreement. Id.

(2) Comments

Only the Public Representative commented on International Ancillary Services. In her 

comments, she notes that the International Ancillary Services product as a whole covered 

its attributable cost, although the cost coverage for International Registered Mail within 

International Ancillary Services was below cost. PR Comments at 52. She highlights that the 

cost coverage for International Registered Mail increased in FY 2018, and that a 64.2 

percent price increase for International Registered Mail, which went into effect in January 

2018, significantly contributed to this improved cost coverage. Id. at 53-54.

The Public Representative opines that the Postal Service’s strategy to help International 

Registered Mail cover its costs, which is identical to the Postal Service’s strategy in FY 2016 

and FY 2017, may now be working to some extent because International Ancillary Services

is in compliance in FY 2018 even though International Registered Mail’s cost coverage was 

below 100 percent.161 She finds that the Postal Service’s strategy is reasonable due to 

International Registered Mail’s positive movement toward compliance. Id.

The Public Representative also notes that, in the FY 2017 ACD, the Commission 

recommended that the Postal Service identify and implement ways to reduce costs for 

International Registered Mail and observes that the product cost remained roughly 

consistent in FY 2018, while revenue increased significantly. Id. at 54.

(3) Commission Analysis

The Commission finds that the International Ancillary Services product was compensatory 

in FY 2018. It also finds that although the cost coverage for the International Registered 

Mail component of International Ancillary Services improved significantly over FY 2017, it 

remains noncompensatory. However, unlike in FY 2017, the noncompensatory nature of 

International Registered Mail did not result in negative cost coverage for the International 

Ancillary Services product as a whole.

 

160 Id. The UPU rate for Inbound International Registered Mail in effect during 2017 was 0.67 SDR. See Universal Postal Convention Doha 2012, 

Article 29.8 (available at: http://www.upu.int/uploads/tx_sbdownloader/act2012DecisionsDohaEn.pdf).

161 Id. at 53. This strategy includes the scheduled price increase for International Registered Mail in January 2019; the Postal Service’s 

participation in the voluntary supplementary remuneration for inbound registered items; and the increased number of foreign postal operators 

participating in the Inbound Market Dominant Registered Service Agreement 1. Id.
Docket No. ACR2018 - 91 -

The improvement in cost coverage for International Registered Mail is due, in part, to a 

price increase for Inbound International Registered Mail from 0.67 SDR to 1.10 SDR, which 

went into effect in January 2018. FY 2018 ACR at 43. The Commission notes that Inbound 

International Registered Mail prices increased again, to 1.20 SDR, in January 2019. Id. This 

price increase should help to improve the cost coverage of International Registered Mail in 

FY 2019.

Previously, the Commission recommended that the Postal Service identify and implement 

ways to reduce costs for International Registered Mail. FY 2017 ACD at 73. The Commission 

notes that International Registered Mail costs slightly increased in FY 2018. The 

Commission also observes that the costs for this product are somewhat volatile. The Postal 

Service recorded 104 In-Office Cost System (IOCS) tallies for Inbound International 

Registered Mail in FY 2018, and the cost coverage range is 24 percentage points below and 

45 percentage points above the cost coverage provided by the Postal Service in the ACR. 

Responses to CHIR No. 17, question 6.

The Commission urges the Postal Service to continue efforts to limit cost increases for 

International Registered Mail and to promote greater participation by foreign postal 

operators in the Inbound Market Dominant Registered Service Agreement 1, which provides 

more compensatory prices for registered mail services for inbound mailpieces from 

participating foreign postal operators.

6. Customized Postage

The Postal Service initially reported zero revenue for Customized Postage in FY 2018, and 

$72,241 in cost.

162 The Postal Service attributed the lack of revenue to the fact that there is 

only one Customized Postage vendor. January 28 Responses to CHIR No. 3, question 1. The 

Postal Service stated that it planned to prepare a revised authorization for its Customized

Postage vendor, and collect applicable fees sufficient to cover costs for the years 2018 and 

2019. Id. The Public Representative noted that cost coverage for Customized Postage was 

1,353 percent in FY 2017, suggesting that the Postal Service’s claims were “likely 

correct.”163

The Postal Service subsequently updated its FY 2018 Customized Postage revenue, stating 

that it received a payment of $325,000, covering the period May 2018 to May 2019. 

Responses to CHIR No. 22, question 1. The Postal Service reports Customized Postage 

revenue for FY 2018 as $121,875, or 168.7 percent cost coverage.164

 

162 Library Reference USPS–FY18–1, December 28, 2018 (PCRA).

163 PR Comments at 55 (citing Docket No. ACR2017-1, Library Reference PRC–LR–ACR2017/1, March 29, 2018, Excel file “17 Summary_LR1.xlsx,” 

tab “MD Services_Fees.”).

164 Responses of the United States Postal Service to Questions 1-5 of Chairman’s Information Request No. 22, March 13, 2019, question 1.
Docket No. ACR2018 - 92 -

The Commission finds that FY 2018 revenue for Customized Postage was sufficient to cover 

attributable cost for the product. The Commission directs the Postal Service to continue to 

report Customized Postage revenue for the fiscal year covered by the ACR.

7. Stamped Envelopes

The Stamped Envelopes product is an Ancillary Service that consists of both Plain and 

Personalized Stamped Envelopes with imprinted or impressed First-Class Mail postage. In 

FY 2016, revenue for Stamped Envelopes failed to cover attributable cost. FY 2016 ACD at 

63. The Postal Service stated that the reason for failure to cover cost was that the reported 

revenue did not include the Personalized Stamped Envelopes premium option or shipping 

fees revenue. FY 2016 ACR at 64. The Commission directed the Postal Service to “realign its 

revenue and cost calculations for Stamped Envelopes” or improve cost coverage through 

above-average price increases. FY 2016 ACD at 63. In FY 2017, the Postal Service again did 

not include shipping fees in its reported Stamped Envelope revenue or CRA.165

In the FY 2018 ACR, the Postal Service reports revenue of $12.6 million and attributable 

cost of $12.1 million for Stamped Envelopes, including shipping fees. FY 2018 ACR at 41.

The Public Representative comments that without the inclusion of shipping fees, revenue 

for Stamped Envelopes falls from $12.6 million to $11.2 million, resulting in cost coverage 

of only 92.6 percent. PR Comments at 54. The Public Representative notes concern about a 

nearly 52 percent increase in the attributable cost for Stamped Envelopes, with only a 3 

percent increase in revenue. Id. at 55.

The Commission finds that revenue for Stamped Envelopes covered 105.0 percent of 

attributable cost for the product, and that the inclusion of shipping fees in the revenue 

calculation is consistent with the Commission’s directive in the FY 2016 ACD. However, the 

Commission shares the concerns of the Public Representative regarding the trend of 

increasing cost, and encourages the Postal Service to take steps to prevent attributable cost 

for Stamped Envelopes from exceeding revenue. Additionally, the Postal Service should be 

consistent, year to year, in its revenue and cost calculations regarding the inclusion of revenue 

from premium options and shipping fees.

8. Media Mail/Library Mail

In FY 2018, Media Mail/Library Mail had a cost coverage of 76.7 percent, a 1.0 percent 

increase compared with FY 2017.166 Unit contribution increased 0.6 cents per piece from 

FY 2017 to FY 2018.167 FY 2018 was the twelfth consecutive year that Media Mail/Library 

Mail did not generate sufficient revenues to cover attributable costs. Docket No. R2019-1 

included an above-average price increase for Media Mail/Library Mail. FY 2018 ACR at 40. 

 

165 Docket No. ACR2017, Library Reference USPS–FY17–1, December 29, 2017.

166 See FY 2018 ACR at 39; FY 2017 ACD at 75.

167 Unit contribution increased from a loss of $1.124 per piece in FY 2017 to a loss of $1.065 in FY 2018. FY 2017 ACR at 40; FY 2018 ACR at 39.
Docket No. ACR2018 - 93 -

The Postal Service states that it intends to continue to improve the cost coverage of Media 

Mail/Library Mail through above-average price increases. Id. Table III-13 shows the history 

of price increases for Media Mail/Library Mail under the PAEA.
Docket No. ACR2018 - 94 -

Table III-13

Media Mail/Library Mail

Price Adjustment vs. Price Adjustment Authority

Docket No. Media Mail/Library 

Mail 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%

R2015-4 2.197% 1.966%

R2017-1 1.135% 0.871%

R2018-1 1.993% 1.987%

Source: PRC–LR–ACR2018/6.

The Public Representative notes the small increase in cost coverage for Media Mail/Library 

Mail in FY 2018 compared with FY 2017. PR Comments at 48. She points to the decrease in 

cost-per-piece of 1.0 percent and the increase in revenue-per-piece of 0.2 percent as 

evidence that the Postal Service has complied with the Commission’s FY 2017 ACD request 

that it reduce the unit cost of Media Mail/Library Mail. Id. She notes that FY 2018 is the 

second year that the cost coverage for Media Mail/Library Mail slightly increased, and 

concurs with the Postal Service’s stated approach of continuing to apply above-average 

price increases to improve cost coverage. Id. at 48, 49.

Media Mail/Library Mail did not cover its attributable cost or make a contribution to 

institutional costs in FY 2018. The Commission has previously recognized that Media 

Mail/Library Mail has educational, cultural, scientific, or informational value to the 

recipient of the mail matter. See, e.g., FY 2017 ACD at 76; FY 2016 ACD at 71; FY 2015 ACD 

at 67.

The Commission finds that FY 2018 revenue for Media Mail/Library Mail was not sufficient to 

cover attributable cost. However, the Postal Service’s approach to improve cost coverage 

through above-average price increases in future Market Dominant price adjustments is 

appropriate. The Commission also encourages the Postal Service to explore opportunities to 

further reduce the unit cost of Media Mail/Library Mail.

9. Domestic Market Dominant NSAs

Domestic Market Dominant NSAs must comply with 39 U.S.C. § 3622(c)(10). That section 

requires that such agreements either “improve the net financial position of the Postal 

Service” or “enhance the performance of mail preparation, processing, transportation, or 
Docket No. ACR2018 - 95 -

other functions” and that they “not cause unreasonable harm to the marketplace.” 39 U.S.C. 

§ 3622(c)(10).

After approving a Market Dominant NSA, the Commission evaluates it for compliance with 

39 U.S.C. § 3622(c)(10). The Commission reviews the NSA’s performance during “contract 

years,” 12-month periods measured from the time the contract was implemented. The 

Commission reviews the contract year that ended during the fiscal year covered by the 

ACD.

For domestic Market Dominant NSAs, the current accepted analytical principle for 

estimating volume changes due to the Postal Service’s pricing incentive programs uses 

price elasticity to estimate the new volume generated.168 This principle provides for 

consideration of “the financial impact of price incentives to increase mail volume or to shift 

mail volume between products should be based on the Postal Service’s best estimate of the 

price elasticity of the discounted product.” Order No. 738 at 3.

In FY 2018, one domestic Market Dominant NSA was in effect: the PHI Acquisitions, Inc. 

(PHI) NSA.169 The PHI NSA is a 5-year NSA approved by the Commission in Docket Nos. 

MC2014-21 and R2014-6.170 The Commission evaluates the PHI NSA based on its 

performance during Contract Year 4 (July 1, 2017 through June 30, 2018), which ended in 

FY 2018. For Contract Year 4 Quarters 3 and 4 (January 1, 2018 through June 30, 2018), 

PHI and the Postal Service agreed to suspend the Postal Service’s obligation to pay 

rebates.171 On June 19, 2018, PHI and the Postal Service agreed to terminate the PHI NSA 

on June 30, 2018, the end of Contract Year 4.172

PHI qualified for $837,000 in discounts in Contract Year 4 Quarters 1 and 2. Because there 

was no volume in Contract Year 4 Quarters 3 and 4, the PHI NSA did not meet the annual 

volume threshold for Contract Year 4. Using the elasticity-based accepted analytical 

principle, the Postal Service estimates that the PHI NSA resulted in a net financial 

contribution of negative $837,000.173 The Postal Service acknowledges that the PHI NSA 

did not comply with 39 U.S.C. § 3622(c)(10)(A) in FY 2018, but contends that no additional 

remedial action is warranted because the contract was terminated. Id. at 45. 

 

168 Docket No. RM2010-9, Order Terminating Proceeding, May 27, 2011, at 1 (Order No. 738) (quoting Docket No. RM2008-4, Order No. 104, 

Notice of Proposed Rulemaking Prescribing Form and Content of Periodic Reports, August 22, 2008, at 9).

169 FY 2018 ACR at 43. International Market Dominant NSAs are discussed in section B.8.d., supra.

170 See Docket Nos. MC2014-21 and R2014-6, Order Adding PHI Acquisitions, Inc. Negotiated Service Agreement to the Market Dominant 

Product List, June 19, 2014 (Order No. 2097).

171See Docket Nos. MC2014-21 and R2014-6, Notice of the United States Postal Service of Temporary Suspension of Contract, December 8, 

2017.

172 See Docket Nos. MC2014-21 and R2014-6, Notice of the United States Postal Service of Termination of Agreement, June 19, 2018.

173 FY 2018 ACR at 44.
Docket No. ACR2018 - 96 -

In Contract Year 1, the PHI NSA made a net financial contribution of $112,000. In Contract 

Year 2, the PHI NSA made a net financial contribution of negative $1,047,000. In Contract 

Year 3, the PHI NSA made a net financial contribution of negative $123,000. In Contract 

Year 4, the PHI NSA made a net financial contribution of negative $837,000. Over the 4 

years that the agreement was in effect, the PHI NSA made a net financial contribution of 

negative $1,895,000. 

In the original filing for Docket Nos. MC2014-21 and R2014-6, the Postal Service provided 

estimates of incremental volume and net financial contribution for each year of the PHI 

NSA.174 Over the 4-year duration of the PHI NSA, the Postal Service estimated incremental 

volume of 282 million and a net financial contribution of $7,558,000. Id. Over the 4-year 

duration of the PHI NSA, the actual incremental volume was 80 million and the actual net 

financial contribution was negative $1,895,000.175

Incremental volume for the PHI NSA was only achieved in Contract Years 1 and 2. In 

Contract Year 1, the incremental volume estimate of 46 million was close to the actual 

incremental volume of 41 million, but the net financial contribution estimate of $1,279,000 

was much higher than the actual net financial contribution of $112,000. Id. Even though 

there was actual incremental volume in Contract Year 2 (39 million compared to an 

estimated 70 million), the large increase in costs during that year resulted in negative net 

financial contribution. Id. For Contract Year 2, the cost per piece estimate was $0.184 and 

the actual cost per piece was $0.216. Id. In Contract Years 3 and 4, the rebate was paid on a 

quarterly basis but annual volume thresholds were not met; thus, there was zero 

incremental volume and negative net financial contribution.

The Commission is concerned that the Postal Service’s actions regarding the PHI NSA 

indicate a continuing lack of institutional oversight. The Commission reminded the Postal 

Service in its FY 2016 ACD and FY 2017 ACD that it is responsible for negotiating and 

overseeing NSAs and ensuring that any Market Dominant NSA it enters into continues to 

improve the net financial position of the Postal Service. See 39 U.S.C. § 3622(c)(10)(A). The 

fact that the Postal Service decided only in Contract Year 4 to temporarily suspend the 

contract and to finally terminate the contract at the end of Contract Year 4 is troubling, 

given that it had ample opportunity to either terminate the contract or negotiate an 

amendment to the contract sooner.

The Commission finds that the PHI NSA did not meet the criteria of 39 U.S.C. § 3622(c)(10)(A) 

in Contract Year 4. Over the 4-year duration of the PHI NSA, the Commission finds that the 

contract did not meet the criteria of 39 U.S.C. § 3622(c)(10)(A).The Postal Service terminated 

the PHI NSA at the end of Contract Year 4; therefore, no further action is necessary.

 

174 See Docket Nos. MC2014-21 and R2014-6, Notice of the United States Postal Service of Filing of Contract and Supporting Data and Request 

to Add PHI Acquisitions, Inc. Negotiated Service Agreement to the Market-Dominant Product List, March 5, 2014, Excel file 

“PHI_NSA_Financials.FINAL.xlsx.”

175 See PRC–LR–ACR2018/8, Excel file “FY18 MD NSA Net Impact.xlsx.”
Docket No. ACR2018 - 97 -

C. Other Issues

1. First-Class Mail Product Cost Coverage Disparity

As in previous ACD dockets, several commenters raise the issue of high cost coverage for 

First-Class Mail, both at the class level,176 and comparatively within the class.177

Commenters suggest that the high cost coverage of First-Class Mail should trigger

consideration of the Postal Service’s rate design as a part of this proceeding.178 SBE Council 

suggests that the cost coverage of 205.24179 percent should be “instructive throughout this 

fiscal determination, and validate[s] the success of the previous pricing regimes and pricecap mechanisms.” SBE Council Comments at 1-2. The National Postal Policy Council (NPPC)

reiterates comments from previous ACD proceedings, noting that “First-Class Mail volumes 

continued to decline, and Presort Mail continued to make an exorbitant contribution to 

institutional costs.” NPPC Comments at 1. As in previous proceedings, Pitney Bowes 

suggests that the Postal Service should “rebalance the cost coverage and unit contributions 

among First-Class Mail products[,]” and that “[l]owering prices on more profitable and 

price sensitive Presort letters will help stimulate and maintain Presort letters volume, 

which would improve the Postal Service’s financial position.” Pitney Bowes Comments at 3.

In its reply comments, the Postal Service notes that the price cap is applied at the class 

level, affording the Postal Service the flexibility to apply non-uniform price adjustments 

within a class. Postal Service Reply Comments at 4. The Postal Service acknowledges “some 

products have higher cost coverages than others, and takes that fact into consideration in 

its rate design.” Id. It suggests that it is not the Commission’s responsibility to consider 

whether a different rate design could or should be established, and indicates it will 

“continue to balance the needs of its customers with opportunities for greater pricing and 

operational efficiencies, consistent with the PAEA’s requirements.” Id.

The Commission has previously noted that the Postal Service’s pricing flexibility, subject to the 

inflation-based cap, can be used to apply non-uniform price adjustments within a class.180

With respect to First-Class Mail cost coverage disparities, the Commission continues to 

encourage the Postal Service to balance its own needs with those of its customers.

 

176 SBE Council Comments at 1-2.

177 Pitney Bowes Comments at 3; Comments of the National Postal Policy Council, February 14, 2019, at 1 (NPPC Comments).

178 Other commenters express concern with the First-Class Mail rate increase approved in Docket No. R2019-1, which was not in effect during 

FY 2018. TPA Comments at 1; ACI Comments at 2; SBE Council Comments at 1; GCA Comments at 5. Because the rates approved by the 

Commission in Docket No. R2019-1 were not in effect during FY 2018, those rates are outside the scope of the FY 2018 ACD, which examines 

the compliance of rates or fees in effect during FY 2018. 39 U.S.C. § 3653(b)(1).

179 Subsequent to the comment deadline, the Postal Service filed a revision to the CRA report that resulted in cost coverage of 204.22 percent 

for First-Class Mail. See PRC–LR–ACR2018/1, Excel file “18Summary_LR1.xlsx,” tab “SUM_Current_Fees,” cell J39.

180 FY 2017 ACD at 79.
Docket No. ACR2018 - 98 -

2. Status of ACR Docket

PostCom states its concern with the “duration of [the ACR] proceedings” and asserts that 

“the Commission takes up the ACR while previous ACR dockets remain open.” PostCom 

Comments at 13. Further, PostCom claims the CHIRs are “left open for years, well after the 

rates underlying the ACR in question have changed and compliance has been determined.” 

Id. PostCom submits that if the Commission identifies a serious issue in the ACR docket that 

it “should open a new docket, aggressively pursue an answer, and order any relief it finds 

appropriate.” Id. at 14.

Contrary to PostCom’s assertions, the Commission’s ACD is finished on the date of issuance 

and there is no unfinished proceeding that continues for years. Within the ACD, the 

Commission has directed the Postal Service to remedy various issues and report on 

corrections. As part of those directives to report on corrections and other issues, the Postal 

Service files responses in the ACR docket corresponding to the ACD directive. This is to 

ensure that all information relating to Commission directives and reporting is readily 

accessible in the related ACR docket as opposed to creating new dockets for each distinct 

reporting requirement, which would require interested persons to search multiple dockets 

to view Postal Service responses to the Commission’s ACD directives.
Docket No. ACR2018 - 99 -

CHAPTER 4: COMPETITIVE PRODUCTS

A. Introduction

In this chapter, the Commission reviews Competitive products to determine whether any 

rates or fees in effect during FY 2018 were not in compliance with 39 U.S.C. § 3633, which:

 Prohibits subsidization of Competitive products by Market Dominant products: 

39 U.S.C. § 3633(a)(1)

 Requires that each Competitive product cover its attributable cost: 39 U.S.C. 

§ 3633(a)(2)

 Requires that, collectively, Competitive products cover an appropriate share of the 

Postal Service’s institutional costs: 39 U.S.C. § 3633(a)(3)

The principal FY 2018 findings for Competitive products are:

 Revenues for Competitive products as a whole exceeded incremental costs. 

Competitive products were not subsidized by Market Dominant products during 

FY 2018, thereby satisfying 39 U.S.C. § 3633(a)(1).

 Revenues for six Competitive products did not cover attributable costs and 

therefore did not comply with 39 U.S.C. § 3633(a)(2). The Competitive products that 

did not cover attributable costs are: two domestic NSAs, International Priority 

Airmail (IPA), International Money Transfer Service—Inbound (IMTS—Inbound), 

International Ancillary Services, and Officially Licensed Retail Products (OLRP).

 Collectively, Competitive products satisfied the requirement that they provide a 

minimum contribution of 5.5 percent to institutional costs.181 As a result, 

Competitive products satisfied 39 U.S.C. § 3633(a)(3) during FY 2018.

B. Cross-Subsidy Provision: 39 U.S.C. 

§ 3633(a)(1)

39 U.S.C. § 3633(a)(1) requires that Competitive products not be subsidized by Market

Dominant products. To determine compliance, the Commission uses the incremental cost 

test, which calculates the costs incurred by Competitive products collectively, and 

compares those costs to the revenue generated by Competitive products collectively. As 

 

181 See 39 C.F.R. § 3015.7(c). The Commission updated this rule on January 3, 2019 to replace the 5.5 percent minimum contribution with one 

determined by a formula. See Docket No. RM2017-1, Order Adopting Final Rules Relating to the Institutional Cost Contribution Requirement for 

Competitive Products, January 3, 2019 (Order No. 4963); see also section 4.D., infra.
Docket No. ACR2018 - 100 -

long as the revenue from Competitive products exceeds those products’ incremental costs, 

the Commission can conclude that no cross-subsidization has occurred.182

Because the collective incremental costs of Competitive products are greater than the sum 

of the attributable cost of each product, using collective incremental costs raises the 

Competitive product cost floor when testing for cross-subsidies.183 Therefore, the 

incremental cost model provides a more rigorous test for determining compliance with 

39 U.S.C. § 3633(a)(1) than the attributable cost coverage requirement of 39 U.S.C.

§ 3633(a)(2).

The American Consumer Institute Center for Citizen Research (ACI) states that crosssubsidization is “implicit within the intertwined monopoly and competitive service 

lines.”184 ACI states that the Postal Service does not disclose sufficient financial detail for 

the public to determine the extent of the cross-subsidization, but claims that capital 

expenditures and depreciation expenses associated with delivery vehicles are not allocated 

appropriately, demonstrating that the Postal Service is “clearly and unequivocally violating 

the PAEA.” ACI Comments at 2-3.

The Postal Service encourages the Commission to reject ACI’s claim that Competitive 

products were cross-subsidized by Market Dominant products. Postal Service Reply 

Comments at 15. The Postal Service states that ACI’s arguments are without merit and 

notes that other commenters agree that “competitive products easily satisfied the crosssubsidy test in FY 2018.” Postal Service Reply Comments at 14-15.

The Public Representative notes that Competitive product revenues exceeded their 

incremental costs, and thus “concludes that the Postal Service’s market dominant products 

did not subsidize its competitive products in FY 2018.” PR Comments at 66.

Pitney Bowes also notes that Competitive product revenues exceeded their incremental 

costs, and concludes that “competitive products were not cross-subsidized by market 

dominant products and were in compliance with 39 U.S.C. § 3633(a)(1).” Pitney Bowes 

Comments at 4.

The Commission recently updated the methodological procedures used to estimate 

incremental costs.185 The Postal Service applied this new methodology when reporting 

incremental costs for FY 2018. FY 2018 ACR at 68. Using this methodology, in FY 2018 the 

incremental costs of Competitive products were $15.466 billion and the total revenues of 

 

182 See Docket No. RM2007-1, Order Proposing Regulations to Establish a System of Ratemaking, August 15, 2007, at 65 (Order No. 26).

183 Docket No. RM2010-4, Order Accepting Analytical Principles Used in Periodic Reporting (Proposals Twenty-Two through Twenty-Five), 

January 27, 2010, at 4-5 (Order No. 399).

184 Comments of American Consumer Institute Center for Citizen Research Regarding Docket No. ACR2018, January 31, 2019, at 2 (ACI

Comments).

185 Order No. 4719.
Docket No. ACR2018 - 101 -

Competitive products were $23.059 billion.186 Accordingly, in FY 2018 revenues from 

Competitive products exceeded incremental costs.

None of the commenters offer evidence to suggest that the magnitude of any potential 

misallocation of costs is sufficiently large that correction would result in the incremental 

costs of Competitive products exceeding their revenues. As FY 2018 revenues from 

Competitive products exceeded incremental costs, there is no evidence to suggest that 

Competitive products are being illegally cross-subsidized by Market Dominant products.

The Commission finds Competitive products satisfied 39 U.S.C. § 3633(a)(1) in FY 2018.

C. Product Cost Coverage Provision: 39 U.S.C. 

§ 3633(a)(2)

39 U.S.C. § 3633(a)(2) requires the revenue for each Competitive product to cover its 

attributable cost. Below, the Commission discusses the FY 2018 financial performance for 

five separate Competitive product groupings:

 Competitive domestic products with rates of general applicability

 Competitive domestic products consisting of NSAs187

 Competitive international products with rates of general applicability

 Competitive international products consisting of NSAs

 Competitive nonpostal services.

1. Competitive Domestic Products with Rates of 

General Applicability

In FY 2018, there were 12 Competitive domestic products with rates of general 

applicability: Priority Mail Express; Priority Mail; Parcel Select; Parcel Return Service; 

First-Class Package Service; Retail Ground; Address Enhancement Services; Greeting Cards, 

Gift Cards, and Stationery; Competitive Ancillary Services;188 Premium Forwarding Service; 

Post Office Box Service; and Shipping and Mailing Supplies.

In FY 2018, every Competitive domestic product with rates of general applicability covered its 

attributable cost and thereby satisfied the statutory requirements of 39 U.S.C. § 3633(a)(2).

 

186 See PRC–LR–ACR2018/1 Excel file “18 Summary_LR1.xlsx,” tab “Appendix A (Incremental Costs),” cells C21:D21.

187 As discussed in Chapter 3, an NSA is a written contract between the Postal Service and a mailer, to be in effect for a defined period, 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 C.F.R. 

§ 3001.5(r).

188 The Competitive Ancillary Services product consists of the following services: Adult Signature and Package Intercept Service. See Mail 

Classification Schedule, Section 2645 (MCS).
Docket No. ACR2018 - 102 -

2. Competitive Domestic Products Consisting of 

NSAs

As shown in Table IV-1, in FY 2018, there were 885 Competitive domestic products 

consisting of NSAs.

Table IV-1

Competitive Domestic NSA Products in Effect during FY 2018

Competitive Domestic NSA Product Groupings Number of Productsa

First-Class Package Service Contracts 49

Parcel Return Service Contracts 6

Parcel Select & Parcel Return Service Contracts 2

Parcel Select Contracts 13

Priority Mail—Non-Published Ratesb Contracts 327

Priority Mail & First-Class Package Service Contracts 71

Priority Mail Contracts 290

Priority Mail Express & Priority Mail Contracts 51

Priority Mail Express Contracts 34

Priority Mail Express, Priority Mail & First-Class Package Service Contracts 39

Priority Mail & Parcel Select Contracts 0

Priority Mail Express & First-Class Package Service Contracts 3

Total 885

a With the exception of NSAs entered into under the Priority Mail—Non-Published Rates (Priority Mail—NPR) product, each Competitive 

domestic NSA is a separate product.

b

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.

Source: Library Reference USPS–FY18–NP27, December 28, 2018.

a. Attributable Cost Coverage

39 U.S.C. § 3633(a)(2) requires each Competitive domestic NSA product to cover its 

attributable cost. The Commission finds that all but two Competitive domestic NSAs 

covered their attributable costs and complied with this statutory requirement. The 

Competitive domestic NSAs that did not cover their attributable costs were Priority Mail 

Contract 179 and Priority Mail Contract 433. USPS–FY18–NP27. The Postal Service states 

that Priority Mail Contract 179 has been terminated.

When the Commission approved Priority Mail Contract 433, it required quarterly reporting 

to permit the “Commission to confirm that the Postal Service’s financial models contain 

reasonable cost assumptions and accurately account for all costs associated with [this 

contract].”189 The Postal Service states that it is closely evaluating Priority Mail Contract 

 

189 Docket Nos. MC2018-149 and CP2018-215, Order Adding Priority Mail Contract 433 to the Competitive Product List, May 30, 2018, at 5-6 

(Order No. 4626).
Docket No. ACR2018 - 103 -

433 and will renegotiate prices if necessary. See FY 2018 ACR at 69. Despite this quarterly 

reporting demonstrating a failure of Priority Mail Contract 433 to cover its costs, the Postal 

Service has not acted to renegotiate prices. This contract is not a market test and the 

Commission is concerned at this contract’s failure to cover its costs. As a result, the 

Commission directs the Postal Service to provide monthly, rather than quarterly, reporting 

for Priority Mail Contract 433. The increased frequency of reporting will permit the 

Commission to more-closely monitor the agreement and take corrective action if cost 

coverage does not improve.

Three other agreements had components that failed to cover their attributable costs, but 

still covered those costs as a whole. USPS–FY18–NP27. The Public Representative states 

that these agreements require special attention by the Postal Service and the Commission 

to make sure that they do not become out of compliance if the product mix changes. PR 

Comments at 71.

The Public Representative also notes that the number of domestic NSAs that did not cover 

their attributable costs declined from 4 NSAs in FY 2017 and 13 NSAs in FY 2016. Id.

The Commission finds that Priority Mail Contract 179 and Priority Mail Contract 433 were 

not in compliance with 39 U.S.C. § 3633(a)(2) in FY 2018. Because Priority Mail Contract 179 

is no longer active, no further action is required. For Priority Mail Contract 433, the 

Commission directs the Postal Service to change from quarterly reporting to monthly 

reporting starting with April 2019, with each monthly report due no later than 30 days after 

the end of that month. Additionally, the Commission directs the Postal Service to report within 

90 days of issuance of this ACD whether it intends to renegotiate prices for Priority Mail 

Contract 433.

b. Failure to Report NSA Terminations

The Postal Service did not report data for six NSAs which, based on their original expiration 

dates, would have been active in FY 2018.190 A CHIR was issued asking why no data was 

reported for the six NSAs.191 The Postal Service responded that all six were terminated 

prior to FY 2018 and that it would file termination notices in those dockets.192 Since 2009, 

the Commission has consistently required the Postal Service to promptly notify the 

 

190 See Responses of the United States Postal Service to Questions 1-20 of Chairman’s Information Request No. 3, January 28, 2019, question 17 

(January 28 Responses to CHIR No. 3).

191 Chairman’s Information Request No. 3, January 11, 2019, question 17.

192 January 28 Responses to CHIR No. 3, question 17. The termination notices were filed on January 28, 2019. See Docket Nos. MC2016-20 and 

CP2016-26, USPS Notice of Termination of Priority Mail Express & Priority Mail Contract 22, January 28, 2019; Docket Nos. MC2016-32 and 

CP2016-38, USPS Notice of Termination of Priority Mail Express Contract 30, January 28, 2019; Docket Nos. MC2016-93 and CP2016-118, USPS 

Notice of Termination of Priority Mail Express Contract 34, January 28, 2019; Docket Nos. MC2016-119 and CP2016-149, USPS Notice of 

Termination of First-Class Package Service Contract 51, January 28, 2019; Docket Nos. MC2016-141 and CP2016-178, USPS Notice of 

Termination of First-Class Package Service Contract 54, January 28, 2019; Docket Nos. MC2016-161 and CP2016-232, USPS Notice of 

Termination of Priority Mail Express Contract 38, January 28, 2019.
Docket No. ACR2018 - 104 -

Commission when NSAs terminate prior to their scheduled expiration date.193 The 

Commission issued Order No. 5053 in the affected dockets, requiring the Postal Service to 

provide additional information on its failure to report NSA terminations in compliance with 

this requirement.194

3. Competitive International Products with Rates of 

General Applicability

Ten Competitive international mail products have rates and fees of general applicability: 

Outbound International Expedited Services; Outbound Priority Mail International; Inbound 

Parcel Post (at UPU rates); First-Class Package International Service (FCPIS); International 

Surface Airlift (ISAL); International Priority Airmail (IPA); International Direct Sacks—MBags; IMTS—Outbound; IMTS—Inbound;195 and International Ancillary Services.196

The Commission finds that three products, IPA, IMTS—Inbound, and International 

Ancillary Services did not satisfy 39 U.S.C. § 3633(a)(2).

a. International Cost and Revenue Analysis

The International Cost and Revenue Analysis (ICRA) serves as the basis for the 

Commission’s analysis of international mail volume, weight, cost, and revenue data. Its 

accuracy is paramount to the Commission’s compliance determination. This year, the ICRA

that was initially filed on December 28, 2018197 contained errors that led to the Postal 

Service filing a revised version on February 11, 2019.198 This revision affected the 

Commission’s compliance determinations in several ways.

First, the February 11 ICRA not only included corrected data, but also introduced a new 

methodology for the distribution of PRIME enhanced payments.199 Second, numerous 

agreements that appeared to be noncompensatory based on the data submitted in the 

December 28 ICRA were shown to be compensatory based on the revised data.200 This was 

a result of both the new distribution for PRIME enhanced payments, along with corrections 

to the calculation of domestic cost savings for worksharing discounts in certain NSAs.

201

 

193 Docket Nos. MC2009-13 and CP2009-17, Order Concerning Express Mail & Priority Mail Contract 3 Negotiated Service Agreement, January 

16, 2009, at 6 (Order No. 172) (“The Postal Service shall promptly notify the Commission if the contract terminates, earlier than 3 years from 

the effective date of the contract.”).

194 Docket Nos. MC2016-20, et al., Order Requiring Additional Information, April 10, 2019 (Order No. 5053).

195 IMTS—Inbound consists of bilateral and multilateral agreements with foreign postal operators.

196 International Ancillary Services consists of Certificates of Mailing, Registered Mail, Return Receipt, Restricted Delivery, Insurance, and 

Customs Clearance and Delivery Fees.

197 Library Reference USPS–FY18–NP2, December 28, 2018 (December 28 ICRA).

198 Library Reference USPS–FY18–NP2 (revised), February 11, 2019 (February 11 ICRA).

199 February 11 ICRA, file “FY18 NP2 Preface.Revised.2.11.19.pdf” at 6-10 (February 11 ICRA Preface); see also section 4.C.3.b, infra.

200 See section 4.C.4., infra.

201 February 11 ICRA Preface at 7.
Docket No. ACR2018 - 105 -

Finally, both inbound and outbound M-bags are classified as competitive, but in the 

December 28 ICRA the Postal Service reported the inbound M-bags as part of Inbound 

Letter Post. January 28 Responses to CHIR No. 3, question 12. The Postal Service asserts 

that the impact is “minimal”202 and did not correct this error in the February 11 ICRA. The 

Commission observes that incorporating inbound M-bags with outbound M-bags does not 

affect the compliance of either International Direct Sacks—M-Bags or Inbound Letter Post.

The Commission directs the Postal Service to incorporate inbound M-Bags into the 

International Direct Sacks—M-Bags Competitive product in future ICRA filings.

b. New Methodology to Distribute Payments in the 

International Cost and Revenue Analysis

The Postal Service uses a new methodology to distribute PRIME enhanced payments in the 

February 11 ICRA.

203 In the current accepted methodology, the Postal Service distributes 

all of these payments to FCPIS because they could previously only be treated as an

indistinguishable aggregate. February 11 ICRA Preface at 7. Improvements in the Postal 

Service’s data systems have resulted in the ability to distinguish PRIME payments 

according to the products that incur these payments. Id. In revising the ICRA, the Postal 

Service used these newly available data to distribute the PRIME enhanced payments among 

FCPIS, Commercial ePackets, and IPA NSAs. Id. at 7-9.

The new methodology the Postal Service uses to distribute PRIME enhanced payments 

appears to improve the accuracy of the cost estimates. However, the Commission did not

previously approve this new methodology. Although the Commission will use this 

methodology for assessing compliance in this ACD, the methodology must be thoroughly 

reviewed by the Commission and stakeholders through a docketed proceeding before it can 

be used in future ACRs.

For purposes of this ACD, the Commission accepts the Postal Service’s distribution of PRIME 

enhanced payments. The Commission concludes however, that this is a change in analytical 

principles that the Commission did not approve and directs the Postal Service to file a petition 

for the initiation of a proceeding to review this proposed change in analytical principles 

within 90 days of issuance of this ACD.204

c. International Priority Airmail

In FY 2018, IPA did not cover its attributable costs. FY 2018 ACR at 69. The Postal Service 

observes that the majority of IPA mail is included in NSAs “that are reported within the 

 

202 See id.

203 Responses to CHIR No. 14. PRIME is an agreement among approximately 141 Designated Postal Operators working together in the tracked 

packet area wherein the parties remunerate each other for the timely return of scans with an enhanced payment due in addition to the basic 

per item payment. February 11 ICRA Preface at 6.

204 See also section 4.C.3.b., infra (describing an additional requirement when filing the required petition).
Docket No. ACR2018 - 106 -

competitive International [NSA] categories.” Id. The Postal Service further states that the 

volumes, revenues, and costs for the IPA product are developed as residuals after 

subtracting the directly estimated NSA data.205 As a result, the Postal Service does not 

directly estimate volumes, revenues, and costs for this product, and any variance in the 

costs for IPA as a whole (including NSAs) can affect the non-NSA IPA product. FY 2018 ACR 

at 69-70. The Postal Service also notes that prices for this product increased 19.9 percent in 

January 2019, which should improve cost coverage. Id. at 70.

The last time the IPA product was noncompensatory was in FY 2013.206 In the FY 2013 

ACD, the Commission directed the Postal Service to recommend modifications to its costing 

methodology, which the Commission later approved in Docket No. RM2014-6.

207

In her comments, the Public Representative observes that in FY 2013 the Postal Service 

provided similar justification for the inability of IPA to cover costs, and that the 

Commission was skeptical of such justification. PR Comments at 67. She, however, expects 

cost coverage to improve in FY 2019. Id.

The Postal Service implies that the non-NSA IPA cost data may be unreliable because they 

are calculated as the residual cost after measured IPA NSA costs (which are calculated as 

part of NSA products rather than the IPA product) are subtracted from total IPA costs 

(including both IPA and IPA NSAs). See FY 2018 ACR at 69-70. Because non-NSA IPA 

volume is small in comparison to IPA NSA volume, variance in the IPA NSA cost 

measurements results in even greater variability for the residual IPA costs. Id. at 70. The 

Commission notes that no attempt has been made to quantify the variability of IPA cost 

calculations to determine if it is large enough to explain the reported failure of IPA to cover 

its costs in FY 2018.

The Commission also observes that transportation and delivery costs for the IPA product 

significantly increased in percentage terms in FY 2018. This growth alone, however, is 

insufficient to explain the noncompensatory status of IPA.

The Commission further notes that the greatest increase in IPA costs is in settlement 

charges. This increase was disproportionately high for the IPA product as compared to IPA 

NSAs. The Postal Service states that country-specific information on IPA NSA volume is 

unavailable, resulting in the use of average terminal dues for IPA NSA mail.208

 

205 Id. at 69-70; see also January 28 Responses to CHIR No. 3, question 19.

206 See FY 2013 ACD at 84 (showing IPA as noncompensatory in FY 2013); FY 2014 ACD at 74-75 (showing IPA as compensatory in FY 2014);

FY 2015 ACD at 84 (showing IPA as compensatory in FY 2015); FY 2016 ACD at 83 (showing IPA as compensatory in FY 2016); FY 2017 ACD at 

85-86 (showing IPA as compensatory in FY 2017).

207 See FY 2013 ACD at 86; Docket No. RM2014-6, Order on Analytical Principles Used in Periodic Reporting (Proposals Three through Eight), 

September 10, 2014, at 6-9 (Order No. 2180).

208 Library Reference USPS–FY18–NP35, January 28, 2019, Preface, question 12.
Docket No. ACR2018 - 107 -

Finally, as part of its revisions to the ICRA, the Postal Service developed a new methodology 

to distribute PRIME enhanced payments. See section 4.C.3.b., supra. In applying this 

methodology, the Postal Service distributed these payments to the IPA product, despite 

asserting that only IPA NSAs incur these payments. Responses to CHIR No. 14, question 5.b. 

As part of its petition to change analytical principles, the Postal Service should revisit the 

method used for this distribution.

The Commission finds that IPA was not in compliance with 39 U.S.C. § 3633(a)(2) in FY 2018. 

The Commission directs the Postal Service to report on the following issues involving IPA

within 90 days of the issuance of this ACD:

 The feasibility of directly estimating the costs of the IPA product.

 The feasibility of developing country-specific information on IPA NSA volume or, 

alternatively, a methodology to distribute settlement charges more accurately.

 The estimated variance of the reported non-NSA IPA product costs based on an 

analysis of the variance of each of the measurements used to calculate non-NSA IPA 

product costs. This analysis should include the variance at the cost segment and

component level.

Additionally, the Commission directs the Postal Service, when it files a petition for the 

initiation of a proceeding to consider the proposed change in analytical principles for PRIME 

enhanced payments, to ensure that the proposed distribution does not allocate these NSAspecific costs to the non-NSA IPA product.

209

d. International Ancillary Services

Revenue for International Ancillary Services was less than attributable cost in FY 2018 

because Outbound International Insurance did not cover its attributable cost. The Postal 

Service observes that the Commission approved a change in the attribution of international 

indemnities, which slightly decreased indemnities attributed to Outbound International 

Insurance. FY 2018 ACR at 71-72. The Postal Service notes that it increased prices for 

Priority Mail Express International (PMEI) insurance and Priority Mail International (PMI) 

insurance in FY 2018 and increased prices again in FY 2019. Id. at 72.

The Postal Service also reports that only 7 IOCS tallies were recorded for Outbound 

International Insurance, leading to a cost coverage that ranged from 13 percentage points 

below to 21 percentage points above the reported figure.210 However, the Commission 

notes that even the upper bound of this interval would not result in Outbound International

Insurance covering its costs.

The Public Representative suggests that the low cost coverage could be related to the 

 

209 See section 4.C.3.b., supra.

210 Responses to CHIR No. 17.
Docket No. ACR2018 - 108 -

relatively high volatility of IOCS-based unit cost estimates. PR Comments at 69. Therefore, 

she is unable to conclude that the cost coverage is fully reliable. Id. She also suggests that 

the January 2019 price increase may still be insufficient to bring Outbound International 

Insurance into compliance. Id. at 69-70. In its reply comments, the Postal Service expresses 

its belief that the combination of the January 2019 price increases and the change in the 

costing methodology provides a reasonable prospect that the cost coverage for Outbound 

International Insurance will exceed 100 percent in FY 2019. Postal Service Reply 

Comments at 17.

The Commission notes that while the change in methodology reduced indemnities for 

Outbound International Insurance, in FY 2018 indemnities attributed to Outbound 

International Insurance alone exceeded revenues. One possible reason for this would be a 

deficiency in the costing methodology. When additional insurance is purchased for a 

mailpiece, all of the associated indemnity is assigned to the Outbound International 

Insurance product, rather than the amount of the indemnity greater than the value of the 

built-in insurance.

211 Additionally, the Commission finds that the data the Postal Service 

provided concerning Outbound International Insurance raises concerns about the accuracy 

of the revenue data, as discrepancies exist between published rates and reported revenue 

per piece.

212

The Commission finds that International Ancillary Services was not in compliance with 

39 U.S.C. § 3633(a)(2) in FY 2018. The Commission directs the Postal Service to investigate the 

discrepancies between published rates and reported revenue per piece. The Commission 

further directs the Postal Service to file a report within 120 days of issuance of this ACD on the 

results of this investigation and on the feasibility of disaggregating indemnities between 

insurance included in the product and additional insurance purchased for the mailpiece.

e. International Money Transfer Service—Inbound

In FY 2018, revenue for the IMTS—Inbound product was less than attributable cost. By 

comparison, in FY 2017, revenues for both IMTS—Inbound and IMTS—Outbound were less 

than attributable costs. FY 2017 ACD at 86.

The Postal Service observes that the costs for IMTS “remain subject to variation,” as 

evinced by only four IOCS tallies for IMTS—Inbound and IMTS—Outbound. FY 2018 ACR at 

70-71. Moreover, the Postal Service had no IOCS tallies for IMTS—Inbound specifically. 

Responses to CHIR No. 17, question 5.

In the FY 2015 ACD, the Commission directed the Postal Service to report on the obstacles 

to exiting or renegotiating the agreements that comprise IMTS—Inbound. FY 2015 ACD 

at 85. The Postal Service reported that terminating or renegotiating these agreements 

 

211 See Docket No. RM2018-9, Responses of the United States Postal Service to Questions 1-4 of Chairman’s Information Request No. 1, July 19, 

2018, question 1.b. (Docket No. RM2018-9 Responses to CHIR No. 1).

212 Library Reference USPS–FY18–NP39, February 15, 2019, Preface, question 1.
Docket No. ACR2018 - 109 -

requires a delegation of authority from the Department of State under the Circular 175 

process.213 In the FY 2016 ACD, the Commission recommended that the Postal Service 

request a delegation of authority from the Department of State under the Circular 175 

process to terminate or renegotiate the agreements that comprise the IMTS—Inbound 

product. FY 2016 ACD at 84. In the FY 2017 ACD, the Commission required the Postal 

Service to request the delegation of authority. FY 2017 ACD at 87. The Postal Service 

informed the Commission that it complied with that requirement within the required 

120-day time period.214 In its FY 2018 ACR, the Postal Service indicates that it awaits a 

response from the State Department. FY 2018 ACR at 71. The Public Representative finds 

these actions “appropriate.” PR Comments at 68.

The Commission finds that IMTS—Inbound was not in compliance with 39 U.S.C. § 3633(a)(2) 

in FY 2018. The Commission directs the Postal Service to provide an update on the status of 

the request for a delegation of authority under the Circular 175 process from the Department 

of State to terminate or renegotiate the agreements that comprise the IMTS—Inbound 

product within 120 days of issuance of this ACD.

4. Competitive International Products Consisting of 

NSAs

Competitive international mail also includes products with rates and fees not of general 

applicability that are 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.

At the request of the Postal Service, and to address administrative concerns involving 

product reporting and classification on the Competitive Product list, the Commission 

permitted the grouping of functionally equivalent international NSAs with the express 

understanding that each NSA within a product must cover its attributable cost.215

Functionally equivalent international NSAs are also collectively evaluated as a product for 

compliance with 39 U.S.C. § 3633(a)(2).

The Postal Service reports volume, revenue, and cost data for each Competitive 

international NSA. For FY 2018, the Postal Service provides this data for 914 international 

NSAs, 901 of which include negotiated rates for outbound mail and 13 of which include 

negotiated rates for inbound mail.216 The financial results for Competitive outbound and 

inbound international products consisting of NSAs are discussed below.

 

213 See Docket No. ACR2015, Second Response of the United States Postal Service to Commission Requests for Additional Information in the 

FY 2015 Annual Compliance Determination, June 27, 2016, question 2.

214 Docket No. ACR2017, Third Response of the United States Postal Service to Commission Requests for Additional Information in the FY 2017 

Annual Compliance Determination, July 26, 2018, at 2.

215 See, e.g., Docket Nos. CP2011-34, et al., Order Approving Five Additional Global Expedited Package Services 3 Negotiated Service 

Agreements, December 1, 2010, at 5 (Order No. 601).

216 PRC–LR–ACR2018/NP2.
Docket No. ACR2018 - 110 -

a. Competitive Outbound International Products Consisting 

of NSAs

Competitive outbound international products with negotiated rates are classified on the 

Competitive Product list. Table IV-2 shows the FY 2018 product category for each of these 

products for which the Postal Service reports FY 2018 financial results.217

Table IV-2

Competitive Outbound International Products by Category (FY 2018)218

Product Category Product Name

GEPS Contracts

GEPS 3

GEPS 5

GEPS 6

GEPS 7

GEPS 8

GEPS 9

Global Expedited Package Services (GEPS)—

Non-Published Rates

Global Expedited Package Services (GEPS)—NPR 10

Global Expedited Package Services (GEPS)—NPR 11

Global Expedited Package Services (GEPS)—NPR 12

Global Expedited Package Services (GEPS)—NPR 13

Global Expedited Package Services (GEPS)—NPR 14

Global Plus Contracts

Global Plus 1D

Global Plus 3

Global Plus 4

Global Reseller Expedited Package Contracts Global Reseller Expedited Package Services 2

Global Reseller Expedited Package Services 4

Priority Mail International – Regional Rate Boxes PMI RRB 1

Source: PRC–LR–ACR2018/NP2.

The Postal Service also reports financial results for each outbound international NSA 

within these products. The Postal Service initially identified six NSAs that did not generate 

sufficient revenues to cover their attributable costs. FY 2018 ACR at 72. However, all six of 

these NSAs were shown to actually be compensatory in the February 11 ICRA. Additionally, 

the Commission identified 23 additional NSAs as noncompensatory based on the December 

28 ICRA,219 17 of which were shown to be compensatory in the February 11 ICRA. Of the 

remaining six NSAs identified by the Commission as noncompensatory, the Postal Service 

 

217 The Postal Service does not report FY 2018 financial results for the following Competitive outbound international products: Global Direct 

Contracts 1, Global Bulk Economy Contracts, Global Plus 2C, GREPS 1, GREPS 3, GEPS—NPR 2, GEPS—NPR 3, GEPS—NPR 4, GEPS—NPR 5, 

GEPS—NPR 6, GEPS—NPR 7, GEPS—NPR 8, GEPS—NPR 9, Priority Mail International Regional Rate Boxes—NPR, Alternative Delivery Provider 

(ADP) Contracts 1, and Alternative Delivery Provider Reseller (ADP) Contracts 1. There was no volume for these products in FY 2018 and, in 

many instances, the Postal Service replaced them with products of a similar nature.

218 This table presents outbound international products by product category as they appear in the MCS.

219 See Chairman's Information Request No. 7 and Notice of Filing Under Seal, February 1, 2019, question 1 (CHIR No. 7); Chairman’s Information 

Request No. 8 and Notice of Filing Under Seal, February 5, 2019, question 1 (CHIR No. 8).
Docket No. ACR2018 - 111 -

reports that five had very low volume and that all have expired.220 However, none of these 

six NSAs were standalone products, and each was grouped with other functionally 

equivalent NSAs to form the products. In each case, the relevant products covered their 

attributable costs.

The Commission concludes that Competitive outbound international products consisting of 

NSAs satisfied 39 U.S.C. § 3633(a)(2) because revenue exceeded attributable cost for each 

product. When the Postal Service files its FY 2019 ACD it should correctly identify all 

Competitive outbound international products consisting of NSAs that do not cover costs.

b. Competitive Inbound International Products Consisting of 

NSAs

Competitive inbound international products with negotiated rates are classified on the 

Competitive Product list. Table IV-3 shows the Competitive inbound international products 

for which the Postal Service reports FY 2018 financial results.221

Table IV-3

Competitive Inbound International Products by Category (FY 2018)222

Product Category Product Name

International Business Reply Service 

Competitive Contracts

International Business Reply Service

Competitive Contracts 3

Inbound EMS Inbound EMS 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

Inbound Competitive Multi-Service Agreements 

with Foreign Postal Operators 1

Source: PRC–LR–ACR2018/NP2.

The Postal Service also reports financial results for each inbound international Competitive 

NSA. Negotiated rates for all 12 of the NSAs generated sufficient revenues to cover their 

attributable costs in FY 2018.

The Commission concludes that Competitive inbound international products consisting of 

NSAs satisfied 39 U.S.C. § 3633(a)(2) because revenues exceeded attributable cost for each 

product.

 

220 See Library Reference USPS–FY18–NP38, February 12, 2019, Preface, question 1 (responding to CHIR No. 7) and question 1 (responding to 

CHIR No. 8).

221 The Postal Service does not report FY 2018 financial results for four Competitive inbound international products: International Business 

Reply Service Competitive Contract 1, Inbound Direct Entry Contracts with Customers, Inbound Direct Entry Contracts with Foreign Postal 

Administrations, and Inbound Direct Entry Contacts with Foreign Postal Administrations 1. There was no volume for these products in FY 2018, 

and, in several instances, the Postal Service replaced them with products of a similar nature.

222 This table presents outbound international products by product category as they appear in the MCS. In the case of Inbound Competitive 

Multi-Service Agreements with Foreign Postal Operators 1, the product name is the same name as the product category.
Docket No. ACR2018 - 112 -

5. Competitive Nonpostal Services

In FY 2018, Competitive nonpostal services223 generated $151.9 million in revenue and 

incurred $40.2 million in expenses, which resulted in a net revenue of $111.7 million. 

USPS–FY18–NP27 Preface. This figure represents a 2 percent decrease compared to 

FY 2017, but an overall cost coverage of 378 percent.

One competitive nonpostal product, OLRP, did not cover attributable costs.

The Commission finds that OLRP was not in compliance in FY 2018, as revenue did not cover 

attributable costs. The Commission directs the Postal Service to identify and implement ways 

to bring cost coverage to or above 100 percent for OLRP.

D. Appropriate Contribution Provision: 

39 U.S.C. § 3633(a)(3)

39 U.S.C. § 3633(a)(3) requires the Commission to “ensure that all competitive products 

collectively cover what the Commission determines to be an appropriate share of the 

institutional costs of the Postal Service.” 39 U.S.C. § 3633(b) requires the Commission to 

review the appropriate share requirement every 5 years to determine whether the 

requirement “should be retained in its current form, modified, or eliminated.” In 

implementing section 3633 after the PAEA was enacted, the Commission set the initial 

appropriate share requirement at 5.5 percent of total institutional costs.224 In 2012, the 

Commission conducted its first review of the appropriate share and found it appropriate to 

maintain the requirement at 5.5 percent.225

Following its second review of the appropriate share, which was initiated in FY 2017, the 

Commission implemented a new, formula-based methodology for determining what the 

appropriate share should be. See Order No. 4963. Under this approach, the appropriate 

share is to be updated annually as part of the ACD. Id. at 27. The final rule adopting the new 

appropriate share methodology was issued on January 3, 2019, and became effective on 

March 2, 2019. See id. During FY 2018, the required appropriate share under the 

Commission’s regulations remained 5.5 percent. The first year to which the new 

methodology will be applicable is FY 2019. Therefore, for compliance purposes in this ACD, 

the appropriate share is 5.5 percent.

 

223 The seven Competitive products are: (1) Licensing of Intellectual Property Other Than Officially Licensed Retail Products; (2) Mail Services 

Promotion; (3) OLRP; (4) Passport Photo Service; (5) Photocopying Service; (6) Rental, Leasing, Licensing or Other Non-Sale Disposition of 

Tangible Property; and (7) Training Facilities and Related Services. Docket No. MC2010-24, Order Approving Mail Classification Schedule 

Descriptions and Prices for Nonpostal Service Products, December 11, 2012, at 4 (Order No. 1575).

224 See Docket No. RM2007-1, Order Establishing Ratemaking Regulations for Market Dominant and Competitive Products, October 29, 2007, at 

90-92 (Order No. 43).

225 See Docket No. RM2012-3, Order Reviewing Competitive Products’ Appropriate Share Contribution to Institutional Costs, August 23, 2012, at 

24-25 (Order No. 1449).
Docket No. ACR2018 - 113 -

1. Comments on Appropriate Contribution 

Provision

The Commission received comments related to the appropriate contribution provision 

from the Taxpayers Protection Alliance (TPA), SBE Council, Pitney Bowes, UPS, the National 

Taxpayers Union (NTU), and the Public Representative. The Postal Service, Amazon.com

Services, Inc. (Amazon), and the Parcel Shippers Association (PSA) all filed reply comments.

TPA asserts that the appropriate contribution requirement as currently constituted 

compromises the Postal Service’s financial position.

226 TPA concedes that the formulabased approach recently adopted by the Commission was “a step in the right direction,” but 

it maintains that the attribution of costs to Competitive products remains significantly 

lower than the actual share of costs created by Competitive products, which it asserts to be 

approximately 20 percent.

227

SBE Council and NTU both state that they support the Commission’s decision to frequently 

revisit the appropriate share amount based on market conditions.

228 However, SBE Council

maintains that current market conditions “largely suggest . . . that a rigid 8.8 percent 

appropriate share is insufficient.”229

Pitney Bowes asserts that in FY 2018 Competitive products satisfied the appropriate 

contribution requirement, because their actual contribution to institutional costs was 

approximately 25 percent. Pitney Bowes Comments at 4.

UPS expresses the view that even under the Commission’s new formula-based approach, 

the required appropriate share remains so low that it is “effectively meaningless.”230

The Public Representative notes that in FY 2018 Competitive products contributed

approximately 24.7 percent to institutional costs. PR Comments at 71-72. She therefore 

states that the appropriate contribution requirement would have been met under either 

the 5.5 percent requirement or the formula-based approach. Id. at 72.

In their reply comments, the Postal Service, Amazon, and PSA all assert that issues having 

to do with the appropriate contribution requirement are not relevant to a compliance 

review such as the instant proceeding, but should rather have been raised in Docket 

 

226 Comments of Taxpayers Protection Alliance, January 31, 2019, at 1-2 (TPA Comments).

227 TPA Comments at 2. For further discussion of TPA’s comments as they relate to costing methodology, see section 4.E., infra.

228 SBE Council Comments at 1-2; Comments of the National Taxpayer’s Union, February 25, 2019, at 2 (NTU Comments).

229 SBE Council Comments at 1-2. SBE Council appears to quote the formula-derived appropriate share for FY 2019—8.8 percent—instead of the 

formula-derived appropriate share for FY 2018, which would have been 8.6 percent. See Order No. 4963 at 28, Table III-1.

230 UPS Comments at 4.
Docket No. ACR2018 - 114 -

No. RM2017-1, where the Commission most recently reviewed the appropriate 

contribution methodology.

231

2. Commission Analysis

As an initial matter, the Commission declines to revisit the appropriate contribution 

methodology in this compliance proceeding. All parties had an opportunity to comment on 

the new methodology in Docket No. RM2017-1. The purpose of this proceeding is to assess 

whether the Postal Service complied with the appropriate contribution requirement for 

FY 2018 and to provide the required appropriate share for FY 2019 and FY 2020. The 

Commission addresses this latter issue using the new, formula-based methodology.

a. FY 2018 Appropriate Share

In FY 2018, the total institutional costs of the Postal Service were $30.7 billion.

232 To 

comply with 39 U.S.C. § 3633(a)(3) for FY 2018, Competitive products collectively must 

have contributed at least $1.690 billion toward the Postal Service’s institutional costs. Id., 

tab “Income_C,” cell I25. In FY 2018, the total contribution made by Competitive products 

collectively to institutional costs was $7.6 billion233 (approximately 24.7 percent of total 

institutional costs), which exceeds the 5.5 percent requirement. Therefore, the Postal 

Service was compliant with 39 U.S.C. § 3633(a)(3).

The Commission finds that in FY 2018 Competitive products satisfied 39 U.S.C. § 3633(a)(3) by 

covering an appropriate share of the Postal Service’s institutional costs.234

b. FY 2019 and FY 2020 Appropriate Share

In this section, the Commission addresses what the appropriate share will be for FY 2019 

and FY 2020, using the new, formula-based approach. First, however, the Commission 

provides an overview of the formula.

(1) Formula Overview

The first component of the formula is the Competitive Contribution Margin. This 

component measures the Postal Service’s absolute market power, which is the Postal 

Service’s ability to charge its customers prices for Competitive products “that are higher 

than the marginal cost of producing those products.” Order No. 4963 at 22. It is calculated 

as follows:

 

231 Postal Service Reply Comments at 12; Reply Comments of Amazon.com Services, Inc., March 1, 2019, at 3 (Amazon Reply Comments); Reply 

Comments of the Parcel Shippers Association, March 4, 2019, at 1, 4 (PSA Reply Comments). PSA also filed a motion for late acceptance of its

reply comments. PSA Motion for Late Acceptance of Reply Comments, March 4, 2019 (PSA Motion). The PSA Motion is granted.

232 PRC–LR–ACR2018/1, tab “Appendix A (Incremental Costs),” cell D79.

233 Id., tab “Appendix A (Incremental Costs),” cell F21.

234 The Commission notes that the 24.7 percent contribution level in FY 2018 would have satisfied the appropriate share requirement even if 

the formula-based approach were applicable to FY 2018. The formula-derived appropriate share would have been 8.6 percent. See Order No. 

4963 at 28, Table III-1.
Docket No. ACR2018 - 115 -

Competitive Contribution Margin =

Total Revenue − Total Attributable Cost

Total Revenue

Id. at 23. “Total attributable cost” refers to the cost incurred by the Postal Service in 

producing Competitive products collectively. Id. at 23-24. “Total revenue” refers to the total 

amount of revenue that the Postal Service is able to realize from its Competitive products 

collectively. Id. at 24.

The second component of the formula is the Competitive Growth Differential. This 

component assesses the growth or decline in the Postal Service’s market position from year 

to year. The Postal Service’s market position is defined as the size of the Postal Service’s 

Competitive product business relative to that of its competitors. Id. at 25. It is calculated as 

follows:

Competitive Growth Differential

= Market ShareUSPS ∗ (%∆RevenueUSPS − %∆RevenueC&M)

Id. “Market ShareUSPS” refers to the Postal Service’s share of the overall parcel delivery 

market, expressed as a percentage. It “is determined by dividing the Postal Service’s total 

competitive product revenue by the sum of the Postal Service’s total competitive product 

revenue” and the total revenue earned by the Postal Service’s competitors collectively, as 

represented in the following equation:

Market ShareUSPS =

RevenueUSPS

RevenueUSPS + RevenueC&M

Id. at 25 n.54. “%∆RevenueUSPS” refers to the percentage change in the Postal Service’s 

total real Competitive product revenue compared to the previous year. Id. at 25.

“%∆RevenueC&M” refers to the percentage change in the total real revenue earned by the 

Postal Service’s competitors collectively compared to the previous year. Id.

With the forgoing component values, the appropriate share for a given fiscal year can be 

calculated using the formula adopted by the Commission in Order No. 4963. Specifically, 

the formula is:

ASt+1 = ASt ∗ (1 + %∆CCMt−1 + CGDt−1

)

If t = 0 = FY 2007, AS = 5.5%

Where,

AS = Appropriate Share

CCM = Competitive Contribution Margin

CGD = Competitive Growth Differential 

t = Fiscal Year
Docket No. ACR2018 - 116 -

Id. at 26. “ASt” refers to the appropriate share value for the fiscal year during which an ACD 

proceeding is being conducted. Since the ACD is conducted after the close of each fiscal 

year, this will always be the fiscal year immediately following the fiscal year under review. 

For example, this ACD evaluates compliance for FY 2018, but is being conducted in 

FY 2019, and, as it relates to the formula, is being used to determine what the appropriate 

share will be in FY 2020. “ASt−1” refers to the appropriate share value from the fiscal year 

being evaluated during an ACD proceeding (for purposes of the present analysis, this is 

FY 2018). “ASt+1” refers to the appropriate share value for the fiscal year after the fiscal 

year during which an ACD proceeding is being conducted (for purposes of the present 

analysis, this is FY 2020).

(2) FY 2019 Appropriate Share

The appropriate share formula is recursive. Id. at 27. In Docket No. RM2017-1, the 

Commission advised that in order to initiate the formula’s recursive process, it would likely 

be necessary for the first appropriate share following the issuance of the final rule to be 

announced in the final rulemaking order, as opposed to being announced in an ACD.235 In 

Order No. 4963, the final rulemaking order, the Commission determined that the formuladerived appropriate share for FY 2019 would be 8.8 percent. Order No. 4963 at 28, Table 

III-1. Therefore, 8.8 percent is the figure that will be used to determine compliance with the 

appropriate share in FY 2019.

(3) FY 2020 Appropriate Share

The Commission now applies the formula in order to determine the FY 2020 appropriate 

share. For the Competitive Contribution Margin, in FY 2018 the total Competitive product 

revenue was $23.1 billion. The FY 2018 total attributable cost incurred in producing 

Competitive products was $15.5 billion. Therefore, the Competitive Contribution Margin 

value was 23.1 billion−15.5 billion

23.1 billion

= 0.329, representing a 0.1% increase from FY 2017.

236

For the Competitive Growth Differential, the Commission calculates the growth rates for 

both the Postal Service and its competitors in FY 2018. In FY 2017, the Postal Service’s total 

real Competitive product revenue was $17.5 billion, while in FY 2018 it was $19.0 billion. 

The percentage change from FY 2017 to FY 2018 was 8.8 percent. In FY 2017, the total real 

revenue earned by the Postal Service’s competitors collectively was $72.9 billion, while in 

FY 2018 it was $77.8 billion. The percentage change from FY 2017 to FY 2018 was 6.8

percent. The Postal Service’s market share was 19.4 percent. The Competitive Growth 

Differential value for FY 2018 was thus 19.4% ∗ (8.8% − 6.8%) = 0.4%. See PRC–LR–

ACR2018/10.

 

235 Docket No. RM2017-1, Notice of Proposed Rulemaking to Evaluate the Institutional Cost Contribution Requirement for Competitive 

Products, February 8, 2018, at 30 n.53 (Order No. 4402).

236 The following calculations can also be found in a library reference accompanying this Report. See PRC–LR–ACR2018/10.
Docket No. ACR2018 - 117 -

When the component values are plugged into the formula, the result is 8.8% ∗ (1 + 0.1% +

0.4%) = 8.8%. Therefore, the appropriate share requirement for FY 2020 will be 8.8

percent.

c. FY 2018 Competitive Product Fund Transfer

In FY 2018, the Postal Service transferred $3.545 billion from the Competitive Products 

Fund to the Postal Service Fund, which the Postal Service represented was “a prepayment 

of current and future year’s institutional costs.”237 As the Commission found in Order Nos. 

1449 and 2329, the Postal Service is not permitted to prepay future years’ institutional 

costs.238 While “the Postal Service is permitted by 39 C.F.R. § 3015.7(c) to pay greater than

the . . . appropriate share set by the rule” to access funds in the Competitive Products Fund,

“any transfers categorized by the Postal Service as prepayments of future years’ 

institutional costs cannot be used to offset the requirement that [C]ompetitive products 

cover the appropriate share of institutional costs each year.” Order No. 2329 at 5-6. As a 

result, to comply with 39 U.S.C. § 3633(a)(3) in future years, the revenues from 

Competitive products must, in each fiscal year, satisfy the requirements of 39 U.S.C. 

§ 3633(a)(3). Order No. 1449 at 26; Order No. 2329 at 5-6. The Commission reaffirmed this 

conclusion in the FY 2017 ACD. See FY 2017 ACD at 92-93. In response to a CHIR pointing 

out that there can be no “prepayment” of future years’ institutional costs, the Postal Service 

asserts that “[t]he referenced statement . . . was not intended to contradict the 

Commission’s prior determination that the Postal Service cannot offset its regulatory 

obligation to comply with the appropriate share each year through a ‘prepayment’ of 

institutional costs in a prior year.” Responses to CHIR No. 14, question 10. The Postal 

Service explains that “[t]he statement that the Postal Service was transferring these 

amounts as a prepayment was simply intended to reflect that those amounts would be 

available, once transferred in January 2018, to cover the Postal Service’s institutional costs 

moving forward.” Id. The Postal Service further assures that “given the concerns expressed 

by the Commission, the Postal Service’s next report . . . will include new language.” Id. The 

Commission accepts the Postal Service’s representations with regard to this issue.

E. Other Issues Raised by Commenters

The scope of the Commission’s annual compliance review is limited to determining the 

compliance of the Postal Service’s rates and services in FY 2018. 39 U.S.C. § 3653(b). The 

statute allocates 90 days for the Commission to complete its review and issue its 

determinations. Id. In that limited time, the Commission focuses its review on compliance 

during the previous fiscal year, and does not review or approve changes to existing costing 

methodologies. In reviewing the ACR, the Commission applies its previously-approved 

methodologies to determine compliance.

 

237 Library Reference USPS–FY18–39, December 28, 2018, file “USPS-FY18-39.Preface.CPF.Report.pdf,” at 3.

238Order No. 1449 at 26; Docket No. PI2013-1, Final Order on Competitive Products Fund Inquiry, January 23, 2015, at 5-6 (Order No. 2329).
Docket No. ACR2018 - 118 -

The Commission works continuously to improve its costing methodologies in separate 

dockets that do not have statutorily-imposed deadlines.239 As the Commission has 

previously stated, issues relating to costing methodology for Competitive products are 

appropriately addressed in those separate proceedings. See FY 2017 ACD at 93. A few 

commenters, however, express disagreement in this docket with the Commission’s existing 

costing methodologies, particularly for Competitive products.

1. United Parcel Service Comments

As in past years, UPS filed comments in this docket contending that the Commission’s 

costing methodologies understate the costs attributable to Competitive products.240 UPS 

relies on examples that it describes as “specific deficiencies in the Postal Service’s costing 

methodologies” from which it tries to extrapolate a general conclusion that “[t]he resulting 

levels of cost attribution do not hold up.” See UPS Comments at 2-3.

UPS’s concerns are outside the scope of this compliance review. While these comments are 

appropriately addressed in other proceedings, the Commission responds to UPS’s 

comments because they reflect a misunderstanding of the accepted cost allocation 

methodologies. In this section, the Commission outlines why UPS’s examples do not 

amount to evidence that the Commission’s methodologies systematically under-allocate 

costs to Competitive products.

a. Historical Context

As far back as the first omnibus rate case before the Postal Rate Commission in the early 

1970s, UPS has argued that the attribution of costs to products is too low and amounts to 

unfair competition.241 The Commission has consistently held that, under the applicable 

statute, reliable proof of cost causation is necessary to “attribute” costs to products or 

 

239 See, e.g., Docket No. RM2016-13, Order Adopting Final Rules on Changes Concerning Attributable Costing, December 1, 2016 (Order No. 

3641).

240 See UPS Comments at 1-4; Initial Comments of United Parcel Service, Inc. on United States Postal Service's Annual Compliance Report for 

Fiscal Year 2017, February 1, 2018, at 1-4.

241 See, e.g., Docket No. R71-1, Opinion and Recommended Decision, June 5, 1972, Volume I at 196-201; Docket No. R74-1, Opinion and 

Recommended Decision, August 28, 1975, at 94, 124; Docket No. R76-1, Opinion and Recommended Decision, June 30, 1976, Volume I at 243; 

Docket No. R77-1, Opinion and Recommended Decision, May 12, 1978, Volume I at 386-87, 394; Docket No. R80-1, Opinion and Recommended 

Decision, February 19, 1981, Volume I at 476, 489-90; Docket No. R84-1, Opinion and Recommended Decision, September 7, 1984, Volume I at 

549; Docket No. R87-1, Opinion and Recommended Decision, March 4, 1988, Volume I at 697; Docket No. R90-1, Opinion and Recommended 

Decision, January 4, 1991, Volume I at V.335-36; Docket No. R94-1, Opinion and Recommended Decision, November 30, 1994, at V.112-13; 

Docket No. R97-1, Opinion and Recommended Decision, May 11, 1998, Volume I at 478-79; Docket No. R2000-1, Opinion and Recommended 

Decision, November 13, 2000, Volume I at 468-69; see Docket No. RM2012-3, Initial Comments of United Parcel Service on Notice of Proposed 

Rulemaking to Evaluate the Institutional Cost Contribution Requirement for Competitive Products, April 9, 2012; see Docket No. RM2012-3, 

Reply Comments of United Parcel Service on Notice of Proposed Rulemaking to Evaluate the Institutional Cost Contribution Requirement for 

Competitive Products, May 7, 2012; see Docket No. RM2016-2, Petition of United Parcel Service, Inc. for the Initiation of Proceedings to Make 

Changes to Postal Service Costing Methodologies, October 8, 2015; see Docket No. RM2017-1, Initial Comments of United Parcel Service, Inc. 

on Notice of Proposed Rulemaking to Evaluate the Institutional Cost Contribution Requirement for Competitive Products, January 23, 2017; see

Docket No. RM2017-1, Reply Comments of United Parcel Service, Inc. on Notice of Proposed Rulemaking to Evaluate the Institutional Cost 

Contribution Requirement for Competitive Products, March 9, 2017.
Docket No. ACR2018 - 119 -

classes.242 This approach to costing was affirmed by the Supreme Court,243 and the 

requirement that cost attribution be based on “reliably identified causal relationships” was 

codified in the PAEA when it was enacted in 2006.244 Under the Commission’s costing 

methodology, costs which cannot be causally attributed to a specific product or class, or to 

the Competitive product group, are treated as institutional, and Competitive products are 

required to collectively cover an appropriate share of institutional costs.245 The 

Commission has also consistently found that the Postal Service does not engage in 

predatory pricing for its Competitive products, nor does it benefit from a competitive 

advantage in the marketplace.246

In ensuring that costing methodologies are fully vetted and accurate, the Commission’s 

regulations provide that either the Commission or any interested person may submit a 

petition to initiate a proceeding to “improve the quality, accuracy, or completeness of the 

data or analysis of data contained in the Postal Service’s annual periodic reports to the 

Commission[.]” 39 C.F.R. § 3050.11(a). These proceedings fall outside the scope of the 

Commission’s annual compliance review, and the commenters are aware of the proper 

procedure for filing a petition for a change to a costing methodology. For example, in 

Docket No. RM2016-2, UPS petitioned the Commission for three proposed methodological 

changes that would have affected cost attribution.247 Two of the proposed methodology 

changes would have expanded the range of costs which are attributable to specific 

products, and one would have increased the amount that Competitive products must 

contribute to the Postal Service’s institutional costs. See id. The Commission rejected UPS’s 

first proposal, but in the course of reviewing the proposal, updated its costing methodology 

to reflect certain additional inframarginal costs bearing a “reliably identified causal 

relationship” to products, classes, or groups. Order No. 3506 at 59-62. Of the other two 

proposals, the Commission rejected one after finding that it would not improve the quality, 

accuracy, or completeness of the Commission’s existing methodology, and addressed the 

other relating to the required appropriate share of contribution for Competitive products 

 

242 See, e.g., Docket No. R74-1, Opinion and Recommended Decision, August 28, 1975, Volume I at 93; Docket No. R76-1, Opinion and 

Recommended Decision, June 30, 1976, Volume I at 75-76; Docket No. R84-1, Opinion and Recommended Decision, September 7, 1984, 

Volume I at 117; Order No. 3506; Docket No. RM2016-2, Notice of Errata, October 19, 2016 (Docket No. RM2016-2, Notice of Errata); Order No. 

4963 at 2.

243 See Nat’l Ass’n of Greeting Card Publishers v. USPS, 462 U.S. 810 (1983).

244 Pub. Law 109-435, 120 Stat. 3198, 3201, 3205-06 (Dec. 20, 2006) (codified at 39 U.S.C. §§ 3622(c)(2), 3631(b), 3633(a)(2)).

245 See 39 U.S.C. § 3633(a)(3). The Commission reviews and determines Competitive products’ appropriate share of contribution to institutional 

costs every 5 years. 39 U.S.C. § 3633(b).

246 See, e.g., Docket No. R74-1, Opinion and Recommendation, August 28, 1975, at 290; Docket No. R76-1, Opinion and Recommended Decision, 

June 30, 1976, Volume I at 247-48; Docket No. R77-1, Opinion and Recommended Decision, May 12, 1978, Volume I at 394-99; Docket No. R80-

1, Opinion and Recommended Decision, February 19, 1981, Volume I at 490-94; Docket No. R84-1, Opinion and Recommended Decision, 

September 7, 1984, Volume I at 550-53; Docket No. R87-1, Opinion and Recommended Decision, March 4, 1988, Volume I at 714-15; Docket 

No. R90-1, Opinion and Recommended Decision, January 4, 1991, Volume I at V.336-40; Docket No. R94-1, Opinion and Recommended 

Decision, November 30, 1994, at V.113-15; Docket R97-1, Opinion and Recommended Decision, May 11, 1998, Volume I at 479-80; Docket 

No. R2000-1, Opinion and Recommended Decision, November 13, 2000, Volume I at 473; Docket No. R2006-1, Order and Recommended 

Decision, February 26, 2007, Volume I at 387-88; Order No. 26 at 73-74; Order No. 1449 at 14-25; Order No. 4963 at 107-167.

247 See Docket No. RM2016-2, Petition of United Parcel Service, Inc. for the Initiation of Proceedings to Make Changes to Postal Service Costing 

Methodologies, October 8, 2015.
Docket No. ACR2018 - 120 -

to make towards institutional costs in another docket, which the Commission was required 

to separately consider. Order No. 3506 at 105, 123. Order No. 3506 was affirmed by the U.S. 

Court of Appeals for the D.C. Circuit.248 The Commission subsequently considered the

appropriate share requirement in Docket No. RM2017-1, and as a result of that review 

adopted an improved formula-based approach to determine the appropriate share. See 

generally, Order No. 4963. UPS actively participated in that docket and has also been an 

active commenter in similar petitions filed by the Postal Service to modify existing costing 

methodologies.249

b. Specific Issues Raised by UPS

UPS features several of the same issues in this docket that it has raised in past ACR dockets 

and other Commission proceedings.

As a general matter, UPS states that Competitive products make up 45 percent of the Postal 

Service’s “delivery volume by weight,” which it contrasts with the attribution of 18 percent 

of the Postal Service’s total costs to Competitive products.250 This observation is 

oversimplified and could be considered misleading because it implies a one-to-one 

relationship between weight and cost. Postal costs are not incurred solely on the basis of 

weight. The Commission’s cost attribution methodology identifies relationships between 

numerous costs and cost drivers, which include mail characteristics such as weight. To the 

extent heavier products incur more weight-related costs than lighter products these costs 

are attributed using the approved methodologies. Order No. 4402 at 46. In addition, 

shippers lower their costs by entering their packages into the Postal Service’s network 

closer to the destination, bypassing many of the processing costs. Such packages will incur 

disproportionately low costs in comparison to their weight, which will necessarily result in 

a greater increase in Competitive products’ share of “delivery volume by weight” than in 

Competitive products’ share of attributable costs. This example illustrates that the 

difference between these two values is not, as UPS suggests, a demonstration of 

misattribution of costs, but instead is an entirely expected result.251

UPS asserts that only 18 percent of the Postal Service’s total costs are attributed to 

Competitive products. However, the 18 percent figure cited by UPS is the percentage of 

total costs, rather than attributable costs.252 A full 35 percent of the Postal Service’s 

 

248 See UPS v. Postal Reg. Comm’n, 890 F.3d 1053 (D.C. Cir. 2018), petition for cert. filed (U.S. Dec. 26, 2018) (No. 18-853).

249 See, e.g., Docket No. RM2008-6, Costing Methods Used in Periodic Reporting (Proposals Ten and Eleven); Docket No. RM2015-7, Proposed 

Change in Analytical Principles (Proposal Thirteen), Docket No. RM2016-12, Proposed Change in Analytical Principles (Proposal Four); Docket 

No. RM2017-8, Proposed Change in Analytical Principles (Proposal Four); Docket No. RM2017-9, Proposed Change in Analytical Principles 

(Proposal Five); Docket No. RM2017-10, Proposed Change in Analytical Principles (Proposal Six); Docket No. RM2018-2, Revise Periodic 

Reporting Requirements; Docket No. RM2018-5, Proposed Change in Analytical Principles (Proposal Two); Docket No. RM2018-6, Proposed 

Change in Analytical Principles (Proposal Three); Docket No. RM2018-8, Proposed Change in Analytical Principles (Proposal Five).

250 As calculated by the Commission, 21 percent of total costs were attributed to Competitive products. See PRC–LR–ACR2018/1, Excel file 

“Summary_LR1.xlsx,” tab “Appendix A (Incremental Costs),” cells D21 and D83.

251 Many of the Postal Service’s costs are not weight-dependent, so even in the absence of the trend towards increasing use of dropshipping, 

the Commission would still not expect “delivery volume by weight” to closely track Competitive products’ share of costs.

252 See n.12, supra (discussing the Commission’s calculated value of 21 percent instead of 18 percent).
Docket No. ACR2018 - 121 -

attributable costs are attributed to Competitive products.253 This is true despite the fact 

that Competitive products make up only 3.9 percent of total volume.254 The average 

attributable cost per piece for Competitive products is $2.73,255 compared to the average 

attributable cost per piece of Market Dominant mail, which is $0.19.256 This difference in 

attributable cost per piece demonstrates that the costing methodology attributes costs 

based on the factors that drive those costs. UPS has consistently advocated in favor of fullydistributed costing, but given the statutory requirements that costs, to be attributable, 

must bear a reliably identified causal relationship to the product, class, or group, not all 

costs can be attributed to specific products, classes, or groups.257 In addition, as the 

Commission has discussed in previous dockets, under sound regulatory economic 

practices, not all costs should be attributed.258 Therefore, reliance on the proportion of 

total costs apportioned to Competitive products is particularly inapt.

(1) Issues Pertaining to Cost Attribution of Specific 

Activities

In addition to its general observations about the attribution of costs for Competitive 

products, UPS makes more specific claims regarding the purported under-attribution to 

Competitive products of costs incurred by new vehicles, handheld scanners, and parcel 

lockers. UPS Comments at 8-11, 13-16.

With regard to vehicle costs, UPS notes the increasing size of delivery vehicles and 

observes that there has not been a concomitant increase in the allocation of vehicle related 

costs to Competitive products, claiming that, as a result, vehicle costs are under attributed 

to Competitive products. See id. at 8-9. UPS points to motor vehicle service personnel, 

supplies, and materials, along with vehicle depreciation, as examples of how the new 

vehicles are being costed similarly to the older vehicles. Id. at 9. Vehicle costs are attributed 

primarily in proportion to delivery costs, which are attributed based on direct labor costs. 

Reflective of the variation in size and shape, direct labor costs are much higher for parcels 

than other mail items. Consequently, as the number of parcels increases, a greater share of 

vehicle costs will be attributed to parcels. See Order No. 4963 at 151-52.

UPS also contends that the costs of handheld scanners are under attributed to Competitive 

products. UPS Comments at 13-15. In particular, UPS claims that only 8 percent of 

Intelligent Mail Device (IMD) and 9 percent of Mobile Delivery Device (MDD) total

depreciation costs are attributed to domestic Competitive products. Id. at 14. These 

calculations are misleading; 15 percent of IMD and 20 percent of MDD attributable

 

253 See PRC–LR–ACR2018/1, Excel file “Summary_LR1.xlsx,” tab “Appendix A (Incremental Costs),” cells D21 and D78.

254 See PRC–LR–ACR2018/1, Excel file “Summary_LR1.xlsx,” tab “Appendix A (Incremental Costs),” cells B21 and B78.

255 See PRC–LR–ACR2018/1, Excel file “Summary_LR1.xlsx,” tab “Appendix A (Incremental Costs),” cell H21.

256 See PRC–LR–ACR2018/1, Excel file “Summary_LR1.xlsx,” tab “Appendix A (Incremental Costs),” cell H55.

257 See section 4.E.1.a., supra.

258 See generally, Order No. 3506; Docket No. RM2016-2, Notice of Errata; Order No. 4402; Order No. 4963.
Docket No. ACR2018 - 122 -

depreciation costs are attributed to domestic Competitive products.259 UPS also asserts that 

the “low level of competitive product cost attribution does not make sense given the Postal 

Service’s own statements to the effect that these devices were purchased to support parcel 

delivery.” UPS Comments at 15. UPS is incorrect in asserting that IMD and MDD scanners 

are used primarily for tracking package delivery. IMD scanners are used at certain locations 

to track the acceptance of all types of mailpieces bearing barcodes, in addition to being 

used to track the delivery of packages.260 MDD scanners are used to track service 

performance for all types of mailpieces, in addition to being used to track the delivery of 

packages.261

UPS also states that the costs associated with parcel lockers are not properly attributed to 

Competitive products. It states that the Postal Service appears to be using ordinary 

distribution keys for cost attribution rather than attributing the purchase, installation, and 

maintenance costs associated with parcel lockers to Competitive products. UPS Comments 

at 15. Contrary to UPS’s implication, the use of ordinary distribution keys to attribute costs 

for parcel lockers to Competitive products is entirely appropriate. The Postal Service states 

that parcel lockers are installed as part of, or adjacent to, Cluster Box Units (CBUs),262 to 

which all types of mail are delivered, not only Competitive products. The Postal Service 

notes that in previous years parcel lockers were included as part of CBUs and that the 

number of such units is a function of the number of delivery points rather than volume, 

requiring that they be treated as institutional costs. Id. Recently parcel lockers have 

additionally been installed adjacent to already existing CBUs. Id. The Postal Service states 

that, as a result, the relationship between parcel volume and equipment costs for parcel 

lockers may be shifting, and that it intends to further investigate this issue. See id. The 

Commission notes that it was its own inquiry into this potential issue that UPS cited to 

support its comment.263 The Commission is monitoring this issue and intends to follow-up 

on the Postal Service’s investigation of cost attribution for the installation of parcel lockers.

(2) Issues Pertaining to Costing Methodology

UPS also identifies several costing methodologies related to peak season: Special Purpose 

Routes (SPRs), second runs, two-hour delivery, Competitive assets, and city carrier time 

 

259 See Library Reference USPS–FY18–31, December 28, 2018, Excel File “FY18Public.A.xlsx,” tab “CS98.2.” See also section 4.E.1., supra

(discussing the difference between percent of total costs and percent of attributable costs).

260 See Suzanne Newman, Intelligent Mail Device (IMD) Full Acceptance Non-Retail System Software (RSS) Sites, October 5, 2017, at 3, 10 

(available at: https://postalpro.usps.com/storages/2017-10/IMD%20Full%20Acceptance%20at%20NonRSS%20Sites%20External%20Briefing.pdf) (describing use of IMD scanners for acceptance of barcoded mail); United States Postal Service Office 

of the Inspector General, Package Delivery Scanning Nationwide, October 27, 2017, at 1 (available at:

https://www.uspsoig.gov/sites/default/files/document-library-files/2017/DR-AR-18-001.pdf) (OIG Scanner Report) (describing use of IMD

scanners for delivery scanning when MDD scanners are unavailable).

261 See Docket No. PI2015-1, Library Reference USPS–LR–PI2015-1/8, February 23, 2017, file “Internal SPM Plan blackline.pdf,” at 19-20 

(describing use of MDD scanners for service performance tracking); OIG Scanner Report at 1 (describing use of MDD scanners for delivery 

scanning).

262 See Responses of the United States Postal Service to Questions 1-12 of Chairman’s Information Request No. 5, February 5, 2019, question 

6.b. (Responses to CHIR No. 5).

263 See UPS Comments at 15 (citing to Postal Service responses to CHIRs).
Docket No. ACR2018 - 123 -

estimates that it claims do not allocate sufficient costs to Competitive products. See UPS 

Comments at 5-8, 11-13, 16-18, 19-22.

UPS alleges that during the peak holiday season, the Postal Service incurs higher costs due 

to a seasonal increase in Competitive product volume, but only a small fraction of these 

costs are attributed to Competitive products. UPS Comments at 5-6. As a result, it contends 

that the costing methodology should be changed to more closely reflect seasonal trends. 

This conclusion by UPS that seasonal trends are not reflected is incorrect. This assertion 

overlooks the fact that the Commission’s costing methodology is designed to estimate costs 

on an annual basis, so any seasonal differences are captured in the annual totals. 

Distribution keys for costs are created on a quarterly basis264—to the extent that parcel 

volume is greater in one quarter than in others, the current methodology incorporates and 

reflects those data. The Commission also notes that demand for both Competitive and 

Market Dominant products increases during peak season, and, as a result, seasonal 

increases in costs are not exclusively attributable to Competitive products.265

For SPRs and second runs, UPS identifies an area where the Postal Service has 

acknowledged that existing methodologies have room for improvement.266 This issue 

pertains to the measurement of time, costs, and volumes associated with second runs, and 

the estimation of SPR costs for each product. UPS contends that these second run data 

should be better measured and the SPR cost model should be updated. The Commission 

recently approved a methodological change to more accurately assess workhours on all 

types of delivery routes and the Commission continues to monitor these issues. See Order 

No. 4399.

Regarding 2-hour delivery, UPS notes the Postal Service’s intention to expand the service, 

but observes that cost attribution for this expansion remains unknown. UPS Comments at 

16. The Commission notes that a similarly time sensitive feature, same-day delivery, is 

offered through Competitive NSAs.267 The Commission reviews such agreements under 39 

U.S.C. § 3633(a) and 39 C.F.R. § 3015.5. In its review process, the Commission closely 

scrutinizes such agreements to ensure that costs incurred by special features, such as 

same-day delivery, are attributed to those individual agreements, and thus to Competitive 

products.

For its claims pertaining to Competitive assets, UPS notes that only $1.8 million of total net 

assets and liabilities are assigned to the Competitive Products Fund despite Competitive 

products producing $23 billion in revenue. See UPS Comments at 16. This comparison is 

not relevant. The Commission’s rules require the Postal Service to separately identify all 

 

264 See Library Reference USPS–FY18–37, December 28, 2018, file “usps-fy18-37.preface.pdf,” at 6.

265 See United States Postal Service, Postal Service Econometric Estimates of Demand Elasticity for All Postal Products, FY 2018, January 28, 

2019.

266 UPS Comments at 11-12 (citing to Postal Service responses to CHIRs).

267 See, e.g., Docket Nos. MC2018-149 and Docket No. CP2018-215.
Docket No. ACR2018 - 124 -

assets used solely for the provision of Competitive products. 39 C.F.R. § 3060.12(a). The 

Postal Service has identified $1.8 million of net assets used strictly for Competitive 

products. However, the Commission’s rules also require the Postal Service to identify an 

additional portion of overall assets and liabilities to assign to Competitive products, based 

on the ratio of Competitive product revenue to total revenue.268 The latter allocation 

includes $8.7 billion in assets assigned to Competitive products, far more than UPS 

asserts.269

Finally, UPS identifies two issues relating to city carrier street time that it characterizes as 

“outstanding” and that warrants the Commission’s attention. UPS Comments at 19. First, 

UPS identifies the continued need for an alternative approach to measuring city carrier 

street time variability. Id. at 20. Second, UPS claims to identify a seasonal bias in the route 

evaluations used to estimate city carrier street time that results in underestimating 

Competitive product costs. Id. at 21. For the first issue, related to Docket No. RM2015-7, the 

Commission is continuing to investigate the potential for an alternative approach to 

estimating city carrier street time variability. To that end, the Commission recently 

instructed the Postal Service to collect and report data on a quarterly basis.270 For the 

second issue, UPS misconstrues the Commission’s conclusions in Docket No. RM2017-8. In 

that docket the Commission determined that because the Postal Service diverts packages 

from letter routes to SPRs during peak season to accommodate increased letter and 

package volume, it is unclear that any potential seasonal bias in sampling letter routes will 

under attribute costs to Competitive products.271 As such, UPS is incorrect when it 

definitively claims that “[the Commission] underestimates the proportions that are 

allocated to parcels.” See UPS Comments at 21-22.

(3) Conclusion

In addition to being outside the scope of the ACD, UPS’s comments present a 

misunderstanding of the approved costing methodologies.

2. Other Comments

ACI argues that parcels now account for 50 percent of delivery weight, so Competitive 

products should be expected to support most of the capital expenditures and depreciation 

associated with last-mile delivery vehicles. ACI Comments at 2-3. ACI concurs with a recent 

report issued by a Presidential Task Force recommending that the Postal Service’s 

 

268 39 C.F.R. § 3060.12(c) requires the Postal Service to identify assets that are not used solely for either Market Dominant or Competitive 

products, and to assign to the theoretical Competitive product enterprise a portion of such assets “using a method of allocation based on 

appropriate revenue or cost drivers approved by the Commission.” In Docket No. RM2009-9, the Commission approved a methodology for 

allocating such assets based on the ratio of Competitive product revenue to total revenue. See Docket No. RM2009-9, Order Establishing 

Methodology for the Allocation of Assets and Liabilities of the Competitive Products Enterprise, June 25, 2010 (Order No. 479).

269 USPS–FY18–39, file “USPS-FY18-39.Preface.CPF.Report.pdf,” at table 4.

270 See Docket No. PI2017-1, Interim Order, November 2, 2018 (Order No. 4869).

271 Docket No. RM2017-8, Order on Analytical Principles Used in Periodic Reporting (Proposal Four), December 1, 2017, at 19-20 (Order No. 

4259).
Docket No. ACR2018 - 125 -

Competitive product balance sheet be fully separated from its Market Dominant balance 

sheet and that the Postal Service be required to implement fully allocated costing.272

TPA claims that NSAs are required by 39 U.S.C. § 3622(c)(10) to “[i]mprove the net 

financial position of the Postal Service” or “[e]nhance the performance of operational 

functions.”273 TPA further claims that the Commission “implicitly assumed that packages 

only contributed 5.5 percent of [institutional] costs,” rising to 8.8 percent in 2019, and that 

as a result the Commission’s calculations show that Competitive products are profitable 

“despite losing the agency a significant amount of money.”274

Other commenters disagree that current costing methodologies are flawed, and contend 

that this docket is not the appropriate forum for proposing changes to those 

methodologies.

Amazon states that UPS’s comments amount to a restatement of past disagreements with 

Commission approved costing methods. Amazon Reply Comments at 1. Amazon describes 

UPS’s evidence as anecdotal, and points out that the Commission’s process for proposing 

changes to its cost models are “well-established and transparent.” Id. at 2. Amazon urges 

the Commission to find that Competitive products are in compliance with all statutory 

requirements. Id. at 6.

PSA states that current approved cost methodologies already capture the increasing 

volume shift towards Competitive products, and thus that UPS’s claim otherwise is based 

on a misunderstanding of those methodologies. PSA Reply Comments at 1-2. PSA notes that 

the Commission “regularly reviews and approves changes to methods that have been 

shown to improve the accuracy of Postal Service cost estimates,” identifying 45 approved 

changes in the last 5 years. Id. at 2.

The Postal Service notes that “[a]lthough [TPA] questions the wisdom of the Postal 

Service’s overall strategy for competitive NSAs and other contracts, TPA does not contend 

that those agreements violate Section 3633 or any other relevant provisions.” Postal 

Service Reply Comments at 16. The Postal Service also notes that the Commission has 

“declined to address criticisms of cost attribution and allocation methodologies in past 

annual compliance reviews.” Id. at 15.

None of these commenters raise issues that call into question the Commission’s compliance 

determinations. At most, the commenters have pointed to specific aspects of the cost 

 

272 Id. at 3 (citing United States Postal Service, A Sustainable Path Forward, Report from the Task Force on the United States Postal System, 

December 2018 (available at: https://home.treasury.gov/system/files/136/USPS_A_Sustainable_Path_Forward_report_12-04-2018.pdf).

273 TPA Comments at 1. The Commission notes that 39 U.S.C. § 3622 applies only to Market Dominant NSAs. See 39 U.S.C. § 3622. Competitive 

NSAs are instead governed by 39 U.S.C. § 3633, which specifies different statutory requirements. See 39 U.S.C. § 3633.

274 TPA Comments at 1-2. The Commission notes that it directly calculates the share of institutional costs contributed by Competitive products 

rather than assuming that such products contribute only the required minimum. See section 4.D., supra.
Docket No. ACR2018 - 126 -

models that the Commission has previously resolved or is already working to improve. The 

Commission values and invites participation in the appropriate dockets where such 

improvements are properly considered.
Docket No. ACR2018 - 127 -

CHAPTER 5: SERVICE PERFORMANCE

A. Service Performance Results

1. Introduction

Each year, the Postal Service must report275 on each Market Dominant product’s “level of 

service (described in terms of speed of delivery and reliability).” 39 U.S.C. 

§ 3652(a)(2)(B)(i). Speed of delivery is evaluated based on the mailpiece reaching its 

destination within a given service standard. FY 2016 ACD at 90. The Postal Service defines 

service standards as “[s]tated delivery performance goals for each mail class and product 

that are usually measured by days for the period of time taken by [the Postal Service] to 

handle the mail from end-to-end (that is, from the point of entry into the mailstream to 

delivery to the final destination).”276 Reliability refers to consistency of delivery.

To evaluate annual service performance for each Market Dominant product, the 

Commission compares the percentage of mailpieces that achieve the stated service 

standard against targets established by the Postal Service.277

The products listed in Table V-1 met or exceeded their annual service performance targets 

for FY 2018.

 

275 “For each product that does not meet a service standard, [the Postal Service’s report must include] an explanation of why the service 

standard is not met, and a plan describing the steps that have or will be taken to ensure that the product meets or exceeds the service standard 

in the future.” 39 C.F.R. § 3055.2(h); see 39 U.S.C. §§ 3652(d), (e).

276 United States Postal Service Publication 32, Glossary of Postal Terms, July 2013 (available at: 

http://about.usps.com/publications/pub32/pub32_terms.htm). “Established service standards also include destination entry standards for mail 

entered by the mailer at or near a postal destination facility. A separate set of standards is established for noncontiguous states such as Alaska 

and Hawaii and territories such as American Samoa and Guam.” Id.

277 FY 2016 ACD at 90. On an annual basis, the Commission compares a product’s on-time delivery with the delivery target established by the 

Postal Service. For Special Services, the Commission evaluates performance data from metrics developed by the Postal Service applicable to 

each product. Id. at 90 n.148. In this ACD, as in past years, the Commission uses the Postal Service’s targets because they are a reasonable basis 

for assessing performance.
Docket No. ACR2018 - 128 -

Table V-1

Market Dominant Products That Met or Exceeded Annual Service Performance Targets,

FY 2018

Class Product

First-Class Mail

USPS Marketing Mail  High Density and Saturation Letters

 Parcels

Periodicals

Package Services  Bound Printed Matter Parcels

Special Services

 Ancillary Services

 International Ancillary Services

 Money Orders

 Stamp Fulfillment Services

The products listed in Table V-2 did not meet their targets for FY 2018.

Table V-2

Market Dominant Products That Failed to Meet Annual Service Performance Targets,

FY 2018

Class Product

First-Class Mail

 Single-Piece Letters/Postcards (2-Day; 3-5-Day)

 Presorted Letters/Postcards (Overnight; 2-Day; 3-

5-Day)

 Flats (Overnight; 2-Day; 3-5-Day)

 Outbound Single-Piece International (Combined)

 Inbound Letter Post (Combined)

USPS Marketing Mail

 High Density and Saturation Flats/Parcels

 Carrier Route

 Letters

 Flats

 Every Door Direct Mail (EDDM) - Retail

Periodicals  In-County

 Outside County

Package Services  Bound Printed Matter Flats

 Media Mail/Library Mail

Special Services  Post Office Box Service

In the service performance results section of this Chapter, after a summary of the systems 

the Postal Service uses to measure service performance, the Commission discusses the 

Postal Service’s responses to the directives related to First-Class Mail Single-Piece 

Letters/Postcards. The Commission then analyzes the Postal Service’s FY 2018 service 

performance results by class of mail.
Docket No. ACR2018 - 129 -

2. Measurement Systems

The Postal Service uses a variety of measurement systems to measure service performance 

for Market Dominant products. The Postal Service began reporting service performance 

results for most Market Dominant products in the third quarter of FY 2011.

Table V-3 identifies each system used to measure those products reported in the Postal 

Service’s Annual Service Performance Report for FY 2018. In Table V-3, and the discussion 

that follows, the Commission uses the following acronyms and abbreviations: EXFC for 

“External First-Class Measurement,” iMAPS for “Intelligent Mail Accuracy and Performance 

System,” IMb for “Intelligent Mail barcode,” IMMS for “International Mail Measurement 

System,” PTR for “Product Tracking and Reporting System,” and SASP for “Seamless 

Acceptance and Service Performance.”

Table V-3

Service Performance Measurement Systems, FY 2018

Single-Piece Presorted

Letters Flats Parcels Letters Flats Parcels

First-Class Mail EXFC EXFC N/A*iMAPS iMAPS N/A

Periodicals N/A iMAPS iMAPS N/A

USPS Marketing 

Mail N/A iMAPS iMAPS PTR

Package Services N/A PTR N/A iMAPS PTR

International 

Mail** IMMS Proxy Proxy N/A

Special Services Custom-designed internally based measurement systems

* Effective September 3, 2017, the retail (single-piece) price category of First-Class Mail Parcels was transferred from the Market Dominant 

product list to the Competitive product list by the addition of identical services to the existing First-Class Package Service competitive product. 

Docket No. CP2017-230, Order Approving Price Adjustment for First-Class Package Service Product, August 9, 2017, at 4 (Order No. 4032).

** For single-piece international mailpieces that are flat- or parcel-shaped, the Postal Service reports relying on proxy data because the affected 

categories of mail represent a low proportion of volume and receive the same domestic-leg processing as their domestic analogs. Library 

Reference USPS–FY18–29, December 28, 2018, file “FY18-29 Service Performance Report.pdf,” at 3 (FY 2018 Service Performance Report). The 

EXFC measurement for domestic single-piece First-Class Mail Flats serves as a proxy for flat-shaped Outbound Single-Piece First-Class Mail 

International and Inbound Letter Post. Id. USPS Tracking® data serves as a proxy for parcel-shaped Inbound Letter Post. Id.

Source: FY 2018 Service Performance Report at 1-3, 9-11, 14, 16-18, 21-22; USPS–FY18–29, file “FY18-29 Methodologies Report.pdf” (FY 2018 

Methodologies Report); Docket No. PI2018-2, United States Postal Service Response to Order No. 4872, December 10, 2018 (Docket No. 

PI2018-2 Postal Service Response to Order No. 4872), file “3055.5LetterAtt2(RevPlan)Updates.pdf,” at 11-12, 98-100 (December 10, 2018 Postal 

Service Service Performance Measurement Plan).

N/A – Not applicable

a. External First-Class Measurement System (EXFC)

EXFC is a sampling system managed by an independent contractor. Delivery performance is 

measured from the street collection box to the delivery mailbox. FY 2018 Service 

Performance Report at 1. When evaluating delivery performance, test mailers record the 

time they place First-Class Mail in the collection box. The pieces are deposited before the 

last collection-time for the collection box. Those test mailpieces are sent to a nationwide 
Docket No. ACR2018 - 130 -

panel of receivers who record when each is delivered. Actual transit time is then compared 

against First-Class Mail service standards. EXFC provides quarterly service performance 

measurement scores at the area and district levels.

b. Intelligent Mail Accuracy and Performance System 

(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, third-party reporter to stop the clock. The measurement involves two 

distinct steps. The Postal Service obtains processing times based on IMb scans reported 

through the SASP system. SASP 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.278 Information collected also 

helps to determine address accuracy, verify the quality of mail preparation, and track 

individual pieces as they move through the mail system.

Throughout FY 2018, SASP captured data from all Full-Service Intelligent Mail. FY 2018 

Service Performance Report at 9, 14. This is combined with a last mile factor that is 

developed through scans by third-party reporters upon receipt of the mail. Service 

performance is measured by comparing the overall transit time to the service standards to 

determine the percentage of mail delivered on time.

c. Product Tracking and Reporting System (PTR)

The Postal Service measures service performance for parcels using PTR, a system that 

“measures transit time from the time of mailing until the time of delivery for parcels for 

with USPS Tracking® service.” Id. at 10. PTR is based on over-the-counter and delivery 

confirmation scans of retail products, as well as barcode scans of parcels that utilize the 

Postal Service’s tracking service.279 PTR uses the scan data to track a package from 

acceptance (start-the-clock) through delivery (stop-the-clock). See id.

d. International Mail Measurement System (IMMS)

Based on a system similar to EXFC, IMMS measures the domestic leg of transit time for 

international mail. FY 2018 Service Performance Report at 2. It measures the time between 

the domestic collection point and the outbound international service center for outbound 

letters and between the inbound international service center and the domestic delivery 

point for inbound letters. Id.

 

278 United States Postal Service, Guide to Seamless Acceptance, Version 2.1, June 2015 (available at: http://postalpro.usps.com/storages/2016-

12/657_GuidetoSeamlessAcceptance.pdf).

279 Docket No. ACR2016, Responses of the United States Postal Service to Questions 2-4 and 7-13 of Chairman’s Information Request No. 16, 

February 17, 2017, question 3.
Docket No. ACR2018 - 131 -

e. Intelligent Mail Barcode (IMb)

In Quarter 3 of FY 2011, the Postal Service began using IMbs to measure service 

performance for USPS Marketing Mail, Periodicals, Bound Printed Matter (BPM) Flats, and 

some First-Class Mail products. The Postal Service currently offers two barcode options for 

mailers: Basic and Full-Service. The Basic option allows mailers to utilize IMbs for their 

mailpieces without the added benefit of accounting for each unique piece.280

The Full-Service feature allows the mailer to identify unique mailpieces throughout the 

mailstream, and to receive start-the-clock notifications, discounts, and automated address 

corrections. Id. Only the Full-Service feature provides the data needed to measure service 

performance. Mailers are required to prepare mail with IMbs and submit electronic mailing 

information listing IMbs used. Mail is verified to ensure it meets mail preparation criteria. 

Mail that does not meet mail preparation requirements is excluded from service 

performance measurement. Id.

Generally, the percentage of mailpieces measured by IMb increased for most mail classes 

since 2015. Figure V-1 illustrates this trend, showing the percentage of First-Class Mail, 

USPS Marketing Mail, Periodicals, and Package Services281 volume measured by IMb since 

FY 2015.

 

280 United States Postal Service, Overview to Intelligent Mail - Basic Service, August 2012 (available at: 

http://ribbs.usps.gov/intelligentmail_guides/documents/tech_guides/OverviewIntelligentMailBasicService.pdf).

281 BPM Flats is the only Package Services product measured using IMb. FY 2018 Service Performance Report at 17-18. The remaining Package 

Services products are measured using PTR. Id. at 17.
Docket No. ACR2018 - 132 -

Figure V-1

Nationwide Market Dominant Mail Measured by Full-Service IMb,

by Percentage, by Quarter, FY 2015–FY 2018

Source: January 11 Responses to CHIR No. 1, question 49; FY 2015 through FY 2018 United States Postal Service Quarterly Service 

Performance Reports, First-Class Mail, USPS Marketing Mail, Periodicals, and Package Service Scores Reports are available at: 

http://www.prc.gov/documents/quarterly-performance; Library Reference USPS–FY18–42, December 28, 2018; Docket No. ACR2017, 

Library Reference USPS–FY17–42, December 29, 2017; Docket No. ACR2016, Library Reference USPS–FY16–42, December 29, 2016; 

Docket No. ACR2015, Library Reference USPS–FY15–42, December 29, 2015.

District-level measurement. The Postal Service measures service performance at the district 

level. These data are aggregated to the area level and then aggregated again to report 

nationwide service performance results.282 In order to be representative of the nation as a 

whole, the nationwide service performance results for each product should include data 

from all districts. Prior concerns expressed by the Commission with regard to the lack of 

reporting data from all districts283 appear to have been addressed, with the vast majority of 

districts now reporting statistically meaningful results for all products and service 

standard levels.

 

282 See United States Postal Service Quarterly Service Performance Reports Quarters 1-4 of FY 2018 (available at: 

http://www.prc.gov/dockets/quarterly-performance).

283 See, e.g., FY 2015 ACD at 98-99.
Docket No. ACR2018 - 133 -

Pieces excluded from measurement. The Commission continues to monitor the issue of 

mailpieces excluded from measurement. See, e.g., FY 2015 ACD at 99-102; FY 2016 ACD at 

96-99; FY 2017 ACD at 103-06. During FY 2016, the Commission issued an order enhancing 

the reporting of service performance measurement data.284 Among other things, this order 

required the Postal Service to begin providing regular, detailed information concerning 

mailpieces included and excluded from measurement, as well as the reasons mailpieces are 

excluded from measurement. Order No. 3490 at 28-35.

In general, the more mail that is measured, the more representative, accurate, and reliable 

such measurements will be. Table V-4 contains Postal Service data regarding the 

percentage of mail in measurement, the percentage of mail entered as Full-Service IMb and 

included in measurement, and the percentage of mail entered as Full-Service IMb and 

excluded from measurement.285 Table V-4 also shows that the percentage of mail in 

measurement increased each fiscal year from FY 2015 to FY 2018, for nearly all measured 

products.286 Generally, this increase corresponds to a decrease in the percentage of FullService IMb mail excluded from measurement.287

 

284 See Docket No. PI2016-1, Order Enhancing Service Performance Reporting Requirements and Closing Docket, August 26, 2016 (Order No. 

3490).

285 The formula for the percentage of mail in measurement is mail that is measured / total mail. The formula for the percentage of mail 

processed at Full-Service IMb prices and included in measurement is Full-Service IMb mail measured / total Full-Service IMb mail. The formula 

for the percentage of mail entered as Full-Service IMb mail and excluded from measurement is Full-Service IMb mail excluded from 

measurement / total Full-Service IMb mail.

286 For USPS Marketing Mail Every Door Direct Mail—Retail, the percentage of mail in measurement decreased slightly (0.04 percentage points) 

from FY 2017 to FY 2018.

287 For First-Class Mail Flats and BPM Flats, the percentage of mail in measurement increased slightly from FY 2016 to FY 2017; however, for 

that same period, the percentage of Full-Service IMb mail excluded from measurement also increased. Similar results were observed for FirstClass Mail Flats from FY 2017 to FY 2018. An increase in both categories was also reported for USPS Marketing Mail Carrier Route from FY 2017 

to FY 2018 because data were collected for only 3 quarters in FY 2017 versus 4 quarters in FY 2018. Responses to CHIR No. 6, question 5.
Docket No. ACR2018 - 134 -

Table V-4

Mail in Measurement and Excluded from Measurement,

by Percentage, FY 2015–FY 2018

Percentage of mail in 

measurement

Percentage of mail entered at 

Full-Service IMb prices and 

included in measurement

Percentage of mail processed as 

Full-Service IMb, but excluded 

from measurement

FY 

2015

FY 

2016

FY 

2017

FY

2018

FY 

2015

FY 

2016

FY 

2017

FY

2018

FY 

2015

FY 

2016

FY 

2017

FY

2018

First-Class Mail

Presorted 

Letters/Postcards 52.7 62.5 64.9 67.2 60.2 70.2 72.2 74.0 39.8 29.8 27.8 26.0

Flats 12.8 54.1 54.5 56.1 54.2 72.4 69.6 69.0 45.8 27.6 30.4 31.0

USPS Marketing Mail

High Density and 

Saturation Letters 58.8 68.8 72.5 75.6

Data Not 

Available

79.0 80.8

Data Not 

Available

21.0 19.2

High Density and 

Saturation 

Flats/Parcels

21.9 36.6 37.4 37.7 60.4 68.1 39.6 31.9

Carrier Route 53.8 69.6 72.4 73.2 79.7 76.9 20.3 23.1

Letters 56.0 69.1 72.6 76.0 80.8 82.8 19.2 17.2

Flats 45.0 59.0 61.4 64.6 73.9 76.8 26.1 23.2

Every Door Direct 

Mail–Retail 28.0 63.2 63.9 63.9 Not Applicable

Parcels 30.4 44.5 45.1 50.9 Data Not Available

Total USPS Marketing 

Mail 50.3 63.8 66.7 69.2 65.2 76.7 79.2 81.2 34.8 23.3 20.8 18.8

Periodicals

In-County

Data 

Not 

Availa

ble

7.4 7.9 9.9 Data Not Available

Outside County 46.7 57.0 60.9 62.0

Total Periodicals 42.7 52.4 55.8 56.7 61.6 68.1 71.2 71.5 38.4 31.9 28.8 28.5

Package Services

Bound Printed Matter 

Flats 10.1 11.4 11.8 14.0 38.2 43.5 42.6 45.5 61.8 56.5 57.4 54.5

Note: The total number of Full-Service IMb pieces was unavailable at the product level for USPS Marketing Mail in FY 2017 Quarter 1. Therefore, the FY 

2017 percentage of mail entered at Full-Service IMb prices and included in measurement and percentage of mail processed as Full-Service IMb but 

excluded from measurement for each USPS Marketing Mail product are based on the data from FY 2017 Quarter 2 to FY 2017 Quarter 4. Docket No. 

ACR2017, Responses of the United States Postal Service to Questions 1-8 of Chairman’s Information Request No. 11, February 7, 2018, question 8 (Docket 

No. ACR2017 Responses to CHIR No. 11).

Source: January 11 Responses to CHIR No. 1, question 50; FY 2017 ACD at 104.
Docket No. ACR2018 - 135 -

The Postal Service lists four main reasons why mailpieces are excluded from 

measurement.288 First, “No Start-the-Clock” occurs when the Postal Service lacks a 

container unload scan or is unable to identify the Facility Access and Shipment Tracking 

(FAST) appointment associated with the container. Id. Without an initial scan or an 

identified FAST appointment, the Postal Service cannot decipher when the measuring 

process should begin and therefore excludes these mailpieces from measurement. See FY 

2017 ACD at 105.

Second, “Long Haul” occurs when a mailpiece verified at a Detached Mail Unit (DMU) is 

transported by the Postal Service to a mail processing facility in a different district than the 

DMU. Docket No. PI2016-1 Responses to CHIR No. 1, question 4. The Postal Service 

considers this an operational failure because it results in a loss of visibility of the mailpiece. 

See FY 2017 ACD at 105.

Third, “No Piece Scan” occurs when no automation scan is reported for the mailpiece. 

Docket No. PI2016-1 Responses to CHIR No. 1, question 4. The Postal Service excludes 

these mailpieces from measurement due to incomplete data. See FY 2017 ACD at 105.

Fourth, “Invalid Entry Point for Discount Claimed” occurs when the discount Entry Point 

claimed by the mailer in electronic documentation (eDoc) is invalid for the entry point and 

destination of the mailpiece. Docket No. PI2016-1 Responses to CHIR No. 1, question 4. The 

Postal Service excludes this mail from measurement due to invalid data. See FY 2017 ACD 

at 105.

Table V-5 displays the top two reasons that a mailpiece from a given class was excluded 

from measurement in FY 2018, and the corresponding percentages, disaggregated by 

quarter for FY 2017 and FY 2018. The main reasons referenced in FY 2018 are consistent 

with those referenced in prior years.

 

288 See Docket No. PI2016-1, Responses of the United States Postal Service to Questions 1 Through 5 of Chairman’s Information Request No. 1, 

May 3, 2016, question 4, Excel file “Attach.USPS.Resp.ChIR1.Q4.xlsx,” tab “4. Exclusion Reason Breakdown” (Docket No. PI2016-1 Responses to 

CHIR No. 1).
Docket No. ACR2018 - 136 -

Table V-5

Reasons for Mailpiece Exclusions, by Percentage, by Quarter, FY 2017–FY 2018

Class/Reason FY 2017

Q1

FY 2017 

Q2

FY 2017 

Q3

FY 2017 

Q4

FY 2018 

Q1

FY 2018 

Q2

FY 2018 

Q3

FY 2018 

Q4

First-Class Mail

No Start-the-Clock 43.81 37.08 35.07 36.18 29.47 35.50 32.15 29.22

Long Haul 31.93 36.92 40.51 40.89 40.72 38.80 41.57 41.31

USPS Marketing Mail

No Start-the-Clock 43.83 42.06 44.76 43.46 39.59 46.54 44.54 40.34

No Piece Scan 32.75 30.11 29.09 29.40 36.97 35.45 35.08 33.10

Periodicals

No Piece Scan 55.38 56.25 58.38 56.54 60.31 60.58 61.97 62.61

No Start-the-Clock 16.83 16.12 15.71 15.50 12.67 15.34 13.82 12.93

Package Services

No Piece Scan 53.93 61.91 68.32 71.46 75.61 79.58 77.93 78.13

Invalid Entry Point for 

Discount Claimed

19.54 16.10 21.33 14.18 18.30 9.11 10.24 15.74

Source: United States Postal Service, Quarterly Service Performance Report, Quarter 4, November 9, 2018, Excel file 

“AttachA_ExclusionReasonBreakdown_FY18_Q4.xlsx,” tab “Exclusions;” United States Postal Service, Quarterly Service Performance Report, 

Quarter 4, November 9, 2017, Excel file “ExclusionReasonBreakdownFY17Q4.xlsx,” tab “Exclusions.”

f. Approved Changes to Measurement Systems, Effective 

FY 2019 Quarter 1

On July 5, 2018, the Commission approved the Postal Service’s proposal to use internal 

service performance measurement systems to generate data to fulfill the statutory and 

regulatory requirements for service performance measurement of several Market 

Dominant products, beginning in FY 2019, Quarter 1.289 This approval was conditioned 

upon the Postal Service continuing its external auditing program, including filing each audit 

report with the Commission within 60 days of each applicable reporting quarter. Order No. 

4697 at 67. Also, the first annual compliance report based on data from the internal service 

performance measurement systems must contain an explanation of any significant 

discrepancies between the new versus legacy systems, where appropriate. Id. Moreover, 

where appropriate, the Postal Service shall propose a method of comparing new versus 

legacy data. Id.

 

289 Docket No. PI2015-1, Order Approving Use of Internal Measurements Systems, July 5, 2018, at 66-67 (Order No. 4697). The Commission 

resolved the Postal Service’s motion for clarification of Order No. 4697. Docket No. PI2015-1, Errata to Order No. 4697, August 21, 2018.
Docket No. ACR2018 - 137 -

Specifically, data generated from the internal systems will replace data generated by the 

legacy EXFC system for First-Class Mail Single-Piece Letters/Postcards and single-piece 

First-Class Mail Flats. Id. at 17-19. The internal systems measure service performance for 

these mailpieces in three independent segments: First Mile (measures the time from 

collection to the first mail processing operation); Processing Duration (measures the time 

between the first processing operation to the last processing operation); and Last Mile 

(measures the time between the last processing operation and final delivery).290

Additionally, data generated from the internal system for measuring the Last Mile segment 

will replace data generated by the legacy system of using external, third-party reporters to 

record delivery (via an IMb scan) of First-Class Mail Presorted Letters/Postcards, presort 

First-Class Mail Flats, Periodicals, USPS Marketing Mail letter-shaped and flat-shaped 

pieces, and BPM Flats.291

On November 5, 2018, the Commission conditionally approved modifications to the Postal 

Service Market Dominant service performance measurement systems.292 This approval was 

conditioned upon the Postal Service making certain corrections to its documentation, or 

providing explanations for why those corrections were not necessary. Order No. 4872 at 2. 

In response to Order No. 4872, the Postal Service provided narrative explanations and the 

December 10, 2018 Postal Service Service Performance Measurement Plan.293 On 

December 27, 2018, the Commission issued an order acknowledging that the Postal Service 

had satisfied the directives appearing in Order No. 4872 and provided instructions 

concerning future filings.294

 

290 Id. Mailpieces for which the first processing scan is the same event as the last processing scan may be included in measurement of 

Processing Duration. Id. at 19 n.40.

291 Id. at 21; see December 10, 2018 Postal Service Service Performance Measurement Plan at 11-12, 98.

292 Docket No. PI2018-2, Order Conditionally Approving Modifications to Market Dominant Service Performance Measurement Systems, 

November 5, 2018 (Order No. 4872).

293 Docket No. PI2018-2 Postal Service Response to Order No. 4872. A chart identifying the revisions to the plan, a clean version of the plan, and 

a redline version of the plan were filed as Attachments 1 through 3, respectively.

294 Docket No. PI2018-2, Order Closing Docket, December 27, 2018, at 2 (Order No. 4945).
Docket No. ACR2018 - 138 -

3. The Postal Service’s Responses to the Directives 

Related to First-Class Mail Single-Piece 

Letters/Postcards

a. Introduction

(1) Procedural Background

In FY 2015, service performance results for First-Class Mail Single-Piece Letters/Postcards 

declined more rapidly than in prior fiscal years—particularly for the 3-5-Day service 

standard category. FY 2015 ACD at 132. This decline was especially concerning because 

“[f]or the first time since the Postal Service began reporting service performance of all 

Market Dominant mail products, no First-Class Mail product met or exceeded its service 

performance target[].” Id. at 131.

In the FY 2015 ACR and in responses to CHIRs, the Postal Service identified issues 

surrounding the FY 2015 results and reported that it would continue its existing 

remediation strategy, which involved using root cause failure analysis to identify 

problematic facilities and rectify operational issues. Id. at 136. The Commission noted 

several concerns, including the absence of (1) a link between the use of root cause 

diagnostic tools with Postal Service actions to improve service performance and (2) a 

quantitative link between the issues identified by the Postal Service with service 

performance results. Id.

Determining that First-Class Mail Single-Piece Letters/Postcards was not in compliance in 

FY 2015, the Commission issued directives to promote improvement and gain better 

visibility into the remediation strategy reported by the Postal Service. Id. at 136-38. These 

directives included the Postal Service providing, within 90 days of the issuance of the FY 

2015 ACD, “a detailed, comprehensive plan” along with specific data. Id. at 138. The 

Commission also directed the Postal Service to “provide an explanation in the FY 2016 ACR 

detailing specific efforts targeted to improve service performance results for First-Class 

Mail Single-Piece Letters/Postcards in FY 2016.” Id.

The Postal Service’s responses to these directives described available data and enhanced 

technology.295 The Postal Service reported using these tools to identify and correct local 

deficiencies in FY 2016 and indicated that it would continue these actions in FY 2017.296

Several CHIRs were issued to obtain data and explanations to enable the Commission’s 

evaluation of this course of action.

 

295 Docket No. ACR2015, Second Response of the United States Postal Service to Commission Requests for Additional Information in the FY 2015 

Annual Compliance Determination, June 27, 2016, Service Improvement Plan (Docket No. ACR2015 Service Response).

296 Docket No. ACR2016, Library Reference USPS–FY16–29, December 29, 2016, file “FY16-29 Service Performance Report.pdf,” at 9 (FY 2016 

Service Performance Report).
Docket No. ACR2018 - 139 -

In FY 2016, the results for First-Class Mail Single-Piece Letters/Postcards improved. FY 

2016 ACD at 130. However, the results remained below target and the Commission 

remained concerned that results did not return to the level reported before FY 2015. Id. at 

133. Determining that First-Class Mail Single-Piece Letters/Postcards was not in 

compliance in FY 2016, the Commission directed the Postal Service to provide FY 2017 

results for many of the same data sets that the Postal Service had provided for FY 2015 and 

FY 2016. Id. at 133-35.

In FY 2017, the Postal Service’s provision of data and robust narrative explanations in 

response to these directives and follow-up CHIRs improved visibility into service 

performance and the Postal Service’s remediation strategy.297 The Commission found that 

these data, provided consistently year over year, may increase the accuracy of evaluating 

what actions contribute to improving service performance results and the relative 

significance of those actions and improvements. FY 2017 ACD at 108.

Additionally, the FY 2017 results for First-Class Mail Single-Piece Letters/Postcards 

increased relative to FY 2016. FY 2017ACD at 147. Although the Commission recognized 

that 2 consecutive years of improvement was “encouraging,” the Commission remained 

concerned that results did not return to the level reported before FY 2015. Id. Determining 

that First-Class Mail Single-Piece Letters/Postcards was not in compliance in FY 2017, the 

Commission directed the Postal Service to provide FY 2018 results for many of the same 

data sets that the Postal Service had provided for FY 2015 through FY 2017. Id. at 147-49. 

These data and additional data responsive to CHIRs were provided by the Postal Service.298

Below, the Commission provides operational background to explain how the Postal 

Services uses its root cause diagnostic tools to monitor and quantify the impact of a FirstClass Mail Single-Piece Letter/Postcard’s failure to complete certain actions occurring 

within the five processing phases.

(2) The Five Processing Phases and the Root Cause 

Indicators

Generally, the mail flow for a First-Class Mail Single-Piece Letter/Postcard involves five 

processing phases. First, the Collections/First Mile phase refers to the pickup from the 

collection box, initial transport, and cancellation processing at the origin facility. Second, 

 

297 See, e.g., Docket No. ACR2016, Responses of the United States Postal Service to Questions 1-4 of Chairman's Information Request No. 33, 

December 28, 2017, Excel file “CHIR.33.Qs.2.3.Data.xlsx” (December 28, 2017 Public File); Docket No. ACR2017, Library Reference USPS–FY17–

29, December 28, 2018, Excel file “Response2 - ACD.FCM.FY17Q3Q4.pub.xlsx” (December 29, 2017 Public File); Docket No. ACR2017, Responses 

of the United States Postal Service to Questions 1-19 of Chairman’s Information Request No. 2, January 17, 2018 (Docket No. ACR2017 January 

17 Responses to CHIR No. 2), question 7.a., Excel file “ChIR.2.Q7.24 Hour Clock.xlsx” (24-Hour Clock Results File FY 2017); Docket No. ACR2017 

Responses to CHIR No. 11, question 4, Excel file “CHIR No. 11 Response Q4.xlsx” (24-Hour Clock Results File FY 2015-FY 2016).

298 See, e.g., USPS–FY18–29, Excel file “ACD.FCM.FY18Q3Q4.public - v01.xlsx” (FY 2018 Root Cause File); January 11 Responses to CHIR No. 1, 

questions 20-50, Excel file “ChIR.1.Multiple.Responses.xlsx” (Additional Results File); January 28 Responses to CHIR No. 3, questions 10-11; 

Responses to CHIR No. 6, questions 1-2; Responses to CHIR No. 11, question 9; Docket No. ACR2017, Second Response of the United States 

Postal Service to Commission Requests for Additional Information in the FY 2017 Annual Compliance Determination, June 27, 2018, Excel file 

“ACD.FCM.FY18Q1Q2.Public.xlsx.”
Docket No. ACR2018 - 140 -

the origin processing phase refers to the initial sortation(s) and subsequent assignment to 

ground or air transportation. Third, the transit phase refers to when a mailpiece travels by 

ground or air transportation to destination processing facilities. Fourth, the destination 

processing phase refers to the sortation(s) for delivery. Fifth, the Delivery/Last Mile phase 

refers to the final phase where the carrier delivers the mailpiece.

Figure V-2 depicts the Postal Service’s visualization of the five processing phases.

Figure V-2

First-Class Mail Single-Piece Mail Flow

Source: Docket No. ACR2015 Service Response at 3.

The five phases do not have uniform and concrete start and end points; instead, the general 

processing flow is fluid, reactive, and varies based on local conditions. Because each of the 

five phases flows into the next,299 the cumulative effect of a relatively low number of 

failures at a particular phase (or interim processing action) may have the potential for 

significant downstream delays. Evaluating the significance of failures occurring throughout 

the five processing phases on the national service performance results is important to 

assessing the relative success of the Postal Service’s improvement efforts.

 

299 Carriers from the Delivery/Last Mile phase return with mail that will eventually be included in processing.
Docket No. ACR2018 - 141 -

To monitor and quantify the impact of such failures, the Postal Service uses root cause 

diagnostic tools. The Postal Service assigns a root cause indicator to a First-Class Mail 

Single-Piece Letter or Postcard that is delivered after the applicable service standard. 

January 11 Responses to CHIR No. 1, question 24. The root cause indicator corresponds 

with the failure to clear a mailpiece through a specific processing action. See id.; see also 

Docket No. ACR2017 January 17 Responses to CHIR No. 2, question 8.a. The Postal Service 

quantifies the number of percentage points by which on-time service performance for 

First-Class Mail Single-Piece Letters/Postcards decreased due to each specific root cause of 

failure. January 28 Responses to CHIR No. 3, question 10.a. These point impacts were 

developed from the EXFC Root Cause Failure Analysis and were calculated with the 

following formula:

(1 − EXFC Weighted Score) x Root Cause Category Failure Percentage

= Root Cause Category Point Impact

Id. question 10.c. Below, the Commission provides analysis of the Postal Service’s root 

cause data specific to 3-5-Day First-Class Mail Single-Piece Letters/Postcards. The 

Commission focuses its discussion on the 3-5-Day service standard category because the 

Commission has noted particular concerns with this category’s service performance results 

in prior fiscal years. See, e.g., FY 2015 ACD at 132.

b. Commission Analysis

Figure V-3 displays the point impact of the top five root cause indicators on service 

performance results for 3-5-Day First-Class Mail Single-Piece Letters/Postcards for each 

quarter of FY 2015 through FY 2018.
Docket No. ACR2018 - 142 -

Figure V-3

Nationwide Impact of Top 5 Root Causes on Service Performance Results

for 3-5-Day First-Class Mail Single-Piece Letters/Postcards,

by Percentage Points, by Quarter, FY 2015–FY 2018

Source: Additional Results File, tab “Q25a - Top 5 Root Cause PI.”

Figure V-3 illustrates that AADC/ADC processing delays accounted for the largest impact 

across all quarters throughout the fiscal years shown. Moreover, the FY 2018 quarterly 

point impacts for many of these root cause indicators reported increases from the 

corresponding quarter in FY 2017, most significantly for origin processing delays and 

AADC/ADC processing delays. Accordingly, the Commission encourages the Postal Service 

to focus on addressing these root causes. Based on additional details provided in the phasespecific discussion below, the Commission finds that AADC/ADC processing delays specific 

to air transit represent the highest leverage opportunity for the Postal Service to increase 

service performance results for 3-5-Day First-Class Mail Single-Piece Letters/Postcards.

An explanation was requested for “the reason(s) why the levels [for each of the top five 

root causes] reported for FY 2018 increased from the levels reported for FY 2017, the steps 

that the Postal Service has taken to reverse this trend, and the steps that the Postal Service 
Docket No. ACR2018 - 143 -

plans to take to reverse this trend.” CHIR No. 1, question 26.a. through 26.e. The Postal 

Service did not provide a response specific to each indicator and did not address the 

reason(s) for the increase. See January 11 Responses to CHIR No. 1, question 26. The Postal 

Service reiterated its commitment to service performance improvement in FY 2019 and 

discussed its plans to deploy service teams to local facilities and hold Area teleconferences 

to ensure compliance with operating plans. Id. The Commission is directing the Postal 

Service to provide transparency into the link between the use of root cause diagnostic tools 

with Postal Service actions to improve service performance. The Commission is also 

directing the Postal Service to ensure continued monitoring and transparency into 

quantitative connections between the issues identified by the Postal Service and service 

performance results. The exact requirements of these directives are discussed in section 

V.A.4.a., infra.

For each of the five processing phases, the discussion below diagrams the general 

processing flow300 and provides analysis based on the applicable Postal Service data.

(1) Collections/First Mile

Collections/First Mile refers to the first phase, in which a First-Class Mail Single-Piece 

Letter or Postcard proceeds from collection through the cancellation process. See FY 2016 

ACD at 106. During this phase, the Postal Service retrieves the mailpiece from a collection 

box or other collection point, transports it to the origin processing facility, unloads the 

mailpiece, and moves it to a facer-canceller machine to receive a cancellation mark.301 The 

diagram below illustrates these three processing points.

The Postal Service monitors collection delays that occur in retrieving mail from a collection 

box or in the handoff to the facility. Docket No. ACR2017 January 17 Responses to CHIR No. 

2, question 8.a. If a First-Class Mail Single-Piece Letter or Postcard is not delivered by its 

service standard and no subsequent cycle time checkpoints are met, then the Postal Service 

assigns the collection delay root cause failure indicator. Id.; see January 11 Responses to 

CHIR No. 1, question 24.b.

 

300 The diagrams appearing in each phase-specific discussion are not an exhaustive description of the processing actions that occur. The arrows 

connecting the measurement points illustrate intra-phase transportation such as from a collection point to a postal facility, mail movement 

inside a postal facility, or between postal facilities. Opportunities to add visibility into these aspects of each phase also exist.

301 Id. “A cancellation mark, or postmark, is applied to prevent the reuse of the indicia and to provide a date which is recognized as a valid time 

determinate. The cancellation mark consists of the city, state, and date to identify when and where a mailpiece was processed.” Docket No. 

ACR2016, Responses of the United States Postal Service to Questions 1-5 and 7-21 of Chairman’s Information Request No. 1, January 10, 2017, 

question 3 (Docket No. ACR2016 January 10 Responses to CHIR No. 1).

Pickup from 

Collection Point

Unload 

Mailpieces at 

Origin Processing 

Facility

Cancellation

Process
Docket No. ACR2018 - 144 -

Table V-6 displays the reported percentage point impacts caused by collection delays on 

service performance results for 3-5-Day First-Class Mail Single-Piece Letters/Postcards for 

each quarter of FY 2015 through FY 2018.

Table V-6

Nationwide Impact of Collection Delays on Service Performance Results

for 3-5-Day First-Class Mail Single-Piece Letters/Postcards,

by Percentage Points, by Quarter, FY 2015–FY 2018

FY 2015 FY 2016 FY 2017 FY 2018

Q1 0.14 0.19 0.19 0.23

Q2 0.25 0.23 0.19 0.25

Q3 0.13 0.13 0.13 0.18

Q4 0.20 0.11 0.20 0.18

Source: Additional Results File, tab “Q30 Three-to-Five-Day;” 

see Responses to CHIR No. 11, question 9.a.

These data corroborate the Commission’s previous finding that collection delays have not 

significantly impacted national service performance results for 3-5-Day First-Class Mail 

Single-Piece Letters/Postcards since FY 2015. FY 2017 ACD at 112. Nonetheless, continuing 

to monitor collection delay data provides necessary transparency. Further, continuing to 

evaluate and correct issues that occur in the first phase of processing helps to ensure that 

early-phase failures will remain relatively low and minimizes downstream delays.

(2) Origin Processing

Origin processing refers to the phase that includes the first processing operations after a 

First-Class Mail Single-Piece Letter or Postcard receives a cancellation mark. FY 2016 ACD 

at 110. These processing actions include an origin primary sortation (as well as a 

secondary sortation, if necessary) and then assignment to transit, if necessary. Id. The 

diagram below illustrates the processing points.

The Postal Service monitors this phase using multiple root cause indicators. Two of these 

root causes, origin processing delays and origin missent, are among the top five most 

impactful root causes in the decline in national service performance results for 3-5-Day 

First-Class Mail Single-Piece Letters/Postcards from FY 2015 through FY 2018. Below the 

Commission discusses these two indicators in further detail.

Outgoing 

Primary 

Operations

Outgoing 

Secondary 

Operations

Assign Volumes 

to Transit 

Network
Docket No. ACR2018 - 145 -

The first indicator, origin processing delays, is designed to monitor the timely completion 

of the first two interim processing actions on the diagram. The Postal Service classifies a 

First-Class Mail Single-Piece Letter or Postcard that is not delivered by its service standard

as experiencing an origin processing delay if the mailpiece receives either:

 an outgoing secondary scan after 0:00 hours on the day of induction or

 a late outgoing primary scan after 23:00 hours on the day of induction (if no 

secondary scan exists)

Docket No. ACR2017 January 17 Responses to CHIR No. 2, question 8.a.; see January 11 

Responses to CHIR No. 1, question 24.b.

Table V-7 displays the reported percentage point impacts on service performance results 

for 3-5-Day First-Class Mail Single-Piece Letters/Postcards for each quarter of FY 2015 

through FY 2018 caused by origin processing delays.

Table V-7

Nationwide Impact of Origin Processing Delays on Service Performance Results

for 3-5-Day First-Class Mail Single-Piece Letters/Postcards,

by Percentage Points, by Quarter, FY 2015–FY 2018

FY 2015 FY 2016 FY 2017 FY 2018

Q1 1.47 3.54 3.52 5.09

Q2 4.57 2.68 2.48 4.64

Q3 2.40 1.32 1.44 1.75

Q4 1.57 1.19 1.58 1.77

Source: Additional Results File, tab “Q25a - Top 5 Root Cause PI.”

The point impacts of origin processing delays in FY 2018 Quarters 1, 2, and 4 were higher 

relative to corresponding periods in FY 2015 through FY 2017, particularly when 

comparing FY 2015 Quarter 1302 to FY 2018 Quarter 1. The point impact of origin 

processing delays was 246 percent higher in FY 2018 Quarter 1 compared to FY 2015 

Quarter 1.

Failures at the origin processing phase are important due to the potential impact on 

subsequent processing. Monitoring origin processing delay data is useful to correct failures 

that occur during early processing and therefore minimize failures further downstream. 

The Commission encourages the Postal Service to investigate the reason(s) for the 

increases reported in FY 2018 and reduce origin processing delays.

 

302 Phase 2 of Network Rationalization was implemented on January 5, 2015, at the beginning of FY 2015 Quarter 2.
Docket No. ACR2018 - 146 -

The second indicator, origin missent, is designed to monitor whether the first two interim 

processing actions on the diagram are completed in the correct local facility. The Postal 

Service classifies a First-Class Mail Single-Piece Letter or Postcard that is not delivered by 

its service standard as origin missent if the mailpiece:

 is processed in an outgoing processing operation at an unexpected origin facility 

and

 is not miscoded

Docket No. ACR2017 January 17 Responses to CHIR No. 2, question 8.a.; see January 11 

Responses to CHIR No. 1, question 24.b. If these conditions are met and the mailpiece is not 

assigned either the collection delay or last mile failure root cause indicator, then the origin 

missent indicator will be assigned. Docket No. ACR2017 January 17 Responses to CHIR No. 

2, question 8.a. This indicator includes mailpieces processed at consolidation facilities. Id.

Table V-8 displays the reported percentage point impacts caused by origin missent on 

service performance results for 3-5-Day First-Class Mail Single-Piece Letters/Postcards for 

each quarter of FY 2015 through FY 2018.

Table V-8

Nationwide Impact of Origin Missent on Service Performance Results

for 3-5-Day First-Class Mail Single-Piece Letters/Postcards,

by Percentage Points, by Quarter, FY 2015–FY 2018

FY 2015 FY 2016 FY 2017 FY 2018

Q1 0.66 1.03 1.03 1.04

Q2 1.05 0.94 0.88 1.06

Q3 0.92 0.92 0.90 0.94

Q4 0.86 0.85 0.92 1.34

Source: Additional Results File, tab “Q25a - Top 5 Root Cause PI;”

Responses to CHIR No. 6, question 2.

Noting the slight increases in the quarterly point impacts reported for FY 2018 relative to 

the corresponding quarters in FY 2017, the Commission encourages the Postal Service to 

investigate and address the reason(s) for the increases reported in FY 2018 for origin 

missent.
Docket No. ACR2018 - 147 -

(3) Transit

Transit refers to the transportation of a mailpiece that is destined for an address outside of 

the local service area from which the mailpiece was mailed. FY 2016 ACD at 115. During 

this phase, the mailpiece travels from the origin processing facility to the destination 

processing facility. Id.

The Postal Service asserts that if a mailpiece misses its scheduled transportation, then 

generally that mailpiece will not be delivered within the expected timeframe absent 

“extraordinary measures at substantial cost, such as extra transportation along with clerk 

and carrier overtime at the delivery point.” Responses to CHIR No. 13, question 2. This 

assertion is generally supported by the Postal Service’s data related to the transit phase.

To monitor problems with transit, the Postal Service measures whether mail was 

processed on time at the origin processing facility, but scanned late at the destinating 

processing facility. Docket No. ACR2015 Service Response at 15. This type of failure is 

referred to as an AADC/ADC processing delay. Id. The Postal Service classifies a First-Class 

Mail Single-Piece Letter or Postcard that is not delivered by its service standard as 

experiencing an AADC/ADC processing delay if the mailpiece:

 receives a processing scan at the expected AADC facility after 12:00 PM on the day 

before the expected day of delivery and

 fails to meet any subsequent processing cycle time checkpoints303

Table V-9 displays the reported percentage point impacts caused by AADC/ADC processing 

delays on service performance results for 3-5-Day First-Class Mail Single-Piece 

Letters/Postcards for each quarter of FY 2015 through FY 2018.

Table V-9

Nationwide Impact of AADC/ADC Processing Delays on Service Performance Results

for 3-5-Day First-Class Mail Single-Piece Letters/Postcards,

by Percentage Points, by Quarter, FY 2015–FY 2018

FY 2015 FY 2016 FY 2017 FY 2018

Q1 8.79 11.05 7.62 9.08

Q2 19.99 10.04 7.18 10.79

Q3 11.00 5.22 4.88 5.62

Q4 10.04 4.81 5.41 5.24

Source: Additional Results File, tab “Q25a - Top 5 Root Cause PI.”

 

303 Docket No. ACR2017 January 17 Responses to CHIR No. 2, questions 7.c.ii. and 8.a.; see January 11 Responses to CHIR No. 1, question 24.b. 

For flat-shaped pieces, this indicator is assigned to a piece that receives a processing scan at the expected ADC facility after 12:00 PM on the 

day before the expected day of delivery, and fails to meet any subsequent processing cycle time checkpoints. Docket No. ACR2017 January 17 

Responses to CHIR No. 2, questions 7.c.ii. and 8.a.
Docket No. ACR2018 - 148 -

AADC/ADC processing delays impacted service performance results more than any other 

root cause for 3-5-Day First-Class Mail Single-Piece Letters/Postcards for each quarter of 

FY 2015 through FY 2018. These data indicate that reducing AADC/ADC processing delays 

would be a high-leverage approach to improving service performance results. The 

Commission observes two trends with respect to the reported point impact of AADC/ADC 

processing delays.

The first trend generally evinces the effect of seasonality within each fiscal year. For FY 

2015 through FY 2018, there is a substantial decline in the point impacts reported in 

Quarter 3 (April 1 through June 30) relative to Quarter 2 (January 1 through March 31).304

For FY 2015 through FY 2018, the point impacts reported in Quarter 4 (July 1 through 

September 30) remains near the levels observed in the preceding Quarter 3.

The second trend compares the point impacts for the same period over 4 fiscal years. For 

all 4 quarters, the FY 2017 point impacts are lower than the corresponding FY 2015 point 

impacts, most of them significantly so. However, the point impacts observed in FY 2018 

generally increased relative to the point impacts observed for the corresponding fiscal 

quarters in FY 2017. Notably the FY 2018 Quarter 2 point impact of AADC/ADC processing 

delays represents an approximate 50 percent increase compared to the corresponding 

point impact observed in FY 2017 Quarter 2. These data evidence some regression of the 

progress made in FY 2016 and FY 2017. Accordingly, the Commission encourages the 

Postal Service to increase its focus on leveraging the strategies it successfully used to 

improve AADC/ADC processing delays in FY 2016 and FY 2017.

Below, the Commission provides additional discussion specific to each mode of transit: air 

and ground. Approximately one-third of 3-5-Day First-Class Mail Single-Piece 

Letters/Postcards used air transit and the remainder used ground transit in FY 2018. 

January 11 Responses to CHIR No. 1, question 23. The data provided by the Postal Service 

indicate that 3-5-Day First-Class Mail Single-Piece Letters/Postcards are 

disproportionately impacted by air transit delays.

 

304 The FY 2015, FY 2016, and FY 2018 Quarter 3 point impacts of AADC/ADC delays represent approximately a 48 percent decrease compared 

to the point impacts in the preceding Quarter 2.
Docket No. ACR2018 - 149 -

(a) Air Transit

With respect to air transit, the Postal Service follows five general steps. The Postal Service’s 

first air transit processing action—securing capacity and assigning the mailpiece to the 

appropriate air carrier and intermediate ground carrier(s)—follows the last step of the 

origin processing phase. Second, the mailpiece is transferred to an intermediate ground 

carrier contracted to deliver the mailpiece to the air carrier. Third, after traveling some 

distance by ground, the intermediate operator transfers the mailpiece to the contracted air 

carrier. Fourth, the mailpiece is transported to the destination processing facility.305

Finally, the mailpiece is unloaded at the destination processing facility. FY 2016 ACD at 

115-16. The diagram below illustrates the processing points.

As the diagram illustrates, the focus of the second through fifth processing actions involves 

multiple transfers. The Postal Service acknowledges that these transfers “play[] a critical 

part in the timeliness of postal delivery.” Docket No. ACR2015 Service Response at 15. To 

track these transfers, the Postal Service monitors daily AADC/ADC processing delays 

specific to mailpieces transported by air transit.

Table V-10 displays the reported percentage point impacts caused by air transit AADC/ADC 

processing delays on service performance results for 3-5-Day First-Class Mail Single-Piece 

Letters/Postcards for each quarter of FY 2015 through FY 2018.

Table V-10

Nationwide Impact of AADC/ADC Processing Delays (Air) on Service Performance Results

for 3-5-Day First-Class Mail Single-Piece Letters/Postcards,

by Percentage Points, by Quarter, FY 2015–FY 2018

FY 2015 FY 2016 FY 2017 FY 2018

Q1 14.33 14.67 9.77 11.76

Q2 26.13 13.73 9.65 14.14

Q3 14.87 7.63 7.11 7.42

Q4 14.53 7.07 7.74 7.59

 

305 The Postal Service takes possession of the mailpiece after the air transport provider lands at an airport. The mailpiece is then transported by 

ground to the closest destination processing facility.

Air Capaciity: 

Align and 

Secure

Volume 

Transfer: 

USPS to 

Intermediate 

Operator

Volume 

Transfer: 

Intermediate 

Operator to 

Air Transport 

Provider

Air Transport 

to 

Destination 

Processing

Unload 

Mailpieces at 

Destination 

Processing 

Facilities
Docket No. ACR2018 - 150 -

Source: Additional Results File, tab “Q25b - AADC Delay Air PI.”

These data evidence the substantial point impacts attributed to air transit AADC/ADC 

processing delays for 3-5-Day First-Class Mail Single-Piece Letters/Postcards from FY 2015 

through FY 2018. The Commission observes two trends evident in these data, which 

parallel the trends observed for the aggregate indicator discussed above.

First, the seasonality evidenced by the aggregate indicator discussed above is also apparent 

in the indicator specific to air transit. For FY 2015 through FY 2018, there are substantial 

declines in point impacts reported in Quarter 3 (April 1 through June 30) and Quarter 4 

(July 1 through September 30) relative to Quarter 2 (January 1 through March 31).

Second, these data also evidence similar yearly trends. Generally, the point impacts 

observed in FY 2016 and FY 2017 represent year-over-year decreases from the point 

impacts observed for the corresponding fiscal quarters in FY 2015. For all 4 quarters, the 

FY 2017 point impacts are lower than the corresponding FY 2015 point impacts, most of 

them significantly so. In FY 2016 and FY 2017, the Postal Service began utilizing two 

nationwide initiatives to monitor air transit delays caused by the untimely transfer of 

mailpieces and untimely air transportation. First, the Postal Service uses barcode scanning 

technology to track the pickup and delivery of mailpieces at air carrier locations that are 

serviced by Postal Service Vehicle Service operators.306 Second, the Postal Service 

incorporates on-time performance requirements into air carrier contracts.307 The Postal 

Service’s Network Operations team monitors the air carrier’s achievement of contractspecific on-time performance requirements, facilitates discussion with the air carrier if the 

requirements are not met, and performs internal analysis to use the best performing air 

carriers for air transportation services. Docket No. ACR2016 January 18 Responses to CHIR 

No. 4, question 6.

After 2 consecutive years of progress in addressing air transit issues, however, the point 

impacts of AADC/ADC processing delays specific to air transit observed in FY 2018 

generally increased from the point impacts observed for the corresponding quarters in FY 

2017. Notably, the FY 2018 Quarter 2 point impact of AADC/ADC processing delays specific 

to air transit represents a 46 percent increase compared to the corresponding point impact 

observed in FY 2017 Quarter 2. These data evidence some regression of the progress made 

in FY 2016 and FY 2017. Accordingly, the Commission encourages the Postal Service to 

continue to address air transit AADC/ADC processing delays.

Additionally, the Postal Service monitors two other indicators related to air transit: its 

procurement of air carrier capacity and timely assignment of mailpieces. Unlike AADC/ADC 

processing delays and the other root cause indicators, these two indicators measure 

multiple products transported by air and do not collect data specific to a particular product. 

 

306 Docket No. ACR2015 Service Response at 10; Docket No. ACR2016 January 10 Responses to CHIR No. 1, question 12.

307 Docket No. ACR2015 January 19 Responses to CHIR No. 22, question 7.b.i.; see Docket No. ACR2016 January 18 Responses to CHIR No. 4, 

question 6.
Docket No. ACR2018 - 151 -

Both of these indicators focus on the first interim processing action referenced in the above 

diagram specific to air transit. These two indicators evidence that the Postal Service has 

generally continued to make progress in properly assigning mailpieces to the air network 

and securing appropriate air carrier capacity since FY 2015.

First, the Postal Service has measured the air capacity gap since the implementation of 

Phase 2 of Network Rationalization in FY 2015 Quarter 2. The Postal Service stated that 

Phase 2 of Network Rationalization resulted in insufficient air carrier capacity and asserted 

that this was one of the primary reasons for the dramatic decline in First-Class Mail service 

performance results in FY 2015. FY 2015 ACD at 133. The Postal Service states that it is 

unable to quantify the impact of the air capacity gap on service performance results for 

First-Class Mail Single-Piece Letters/Postcards. January 11 Responses to CHIR No. 1, 

question 32.

Table V-11 displays the air capacity gap, which refers to the difference between the 

airplane space secured and the space requested by the Postal Service, reported for each 

fiscal quarter since Phase 2 of Network Rationalization was implemented.

Table V-11

Air Capacity Gap, by Volume, by Quarter, FY 2015–FY 2018

Air Carrier Capacity

Requested

Air Carrier Capacity

Received Air Capacity Gap

FY 2015 Q2 172,802,712 152,268,168 20,534,544

FY 2015 Q3 166,389,873 153,097,529 13,292,344

FY 2015 Q4 164,085,103 155,999,285 8,085,818

FY 2016 Q1 212,745,658 193,238,920 19,506,738

FY 2016 Q2 252,678,595 230,048,715 22,629,880

FY 2016 Q3 212,352,972 198,815,088 13,537,884

FY 2016 Q4 198,440,550 195,992,958 2,447,592

FY 2017 Q1 203,329,800 195,798,675 7,531,125

FY 2017 Q2 199,514,640 194,290,278 5,224,362

FY 2017 Q3 186,500,834 178,092,434 8,408,400

FY 2017 Q4 177,735,982 174,191,004 3,544,977

FY 2018 Q1 200,112,683 193,812,828 6,299,855

FY 2018 Q2 201,656,006 194,688,943 6,967,063

FY 2018 Q3 194,891,879 189,872,384 5,019,495

FY 2018 Q4 194,263,480 189,184,085 5,079,395

Note: Data are calculated using average daily cubic feet volume. “Data is not provided for [FY 2015] Quarter 1 because Phase 2 of Network 

Rationalization was implemented on January 5, 2015, at the beginning of FY 2015 Quarter 2.” FY 2015 ACD at 133 n.231.

Source: FY 2018 Root Cause File, tab “Q4a;” December 29, 2017 Public File, tab “Q4a;” Docket No. ACR2016, Response of the United 

States Postal Service to Question 1 of the Chairman’s Information Request No. 28, March 17, 2017, question 1 (Docket No. ACR2016 

Responses to CHIR No. 28); Docket No. ACR2015, Responses of the United States Postal Service to Questions 15-26 of Chairman’s 

Information Request No. 2, January 19, 2016, question 19.b. (Docket No. ACR2015 January 19 Responses to CHIR No. 2).

These data indicate that in FY 2018 the Postal Service has continued to make progress in 

reducing the air capacity gap from the levels observed in FY 2015. Noting the increases in 
Docket No. ACR2018 - 152 -

the air capacity gap reported for FY 2018 Quarters 2 and 4 over the corresponding 

quarters in FY 2017, the Commission encourages the Postal Service to continue its efforts 

to secure adequate air capacity.

Second, the Postal Service measures the mailpieces reported as assigned to the air network. 

January 11 Responses to CHIR No. 1, question 47.c. The mailpieces measured include FirstClass Mail Single-Piece Letters/Postcards, Presorted Letters/Postcards, and Flats, as well as

some competitive products (Priority Mail and First-Class Package Service). Id. The national 

clearance time target for completion was 02:30 hours during FY 2015 through FY 2018.308

The Postal Service explains that this indicator primarily applies to mailpieces with a 3-5-

Day service standard.309

Table V-12 displays the percentage of mailpieces reported as assigned to the air network 

by 02:30 hours for each quarter of FY 2015 through FY 2018.

Table V-12

Nationwide Mailpieces Assigned to FedEx/Commercial Carrier by 02:30 hours,

by Percentage, by Quarter, FY 2015–FY 2018

FY 2015 FY 2016 FY 2017 FY 2018

Q1 89.6 86.6 88.6 87.7

Q2 85.3 88.7 90.6 89.2

Q3 88.6 92.2 92.6 92.2

Q4 89.8 92.8 92.5 92.4

Source: FY 2018 Root Cause File, tab “Q1a;” 24-Hour Clock Results 

File FY 2017; 24-Hour Clock Results File FY 2015-FY 2016.

These data indicate that in FY 2018 the Postal Service has generally continued to make 

progress in improving the percentage of mailpieces properly assigned to air transit 

compared to the levels observed in FY 2015. Noting the slight decreases in timely 

assignment reported for FY 2018 relative to the corresponding periods in FY 2017, the 

Commission encourages the Postal Service to continue its efforts to assign mailpieces in a 

timely manner.

With regard to reducing the overall impact of air transit delays on service performance 

results for 3-5-Day First-Class Mail Single-Piece Letters/Postcards, the Commission 

encourages the Postal Service to focus on leveraging the strategies it successfully used to 

decrease AADC/ADC processing delays specific to air transit in FY 2016 and FY 2017.

 

308 Id.; 24-Hour Clock Results File FY 2015-FY 2016; Docket No. ACR2017 Responses to CHIR No. 11, question 1.d.

309 Docket No. ACR2016, Responses of the United States Postal Service to Questions 1-3, 4.a, 4.c, and 5-8 of Chairman’s Information Request 

No. 10, February 7, 2017, question 2.a. (Docket No. ACR2016 February 7 Responses to CHIR No. 10).
Docket No. ACR2018 - 153 -

(b) Ground Transit

With respect to ground transit, the Postal Service generally follows three steps. The first 

processing action requires the transfer of the mailpiece to the contracted ground 

transportation provider. Second, the ground transportation provider transports the 

mailpiece to the destination processing facility. En route to the destination processing 

facility, the mailpiece may be transferred to and transported by additional ground 

transportation providers. Throughout ground transit, the Postal Service attempts to 

minimize delays and use more direct routes. Finally, the mailpiece is unloaded at the 

destination processing facility. The diagram below illustrates the processing points.

Table V-13 displays the reported percentage point impacts caused by ground transit 

AADC/ADC processing delays on service performance results for 3-5-Day First-Class Mail 

Single-Piece Letters/Postcards for each quarter of FY 2015 through FY 2018.

Table V-13

Nationwide Impact of AADC/ADC Processing Delays (Ground) on Service Performance Results

for 3-5-Day First-Class Mail Single-Piece Letters/Postcards,

by Percentage Points, by Quarter, FY 2015–FY 2018

FY 2015 FY 2016 FY 2017 FY 2018

Q1 6.36 8.88 6.29 7.44

Q2 17.37 7.83 5.67 8.77

Q3 8.75 3.74 3.50 4.48

Q4 7.36 3.41 3.96 3.76

Source: Additional Results File, tab “Q25c - AADC Delay Surface PI;”

Responses to CHIR No. 6, question 1.

Although approximately two-thirds of 3-5-Day First-Class Mail Single-Piece 

Letters/Postcards are transported by ground,310 ground transit AADC/ADC processing 

delays represent only about half of the overall point impact reported for the corresponding 

indicator specific to air transit. These data evidence that air transit AADC/ADC processing 

delays had a disproportionate impact on national service performance results for 3-5-Day 

First-Class Mail Single-Piece Letters/Postcards from FY 2015 through FY 2018.

 

310 January 11 Responses to CHIR No. 1, question 23.

Volume Transfer: 

USPS to Ground 

Transport Provider

Ground Transport to 

Destination 

Processing

Unload Mailpieces 

at Destination 

Processing Facilities
Docket No. ACR2018 - 154 -

Additionally, the Postal Service continues to monitor two other indicators related to 

ground transit: the timely departure of outbound trips and arrivals that are more than 4 

hours late. Unlike AADC/ADC processing delays and the other root cause indicators, these 

two indicators measure multiple products transported by ground and do not collect data 

specific to a particular product. Essentially, these two indicators bookend the three 

processing points referenced in the above diagram specific to ground transit. In 

conjunction with each other, these two indicators increase visibility into the Postal 

Service’s progress in addressing issues specific to its ground network operations.

First, the Postal Service measures the on-time percentage of outbound trips departing from 

a mail processing facility via the ground network. Id. question 47.e. The national clearance 

time targets for completion of this processing action were:

 FY 2015 Quarter 1 through FY 2016 Quarter 2—04:00 hours through 09:00 hours 

(5-hour range)

 FY 2016 Quarter 3 through FY 2018 Quarter 4—00:00 hours through 07:00 hours 

(7-hour range)311

Consistent with the Commission’s finding that delays related to air transit tend to have a 

disproportionate impact on national service performance results for 3-5-Day First-Class 

Mail Single-Piece Letters/Postcards, the Postal Service indicated that this indicator 

primarily applies to the mailpieces with the Overnight or 2-Day service standard. Docket 

No. ACR2016 February 7 Responses to CHIR No. 10, question 2.a.

Table V-14 shows the percentage of on-time outbound trips departing a mail processing 

facility between the designated national clearance time targets for FY 2015 through FY 

2018.

Table V-14

Nationwide On-Time Outbound Trips from a Mail Processing Facility between the Designated 

National Clearance Times, by Percentage, by Quarter, FY 2015–FY 2018

FY 2015 FY 2016 FY 2017 FY 2018

Q1 75.1 75.7 64.6 76.0

Q2 77.2 80.0 72.5 78.3

Q3 84.2 79.5 86.9 83.4

Q4 83.0 85.3 85.6 83.0

Note: For FY 2015 Quarter 1 through FY 2016 Quarter 2, the national clearance time targets were 04:00 hours through 09:00 hours; for FY 

2016 Quarter 3 through FY 2018 Quarter 4, the national clearance time targets were 00:00 hours through 07:00 hours. January 11 Responses 

to CHIR No. 1, question 47.e.; 24-Hour Clock Results File FY 2015-FY 2016; see Docket No. ACR2017 Responses to CHIR No. 11, question 1.e.

Source: FY 2018 Root Cause File, tab “Q1a;” 24-Hour Clock Results File FY 2017; 24-Hour Clock Results File FY 2015-FY 2016.

 

311 Id.; 24-Hour Clock Results File FY 2015-FY 2016; Docket No. ACR2017 Responses to CHIR No. 11, question 1.e.
Docket No. ACR2018 - 155 -

These data show that the Postal Service has made little progress in improving on-time 

outbound trip rates since FY 2015, when national clearance time targets were 04:00 hours 

through 09:00 hours. The Commission encourages the Postal Service to improve the ontime percentage of outbound trips going forward.

Second, the Postal Service measures Critically Late Trips (CLTs), which refer to ground 

trips that arrive more than 4 hours late. The Postal Service identifies a CLT by comparing 

the actual arrival scan to the scheduled arrival scan at the destination facility. Docket No. 

ACR2017 January 17 Responses to CHIR No. 2, question 7.b.iii. The Postal Service states 

that it uses its Surface Visibility (SV)

312 diagnostic tool to identify the route, trip, and the 

destinating area and district. Docket No. ACR2017 January 17 Responses to CHIR No. 2, 

question 7.b.iii. The Postal Service states that it is unable to quantify the impact of CLTs on 

service performance results for First-Class Mail Single-Piece Letters/Postcards. January 11 

Responses to CHIR No. 1, question 31.

Figure V-4 compares the nationwide volume of CLTs to the percent on-time service 

performance results for 3-5-Day First-Class Mail Single-Piece Letters/Postcards from FY 

2015 to FY 2018.

 

312 During FY 2016, the Postal Service expanded SV to include more processing facilities. Docket No. ACR2015 Service Response at 13. During FY 

2017, sites using SV were able to access an improved interface known as SVWeb, which increased the data and analytical capabilities of the 

diagnostic systems and dashboards. See id.; see also Docket No. ACR2016 January 10 Responses to CHIR No. 1, question 14.
Docket No. ACR2018 - 156 -

Figure V-4

CLTs and 3-5-Day First-Class Mail Single-Piece Letters/Postcards Service Performance Results,

Nationwide, FY 2015–FY 2018

Source: FY 2018 Root Cause File, tab “Q4c;” December 29, 2017 Public File, tab “Q4e;” Docket No. ACR2016 January 10 Responses to CHIR 

No. 1, question 13; FY 2018 Service Performance Report at 3; Docket No. ACR2017 Library Reference USPS–FY17–29, file “FY17-29 Service 

Perf Report.pdf,” at 4 (FY 2017 Service Performance Report); FY 2016 Service Performance Report at 4; Docket No. ACR2015, Library 

Reference USPS–FY15–29, December 29, 2015, file “Service Performance ACR FY15.pdf,” at 4 (FY 2015 Service Performance Report).

Overall, the volume of CLTs has decreased from FY 2015 through FY 2018. In FY 2016 and 

FY 2017, decreasing CLTs coincided with increased service performance results for 3-5-

Day First-Class Mail Single-Piece Letters/Postcards. In FY 2018, the number of CLTs has 

continued to decrease; however, service performance results also decreased.
Docket No. ACR2018 - 157 -

Table V-15 compares the percent decrease in CLTs to the percentage point decreases in 

service performance results for 3-5-Day First-Class Mail Single-Piece Letters/Postcards 

from FY 2017 to FY 2018 for each Postal Service Area and nationwide.

Table V-15

CLTs and 3-5-Day First-Class Mail Single-Piece Letters/Postcards Service Performance Results,

by Area and Nationwide, FY 2017 to FY 2018

FY 2017 FY 2018

CLT 

% Decrease

FY 2017 

Results

FY 2018 

Results

On-time Service 

Performance 

Result 

Percentage Point 

Decrease

Capital Metro 1896 1435 24.3 87.1 83.1 4.0

Eastern 3133 1716 45.2 88.9 85.6 3.3

Great Lakes 2991 2089 30.2 86.1 83 3.1

Northeast 2228 1971 11.5 83.7 81.1 2.6

Pacific 1324 556 58.0 86.9 84.9 2.0

Southern 2718 1316 51.6 86.8 82.6 4.2

Western 2029 789 61.1 86 83.7 2.3

National 16319 9872 39.5 86.6 83.5 3.1

Note: SV identifies the CLT based on the destination district and Area. Docket No. ACR2017 January 17 Responses to CHIR No. 2, question 7.b.iii.

Source: FY 2018 Root Cause File, tab “Q4c;” December 29, 2017 Public File, tab “Q4e;” Docket No. ACR2016 January 10 Responses to CHIR No. 

1, question 13; United States Postal Service, Quarterly Service Performance Report, Quarter 4, November 9, 2018, Excel file “Package-BPMF 184 

Scores Report.xlsx,” tab “SPLC 3-5-Day YTD Aggregation;” United States Postal Service, Quarterly Service Performance Report, Quarter 4, 

November 9, 2017, Excel file “Package-BPMF 174 Scores Report.xlsx,” tab “SPLC 3-5-Day YTD Aggregation.”

These data indicate that decreases in CLTs from FY 2017 to FY 2018 did not yield increases 

in service performance results for 3-5-Day First-Class Mail Single-Piece Letters/Postcards 

over the same period at the national or Area levels, which corroborates the Commission’s 

finding that delays related to air transit had a disproportionate impact on national service 

performance results for 3-5-Day First-Class Mail Single-Piece Letters/Postcards in FY 2018.

The Commission recognizes that the Postal Service has continued to make progress in FY 

2018 in reducing CLTs for all Areas and at the national level. The Postal Service asserts that 

reducing CLTs is achieved primarily through “education and focus” to ensure that local 

facilities comply with existing nationwide strategies and best practices. See Docket No. 

ACR2017 January 17 Responses to CHIR No. 2, question 7.b.i.

The CLT data, in conjunction with the on-time outbound trips data, improve visibility into 

why the point impacts on service performance results for 3-5-Day First-Class Mail SinglePiece Letters/Postcards attributed to ground transit AADC/ADC processing delays were 

considerably lower than the corresponding point impacts specific to air transit AADC/ADC 

processing delays. The Commission encourages the Postal Service to continue to reduce 

delays occurring in its ground transportation network.
Docket No. ACR2018 - 158 -

(4) Destination Processing

Destination processing refers to the processing phase that occurs after First-Class Mail 

Single-Piece Letters/Postcards arrive at a destination processing facility. See FY 2016 ACD 

at 124. The basic operational flow for the destination processing phase involves two 

sortations: a primary sortation and a secondary sortation. First, the mailpiece receives an 

incoming primary sortation, also known as an MMP sortation. Second, the mailpiece 

receives an incoming secondary sortation to Delivery Point Sequence (DPS) or Carrier 

Route sequence. The incoming secondary sort is also referred to as the Last Processing 

Operation (LPO) because it is the final automated mail processing operation. The diagram 

below illustrates the processing points.

Specific to this phase, the Postal Service classifies a First-Class Mail Single-Piece Letter or 

Postcard that is not delivered by its service standard as experiencing late incoming 

secondary processing if the mailpiece:

 receives the correct final processing scan at the destination facility after 08:00 hours 

on the expected day of delivery and

 fails to meet any subsequent processing cycle time checkpoints

Docket No. ACR2017 January 17 Responses to CHIR No. 2, question 8.a.; see January 11 

Responses to CHIR No. 1, question 24.b.

Table V-16 displays the reported percentage point impacts caused by late incoming 

secondary processing on service performance results for 3-5-Day First-Class Mail SinglePiece Letters/Postcards for each quarter of FY 2015 through FY 2018.

Primary/MMP Sortation Secondary Sortation to DPS 

or Carrier Route/LPO
Docket No. ACR2018 - 159 -

Table V-16

Nationwide Impact of Late Incoming Secondary Processing on Service Performance Results

for 3-5-Day First-Class Mail Single-Piece Letters/Postcards,

by Percentage Points, by Quarter, FY 2015–FY 2018

FY 2015 FY 2016 FY 2017 FY 2018

Q1 0.68 1.18 0.66 0.88

Q2 4.95 1.05 0.57 0.94

Q3 2.96 0.57 0.44 0.57

Q4 0.98 0.51 0.48 0.51

Source: Additional Results File, tab “Q25a - Top 5 Root Cause PI.”

A large increase in the point impact of late incoming secondary processing coincided with 

the implementation of Phase 2 of Network Rationalization in FY 2015 Quarter 2. 

Subsequently, the impact of late incoming secondary processing on national service 

performance results has generally decreased. These data, along with other root cause 

indicators, indicate that late incoming secondary processing has a relatively lower impact 

on national service performance results in the current environment than origin processing 

delays and AADC/ADC processing delays. Noting the increases in the quarterly point 

impacts reported for FY 2018 relative to the corresponding quarters in FY 2017, the 

Commission encourages the Postal Service to investigate and address the reason(s) for the 

increases reported in FY 2018 for late incoming secondary.

The Commission continues to find utility in the Postal Service’s measurement of the FirstClass Mail Single-Piece Letters/Postcards that have already missed the applicable service 

standard by LPO. The “Miss by LPO” failure category aggregates mailpieces classified by the 

Postal Service as experiencing root cause failures that may occur during the 

Collections/First Mile, origin processing, transit, or destination processing phases. Docket 

No. ACR2017 January 17 Responses to CHIR No. 2, question 8.a.

Table V-17 displays the reported percentage point impacts caused by Miss by LPO on 

service performance results for 3-5-Day First-Class Mail Single-Piece Letters/Postcards for 

each quarter of FY 2015 through FY 2018.
Docket No. ACR2018 - 160 -

Table V-17

Nationwide Impact of Miss by LPO on Service Performance Results

for 3-5-Day First-Class Mail Single-Piece Letters/Postcards,

by Percentage Points, by Quarter, FY 2015–FY 2018

FY 2015 FY 2016 FY 2017 FY 2018

Q1 12.50 18.72 13.98 17.38

Q2 32.31 16.24 12.04 18.60

Q3 18.58 8.89 8.45 9.77

Q4 14.90 8.13 9.32 9.94

Source: Additional Results File, tab “Q29 Three-to-Five-Day;” 

see Responses to CHIR No. 11, question 10.a.

The Commission observes two divergent trends evident in these data, which parallel the 

trends observed for AADC/ADC processing delays. The first trend, which appears to reflect 

seasonality, is the significant decline in point impacts reported in Quarter 3 (April 1 

through June 30) and Quarter 4 (July 1 through September 30) relative to Quarter 2 

(January 1 through March 31) for FY 2015 through FY 2018.

The second trend compares the point impacts for the same period over these 4 fiscal years. 

Generally, the point impacts observed in FY 2016 and FY 2017 represent year-over-year 

decreases from the point impacts observed for the corresponding fiscal quarters in FY 

2015. However, the point impacts observed in FY 2018 increased from the point impacts 

observed for the corresponding quarters in FY 2017. These data evidence some regression 

of the progress made in FY 2016 and FY 2017. Nevertheless, with the exception of Quarter 

1, the point impacts observed in FY 2018 remain lower than the point impacts observed for 

the corresponding quarters in FY 2015.

(5) Delivery/Last Mile

Delivery/Last Mile refers to the final phase during which the mail carrier delivers a 

mailpiece to the addressee. See Docket No. ACR2015 Service Response at 2. The basic 

operational flow for the Delivery/Last Mile phase involves three major steps: mail dispatch, 

carrier in office operations, and delivery.313 The diagram below illustrates the three 

processing points.

 

313 First-Class Mail Single-Piece Letters/Postcards that were not sorted to DPS depth during the destination processing phase will be manually 

sorted by mail carriers (“cased”) before mail dispatch and carrier in office operations occur. See Docket No. ACR2015 Service Response at 19-20.

Dispatch Carrier In Office Delivery
Docket No. ACR2018 - 161 -

The Postal Service classifies a First-Class Mail Single-Piece Letter or Postcard that is not 

delivered by its service standard as experiencing last mile failure indicator if the mailpiece:

 has a correct, final scan from the destination facility before 08:00 hours on the 

expected day of delivery and

 has no additional scan anomalies (does not receive a first DPS pass only, does not 

experience DPS looping, and has the appropriate depth of sort given its destination)

Docket No. ACR2017 January 17 Responses to CHIR No. 2, question 8.a. The Postal Service 

states that last mile failures may be a result of a delay in mail dispatch from the destination 

facility or a delay in the Delivery/Last Mile phase. Docket No. ACR2015 Service Response at 

18.

Table V-18 displays the reported percentage point impacts caused by last mile failures on 

service performance results for 3-5-Day First-Class Mail Single-Piece Letters/Postcards for 

each quarter of FY 2015 through FY 2018.
Docket No. ACR2018 - 162 -

Table V-18

Nationwide Impact of Last Mile Failures on Service Performance Results

for 3-5-Day First-Class Mail Single-Piece Letters/Postcards,

by Percentage Points, by Quarter, FY 2015–FY 2018

FY 2015 FY 2016 FY 2017 FY 2018

Q1 1.22 1.39 1.64 1.80

Q2 1.38 1.55 1.61 1.72

Q3 1.21 1.28 1.45 1.63

Q4 1.24 1.46 1.66 1.68

Source: Additional Results File, tab “Q25a - Top 5 Root Cause PI.”

Noting the slight increases in point impacts reported for FY 2018 relative to the 

corresponding quarters in FY 2017, the Commission encourages the Postal Service to 

investigate the reason(s) for these increases and take appropriate action to reduce last mile 

failures.

c. Conclusion

The Postal Service has quantified the number of percentage points by which on-time 

service performance for 3-5-Day First-Class Mail Single-Piece Letters/Postcards decreased 

due to each specific root cause of failure for FY 2015 through FY 2018. The data for 

AADC/ADC processing delays (primarily specific to air transit) show that the best 

opportunity to impact national service performances results for 3-5-Day First-Class Mail 

Single-Piece Letters/Postcards is to decrease air transit processing delays. Accordingly, the 

Commission encourages the Postal Service to focus its efforts to address air transit issues.

The Commission also recognizes that many of the point impacts observed in FY 2016 and 

FY 2017 improved relative to the corresponding point impacts observed in FY 2015. 

However, the point impacts observed for multiple key indicators in FY 2018 worsened 

relative to the corresponding point impacts observed in FY 2017. Significant increases from 

FY 2017 to FY 2018 were observed in the point impacts for origin processing delays, 

AADC/ADC processing delays (primarily specific to air transit), and Miss by LPO. 

Accordingly, the Commission encourages the Postal Service to leverage the successful 

strategies used in FY 2016 and FY 2017 to address these increases.

The Commission appreciates that the Postal Service has reiterated its commitment to 

service performance improvement in FY 2019. See January 11 Responses to CHIR No. 1, 

question 26. The Postal Service provides a general explanation that in FY 2019 it will focus 

on ensuring that local facilities adhere to the Postal Service’s existing multi-year national 

data-driven strategies. See id. However, the Postal Service has not specifically explained the 

reasons for the increases in the levels observed for each of the top root causes from FY 

2017 to FY 2018. See id. Nor has the Postal Service specifically described what actions it 

intends to take to reverse these trends in FY 2019. See id. Given the Postal Service’s 

progress in isolating the most impactful specific reasons for failure to deliver a mailpiece 
Docket No. ACR2018 - 163 -

on time, the Commission expects the Postal Service to make progress on a specific service 

performance improvement plan that corresponds with its root cause analytics. To promote 

improvement, the Commission is directing the Postal Service to provide transparency into 

the link between the use of root cause diagnostic tools with Postal Service actions to 

improve service performance. The Commission is also directing the Postal Service to 

ensure continued monitoring and transparency into quantitative connections between the 

issues identified by the Postal Service and service performance results. The exact 

requirements of these directives are discussed in section V.A.4.a., infra.

4. FY 2018 Service Performance Results by Class

a. First-Class Mail

(1) FY 2017 Directives

Determining that the Postal Service did not meet its service performance targets for 

First-Class Mail in FY 2017, the Commission directed the Postal Service to improve results 

for all First-Class Mail products in FY 2018. FY 2017 ACD at 146. The Commission also 

directed the Postal Service to provide a detailed product-specific plan for any First-Class 

Mail product for which service performance results did not remain the same or improve in 

FY 2018. Id. Finding First-Class Mail Single-Piece Letters/Postcards to be out of compliance 

for the third year in a row, the Commission directed the Postal Service to provide trackable 

data related to the different processing phases of First-Class Mail Single-Piece 

Letters/Postcards. Id. at 147. That directive, the Postal Service’s response, and the 

Commission’s analysis are discussed in section V.A.3., supra.

The Commission also found that “service performance results for First-Class Mail Flats 

continue[d] to fall substantially short of annual performance targets.” Id. at 149. To address 

this product’s service performance results as well as the systemic and long-standing cost 

and service issues related to flats processing, the Commission initiated a strategic

rulemaking to develop proposed reporting requirements related to flats operational cost 

and service issues.314 That proceeding remains pending.315

(2) FY 2018 Results

For the fourth consecutive year, no First-Class Mail product achieved or exceeded its 

service performance target. See Table V-2, supra. In addition, service performance results 

for all First-Class categories declined compared to FY 2017 results. Table V-19 shows 

service performance results compared to the annual on-time percentage targets for all 

First-Class Mail products from FY 2013 to FY 2018.

 

314 Docket No. RM2018-1, Advance Notice of Proposed Rulemaking to Develop Data Enhancements and Reporting Requirements for Flats 

Issues, October 4, 2017 (Order No. 4142).

315 Docket No. RM2018-1, Notice of Proposed Rulemaking for Reporting Requirements Related to Flats, March 1, 2019 (Order No. 5004).
Docket No. ACR2018 - 164 -

Table V-19

First-Class Mail

Service Performance Results, by Percentage, FY 2013–FY 2018

FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018

Target OnTime Target OnTime Target OnTime Target OnTime Target OnTime Target OnTime

Single-Piece 

Letters/Postcards

Overnight 96.70 96.8 96.80 96.7 96.80 95.8 N/A N/A N/A N/A N/A N/A

2-Day 95.10 96.0 96.50 95.7 96.50 94.0 96.50 95.5 96.50 95.5 96.50 94.5

3-5-Day 95.00 92.5 95.25 88.6 95.25 77.3 95.25 84.8 95.25 86.6 95.25 83.5

Presorted 

Letters/Postcards

Overnight 96.70 97.3 96.80 97.2 96.80 96.0 96.80 96.3 96.80 96.6 96.80 96.2

2-Day 95.10 97.2 96.50 96.6 96.50 93.8 96.50 95.2 96.50 95.8 96.50 95.1

3-5-Day 95.00 95.4 95.25 92.5 95.25 88.0 95.25 91.9 95.25 93.4 95.25 92.2

Flats

Overnight 96.70 86.6 96.80 84.9 96.80 83.2 96.80 84.5 96.80 84.6 96.80 82.2

2-Day 95.10 84.4 96.50 82.5 96.50 79.8 96.50 80.6 96.50 82.0 96.50 79.7

3-5-Day 95.00 77.6 95.25 72.6 95.25 65.3 95.25 70.9 95.25 73.9 95.25 71.0

Outbound 

Single-Piece 

International

Overnight 94.3 93.0 90.4 N/A N/A N/A

2-Day 92.7 93.2 92.5 90.6 90.8 86.3

3-5-Day 87.5 85.7 82.5 84.5 83.7 81.5

Combined 94.00 88.9 94.00 87.8 94.00 85.3 94.00 86.2 94.00 85.9 94.00 83.0

Inbound Letter 

Post

Overnight 92.3 91.8 88.6 N/A N/A N/A

2-Day 90.7 89.4 83.7 88.1 90.5 89.3

3-5-Day 86.5 82.9 71.3 77.7 82.7 80.3

Combined 94.00 88.0 94.00 85.2 94.00 75.6 94.00 81.4 94.00 85.5 94.00 83.5

Notes: Numbers in red indicate service performance results that did not meet or exceed the annual service performance target.

Source: FY 2018 Service Performance Report at 3-4; FY 2017 Service Performance Report at 4; FY 2016 Service Performance Report at 4; FY 2015 Service 

Performance Report at 4; Docket No. ACR2014, Library Reference USPS–FY14–29, December 29, 2014, file “Service Performance ACR FY14.pdf,” at 4 (FY 

2014 Service Performance Report); Docket No. ACR2013, Library Reference USPS–FY13–29, December 27, 2013, file “Service Performance ACR 

FY13.pdf,” at 4 (FY 2013 Service Performance Report).

(3) Postal Service Report

The Postal Service reports that the top root causes for the failure to meet FY 2018 FirstClass Mail targets include: origin sites failing to clear outgoing mail on time, mail waiting to 

be picked up at freight houses, origin sites failing to dispatch network trips on time, origin 
Docket No. ACR2018 - 165 -

sites not clearing Flat operations on time, and Surface Transfer Centers (STCs)316 not 

meeting targeted transfer times. FY 2018 Service Performance Report at 8. The Postal 

Service states that pieces may not clear due to failure to follow the plan set by the Run Plan 

Generator (RPG). January 11 Responses to CHIR No. 1, question 22. The RPG model uses 

forecasted data to develop a machine schedule, including start times and throughputs, 

which is capable of processing all volumes by the intended clearance times. Docket No. 

ACR2015 Service Response at 7. The Postal Service also states that service performance 

failures can occur due to failure to obtain target throughputs and a lack of open 

communications between the sending and receiving sites. January 11 Responses to CHIR 

No. 1, question 22. The Postal Service observes that a site’s failure to follow the RPG plan, 

obtain target throughputs, and engage in open communications affect all types of FirstClass Mail pieces (regardless of product, shape, or service standard). Id.

Thus, the Postal Service maintains that it is critical that all sites clear and dispatch all 

operations on time. Id. The Postal Service emphasizes that it will focus on dispatch 

discipline in FY 2019.317 The Postal Service discusses its plans to use tools to improve 

machine utilization (RPG), visualization and team communication (huddle boards), and to 

identify opportunities to advance the delivery of 3-5-Day First-Class Mail pieces (Informed 

Visibility (IV) Advance Capture 3 into 2 reporting tool). FY 2018 Service Performance 

Report at 8-9. The Postal Service states that it has begun to deploy service teams to 

locations with service performance issues in FY 2019 Quarter 1. January 11 Responses to 

CHIR No. 1, question 26. The Postal Service intends to hold daily Area318 teleconferences to 

ensure sites adhere to all operating plans. January 11 Responses to CHIR No. 1, question 26.

The Postal Service developed data linking the amount (number of percentage points) by 

which on-time performance for Presorted Letters/Postcards, Single-Piece 

Letters/Postcards, and single-piece Flats, decreased due to each specific root cause of 

failure.319

 

316 An STC is a Postal Service facility that consolidates and redistributes mailpieces to increase vehicle cubic capacity and utilization. United 

States Postal Service Publication 32, Glossary of Postal Terms, July 2013 (available at: 

http://about.usps.com/publications/pub32/pub32_terms.htm). For mailpieces containerized by product type or by ZIP Code range, the STC 

engages in “cross-docking.” Id. This refers to transporting but not processing those mailpieces (for example, transporting mailpieces between 

two vehicles, between a vehicle and a staging area, or between two staging areas). Id. Mixed mail volume is sorted for dispatch to the 

appropriate destination. Id.

317 FY 2018 ACR at 48. “Proper dispatch discipline includes sweeping all available mail for each trip, which means that mail can make the earliest 

dispatch and reduce the risk of the last trip exceeding capacity.” Docket No. ACR2017 Responses to CHIR No. 2, question 9.e.

318 The Postal Service organizes its network into seven geographic Areas: Capital Metro, Eastern, Great Lakes, Northeast, Pacific, Southern, and 

Western. Each Area has oversight of subordinate districts, processing and distribution centers, network distribution centers, airport mail 

centers, international service centers, and remote encoding centers. United States Postal Service, Employee and Labor Relations 

Manual § 113.3(g), September 2018 (available at: http://about.usps.com/manuals/elm/elm.htm).

319 January 11 Responses to CHIR No. 1, question 20; January 28 Responses to CHIR No. 3, question 10.a.; Responses to CHIR No. 11, question 

7.a.
Docket No. ACR2018 - 166 -

For Presorted Letters/Postcards, these point impacts were developed from the Presort 

First-Class Mail Root Cause Failure Analysis and were calculated as:

(1 − Unweighted Score) x Root Cause Category Failure Percentage

= Root Cause Category Point Impact

Responses to CHIR No. 6, question 3.

For single-piece Flats and Single-Piece Letters/Postcards, these point impacts were 

developed from the EXFC Root Cause Failure Analysis and were calculated as:

(1 − EXFC Weighted Score) x Root Cause Category Failure Percentage

= Root Cause Category Point Impact320

(4) Comments

The Public Representative observes that no First-Class Mail product met its service 

performance target in FY 2018 and that results declined compared to the levels observed in 

FY 2017. PR Comments at 4. Noting that the Postal Service has described its plans to 

address the “top root causes” of the failure to meet service performance targets, she states 

that there will be an opportunity during the FY 2019 annual compliance review proceeding 

to assess whether these plans were able to reverse the decline observed in FY 2018. Id. at 

13. She urges the Commission to continue taking an active role in driving improvement. Id.

at 2.

Describing the Postal Service’s failure to meet its First-Class Mail service performance 

targets since FY 2015, NTU asserts “[t]his pattern of mismanagement and 

underperformance leaves taxpayers with little faith in the agency.” NTU Comments at 2. 

NTU suggests that the Commission outline delivery-related goals for the Postal Service 

along with fair consequences for continued lapses. Id. at 3.

ACI observes that the Postal Service fell short of all of its First-Class Mail service 

performance targets in FY 2018 and asserts that the Postal Service has not been 

appropriately penalized for the downward trend in service quality and performance. ACI 

Comments at 1. Acknowledging that the Postal Service’s operational window changes have 

affected service performance for letters, ACI states this “service deterioration has been, in 

part, intentional.” Id. In reply, the Postal Service “disputes the characterization that any 

known cost savings initiatives have been conducted with an ‘intentional’ purpose of

‘service deterioration.’” Postal Service Reply Comments at 18-19 n.54 (quoting ACI 

Comments at 1).

 

320 January 28 Responses to CHIR No. 3, question 10.c. An analysis of the data specific to 3-5-Day Single-Piece Letters/Postcards appears in 

section V.A.3., supra.
Docket No. ACR2018 - 167 -

NPPC also discusses the decrease in First-Class Mail service performance results from FY 

2017 to FY 2018. NPPC Comments at 2. NPPC characterizes the Postal Service’s 

explanations for the failure to meet service performances targets in FY 2018 and optimistic 

expectations that performance will improve in FY 2019 as “déjà vu.” Id. at 3. NPPC observes 

that similar descriptions and expectations were provided in the FY 2017 ACR, yet service 

performance actually declined. Id. NPPC states that the Commission could direct the Postal 

Service to report on the progress and effects of the initiatives it identifies in the preceding 

ACR. Id.

NAPM and Idealliance assert that service performance must be improved for First-Class 

Mail Presorted Letters/Postcards. NAPM/Idealliance Comments at 6. While observing that 

service performance for some categories of First-Class Mail has improved since FY 2015, 

they state that service performance for all First-Class Mail categories remains below FY 

2014 levels. Id. They express concern that degraded service performance contributes to 

declining mail volume. Id. They state that service performance is important to the 

businesses using First-Class Mail and that the Postal Service’s failure to achieve its 

percentage on-time service performance targets for 4 years in a row “can have a 

deleterious impact on a business’ decision to use mail as compared to electronic 

communications.” Id.

The Postal Service replies that the ACR acknowledges that service performance in FY 2018 

fell short of most targets and, in some cases, declined from prior levels. Postal Service Reply 

Comments at 18-19. The Postal Service asserts that FY 2018 service performance “followed 

on two consecutive years of improvements in service performance, and more importantly, 

the Postal Service has outlined specific steps it is taking to reverse the declines.” Id. at 19.

(5) Commission Analysis

Figure V-5 displays the point impacts of the top five root cause indicators on service 

performance results for First-Class Mail Presorted Letters/Postcards for each quarter of FY 

2018.
Docket No. ACR2018 - 168 -

Figure V-5

Nationwide Impact of Top 5 Root Causes on Service Performance Results

for First-Class Mail Presorted Letters/Postcards,

by Service Standard, by Percentage Points, by Quarter, FY 2018

Source: Additional Results File, tab “Q20 – PFCM.”

According to the Postal Service’s data for FY 2017 and FY 2018, the largest percentage 

point impacts on service performance results for Presorted Letters/Postcards are 

attributed to mailpieces classified as Dead on Arrival (DOA) and those experiencing last 

mile failure. Below the Commission discusses each of these indicators.

The first indicator, DOA, is assigned if a Presorted Letter/Postcard that is not delivered by 

its service standard receives the initial scan after 8:00 on the expected day of delivery. 

Responses to CHIR No. 11, question 7.c.; see January 11 Responses to CHIR No. 1, question 

24.b. Table V-20 displays the reported percentage point impacts caused by DOA on service 

performance results for Presorted Letters/Postcards for each quarter of FY 2017 and FY 

2018.
Docket No. ACR2018 - 169 -

Table V-20

Nationwide Impact of DOA on First-Class Mail Presorted Letters/Postcards Service 

Performance Results, by Service Standard, by Percentage Points, by Quarter, FY 2017–FY 2018

FY 2017 FY 2018

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Overnight 0.76 0.63 0.48 0.54 1.19 1.18 0.78 0.61

2-Day 2.03 1.83 1.12 1.25 2.77 2.93 1.50 1.27

3-5-Day 4.13 3.66 2.40 2.69 5.43 6.59 2.98 2.79

Source: Additional Results File, tab “Q20 – PFCM.”

For FY 2017 and FY 2018, DOA decreased national service performance results for 2-Day 

and 3-5-Day Presorted Letters/Postcards more than any other root cause. For these 2 fiscal 

years, DOA was ranked as the second most impactful cause of the decline in national 

service performance results for Overnight Presorted Letters/Postcards. For all three 

service standard categories, FY 2017 and FY 2018 service performance results for 

Presorted Letters/Postcards were considerably more impacted by DOA mailpieces in 

Quarters 1 and 2 than in Quarters 3 and 4. For all three service standard categories, the 

quarterly point impacts of DOA reported in FY 2018 increased over the corresponding 

quarterly point impacts reported in FY 2017.

For FY 2017 and FY 2018, the overall point impact of DOA was largest on the 3-5-Day 

service standard category. Moreover, as illustrated by Figure V-6, the FY 2018 quarterly 

point impacts of DOA on the 3-5-Day service standard category are considerably larger 

relative to the remaining root cause indicators ranked in the top five.
Docket No. ACR2018 - 170 -

Figure V-6

Nationwide Impact of Top Root Causes on Service Performance Results

for 3-5-Day First-Class Mail Presorted Letters/Postcards,

by Percentage Points, by Quarter, FY 2018

Source: Additional Results File, tab “Q20 – PFCM.”

Reducing the amount of DOA mailpieces generally represents an opportunity for service 

performance improvement. The Commission finds that due to its relative impact, 

investigating and reducing DOA, particularly for the 3-5-Day service standard and during 

fiscal Quarters 1 and 2, represent a high-leverage opportunity for the Postal Service to 

improve nationwide service performance results for Presorted Letters/Postcards.
Docket No. ACR2018 - 171 -

The second indicator, last mile failure, is assigned if the Presorted Letter or Postcard that is 

not delivered by its service standard:

 receives the correct, final scan at the destination plant before 8:00 on the expected 

day of delivery

 does not receive a first Delivery Point Sequence (DPS) pass only

 does not experience DPS looping and

 has the appropriate depth of sort given its destination

Responses to CHIR No. 11, question 7.c.; see January 11 Responses to CHIR No. 1, question 

24.b.

Figure V-7 displays the reported percentage point impacts caused by last mile failures on 

service performance results for Presorted Letters/Postcards for each quarter of FY 2017 

and FY 2018.
Docket No. ACR2018 - 172 -

Figure V-7

Nationwide Impact of Last Mile Failures on Service Performance Results

for First-Class Mail Presorted Letters/Postcards, by Service Standard,

by Percentage Points, by Quarter, FY 2017–FY 2018

Source: Additional Results File, tab “Q20 – PFCM.”
Docket No. ACR2018 - 173 -

For FY 2017 and FY 2018, last mile failures decreased national service performance results 

for Overnight Presorted Letters/Postcards more than any other root cause. For these 2 

fiscal years, last mile failures were ranked as the second most impactful cause of the 

decline in national service performance results for 2-Day and 3-5-Day Presorted 

Letters/Postcards. Despite their elevated ranking, last mile failures have not impacted 

quarterly service performance results for any of the three service standard categories of 

Presorted Letters/Postcards by more than 1.5 percentage points. The Commission is 

encouraged by the Postal Service’s efforts to keep the point impacts of last mile failures 

relatively low.

After 2 years of improvements in the First-Class Mail service performance results, FY 2018 

results decreased slightly across all categories. While results have not declined to the level 

observed in FY 2015, the nadir for First-Class Mail service performance results, the 

Commission is concerned by these decreases. After review of the results, the data discussed 

above and in section V.A.3., supra, the Postal Service’s explanations, and the comments, the 

Commission agrees with commenters that more active monitoring is needed to improve 

service performance.

The Postal Service’s explanations concerning its failure to achieve First-Class Mail service 

performance targets in FY 2018 and its improvement plans for FY 2019 focus on the need 

for local facilities to adhere to the Postal Service’s existing multi-year national data-driven 

strategies. The Postal Service specifically references that a site’s failure to follow the RPG 

plan, obtain target throughputs, and engage in open communications affects all First-Class 

Mail pieces (regardless of product, shape, or service standard). January 11 Responses to 

CHIR No. 1, question 22. To address these issues, the Postal Service plans to use 

visualizations of its data analytics to improve communication at and between facilities, 

improve facility adherence to the existing data-driven operating plans and RPG models, and 

emphasize dispatch discipline.321 The Postal Service reports that it is deploying service 

teams to local facilities and will hold daily Area teleconferences to ensure local adherence 

to those national strategies in FY 2019. January 11 Responses to CHIR No. 1, question 26. At 

this juncture, punitive measures appear to be less productive towards improving service 

performance results than monitoring whether the Postal Service is making progress 

towards its plan to ensure its local facilities address the root causes of First-Class Mail 

service performance failure identified by the Postal Service’s data analytics.

The Commission finds that the Postal Service did not meet its service performance targets for 

First-Class Mail in FY 2018. The Commission also recognizes that the Postal Service has made 

progress in developing quantitative analysis linking its root cause assessments with the 

impact on service performance results for First-Class Mail. The Commission directs the Postal 

 

321 See FY 2018 ACR at 47-48; FY 2018 Service Performance Report at 7-8; January 11 Responses to CHIR No. 1, questions 22 and 26; Postal 

Service Reply Comments at 19 n.56; see also United States Postal Service Reply Comments Regarding FY 2018 Performance Report and FY 2019 

Performance Plan, February 22, 2019, at 2 (Postal Service Reply Comments on FY 2018 Performance Report and FY 2019 Performance Plan).
Docket No. ACR2018 - 174 -

Service to apply its data leveraging techniques to improve service performance for all FirstClass Mail products in FY 2019.

The Commission is concerned that service performance results for First-Class Mail SinglePiece Letters/Postcards declined from FY 2017 to FY 2018, and determines that First-Class 

Mail Single-Piece Letters/Postcards is not in compliance for the fourth year in a row. 

Therefore, in addition to directing the Postal Service to improve service performance results 

for First-Class Mail Single-Piece Letters/Postcards in FY 2019, the Commission directs the 

Postal Service to provide information for each of the seven geographic Postal Service Areas on 

the following two matters.

 First, for each Area, the Postal Service shall evaluate the efficacy of its FY 2019 efforts 

to improve First-Class Mail service performance. This evaluation shall describe the 

Area’s progress made toward addressing the top root causes of First-Class Mail service 

performance failures in FY 2018 and explain how the Area’s progress (or lack thereof) 

toward addressing each root cause has affected on-time service performance for FirstClass Mail. Where appropriate, this evaluation shall indicate if the reported progress 

and effect on performance apply only to particular categories of First-Class Mail pieces 

(e.g., based on shape, product, or service standard).

 Second, for each Area, the Postal Service shall provide a detailed plan to improve FirstClass Mail service performance that describes each planned action, identifies the 

problem that the planned action is expected to remediate, and provides an estimated 

timeframe for implementation and completion of each planned action. Where 

appropriate, this plan shall indicate if the planned action, underlying problem, and 

estimated timeframe apply to only particular categories of First-Class Mail pieces (e.g., 

based on shape, product, or service standard).

The report for each Area shall identify a responsible Postal Service representative, with 

knowledge of these two matters specific to the Area, who will be available to provide prompt 

responses to requests for clarification from the Commission. The report for each Area shall be 

filed within 90 days of the issuance of this report. An updated report from each Area shall be 

filed at the time of the FY 2019 ACR. The Postal Service is encouraged to file a motion for 

clarification under 39 C.F.R. § 3001.21(a) in Docket No. ACR2018 should clarification be 

necessary.

Additionally, to facilitate the monitoring of First-Class Mail service performance (particularly 

for Single-Piece Letters/Postcards), the Commission directs the Postal Service to provide 

trackable data that is consistently collected and will continue to improve transparency. The 

Commission directs the Postal Service to provide the following data, described in items 1 

through 6 below, for First-Class Mail in FY 2019. Data shall be provided for FY 2019 Quarter 

1, Quarter 2, and “mid-year”322 within 90 days of the issuance of this report. Data shall be 

 

322 Mid-year refers to the aggregation of the data for Quarters 1 and 2 of FY 2019.
Docket No. ACR2018 - 175 -

provided for FY 2019 Quarter 3, Quarter 4, “second-half”323 and annualized for the fiscal year, 

in the FY 2019 ACR.

1. The top five root cause point impacts for First-Class Mail, disaggregated by 

shape/product and service standard.

324

2. The point impact data for First-Class Mail Single-Piece Letters/Postcards, 

disaggregated by service standard presented for the nation, each Area, and 

each district325 attributable to:

a. Collection delays

b. Origin processing delays

c. Origin missent

d. AADC/ADC processing delays, presented in three separate tables specific 

to air transportation, ground transportation, and both

e. Late incoming secondary processing

f. Miss by LPO

g. Last mile failures.

3. The air carrier capacity requested, air carrier capacity received, and air 

capacity gap calculated, using daily cubic feet volume.

326

4. The number of CLTs (any HCR that is late more than 4 hours), presented for the 

nation, each Area, and each district.

327

5. The performance for each national operating plan target (also referred to as 

the 24-Hour Clock national clearance goals), presented for the nation, each 

Area, and each district.

328

6. The 10 facilities with the most failures in meeting each of the 24-Hour Clock 

national clearance goals during FY 2019. For each facility identified, please 

state the number of times that the facility failed to meet that national 

clearance goal during FY 2019, and the corresponding number of times that 

the facility failed to meet that national clearance goal during FY 2018.

329

 

323 Second-half refers to the aggregation of the data for Quarters 3 and 4 of FY 2019. Annualized refers to the aggregation of the data for all 4

quarters of FY 2019.

324 See, e.g., Additional Results File, tabs “Q20 - SPFC” and “Q20 – PFCM.”

325 See, e.g., Additional Results File, tabs “Q30 Two-Day” and “Q30 Three-to-Five-Day.”

326 See, e.g., FY 2018 Root Cause File, tab “Q4a.”

327 See, e.g., FY 2018 Root Cause File, tab “Q4c.”

328 See, e.g., FY 2018 Root Cause File, tab “Q1a.”

329 See, e.g., Library Reference USPS–FY18–NP30, December 28, 2018, Excel file “Response2 - ACD.FCM.FY18Q3Q4.Q1b.NONPUBLIC.xlsx.”
Docket No. ACR2018 - 176 -

Where appropriate, the Postal Service shall explain the reasons for any differences in 

calculation of these data in FY 2019 versus FY 2018, and shall propose a method for 

comparing the FY 2019 data to the FY 2018 data. The Postal Service shall provide these data 

in an Excel spreadsheet format. If the Postal Service cannot provide responsive data at the 

requested level of granularity, then responsive data should be provided at the most 

practicable level of granularity, along with a narrative identifying and explaining the level of 

granularity provided in the response. The Postal Service is encouraged to file a motion for 

clarification under 39 C.F.R. § 3001.21(a) in Docket No. ACR2018 should clarification be 

necessary.

The Commission is also concerned that service performance results for First-Class Mail Flats 

continue to fall substantially short of annual performance targets. However, pending Docket 

No. RM2018-1 is considering the development of reporting requirements related to flats 

operational cost and service issues, so no further action will be taken in this report.

b. USPS Marketing Mail

(1) FY 2017 Directives

With respect to the four USPS Marketing Mail products that exceeded their service 

performance targets in FY 2017 (Letters, Carrier Route, Parcels, and High Density and 

Saturation Letters), the Commission directed the Postal Service to include a detailed and 

product-specific improvement plan in its FY 2018 ACR if any of these products did not 

achieve their FY 2018 targets. FY 2017 ACD at 153.

With respect to the three USPS Marketing Mail products that did not achieve their service 

performance targets in FY 2017 (Flats, High Density and Saturation Flats/Parcels, and 

Every Door Direct Mail—Retail), the Commission directed the Postal Service to apply its 

data leveraging techniques to improve service performance for these products. Id. If service 

performance results failed to improve, the Commission directed the Postal Service to 

provide a detailed product-specific improvement plan. Id.

To address service performance results for flat-shaped USPS Marketing Mail pieces as well 

as the systemic and long-standing cost and service issues related to flats processing, the 

Commission initiated a strategic rulemaking to develop proposed reporting requirements 

related to flats operational cost and service issues. Order No. 4142. That proceeding 

remains pending. Order No. 5004.

(2) FY 2018 Results

FY 2018 annual service performance results for two products (USPS Marketing Mail 

Parcels and USPS Marketing Mail High Density and Saturation Letters) exceeded the 

performance targets set by the Postal Service. Five of the seven USPS Marketing Mail 

products (High Density and Saturation Flats/Parcels, Letters, Carrier Route, Flats, and 

Every Door Direct Mail—Retail) did not achieve their service performance targets. In 

addition, service performance results for all five of these products were below the service

performance results in FY 2017.
Docket No. ACR2018 - 177 -

Table V-21 shows service performance results compared to the annual on-time percentage 

targets for all USPS Marketing Mail products from FY 2013 to FY 2018.
Docket No. ACR2018 - 178 -

Table V-21

USPS Marketing Mail

Service Performance Results, by Percentage, FY 2013–FY 2018

FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018

Target OnTime Target OnTime Target OnTime Target OnTime Target OnTime Target OnTime

HDS*

Letters 90 90.8 91 92.3 91 91.5 91 94.9 91 95.5 91.8 93.0

HDS*

Flats/Parcels 90 87 91 87.2 91 87 91 90 91 90 91.8 88.3

Carrier

Route 90 79.7 91 81.4 91 82 91 83.9 91 91.4 91.8 89.5

Letters 90 85.9 91 87.1 91 85.8 91 90.1 91 91.8 91.8 89.4

Flats 90 76.9 91 76.2 91 73.8 91 81.4 91 80.4 91.8 76.5

Parcels 90 98.7 91 N/A 91 98.1 91 98.3 91 98.2 91.8 98.0

Every Door

Direct

Mail—Retail

N/A N/A N/A N/A 91 78.5 91 75.2 91 75.4 91.8 74.4

Notes: Numbers in red indicate service performance results that did not meet or exceed the annual service performance target.

* “HDS” refers to High Density and Saturation.

Source: FY 2018 Service Performance Report at 11; FY 2017 Service Performance Report at 12; FY 2016 Service Performance Report at 12; FY 

2015 Service Performance Report at 11; FY 2014 Service Performance Report at 11; FY 2013 Service Performance Report at 10.

(3) Postal Service Report

The Postal Service reports that the top root causes for the failure to meet FY 2018 USPS 

Marketing Mail targets include “failure to process mail in First-In-First-Out (FIFO) order 

and failure to run to daily processing capacity.” FY 2018 Service Performance Report at 13. 

The Postal Service discusses its plans to use tools for visualization (such as the RPG and 

huddle boards) and to identify opportunities to advance mail (the IV Marketing Mail 

Advancement tool). Id. at 13-14. The Postal Service states that training will occur in FY 

2019 to ensure all management employees understand the FIFO method of mail 

management. January 11 Responses to CHIR No. 1, question 35.

The Postal Service also reports that the FY 2018 Work in Process (WIP) cycle time—the 

time between handling and processing—for flat-shaped USPS Marketing Mail pieces 

increased by 4 hours over the cycle time observed in FY 2017. FY 2018 ACR at 30. In FY 

2019, Postal Service plans to reduce the WIP cycle time by re-certifying facilities in Lean 

Mail Processing, focusing on adherence to the FIFO method of mail management, and 

improving throughput on mail processing equipment. January 11 Responses to CHIR No. 1, 

question 18.

The Postal Service developed data linking the amount (number of percentage points) by 

which on-time performance for USPS Marketing Mail Letters, Flats, mixed product letters, 
Docket No. ACR2018 - 179 -

mixed product flats, High Density and Saturation Letters, High Density and Saturation 

Flats/Parcels, and Carrier Route decreased due to each specific root cause of failure. Id.

question 33; Responses to CHIR No. 11, questions 8.a. and 8.d. These point impacts were 

developed from the Presort Marketing Mail Root Cause Failure Analysis and were 

calculated as:

(1 – Unweighted Score) x Root Cause Category Failure Percentage

= Root Cause Category Point Impact

Responses to CHIR No. 6, question 4.

(4) Comments

Comparing FY 2018 results to the prior fiscal year, the Public Representative observes that 

fewer USPS Marketing Mail products met their service performance targets and that every 

product’s on-time percentage results decreased compared to the levels observed in FY 

2017. PR Comments at 7. Similarly, NPPC states the FY 2018 results for every product 

category of USPS Marketing Mail decreased from the levels reported in FY 2017. NPPC 

Comments at 3.

NAPM and Idealliance characterize service performance for USPS Marketing Mail as 

“disappointing, particularly for [USPS] Marketing Mail entered at origin or [Destination 

Network Distribution Center].” NAPM/Idealliance Comments at 6. They note that the 

difference in service performance for mailpieces entered via drop shipping versus 

mailpieces inducted further upstream (which require more Postal Service handling and 

ground transportation) is “significant.” Id. They describe the lack of service performance 

improvement as “disheartening,” particularly in light of all of the data and diagnostic tools 

developed by the Postal Service to monitor mail within its system. Id. at 7. Similarly, 

PostCom observes that “the farther mail is entered from its destination, the worse the 

Postal Service’s service performance.” PostCom Comments at 3. Therefore, PostCom asserts 

that USPS Marketing Mail customers may select destination entry rather than origin entry 

to ensure better service performance. Id. at 4.

(5) Commission Analysis

Consistent with the Commission’s expectation, service performance results for USPS 

Marketing Mail Parcels and USPS Marketing Mail High Density and Saturation Letters 

continued to exceed their applicable targets in FY 2018.

The remaining USPS Marketing Mail products (High Density and Saturation Flats/Parcels, 

Letters, Carrier Route, Flats, and Every Door Direct Mail—Retail) did not achieve their 

service performance targets. The Commission recognizes that the Postal Service has made 

progress in developing quantitative analysis linking its root cause assessments with the 

impact on service performance results for USPS Marketing Mail letter-shaped and flatshaped mailpieces. The Postal Service should continue to refine and apply its data 

leveraging techniques to improve service performance for USPS Marketing Mail products 

that do not achieve their targets.
Docket No. ACR2018 - 180 -

FY 2018 service performance results for High Density and Saturation Flats/Parcels, Letters, 

and Carrier Route decreased from their corresponding results observed in FY 2017 to 

levels that are slightly below their targets. Service performance results for USPS Marketing 

Mail Flats declined for the second year in a row.

FY 2018 results for Every Door Direct Mail—Retail decreased slightly from the 

corresponding results observed in FY 2017, but remain well below target. Results for this 

product have been reported for 4 years only and the results have been below the target in 

all 4 years.

Figure V-8 displays the point impacts of the top five root cause indicators on service 

performance results for letter-shaped USPS Marketing Mail for each quarter of FY 2018.
Docket No. ACR2018 - 181 -

Figure V-8

Nationwide Impact of Top 5 Root Causes on Service Performance Results

for Letter-Shaped USPS Marketing Mail,

by Entry Type, by Percentage Points, by Quarter, FY 2018

Notes: DEST refers to mailpieces inducted at the designated Destination Delivery Unit (DDU) for delivery within the DDU area. DNDC refers to 

mailpieces inducted at the Destination Network Distribution Center. DSCF refers to mailpieces inducted at the Destination sectional center 

facility. ORIG refers to mailpieces that are not inducted at a destination processing facility, and therefore are transported from an origin 

processing facility to a destination processing facility (End-to-End).

Source: Additional Results File, tab “Q33 MKT.”

According to the Postal Service’s root cause data for FY 2017 and FY 2018, the largest 

percentage point impact on letter-shaped and flat-shaped pieces is attributed to pieces 

classified as DOA. Additional Results File, tab “Q33_MKT.” The first indicator, DOA, is 

assigned if a mailpiece that is not delivered by its service standard receives the initial scan 

after 8:00 on the expected day of delivery. Responses to CHIR No. 11, question 8.c.; see 

January 11 Responses to CHIR No. 1, question 24.b.
Docket No. ACR2018 - 182 -

For FY 2017 and FY 2018, DOA was reported as causing a larger quarterly percentage point 

impact on service performance results for both letter- and flat-shaped mailpieces 

transported End-to-End (inducted at an origin processing facility and transported to a 

destination processing facility) as compared to mailpieces of the same shape inducted at an 

entry point closer to the destination facility.

Table V-22 displays the reported percentage point impacts caused by DOA on service 

performance results for letter- and flat-shaped USPS Marketing Mail for each quarter of FY 

2017 and FY 2018.

Table V-22

Nationwide Impact of DOA on USPS Marketing Mail Service Performance Results,

by Shape and Entry Level, by Percentage Points, by Quarter, FY 2017–FY 2018

Flats Letters

DEST DNDC DSCF ORIG DEST DNDC DSCF ORIG

FY17 Q1 3.29 1.99 3.54 14.18 3.15 2.90 3.19 15.64

FY17 Q2 1.45 1.00 1.55 16.81 1.91 2.03 1.89 15.46

FY17 Q3 0.87 0.75 0.90 14.29 1.27 1.27 1.27 12.40

FY17 Q4 1.54 1.10 1.65 13.49 1.94 1.78 1.96 12.97

FY18 Q1 4.08 2.30 4.38 20.51 5.58 4.29 5.79 22.07

FY18 Q2 2.20 1.78 2.29 22.39 5.18 4.32 5.33 23.08

FY18 Q3 0.87 1.04 0.83 14.33 2.10 2.13 2.10 15.12

FY18 Q4 0.92 1.10 0.89 12.46 3.06 2.23 3.20 12.45

Notes: DEST refers to mailpieces inducted at the designated Destination Delivery Unit (DDU) for delivery within the DDU area. DNDC 

refers to mailpieces inducted at the Destination Network Distribution Center. DSCF refers to mailpieces inducted at the Destination 

sectional center facility. ORIG refers to mailpieces that are not inducted at a destination processing facility, and therefore are 

transported from an origin processing facility to a destination processing facility (End-to-End).

Source: Additional Results File, tab “Q33 MKT.”

These data show that in FY 2017 and FY 2018 letter- and flat-shaped USPS Marketing Mail 

entered at origin were significantly more likely to be classified as DOA than mailpieces of 

the same shape inducted further into the mail stream.

Consistent with the Commission’s observations in prior ACDs, service performance results 

for 6-10-Day USPS Marketing Mail products transported End-to-End remain relatively low 

compared to the results at the product level. See FY 2017 ACD at 152; FY 2016 ACD at 139; 

FY 2015 ACD at 140-41. In FY 2018, 6-10-Day USPS Marketing Mail products transported 

End-to-End represented 6.3 percent of total measured USPS Marketing Mail. January 11

Responses to CHIR No. 1, question 36.

Table V-23 shows that generally in FY 2018, service performance results for the 6-10-Day 

End-to-End category remain well below product-level results.
Docket No. ACR2018 - 183 -

Table V-23

USPS Marketing Mail Service Performance Results Comparision,

by Percentage, FY 2013–FY 2018

Results for the 6-10-Day End-to-End Category Results at the 

product level

FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2018

HDS*

Letters 57.9 56.5 57.4 61.5 67.2 64.6 93.0

HDS*

Flats/Parcels N/A 72.7 54.4 56.9 69.2 57.4 88.3

Carrier

Route 64.5 60.2 60.6 67.0 73.5 70.7 89.5

Letters 59.8 56.7 48.6 55.4 53.3 58.4 89.4

Flats 53.1 52.9 45.1 50.3 53.6 51.2 76.5

Parcels** N/A N/A N/A 95.5 94.4 94.2 98.0

Notes: Numbers in red indicate service performance results reported for the 6-10-Day service standard category that did 

not meet or exceed the annual service performance target for the product. In FY 2013, the target for all USPS Marketing 

Mail products was 90.0 percent. In FY 2014 through FY 2017, the target for all USPS Marketing Mail products was 91.0 

percent. In FY 2018, the target for all USPS Marketing Mail products was 91.8 percent. Every Door Direct Mail—Retail does 

not offer 6-10-Day End-to-End service.

* “HDS” means High Density and Saturation.

** Results for Parcels were not provided for the 6-10-Day End-to-End category from FY 2013 through FY 2015.

Source: United States Postal Service Quarterly Service Performance Reports, FY 2013–FY 2018, Quarter 4, USPS Marketing 

Mail–High Density and Saturation Letters Scores Report, USPS Marketing Mail–High Density and Saturation Flats/Parcels 

Scores Report, USPS Marketing Mail–Carrier Route Scores Report, USPS Marketing Mail–Letters Scores Report, USPS 

Marketing Mail–Flats Scores Report, USPS Marketing Mail–Parcels Scores Report, USPS Marketing Mail–Every Door Direct 

Mail—Retail Scores Report (available at: http://www.prc.gov/documents/quarterly-performance).

The Commission encourages the Postal Service to reduce the number of CLTs to improve 

service performance for all mailpieces transported End-to-End. Specifically, reducing the 

number of CLTs represents a high leverage opportunity for the Postal Service to improve 

service performance for 6-10-Day USPS Marketing Mail products transported End-to-End. 

See FY 2017 ACD at 152-53.

The Commission finds that the Postal Service has met its service performance targets for USPS 

Marketing Mail Parcels and USPS Marketing Mail High Density and Saturation Letters in FY 

2018. The Commission expects that service performance results for these products will 

continue to achieve or exceed their on-time performance targets in FY 2019.

The Commission expects that the service performance results for the USPS Marketing Mail 

products (High Density and Saturation Flats/Parcels, Letters, Carrier Route, Flats, and Every 

Door Direct Mail—Retail) that did not achieve their FY 2018 service performance targets will 

improve in FY 2019. The Commission directs the Postal Service to apply its data leveraging 

techniques to improve service performance for these products.
Docket No. ACR2018 - 184 -

FY 2018 marked the second consecutive year in which USPS Marketing Mail Flats service 

performance results declined. Moreover, USPS Marketing Mail Flats service performance 

results continued to fall substantially short of its annual performance target. Pending Docket 

No. RM2018-1 is considering the development of reporting requirements related to flats 

operational cost and service issues.

If the service performance results for any USPS Marketing Mail product do not achieve the

applicable annual service performance target in FY 2019, then the FY 2019 ACR shall include: 

(1) the top five root cause point impacts for the product for each quarter and annually for FY 

2019, disaggregated by shape/product and entry level/service standard; (2) an evaluation of 

the efficacy of the Postal Service’s FY 2019 efforts to improve this product’s service 

performance (including any progress toward addressing the applicable top root cause point 

impacts reported for FY 2018); and (3) a detailed plan explaining how this product’s results 

will be improved. If the Postal Service cannot provide responsive data at the requested level of 

granularity, then responsive data should be provided at the most practicable level of 

granularity, along with a narrative identifying and explaining the level of granularity 

provided in the response. Where appropriate, the Postal Service shall specifically address how 

the evaluation and plan apply to mailpieces by entered at origin versus mailpieces entered 

further into the mail stream.

c. Periodicals

(1) FY 2017 Directives

Finding that both Periodicals products did not meet their FY 2017 service performance 

targets, the Commission directed the Postal Service to apply its data leveraging techniques 

to improve service performance for Periodicals. FY 2017 ACD at 155. To address these 

products’ service performance results as well as the systemic and long-standing cost and 

service issues related to flats processing, the Commission initiated a strategic rulemaking 

to develop proposed reporting requirements related to flats operational cost and service 

issues. Order No. 4142. That proceeding remains pending. Order No. 5004.

(2) FY 2018 Results

FY 2018 annual service performance results for Periodicals remain the same as FY 2017 

levels. Table V-24 shows service performance results compared to the FY 2018 annual 

target of 91.8 percent on-time for both Periodicals products from FY 2013 to FY 2018.
Docket No. ACR2018 - 185 -

Table V-24

Periodicals

Service Performance Results, by Percentage, FY 2013–FY 2018

FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2018

Target*

InCounty 82.0 80.9 77.7 80.1 85.6 85.6 91.8

Outside

County 82.1 80.8 77.6 79.7 85.3 85.3 91.8

Notes: Numbers in red indicate service performance results that did not meet or exceed the annual service performance 

target.

* In FY 2013 through FY 2017, the targets for In County and Outside County Periodicals were 91.0 percent.

Source: FY 2018 Service Performance Report at 14; FY 2017 Service Performance Report at 16; FY 2016 Service 

Performance Report at 18; FY 2015 Service Performance Report at 15; FY 2014 Service Performance Report at 15; FY 2013 

Service Performance Report at 13.

(3) Postal Service Report

The Postal Service reports that the top root causes for the failure to meet FY 2018 

Periodicals targets include failure to process mail in FIFO order and failure to run to daily 

processing capacity. FY 2018 Service Performance Report at 16. The Postal Service does 

not have root cause point impact data specific to Periodicals. January 11 Responses to CHIR 

No. 1, question 37.

The Postal Service also discusses its plans to use IV tools to identify pinch points and 

improve cycle time. FY 2018 Service Performance Report at 16. In FY 2019, the Postal 

Service plans to maintain its focus on reducing the WIP cycle time—the time between 

handling and processing—for Periodicals. Id. The Postal Service reports that the FY 2018 

WIP cycle time for flat-shaped Periodicals increased by 3 hours over the cycle time 

observed in FY 2017. FY 2018 ACR at 30. In FY 2019, the Postal Service plans to reduce the 

WIP cycle time by re-certifying facilities in Lean Mail Processing, focusing on adherence to 

the FIFO method of mail management, and improving throughput on mail processing 

equipment. January 11 Responses to CHIR No. 1, question 18. The Postal Service states that 

training will occur in FY 2019 to ensure all management employees understand the FIFO 

method of mail management. Id. question 39. The Postal Service also reports that quarterly 

audits will be performed to ensure sort programs for Periodicals align with the labeling list. 

FY 2018 Service Performance Report at 16.

(4) Comments

Noting that both Periodicals products failed to meet their service performance targets in FY 

2018, the Public Representative also acknowledges that neither product reported a 

decrease in on-time performance from FY 2017 to FY 2018, unlike most of the Postal 

Service’s other market dominant products. PR Comments at 8.
Docket No. ACR2018 - 186 -

(5) Commission Analysis

Neither Periodicals product met service performance targets in FY 2018. After 2 years of 

consecutive improvement, FY 2018 service performance results for Periodicals remained 

equal to FY 2017 results. The Postal Service should make efforts to develop quantitative 

analysis linking its root cause assessments with the impact on service performance results 

for Periodicals mailpieces similar to the data leveraging techniques developed for USPS 

Marketing Mail.

In-County and Outside County Periodicals service performance results continued to fall 

substantially short of performance targets in FY 2018. The Commission directs the Postal 

Service to apply its data leveraging techniques to improve service performance for 

Periodicals. Pending Docket No. RM2018-1 is considering the development of reporting 

requirements related to flats operational cost and service issues. The Commission also directs 

that the FY 2019 ACR shall include: (1) an evaluation of the efficacy of the Postal Service’s FY 

2019 efforts to improve service performance for In-County and Outside County Periodicals 

(including any progress toward addressing the failure to process mail in FIFO order and 

failure to run to daily processing capacity described in the FY 2018 ACR) and (2) a detailed 

plan explaining how these products’ results will be improved.

d. Package Services

(1) FY 2017 Directives

The Commission found that FY 2017 was the sixth consecutive year that the service 

performance results for BPM Flats “were substantially below other Package Services 

products and the applicable percentage on-time service performance target.” FY 2017 ACD 

at 158. The Commission directed the Postal Service to apply its data leveraging techniques 

to improve service performance for this product. Id. To address this product’s service 

performance results as well as the systemic and long-standing cost and service issues 

related to flats processing, the Commission initiated a strategic rulemaking to develop 

proposed reporting requirements related to flats operational cost and service issues. Order 

No. 4142. That proceeding remains pending. Order No. 5004.

(2) FY 2018 Results

FY 2018 annual service performance results for BPM Parcels exceeded annual targets for 

the seventh consecutive year. Service performance results for BPM Flats remain below 

target. After 6 consecutive years of exceeding the applicable percentage on-time service 

performance target, Media Mail/Library Mail results declined to 89.6 percent, below the 

90.0 percent target. FY 2018 Service Performance Report at 18.

Table V-25 shows service performance results compared to the annual target of 90.0 

percent on-time for Package Services products from FY 2013 to FY 2018.
Docket No. ACR2018 - 187 -

Table V-25

Package Services

Service Performance Results, by Percentage, FY 2013–FY 2018

FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 Target

Bound Printed

Matter Flats 62.6 60.2 45.2 53.6 56.7 55.2 90.0

Bound Printed

Matter Parcels 98.4 99.3 99.4 99.2 99.1 99.0 90.0

Media Mail/

Library Mail 93.3 91.7 91.2 92.2 91.0 89.6 90.0

Notes: Numbers in red indicate service performance results that did not meet or exceed the annual service 

performance target.

The Commission approved a semi-permanent exception for service measurement of Alaska Bypass. Docket No. 

RM2015-1, Order Concerning Semi-Permanent Exception from Periodic Reporting of Service Performance 

Measurement for Alaska Bypass Service, December 23, 2014 (Order No. 2303).

Source: FY 2018 Service Performance Report at 18; FY 2017 Service Performance Report at 20; FY 2016 Service 

Performance Report at 22; FY 2015 Service Performance Report at 18; FY 2014 Service Performance Report at 20; FY 

2013 Service Performance Report at 18.

(3) Postal Service Report

Generally, the Postal Service reports on issues related to the service performance of BPM 

Flats and Media Mail/Library Mail and describes its efforts to improve results for both 

products. FY 2018 Service Performance Report at 20-21.

The percentage of mail in measurement for both products increased from the levels 

reported in FY 2017—approximately 14 percent of total BPM Flats volume and 76 percent 

of total Media Mail/Library Mail volume was in measurement in FY 2018. FY 2018 Service 

Performance Report at 19. The Postal Service does not have root cause point impact data 

specific to BPM Flats or Media Mail/Library Mail. January 11 Responses to CHIR No. 1, 

question 40.

With respect to BPM Flats, the FY 2018 ACR generally reiterates the narratives provided in 

prior ACRs relating to three issues: manual handling, advanced processing, and review of 

the product’s entry and make-up requirements.

First, the Postal Service maintains that BPM Flats experience manual handling due to 

incompatability with flat or package sorting equipment and comingling of non-automated 
Docket No. ACR2018 - 188 -

and automated BPM Flats.330 The Postal Service restates that it does not track the volume 

or percentage of BPM Flats that are processed manually.331 Again, the Postal Service 

summarizes the RPW data relating to the mail characteristics of BPM Flats that affect 

manual handling (piece weight, entry, and presort level). Id.

Second, the Postal Service echoes its prior remarks regarding its continued efforts to 

advance processing “to day zero (day of acceptance)” for BPM Flats.332 Day zero refers to 

the start-the-clock date. January 11 Responses to CHIR No. 1, question 44. If the first 

automation scan occurs on the same day as the start-the-clock date, then those pieces are 

counted as being processed on day zero. Id. In FY 2018, the Postal Service advanced 

processing to day zero for 14.05 percent of measured BPM Flats. Id.

Third, the Postal Service again references its continued review of the entry and make-up 

requirements for BPM Flats.333 The Postal Service reports that no changes were 

implemented in FY 2018 and that none are planned for FY 2019. January 11 Responses to 

CHIR No. 1, question 43.

The Postal Service states that Media Mail/Library Mail also experience manual handling 

due to comingling with BPM Flats. FY 2018 Service Performance Report at 20. Additionally, 

the Postal Service estimates that nearly all parcel-shaped pieces, which comprise 91.25 

percent of total Media Mail/Library Mail volume, receive a manual incoming secondary 

sortation. January 11 Responses to CHIR No. 1, question 42. The Postal Service does not 

identify any planned actions specific to improving Media Mail/Library Mail’s service 

performance, but indicates this product’s entry and make-up requirements are under 

review. FY 2018 Service Performance Report at 20-21.

(4) Comments

Comparing FY 2018 results to the prior fiscal year, the Public Representative observes that 

fewer Package Services products met their service performance targets and that every 

product’s on-time percentage results decreased compared to the levels observed in FY 

2017. PR Comments at 8.

(5) Commission Analysis

Service performance results for BPM Parcels have exceeded the applicable service 

performance target since FY 2013.

 

330 Compare FY 2018 Service Performance Report at 20, with FY 2017 Service Performance Report at 22-23, and FY 2016 Service Performance 

Report at 24-25, and FY 2015 Service Performance Report at 20-21.

331 Compare January 11 Responses to CHIR No. 1, question 42, with Docket No. ACR2017 Responses to CHIR No. 2, question 11.

332 Compare FY 2018 Service Performance Report at 20, with FY 2017 Service Performance Report at 23, and FY 2016 Service Performance 

Report 9 at 25, and FY 2015 Service Performance Report at 21.

333 Compare FY 2018 Service Performance Report at 20-21, with FY 2017 Service Performance Report at 23, and FY 2016 Service Performance 

Report at 25, and FY 2015 Service Performance Report at 21.
Docket No. ACR2018 - 189 -

From FY 2015 to FY 2017, service performance results for BPM Flats improved by a total of 

11.5 percentage points. In FY 2018, results decreased slightly (1.5 percentage points) from 

the level observed in FY 2017. Generally, the Postal Service explains that manual 

processing decreases the efficient handling of BPM Flats. The Commission acknowledges 

the unique characteristics of BPM Flats. The Commission also recognizes that the Postal 

Service has made some progress in increasing the volume and percentage of BPM Flats in 

measurement and in tracking the volume and percentage of BPM Flats that are advanced to 

day zero. Otherwise, the Postal Service’s plan for improving this product’s on-time service 

performance does not appear to include the tracking of data that would demonstrate which 

(if any) of the Postal Service’s multi-year efforts have been successful. This issue is under 

review in pending Docket No. RM2018-1. The Postal Service should make efforts to develop 

quantitative analysis linking its root cause assessments with the impact on service 

performance results for BPM Flats similar to the data leveraging techniques developed for 

USPS Marketing Mail.

Service performance results for Media Mail/Library Mail have typically exceeded the ontime service performance target. In FY 2018, results for this product declined to a level that 

is slightly below the target. The Postal Service should apply its data leveraging techniques 

to improve service performance for this product.

BPM Parcels service performance results continue to exceed the Postal Service’s annual 

service performance targets.

FY 2018 BPM Flats service performance results were substantially below other Package 

Services products and the applicable percentage on-time service performance target for the 

seventh consecutive year. The Commission directs the Postal Service to apply its data 

leveraging techniques to improve service performance for BPM Flats. Pending Docket No. 

RM2018-1 is considering the development of reporting requirements related to flats 

operational cost and service issues. The Commission also directs that the FY 2019 ACR shall 

include: (1) an evaluation of the efficacy of the Postal Service’s FY 2019 efforts to improve 

service performance for BPM Flats (including any progress toward addressing the manual 

processing issues described in the FY 2018 ACR) and (2) a detailed plan explaining how this 

product’s results will be improved.

FY 2018 Media Mail/Library Mail service performance results were near the service 

performance target. The Commission expects that the service performance results for Media 

Mail/Library Mail will improve in FY 2019. If the results for Media Mail/Library Mail do not 

achieve the service performance target in FY 2019, then the FY 2019 ACR shall include: (1) an 

evaluation of the efficacy of the Postal Service’s FY 2019 efforts to improve service 

performance for Media Mail/Library Mail (including any progress toward addressing the 

manual processing issues described in the FY 2018 ACR) and (2) a detailed plan explaining 

how this product’s results will be improved.
Docket No. ACR2018 - 190 -

e. Special Services

(1) FY 2017 Directives

Finding that “[t]he Postal Service exceeded service performance results for all reported 

Special Services products, except for Post Office Box Service, which was near its service 

performance target” in FY 2017, the Commission stated its expectation that service 

performance for Post Office Box Service would improve in FY 2018. FY 2017 ACD at 160. 

The Commission directed the Postal Service to evaluate the efficacy of the six planned 

actions identified in its FY 2017 ACR and provide a detailed plan to improve performance if 

the product’s results did not meet the target in FY 2018. Id.

(2) FY 2018 Results

Service performance results exceeded targets for each product within the Special Services 

class, with the exception of Post Office Box Service. The Post Office Box Service result was 

88.2 percent, below the 90.0 percent target. FY 2018 Service Performance Report at 23. 

Table V-26 shows the service performance results compared to the annual target of 90.0 

percent on-time for Special Services products from FY 2013 to FY 2018.
Docket No. ACR2018 - 191 -

Table V-26

Special Services

Service Performance Results, by Percentage, FY 2013–FY 2018

FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 Target

Ancillary

Services 91.4 92.3 92.1 91.7 91.5 91.4 90.0

International

Ancillary

Services

99.3 99.7 99.7 99.7 99.7 99.7 90.0

Address List

Services 100 33.3 100 - - - 90.0

Money Orders 99.2 98.3 99.3 99.2 99.1 99.3 90.0

Post Office

Box Service 90.9 90.2 89.7 89.7 88.9 88.2 90.0

Stamp

Fulfillment

Services

99.5 98.4 97.1 99.4 99.6 99.5 90.0

Notes: Numbers in red indicate service performance results that did not meet or exceed the annual service performance target.

There were no orders for Address List Services in FY 2016 through FY 2018. FY 2018 Service Performance Report at 23; FY 2017 

Service Performance Report at 25; FY 2016 Service Performance Report at 27.

The Commission approved a semi-permanent exception for service measurement of the following Special Services: hard-copy 

Address Correction Service, Applications and Mailing Permits, Business Reply Mail®, Bulk Parcel Return Service, Certificate of 

Mailing, Merchandise Return Service, Parcel Airlift, Restricted Delivery, Shipper-Paid Forwarding, Special Handling, Stamped 

Envelopes, Stamped Cards, Premium Stamped Stationery, Premium Stamped Cards, International Certificate of Mailing, outbound 

International Registered Mail, International Return Receipt, International Restricted Delivery, International Insurance in 

conjunction with Inbound Surface Parcel Post (at UPU Rates), Customs Clearance and Delivery Fee, Caller Service, Change of 

Address Credit Card Authorization, International Reply Coupon Service, International Business Reply Mail, and Money Orders 

(sales aspect of this service only, not inquiries). Docket No. RM2010-11, Order Concerning Postal Service Request for SemiPermanent Exceptions from Periodic Reporting of Service Performance Measurement, September 30, 2010 (Order No. 531); 

Docket No. RM2010-14, Order Approving Semi-Permanent Exception from Periodic Reporting of Service Performance 

Measurement for Applications and Mailing Permits, October 27, 2010 (Order No. 570).

Source: FY 2018 Service Performance Report at 22-23; FY 2017 Service Performance Report at 25; FY 2016 Service Performance 

Report at 27; FY 2015 Service Performance Report at 23; FY 2014 Service Performance Report at 25; FY 2013 Service Performance 

Report at 22.

(3) Postal Service Report

With respect to Post Office Box Service, the Postal Service summarizes that it made some 

progress on the six planned actions, but that the failure to complete all six planned actions 

affected the Postal Service’s ability to meet the product’s service performance target. 

January 11 Responses to CHIR No. 1, question 46. The Postal Service states its intention to 

complete all six planned actions in FY 2019. Id.

The Postal Service discusses the status of each of the six actions identified in its FY 2017 

ACR. FY 2018 Service Performance Report at 25-26. First, the Postal Service reports that it 

did not complete the seven Lean Six Sigma projects in FY 2018 and that the Postal Service 

intends for each of the seven Postal Service Areas to complete a project by the end of FY 

2019 Quarter 3. Id. at 25. Second, the Postal Service reports that it maintains standardized 

methods for calculating workload and did not include any additional activity in FY 2018 for 
Docket No. ACR2018 - 192 -

the workload calculations for the Post Office Box labor distribution code (LDC 44). Id.

Reporting that improving efficiency in LDC 44 may be possible, the Postal Service states 

that it will leverage the results of the Lean Six Sigma projects to improve performance in FY 

2019. Id. Third, the Postal Service reports conducting over 1,045 on-site Function 4334

reviews in FY 2018, which include review of Post Office Box operations. FY 2018 Service 

Performance Report at 25. The Postal Service plans to leverage the results of the Lean Six 

Sigma projects to specifically include review of the P.O. Box Up time335 in FY 2019. FY 2018 

Service Performance Report at 26. Fourth, the Postal Service reports that it uses the 

existing Scan Point Management System to monitor the product’s performance and restates 

its plan to develop a new dashboard to display key Post Office Box Service metrics. Id. Fifth, 

the Postal Service states that each unit is required to update its e1994 scheduling tool in 

Quarter 4 of each fiscal year (using Quarter 3 data) to align staffing with workload for 

customer service activities, including Post Office Box services. Id. Sixth, the Postal Service 

reports rolling out its Pre-Planning Tool in FY 2019, which clearly articulates the need to 

ensure that all units schedule sufficiently for Post Office Box operations. Id.

The Postal Service does not have root cause point impact data specific to Post Office Box 

Service. January 11 Responses to CHIR No. 1, question 45.

(4) Comments

The Public Representative observes that every reported Special Services product achieved 

its service performance target in FY 2018, except that Post Office Box Service results were 

slightly below target. PR Comments at 9.

(5) Commission Analysis

Service performance results for Ancillary Services, International Ancillary Services, Money 

Orders, and Stamp Fulfillment Services have exceeded the applicable percentage on-time 

service performance targets since FY 2013.

For FY 2018, service performance results for Post Office Box Service remained below target 

and declined from the level reported in FY 2017. Overall, the Postal Service’s improvement 

plan is focused on the proper alignment of staffing with the P.O. Box Up time at the local 

level. The Postal Service represents that not completing all six actions during FY 2018 

impacted service performance and that all six actions are intended for completion during 

FY 2019. Multiple actions identified in the Postal Service’s remediation strategy are 

connected with the planned completion of a Lean Six Sigma project event in each Area by 

the end of FY 2019 Quarter 3.

 

334 “Function 4” includes customer service activities of employees at post offices, stations, and branches involved in distribution of mail to 

carriers and to Post Office Boxes, retail window services , and miscellaneous administrative and Computerized Forwarding System operations. 

United States Postal Service Publication 32, Glossary of Postal Terms, July 2013 (available at: 

http://about.usps.com/publications/pub32/pub32_terms.htm).

335 “P.O. Box Up time” refers to the time of day at which mail will be finalized and available to Post Office Box customers. See United States 

Postal Service, Postal Bulletin 22289, July 15, 2010, at 10 (citing Postal Operations Manual § 141.423). The local postmaster establishes the local 

P.O. Box Up time with district approval. Id.
Docket No. ACR2018 - 193 -

The Postal Service exceeded service performance targets for all reported Special Services 

products, except for Post Office Box Service, which was near its service performance target. 

The Commission expects the service performance results for Post Office Box Service will 

improve in FY 2019. If the results for Post Office Box Service do not achieve the service 

performance target in FY 2019, then the FY 2019 ACR shall include: (1) an evaluation of the 

efficacy of the Postal Service’s FY 2019 efforts (including the six planned actions described in 

the FY 2018 ACR) to improve on-time service performance for this product and (2) a detailed 

plan explaining how this product’s results will be improved.

5. Other Issues

Two commenters discuss their general views on service performance. The Public 

Representative notes that the FY 2017 percentage on-time results represented an increase 

over the prior fiscal year for most products; however, she states that those improvements 

in service performance “regressed since FY 2017.” PR Comments at 12. She explains that in 

FY 2018, service performance results for all but four products decreased from the levels 

reported in FY 2017, which she characterizes as an “apparent systematic decline.” Id. 

Similarly, NPPC states “the last two years have reawakened serious service concerns that 

transcend isolated trouble spots with discrete causes.” NPPC Comments at 1-2 n.3.

Multiple participants provide comments on the Postal Service’s setting of its percentage ontime service performance targets. While expressing concern with the Postal Service’s 

inability to meet its service performance targets, the Public Representative suggests that it 

is possible that the Postal Service has set some targets unrealistically high. PR Comments at 

12. On the other hand, two commenters indicate that they consider some service 

performance targets to be set too low. NPPC Comments at 4; NAPM/Idealliance Comments 

at 6. NPPC asserts that the service performance targets set by the Postal Service in the 90th 

percentiles could discourage some mailers from using the Postal Service because some 

business mailers set higher targets (often 100 percent) for on-time performance of mail 

presented to the Postal Service.336

NAPM and Idealliance express support for the development of a methodology, through a 

Commission proceeding, to exclude service performance data from measurement in 

specific geographic areas severely impacted by natural disasters. NAPM/Idealliance 

Comments at 7. They state that developing such a methodology could make comparisons of 

service performance from prior years more meaningful. Id. The Postal Service replies that it 

will work to identify mailpieces impacted by unforeseen events outside of the Postal 

 

336 NPPC Comments at 4. NPPC states that “[t]he Postal Service did not change its performance targets from FY 2017 to FY 2018,” and provides 

its view of the proposal set forth in Docket No. RM2017-3. Id. at 4 n.5. The Postal Service increased its percentage on-time performance targets 

for USPS Marketing Mail and Periodicals from 90.0 percent to 91.8 percent; all other percentage on-time performance targets were unchanged. 

NPPC’s position on the proposal in Docket No. RM2017-3 is already on record in that proceeding, which is pending before the Commission. See 

generally Docket No. RM2017-3, Comments of the National Postal Policy Council, the Major Mailers Association, and the National Association of

Presort Mailers, March 1, 2018; Docket No. RM2017-3, Reply Comments of the National Postal Policy Council, the Major Mailers Association, 

and the National Association of Presort Mailers, March 30, 2018.
Docket No. ACR2018 - 194 -

Service’s control, including but not limited to weather, in FY 2019. Postal Service Reply 

Comments at 20. The Postal Service asserts that these data would enable it to more 

accurately quantify impacts from these events and diagnose service failures. Id. The Postal 

Service asserts that these data would enable it to report on service performance both with 

impacted pieces included, and excluded. Id.

NPPC remarks on the lack of detail provided in the discussion of service performance in the 

Postal Service’s FY 2018 Annual Performance Report.337

The Commission acknowledges the issues raised by the commenters and values the 

commenters’ participation and perspectives. These views inform the Commission’s work.

Although the decreases in service performance results observed in FY 2018 are not as 

sharp as the decline observed in FY 2015, the Commission agrees with commenters that 

decreases affecting nearly all categories of mail are concerning. The Commission expects 

that the Postal Service’s FY 2019 ACR will demonstrate the Postal Service’s commitment to 

improving service performance, and the Commission has developed directives to guide the 

Postal Service to provide more transparency regarding the progress and effects of its 

existing multi-year national service performance improvement strategies. These directives 

are discussed specific to each class in section V.A.4., supra.

With respect to the suggestions concerning the Postal Service’s setting of its percentage ontime performance targets, the Commission encourages the Postal Service to reach out to 

stakeholders and consider their views.

With respect to the suggested development of a methodology to exclude certain service 

performance data, interested parties may request that the Commission initiate a 

proceeding “to improve the quality, accuracy, or completeness of Postal Service data 

required by the Commission . . . whenever it shall appear that . . . the quality of service data 

has become significantly inaccurate or can be significantly improved.” 39 U.S.C. 

§ 3652(e)(2)(B). Additionally, the rules appearing in part 3055 of Title 39 of the Code of 

Federal Regulations apply to the reporting of service performance.

Multiple information requests were issued to obtain additional detail concerning the 

discussion of service performance appearing in the United States Postal Service FY 2018 

Annual Report to Congress. See CHIR No. 2, questions 1-5; see also CHIR No. 13, questions 

2-3. Consistent with historical practice,338 the Commission will publish a separate analysis 

of the issues identified in the Postal Service’s FY 2018 Annual Performance Report and FY 

2019 Annual Performance Plan.

 

337 NPPC Comments at 2-3, 5 (citing Library Reference USPS–FY18–17, December 28, 2018, at 18).

338 See, e.g., Docket No. ACR2017, Analysis of the Postal Service’s FY 2017 Annual Performance Report and FY 2018 Performance Plan, April 26, 

2018.
Docket No. ACR2018 - 195 -

B. Customer Access

1. Introduction

The PAEA requires the Postal Service to report “measures of the quality of service afforded 

by the Postal Service in connection with [each Market Dominant] product, including...the 

degree of customer satisfaction with the service provided.”339 39 C.F.R. § 3055.91 requires 

the Postal Service to provide information pertaining to four aspects of customer access: 

post offices (including closings and emergency suspensions), residential and business 

delivery points, collection boxes, and wait time in line. Measuring customer access to postal 

services is important in evaluating universal service and customer satisfaction.

The FY 2018 ACR and Library Reference USPS–FY18–33340 contain customer access 

information responsive to the requirements of Title 39 and the Commission’s regulations. 

The Postal Service provides additional information in responses to CHIRs.341

The Postal Service also reports the numbers of retail facilities and delivery points in its 

Annual Report to Congress.

342 In the FY 2017 ACD, the Commission observed that these 

numbers differ from those reported in the ACR and in CHIR responses. FY 2017 ACD at 162. 

It stated that these discrepancies impede the Commission’s evaluation of customer access 

and require the issuance of CHIRs to obtain the most up-to-date information. Id. The 

Commission directed the Postal Service to “ensure that information provided on retail 

facilities and delivery points is consistent among the [FY 2018 Annual Report], FY 2018 

ACR, and past CHIR responses.” Id. If there were any discrepancies, the Commission 

directed the Postal Service to identify them in the FY 2018 ACR. Id.

In the FY 2018 ACR, the Postal Service identifies differences between the number of nonpostal-managed retail facilities343 reported in the FY 2018 Annual Report and USPS–FY18–

33.344 The Postal Service asserts that the numbers reported in the Annual Report to 

Congress and in the ACR are the most current, up-to-date totals at the time of each 

respective filing. Id. It explains that discrepancies in retail facilities data are due to the 

reporting practices of the different databases used to maintain data on non-postalmanaged retail facilities.345 The Postal Service asserts that the total number of CPUs, VPOs, 

 

339 39 U.S.C. § 3652(a)(2)(B)(ii); 39 C.F.R. § 3055.90.

340 Library Reference USPS–FY18–33, December 28, 2018.

341 See January 11 Responses to CHIR No. 1, questions 6-12; January 28 Responses to CHIR No. 3, question 9; Responses to CHIR No. 9, question 

1; Responses to CHIR No. 24.

342 See United States Postal Service FY 2018 Annual Report to Congress at 11; see Library Reference USPS–FY18–17, December 28, 2018 (FY 2018

Annual Report).

343 Non-postal-managed retail facilities include Contract Postal Units (CPUs), Village Post Offices (VPOs), and Community Post Offices (CPOs).

344 FY 2018 ACR at 61. The Postal Service does not identify the differences between the number of delivery points reported between the FY 

2018 Annual Report and USPS–FY18–33. See n.352, infra.

345 Id.; see Responses to CHIR No. 9, question 1.
Docket No. ACR2018 - 196 -

and CPOs periodically change throughout the year and after the Postal Service has reported 

these totals in the Annual Report to Congress and ACR. FY 2018 ACR at 61.

The Public Representative comments that she appreciates the Postal Service’s explanation 

that changes can occur after data has already been reported. PR Comments at 16-17. 

However, she notes that the Postal Service continues to provide inconsistent data about the 

number of postal facilities. Id. at 17. She urges the Commission to require the Postal Service 

to resolve these continued discrepancies. Id. In its reply comments, the Postal Service 

explains that it uses a facilities database that allows for updates beyond the end of the fiscal 

year. Postal Service Reply Comments at 27. It asserts that these updates allow for more 

accuracy in tracking the status of non-postal-managed retail facilities, but may result in 

changed numbers over time as new updates are inputted into the database.

Continuously updating the databases explains why the information on non-postal-managed 

retail facilities changes throughout the year. The Commission appreciates that the Postal 

Service seeks to provide the most recent, up-to-date information. However, as discussed 

below, this information differs from the information provided in the ACR and CHIR 

responses. Without further explanation, these discrepancies reduce transparency, impede 

the Commission's evaluation of customer access, and require the issuance of CHIRs for 

clarification. 

The Commission reiterates that for its FY 2019 filings, the Postal Service must ensure that 

information provided for both retail facilities and delivery points is consistent among the 

Annual Report to Congress, ACR, and CHIR responses. If there are any discrepancies, the Postal 

Service must identify and reconcile them in the FY 2019 ACR.

2. Retail Facilities

For each fiscal year, the Postal Service must provide information on the number of retail 

facilities at the beginning and end of the fiscal year, as well the number of retail facility 

closings during the fiscal year. 39 C.F.R. § 3055.91(a)(1) to (3). This information must be 

disaggregated by type of retail facility and provided at the national and area levels. Id. The 

Postal Service provides this information for FY 2018 in the FY 2018 Annual Report, USPS–

FY18–33, and CHIR responses.346 However, as previously discussed, the number of retail 

facilities differs among these sources.347

CHIR No. 9 asked for the most up-to-date number of retail facilities for FY 2016, FY 2017, 

and FY 2018, which the Postal Service provided. Responses to CHIR No. 9, question 1. The 

Postal Service clarifies that this information reflects available data as of February 6, 2019. 

Id. This information is included in Table V-27 below. Postal-managed retail facilities consist 

 

346 FY 2018 Annual Report at 11; USPS–FY18–33, Excel file “PostOfficesFY2018.xlsx,” tab “Post Offices;” Responses to CHIR No. 9, question 1.

347 Compare FY 2018 Annual Report at 11 with USPS–FY17–33, Excel file “PostOfficesFY2018.xlsx,” tab “Post Offices” and Responses to CHIR No. 

9, question 1.
Docket No. ACR2018 - 197 -

of post offices, stations and branches, and carrier annexes. Non-postal-managed retail 

facilities consist of CPUs, VPOs, and CPOs.

Table V-27

Retail Facilities, FY 2016–FY 2018

(as of February 6, 2019)

Facility Type FY 2016 FY 2017 FY 2018

FY 2018 

Change 

from FY 

2017

FY 2018 

Change 

from FY 

2016

 Post Offices 26,611 26,410 26,365 -45 -246

 Classified Stations & Branches and Carrier 

Annexes 4,974 4,967 4,959 -8 -15

Total Postal-Managed Retail Facilities 31,585 31,377 31,324 -53 -261

 Contract Postal Units 2,387 2,245 2,142 -103 -245

 Village Post Offices 854 717 629 -88 -225

 Community Post Offices 490 466 452 -14 -38

Total Non-Postal-Managed Retail Facilities 3,731 3,428 3,223 -205 -508

Total Retail Facilities 35,316 34,805 34,547 -258 -769

Source: Responses to CHIR No. 9, question 1.

The total number of retail facilities in FY 2018 was 34,547, which was 258 fewer than FY 

2017. The number of retail facilities for all types decreased between FY 2017 and FY 2018, 

a continued trend. The largest decrease between FY 2017 and FY 2018 was in the number 

of CPUs, which decreased by 103.

The Public Representative observes that the largest decreases in retail facilities occurred 

with non-postal-managed retail facilities. PR Comments at 16. She observes that FY 2018 is 

the third consecutive year that retail facilities decreased overall. Id. She questions the effect 

that large decreases in non-postal-managed facilities has had on customer access and 

whether the Postal Service is concerned about such decreases. Id.

In its reply comments, the Postal Service recognizes that customer access to its products 

and service in all forms, including retail facilities, is important for ensuring that mail 

remains a vital, economical means of communication. Postal Service Reply Comments at 

23-24. It acknowledges that the number of VPOs and CPUs have decreased in recent years. 

Id. at 26-27. However, it states that it continues to develop and promote the use of 

alternative access channels such as usps.com, Self Service Kiosks (SSKs), Click-N-Ship, and 

PC Postage. Id. at 27.

As discussed below, in addition to providing products and services at retail facilities, the 

Postal Service continues to expand customer access through alternate channels. See

Chapter 5, section B.7., infra. The Postal Service reports that it deployed 1,561 Retail 

Systems Software (RSS)-SSKs at the end of FY 2018 and has deployed an additional 1,171 
Docket No. ACR2018 - 198 -

RSS-SSKs in FY 2019. January 11 Responses to CHIR No. 1, question 6. It notes that 13 RSSSSKs are reserved for future sites. Id.

3. Post Office Suspensions

Background. For each fiscal year, the Postal Service must provide information on the 

number of post office suspensions at the beginning and end of the fiscal year, as well as the 

number of post offices suspended during the fiscal year. 39 C.F.R. § 3055.91(a)(4) to (6). 

Since the FY 2015 ACD, the Commission has expressed concerns about the number of 

suspended post offices. See FY 2015 ACD at 150. At the end of FY 2016, there were 662 

suspended post offices. FY 2017 ACD at 164. Of these 662 suspended post offices, 319 

remained suspended at the end of FY 2017. FY 2017 ACR at 63. In FY 2017, the Postal 

Service also suspended 59 other post offices, for a total of 378 post offices suspended at the 

end of FY 2017. Id. at 65.

In the FY 2017 ACR, the Postal Service provided an updated timeline for resolving these 

378 suspended post offices in FY 2018 and FY 2019.

 FY 2018, Quarter 1: 16

 FY 2018, Quarter 2: 23

 FY 2018, Quarter 3: 60

 FY 2018, Quarter 4: 70

 FY 2019, Quarter 1: 70

 FY 2019, Quarter 2: 70

 FY 2019, Quarter 3: 69348

In the FY 2017 ACD, the Commission reiterated the importance of resolving the remaining 

suspended post offices as soon as possible. FY 2017 ACD at 166. It stated that it expects the 

Postal Service to resolve all remaining suspended post offices by the end of FY 2019 as 

proposed in the FY 2017 ACR. Id. It directed the Postal Service to continue filing quarterly 

updates on the number of suspended post offices and actions taken to resolve them within 

40 days after the end of each quarter in FY 2018. Id. The Commission stated that if the 

Postal Service is unable to meet the timeline it provided for resolving suspended post 

offices, it must explain in detail in the FY 2018 ACR why it was unable to do so. Id.

In FY 2018, the Postal Service filed quarterly updates on the status of the 662 post offices 

that had been suspended at the end of FY 2016.349 It resolved suspended post offices by 

 

348 Id.
Docket No. ACR2018 - 199 -

reopening or officially discontinuing them. Id. Table V-28 compares targets and results for 

the number of suspended post offices resolved by quarter during FY 2018.

Table V-28

Post Office Suspension Activity by FY 2018 Quarter 

For 662 Post Offices Suspended at the End of FY 2016

FY 2018 Quarter Target No. of 

Suspensions Resolved

Actual No. of 

Suspensions Resolved

No. of Suspended Offices 

Remaining at End of Quarter

Quarter 1 16 23 296

Quarter 2 23 20 276

Quarter 3 60 23 253

Quarter 4 70 3 250a

Total 169 69

a Of the 662 post offices suspended at the end of FY 2016, 250 of them remain suspended at the end of FY 2018. This number does not include 

94 other post offices suspended in FY 2017 and FY 2018. January 28 Responses to CHIR No. 3, question 9.a.

Sources: Docket No. ACR2017, Notice of the United States Postal Service Regarding Filing of Post Office Suspension Information Update, April 6, 

2018; Docket No. ACR2017, Notice of the United States Postal Service Regarding Filing of Post Office Suspension Information Update for FY18 

Quarter 2, May 10, 2018; Docket No. ACR2017, Notice of the United States Postal Service Regarding Filing of Post Office Suspension Information 

Update for FY18 Quarter 3, August 9, 2018; see Docket No. ACR2017, Notice of the United States Postal Service of Filing Errata Concerning Filing 

of Post Office Suspension Information Update for FY18 Quarter 3; Docket No. ACR2017, Notice of the United States Postal Service Regarding 

Filing of Post Office Suspension Information Update for FY18 Quarter 4, November 9, 2018.

Table V-28 shows that during Quarters 1 and 2 of FY 2018, the Postal Service resolved 

suspended post offices consistent with the timeline provided. During Quarters 3 and 4 of 

FY 2019, the Postal Service resolved far fewer suspended post offices than planned. In total, 

as of the end of FY 2018, the Postal Service resolved only 69 suspended post offices, 100 

fewer than the target of 169. Of the 662 post offices suspended at the end of FY 2016, 250 

of them remain suspended at the end of FY 2018. FY 2018 ACR at 62.

In the FY 2018 ACR, the Postal Service states that it fell short of its goals to resolve the 

remaining suspended post offices as outlined in the FY 2017 ACR. Id. at 63. The Postal 

Service explains that headquarter and field personnel encountered several challenges that 

impacted the ability to resolve suspended post offices, including significant staff turnover 

and incomplete docket information from the field. Id. at 63-64. To overcome these 

challenges, the Postal Service asserts that it is making several changes in FY 2019, such as 

implementing the new Delivery & Retail Operations staffing restructuring and committing 

more personnel to focus on suspension and discontinuance efforts. Id. at 64. To address the 

issue of incomplete docket information from the field, the Postal Service states it will 

provide field personnel further training and enhance ongoing tracking/status reporting of 

suspended post offices. Id. at 65. Based on these changes, the Postal Service proposes a 

 

349 See Table V-28, infra. The Postal Service also filed a post office suspension update for FY 2019, Quarter 1. Docket No. ACR2017, Notice of the 

United States Postal Service Regarding Filing of Post Office Suspension Information Update for FY19 Quarter 1, February 7, 2019 (FY 2019, 

Quarter 1 Suspension Report).
Docket No. ACR2018 - 200 -

revised schedule for resolving the 250 suspended post offices remaining from the original 

662 post offices suspended at the end of FY 2016.

Table V-29

Revised Schedule for Resolving Remaining Post Offices 

Suspended at the End of FY 2016a

Fiscal Quarter Target No. of Suspended Post Offices 

Resolved

Target No. of Suspended Post 

Offices Remaining

FY 2019, Quarter 1 0

a

250

FY 2019, Quarter 2 10 240

FY 2019, Quarter 3 40 200

FY 2019, Quarter 4 100 100

FY 2020, Quarter 1 25 75

FY 2020, Quarter 2 75 0

a

The timeline provided in the FY 2018 ACR assumes that no post offices were resolved during FY 2019, Quarter 1. See FY 2018 ACR at 65. 

However, the post office suspension update for FY 2019, Quarter 1 reports that three suspended post offices were reopened. FY 2019, 

Quarter 1 Suspension Report at 2, 4. 

Source: FY 2018 ACR at 65; FY 2019, Quarter 1 Suspension Report.

The Postal Service explains that the quarterly post office suspension updates and the 

revised schedule for resolving suspended post offices in the FY 2018 ACR report the status 

of the 662 post offices that were suspended as of the end of FY 2016.350 Of these 662 

suspended post offices, 250 remain to be resolved by discontinuing or reopening them. Id.

The Postal Service also filed data on the total number of suspended post offices in USPS–

FY18–33.351 The Postal Service explains that the numbers reported in USPS–FY18–33 

include 94 other post offices suspended in FY 2017 and FY 2018 (in addition to the 662 

post offices suspended at the end of FY 2016). January 28 Responses to CHIR No. 3, 

question 9.b. The Postal Service asserts that it will review the status of all suspended offices 

and provide an updated plan for resolving all remaining suspended post offices, including 

the 94 more recently suspended post offices, as part of the FY 2019, Quarter 4 post office 

suspension report. Id. question 3.b.

Table V-30 shows post office suspension activity during FY 2018 by facility type. It lists the 

number of suspended post offices at the beginning and end of FY 2018, as well as the 

number of post offices suspended, reopened, and closed during FY 2018. The number of 

suspended post offices at the end of FY 2018 is calculated by adding the number of post 

offices suspended during the fiscal year to the number of suspended post offices at the 

beginning of the fiscal year, and then subtracting the number of post offices reopened and 

closed during the fiscal year. Table V-30 shows that the total number of suspended post 

offices decreased by 34 in FY 2018.

 

350 January 28 Responses to CHIR No. 3, question 9.a.

351USPS–FY18–33, Excel file “PostOfficesFY2018.xlsx,” tab “Suspension Summary.”
Docket No. ACR2018 - 201 -

Table V-30

Post Office Suspension Activity During FY 2018

Under Suspension at 

the Start of FY 2018

Suspended 

During FY 2018

Reopened 

During FY 2018

Closed During 

FY 2018

Under Suspension at 

the End of FY 2018

Post Offices 314 68 57 50 275

Stations/Branches 63 10 3 2 68

Carrier Annexes 1 0 0 0 1

Total 378 78 60 52 344a

a This number includes the remaining 250 suspended post offices from the original 662 post offices suspended at the end of FY 2016, as well as the 

additional 94 post offices suspended in FY 2017 and FY 2018.

Source: USPS–FY18–33, Excel file "PostOfficesFY2018.xlsx," tab "Suspension Summary;" Responses to CHIR No. 24, question 1.

Comments. The Public Representative comments that the Postal Service again showed 

marked improvement by reducing the number of suspended post offices in FY 2018. PR 

Comments at 18. She observes that since the beginning of FY 2017, the Postal Service 

reduced the total number of suspended post offices by approximately 43 percent. Id. at 17. 

She notes that the Postal Service did not meet FY 2018 targets for resolving suspended post 

offices, but asserts that the challenges described by the Postal Service in resolving the 

remaining suspended post offices appear reasonable. Id. at 18, 19.

Commission analysis. The Postal Service fell short of its goal of resolving 169 suspended 

post offices in FY 2018. Nonetheless, the Postal Service made significant progress in 

reducing the backlog of post offices suspended at the end of FY 2016. Of those 662 

suspended post offices, only 250 remain suspended at the end of FY 2018.

For these reasons, the Commission finds that the Postal Service made progress in reducing the 

backlog of suspended post offices between FY 2016 and FY 2018. The Commission also finds 

that the Postal Service complied with the Commission’s directives in the FY 2017 ACD to file 

quarterly updates on the status of the 662 post offices suspended at the end of FY 2016 and 

actions taken to resolve them. The Postal Service also explained in the FY 2018 ACR why it 

was unable to meet the timeline for resolving suspended post offices in FY 2018. See FY 2017 

ACD at 166. The Postal Service’s descriptions of the challenges encountered are reasonable, 

and the proposed solutions should help the Postal Service meet the revised schedule for

resolving the remaining suspended post offices.

The Commission reiterates the importance of resolving all remaining suspended post offices 

as soon as possible. The Commission expects the Postal Service to resolve all remaining 

suspended post offices by the end of FY 2020, including the 94 additional post offices 

suspended in FY 2017 and FY 2018, by either reopening them or closing them in compliance 

with the post office discontinuance process. The Commission directs the Postal Service to 

continue to file quarterly updates on the status of the 662 post offices suspended at the end of 
Docket No. ACR2018 - 202 -

FY 2016 and actions taken to resolve them. The Postal Service must file this information 

within 40 days after the end of each quarter in FY 2019. The report for FY 2019, Quarter 4 

must provide an updated plan for resolving all remaining suspended post offices, including 

post offices suspended in FY 2017, FY 2018, and FY 2019. If the Postal Service is unable to 

meet the timeline it provided for resolving the remaining suspended post offices, the Postal 

Service must explain in detail in the FY 2019 ACR why it was unable to do so.

4. Delivery Points

The Postal Service is required to provide information on the number of residential and 

business delivery points at the beginning and end of the fiscal year. 39 C.F.R. § 3055.91(b). 

The Postal Service provided this information for FY 2018 in USPS–FY18–33 and in the FY 

2018 Annual Report.

352 The total number of delivery points in FY 2018 was 158,558,256, an 

increase of 1,229,580 from FY 2017. FY 2018 Annual Report at 9. Figure V-9 shows the 

volume per delivery point between FY 1997 and FY 2018.

Figure V-9

Volume per Delivery Point, FY 1997–FY 2018

Source: Commission Calculation Based on United States Postal Service, Delivery Points Since 1905, in Millions, February 2019 (available at: 

http://about.usps.com/who-we-are/postal-history/delivery-points-since-1905.pdf) and United States Postal Service, Pieces of Mail Handled, 

Number of Post Offices, Income, and Expenses Since 1789, February 2019 (available at: http://about.usps.com/who-we-are/postalhistory/pieces-of-mail-since-1789.pdf).

 

352USPS–FY18–33, Excel file “DeliveryPointsFY2018.xlsx;” FY 2018 Annual Report to Congress at 9. The number of delivery points differs 

between these two sources. See Chapter 5, section B.1., supra. The Commission cites to data from the FY 2018 Annual Report.
Docket No. ACR2018 - 203 -

Volume per delivery point reached its highest level of 1,546 in FY 2000. Volume per 

delivery point decreased an average of 1 percent per year from FY 2000 to FY 2007, when 

it was 1,434. Volume per delivery point declined to 923 in FY 2018, a 40 percent decrease 

since FY 2000 and a 36 percent decrease from FY 2007.

5. Collection Boxes

The Postal Service must provide, at the national and area levels, information on the number 

of collection boxes at the beginning and end of the fiscal year, as well as the number of 

collection boxes added and removed during the fiscal year. 39 C.F.R. § 3055.91(c). The 

Postal Service filed this data for FY 2018 in USPS–FY18–33.353 Nationally, there were 

143,977 collection boxes at the end of FY 2018, 2,275 fewer than in FY 2017.

Comments. The Public Representative comments that the number of collection boxes 

decreased by 1.54 percent in FY 2018 compared to a decrease of 4.12 percent in FY 2017. 

PR Comments at 19. She asserts that her past concerns about collection box totals are 

mitigated by the Postal Service’s continued density testing of collection boxes, the decline 

in collection box reductions in FY 2018, and the Commission’s awareness of this issue. Id. at 

19-20.

The Greeting Card Association (GCA) asks the Commission to consider whether the Postal 

Service’s management of collection boxes complies with 39 U.S.C. § 403(b)(3).354 It 

critiques operational rules for removing or relocating collection boxes and discusses 

several concerns raised by Postal Service Office of Inspector General (OIG) reports. GCA 

Comments at 2-4. GCA asks that the Commission direct the Postal Service to describe how 

collection boxes are managed and removed, how the Postal Service plans to improve 

customer access to collection boxes, how it will address issues identified by the OIG, and 

how it considers customer concerns in this area. Id. at 4-5.

In its reply comments, the Postal Service responds that rules for removing or relocating 

collection boxes are discussed in the Postal Operations Manual, which states that collection 

boxes averaging fewer than 25 pieces of mail per day should be removed or relocated. 

Postal Service Reply Comments at 24. It asserts that efficiency suffers in the form of fuel 

and workhours for carriers to service collection boxes that receive very small amounts of 

mail. Id. The Postal Service notes that it has placed greater emphasis on stabilizing the 

number of collection boxes in use and relocating low-use boxes to high traffic areas. Id. at 

25. It states that routine density tests are conducted at least annually to determine if a 

collection box is being used effectively. Id.

 

353 USPS–FY18–33, Excel file “CollectionBoxesFY2018.xlsx.”

354 Comments of the Greeting Card Association, February 14, 2019, at 1-2 (GCA Comments). 39 U.S.C. § 403(b)(3) requires the Postal Service “to 

establish and maintain postal facilities of such character and in such locations, that postal patrons throughout the Nation will, consistent with 

reasonable economies of postal operations, have ready access to essential postal services."
Docket No. ACR2018 - 204 -

The Postal Service explains that it has addressed the OIG’s concerns by upgrading and 

enhancing the Collection Point Management System, which manages collection boxes. Id. at 

25-26. It states that this system now tracks collection points from creation to deletion, 

which has brought full accountability and visibility to vital collection box management 

processes. Id. at 26. The Postal Service also describes a national standard operating 

procedure for collection boxes that requires area and district personnel to periodically 

review collection points listed as out of service and take appropriate action. Id.

Commission analysis. The Commission finds that the Postal Service has adequately 

addressed GCA’s concerns in its reply comments. The Postal Service should continue to 

perform annual density testing of collection boxes in FY 2019 to ensure that the collection 

box network is cost-effective while meeting the needs of its customers. The Commission 

will continue to monitor the number of collection boxes in the FY 2019 ACD.

6. Wait Time in Line

The Postal Service must report the average customer wait time for retail service for the 

beginning of the fiscal year and for the end of each successive fiscal quarter at the national 

and area levels. 39 C.F.R. § 3055.91(d). The Postal Service provided this information for FY 

2018 in USPS–FY18–33.

355 The national average wait time in line improved from 2 minutes 

28 seconds in FY 2017 to 2 minutes 11 seconds in FY 2018. FY 2018 ACR at 60. Table V-31

shows the quarterly national average customer wait times in line for FYs 2014 through 

2018.

Table V-31

National Average Wait Times in Line

By Quarter, FY 2014–FY 2018

FY 2014 FY 2015 FY 2016 FY 2017 FY 2018

Quarter 1 2:23 2:33 3:12 2:30 2:18

Quarter 2 2:35 2:43 3:26 2:39 2:28

Quarter 3 2:29 2:40 2:45 2:34 2:04

Quarter 4 2:24 2:36 2:17 2:28 1:53

Source: USPS–FY18–33, Excel file “National WaitTimeInLine FY2018.xslx,” tab “Qtr Avg Wait Natl;” 

FY 2017 ACD at 168.

Comments. The Public Representative comments that the Postal Service reduced wait times 

in line for all postal areas in FY 2017. PR Comments at 20. She notes that in FY 2018, the 

Postal Service continued to improve wait times in line in all areas except for the Capital 

Metro area, which increased slightly from 2 minutes 13 seconds in FY 2017 to 2 minutes 17 

seconds in FY 2018. Id. at 20-21. She observes that in FY 2018, the average national wait 

time in line of 2 minutes 11 seconds decreased by 17 seconds and was the shortest wait 

 

355 USPS–FY18–33, Excel file “National WaitTimeInLine FY2018.xlsx.”
Docket No. ACR2018 - 205 -

time in line since FY 2012. Id. at 21. She asserts that wait times in line appear reasonable in 

light of these widespread improvements. Id. She considers wait time in line to be an 

important component of customer access and satisfaction and commends the Postal 

Service for its continued improvement in this area. Id. In its reply comments, the Postal 

Service states that it plans on continuing to improve wait times in line in FY 2019. Postal 

Service Reply Comments at 23.

Commission analysis. The Commission commends the Postal Service for continuing to 

improve customer wait times in line in FY 2018. National average wait times in line 

improved for each quarter. FY 2018, Quarter 4 showed a marked improvement from 2 

minutes 28 seconds in FY 2017 to 1 minute 53 seconds in FY 2018. The Commission 

encourages the Postal Service to continue improving wait times in line in FY 2019.

7. Alternative Access

In addition to providing products and services at retail facilities, the Postal Service 

continues to expand customer access through alternate channels. The Commission 

previously recommended that the Postal Service continue to expand alternative retail 

access channels to ensure customers have ready access to essential postal services.356 The 

Postal Service provides information on retail revenue by channel from FY 2015 through FY 

2018 in a CHIR response.357 The major retail revenue channels are:

 Post Offices

 CPUs

 Click-N-Ship

 Stamp Sales by Partners

 SSKs/Automated Postal Centers

 Stamps by Mail/Phone/Fax

Figure V-10 compares retail revenue by channel from FY 2015 through FY 2018. Figure V10 groups these retail revenue channels into three groups:

 Post Offices (walk-in revenue (WIR) from post offices and contract postal units)

 Internet Access (Click-N-Ship)358

 All Other (including stamp sales by partners, SSKs/automated postal centers, and 

stamps by mail/phone/fax)

 

356 Docket No. N2012-2, Advisory Opinion on Post Office Structure Plan, August 23, 2012, at 37.

357 January 11 Responses to CHIR No. 1, question 7.

358 In FY 2015, retail revenue from Internet Access included revenue from the PC Postage. Docket No. ACR2017, Response of the United States 

Postal Service to Question 3 Chairman’s Information Request No. 17, February 20, 2018, question 3.a. In FY 2016, the Postal Service reclassified 

PC Postage revenue from retail to commercial. FY 2016 ACD at 154. For this reason, Internet Access retail revenue does not include PC Postage 

in FY 2016, FY 2017, and FY 2018.
Docket No. ACR2018 - 206 -
Docket No. ACR2018 - 207 -

Figure V-10

Retail Revenue by Channel, FY 2015–FY 2018
Docket No. ACR2018 - 208 -

C. Customer Satisfaction with Market 

Dominant Products

1. Background

The PAEA requires the Postal Service to report measures of the degree of customer 

satisfaction with the service provided for each Market Dominant product. 39 U.S.C. 

§ 3652(a)(2)(B)(ii); 39 C.F.R. § 3055.90. The Postal Service measures customer satisfaction 

with Market Dominant products and other customer experiences using surveys. The ACR

must include a copy of each type of customer survey and information obtained from each 

survey. 39 C.F.R. § 3055.92. This information must include a description of the type of 

customer targeted by the survey, the number of surveys initiated and received, and the 

number of responses received for each question, disaggregated by each possible response. 

Id. The Postal Service provides this information in USPS–FY18–38.359

In FY 2018, the Postal Service measured customer experiences using eight surveys: 

Business Service Network, Point of Sale, Delivery, Customer Care Center, Enterprise 

Customer Care, Large Business, Bulk Mail Entry Unit, and USPS.com.360 Each survey 

measures a customer touchpoint or interaction between the customer and the Postal 

Service.361 For example, the Point of Sale survey measures customer experiences at retail 

locations with Point of Sale equipment. Preface at 3. The Postal Service explains that to 

enhance its understanding of customer satisfaction and improve results, it significantly 

revamped its processes for measuring customer experiences. FY 2018 ACR at 48. These 

changes included revising customer surveys and methodologies for calculating results. Id.

at 49-57. The customer surveys, methodology changes, and FY 2018 results for each survey 

are discussed in detail in the Commission’s forthcoming Analysis of the FY 2018 Annual 

Performance Report and FY 2019 Annual Performance Plan.

The Postal Service uses data from the Delivery and Large Business surveys to measure 

customer satisfaction with Market Dominant products for three types of customers: 

residential, small/medium business, and large business. FY 2018 ACR at 52. The Delivery 

survey measures customer satisfaction of residential and small/medium business 

customers.362 In FY 2018, residential and small/medium business customers were 

randomly selected, contacted by mail, and given the option of completing the survey by 

phone or online. FY 2018 ACR at 52. The Large Business survey measures customer 

satisfaction of large business customers with 250 or more employees.363 A panel of large 

 

359 Library Reference USPS–FY18–38, December 28, 2018.

360 USPS–FY18–38, PDF file “USPS-FY18-38 Preface.pdf,” at 1 (Preface).

361 Responses to CHIR No. 2, question 6.a.

362 Preface at 3; USPS–FY18–38, PDF file “CI_Surveys_FY2018.pdf,” at 26-37.

363 FY 2018 ACR at 52; USPS–FY18–38, PDF file “CI_Surveys_FY2018.pdf,” at 46-61.
Docket No. ACR2018 - 209 -

business customers completed the survey during each quarter of FY 2018. FY 2018 ACR at 

52.

In the surveys, residential, small/medium, and large business customers were asked to rate 

their level of satisfaction with a Market Dominant mailing service, such as First-Class Mail 

or Media Mail. Id. Customers rated their level of satisfaction with each mailing service using 

a six-point scale ranging from Very Satisfied to Very Dissatisfied. Id. Customer satisfaction 

results were calculated as the percentage of customers who selected Very Satisfied or 

Mostly Satisfied. See id. at 49. Customers who indicated that they do not use or are 

unfamiliar with a mailing service were excluded from the results. Id. at 52-53. For each 

customer type, Table V-32 compares customer satisfaction results for select Market 

Dominant mailing services for FY 2016, FY 2017, and FY 2018.

Table V-32

Comparison of Customer Satisfaction with Market Dominant Products, by Percentage

FY 2016–FY 2018

Market Dominant Products 

(Mailing Services)

Residential Customers Small/Medium Business 

Customers Large Business Customers

FY 

2016

FY 

2017

FY 

2018

FY 

2016

FY 

2017

FY 

2018

FY 

2016

FY 

2017

FY 

2018

First-Class Mail 89.13% 89.05% 87.04% 83.34% 84.38% 83.88% 81.49% 77.97% 72.48%

Single-Piece International 84.80% 85.18% 81.95% 81.34% 82.69% 80.67% 74.37% 69.98% 66.40%

USPS Marketing Mail 85.49% 83.18% 76.90% 79.87% 80.32% 77.67% 76.89% 71.69% 64.50%

Periodicals 85.07% 85.66% 83.88% 81.86% 82.32% 81.96% 74.26% 70.56% 65.84%

Media Mail 86.59% 86.04% 83.21% 84.05% 85.10% 83.31% 74.28% 69.15% 64.87%

BPM --

a

--

a

--

b

80.11% 82.77% --

b

73.40% 67.70% --

b

Library Mail 85.54% 87.28% 81.24% 83.05% 85.98% 82.89% 70.56% 66.41% 61.89%

Results are expressed as the percentage of customers who were Very Satisfied or Mostly Satisfied with a category.

a—Number of responses received did not meet minimum threshold for 90-percent level of confidence.

b—FY 2018 data for BPM is unavailable.

Source: FY 2018 ACR at 57; FY 2017 ACR at 58; FY 2016 ACR at 74.

The Postal Service reports that although most customers continue to report being very or 

mostly satisfied with the Postal Service’s mailing services, there were minor declines in 

customer satisfaction results for residential and small/medium business customers 

between FY 2017 and FY 2018. FY 2018 ACR at 57. For large business customers, customer 

satisfaction declined approximately 5 percent across all Market Dominant products. Id. at 

58.

In FY 2018, the Postal Service analyzed the Large Business survey to identify three drivers 

that influence large business customer satisfaction: building customer relationships, the 

ease of contacting a representative, and issue/claim resolution. Id. at 58-59. In FY 2018, the 
Docket No. ACR2018 - 210 -

Postal Service states that it developed several initiatives focused on these drivers, such as 

streamlining the claims process for large business customers. Id. at 59. It acknowledges 

that it must perform further research to understand how large business customer 

experiences with each product type drives overall satisfaction. Id. The Postal Service states 

that it will continue its efforts to improve customer satisfaction in FY 2019. Id. These efforts 

include reducing customer wait times at Customer Care Centers, developing refresher 

training for retail employees, improving mail delivery accuracy, continuing efforts to 

improve Business Mail Entry Units, and improving customer experiences with receiving 

mail and packages. Id.

2. Comments

The Public Representative comments that customer satisfaction with Market Dominant 

products declined on average for each customer type by 6.84 percent (residential), 3.41 

percent (small/medium business), and 4.74 percent (large business). PR Comments at 25-

26. She observes that the Postal Service was unable to continue the improvements in 

customer satisfaction for residential and small/medium business customers that were 

made in FY 2017 and was also unable to reverse the trend of declining customer 

satisfaction for large business customers. Id. at 27. She recommends that the Commission 

monitor customer satisfaction closely in FY 2019.364

NPPC expresses specific concerns about large business customer satisfaction. NPPC 

Comments at 5. It notes that large business customer satisfaction declined by 5 percent 

across all Market Dominant products in FY 2018 and that only 64.5 percent of large 

business customers were satisfied with USPS Marketing Mail. Id. at 5-6. NPPC asserts that 

large business customers experience lower customer satisfaction compared to residential 

and small/medium customers because large business customers work most closely with 

the Postal Service and are most affected by changes in mailing regulations and other 

requirements. Id. at 7. NPPC urges the Postal Service to work to improve customer 

relations in FY 2019 and beyond. Id. at 9. NPPC asserts that the FY 2018 Annual Report 

indicates that the Postal Service will eliminate the Large Business survey in FY 2019. Id. at 

9-10.

NAPM and Idealliance comment that the Postal Service has not identified factors impacting 

overall customer satisfaction and product satisfaction for large business customers. 

NAPM/Idealliance Comments at 7-8. It suggests that the Postal Service ask for service 

performance ratings separate from rating of product offerings in future surveys. Id. at 8.

In its reply comments, the Postal Service emphasizes its commitment to listening to 

customers and providing them with the highest levels of service and satisfaction across all 

mail classes. Postal Service Reply Comments at 20. It clarifies that it will continue 

conducting the Large Business survey in FY 2019. Id. at 20-21. The Postal Service notes that 

 

364 Id. The Public Representative also discusses results of the customer surveys and methodology changes in FY 2018. Id. at 22-25. These issues

are addressed in the Commission’s forthcoming Analysis of the FY 2018 Annual Performance Report and FY 2019 Annual Performance Plan.
Docket No. ACR2018 - 211 -

the FY 2018 ACR identifies drivers of overall customer satisfaction and tracks customer 

satisfaction by product type by asking questions about product satisfaction for each 

product used. Id. at 21. It points out tools in place that help gain insight into how major 

customers view their experience with the Postal Service, such as the Postal Customer 

Council and National Postal Forum. Id. at 21-22.

3. Commission Analysis

Between FY 2016 and FY 2017, customer satisfaction with Market Dominant products 

remained the same overall for residential and small/medium business customers, but 

declined for large business customers. FY 2017 ACD at 73. As Table V-32 shows, in FY 2018 

customer satisfaction with Market Dominant products declined for each customer type.

In the FY 2017 ACD, the Commission directed the Postal Service to provide an analysis in 

the FY 2018 ACR explaining why large business customer satisfaction declined between FY 

2015 and FY 2017. Id. The Commission also required the Postal Service to discuss the 

reasons for any further declines in customer satisfaction for residential, small/medium 

business, and large business customers in the FY 2018 ACR. Id. The Commission further 

directed that the Postal Service describe in the FY 2018 ACR actions taken to improve 

customer satisfaction and explain whether these actions were effective. Id.

The Postal Service provides this information in the FY 2018 ACR. FY 2018 ACR at 57-59. It 

states that for the Large Business survey, the number of survey respondents and the 

number of times the survey was conducted increased between FY 2015 and FY 2018. Id. It 

acknowledges that the larger sample size in FY 2018 makes the survey data set more 

representative of customer experiences. Id. As previously discussed, the Postal Service 

analyzed the Large Business survey to identify three drivers that influence large business 

customer satisfaction: building customer relationships, the ease of contacting a 

representative, and issue/claim resolution. Id. at 58-59. However, it states that this analysis 

did not thoroughly examine customer satisfaction by product type. Id. at 58. The Postal 

Service acknowledges that it must perform further research to understand how large 

business customer experiences with each product type is driving overall satisfaction. Id. at 

59.

Because customer satisfaction for residential, small/medium business, and large business 

customers declined in FY 2018, the Commission will continue to monitor customer satisfaction 

closely in FY 2019. The FY 2019 ACR must describe results of the Postal Service’s research into 

how large business customer experiences drive overall satisfaction with Market Dominant 

mailing services. The Commission recommends that the Postal Service examine customer 

satisfaction by mailing service or product type and focus on improving areas related to key 

drivers of customer satisfaction.

The Postal Service should continue to take appropriate actions to improve customer 

satisfaction with Market Dominant products for each customer type (residential, 

small/medium business, and large business) as outlined in the FY 2018 ACR. In the FY 2019 
Docket No. ACR2018 - 212 -

ACR, the Postal Service must describe actions taken to improve customer satisfaction for each 

customer type in FY 2019 and explain whether these actions were effective.
Docket No. ACR2018 - 213 -

CHAPTER 6: FLATS COST AND SERVICE 

ISSUES

A. Introduction

The Postal Service faces a growing challenge in profitably processing and delivering flatshaped mailpieces (flats). As discussed below, unit costs for flats have continued to rise, 

contribution losses have continued to grow, and flats products have still not met their 

service performance targets.

In the FY 2015 ACD, the Commission identified and analyzed six “pinch points” that 

contribute to cost and service issues for flats:

 Bundle processing

 Low productivity on automated equipment

 Manual sorting

 Productivity and service issues in allied operations

 Increased transportation time and cost

 Last mile/delivery

FY 2015 ACD at 165.

The Commission directed the Postal Service to identify a method to measure, track, and 

report the cost and service performance issues concerning flats. FY 2015 ACD at 181. In 

response, the Postal Service provided a discussion of data systems that could be used to 

measure certain issues relating to flats.365 The Postal Service did not provide a specific 

method for each pinch point to measure, track, and report on cost and service performance 

issues related to flats. Id. Similarly, in response to the 2010 ACD Directive, the Postal 

Service has consistently been unable to estimate cost savings from any of its current or past 

operational initiatives. FY 2018 ACR at 26-27. In addition, the Postal Service is unable to 

provide a plan to address the declining operational performance of the FSS present on the 

FY 2018 FSS Scorecard.366 Instead, the Postal Service states that it intends to create a 

“Headquarters Functional Review Team” to evaluate FSS operations in FY2019. January 28

 

365 See Docket No. ACR2015, Third Response of the United States Postal Service to Commission Requests for Additional Information in the FY 

2015 Annual Compliance Determination, Report Regarding Information about Flats Data Systems, July 26, 2016; Docket No. ACR2015, Response 

of the United States Postal Service to Commission Information Request No. 1, November 28, 2016.

366 Response of the United States Postal Service to Question 16 of Chairman’s Information Request No. 1, January 28, 2019, question 16 

(January 28 Response to CHIR No. 1).
Docket No. ACR2018 - 214 -

Response to CHIR No. 1, question 16. The Postal Service is unable to provide any additional 

information regarding the Headquarters Functional Review Team, such as when it will be 

created, what the objective of the Headquarters Functional Review Team will be, if the 

Headquarters Functional Review Team will provide recommendations, or if the Postal 

Service will implement those recommendations. Responses to CHIR No. 11, question 1.

The Commission initiated a strategic rulemaking to explore potential data enhancements 

and develop reporting requirements related to flats operational cost and service issues, 

citing the compressed nature of ACD proceedings and the need for consistent review of the 

issues. See Docket No. RM2018-1. The Commission also invited interested parties to 

provide comments on the quality and reliability of the data systems and reports identified 

by the Postal Service, as well as identify opportunities to enhance the data systems and/or 

further areas of exploration related to the data systems.367 The Commission proposed 

reporting requirements to increase transparency and accountability related to operational 

initiatives designed to address flats cost and service issues.368 Following the discussion on 

each pinch point, the Commission summarizes the proposed reporting requirements 

relevant to that pinch point.

B. FY 2018 Results

In FY 2018, the combined attributable costs of Outside County Periodicals and USPS 

Marketing Mail Flats exceeded the products’ revenues by $1.4 billion. See Chapter 3, supra,

at 43-44, 48-49. Since FY 2008, the combined attributable costs of Periodicals and USPS 

Marketing Mail Flats exceeded their revenues by more than $12.2 billion. Id. In response to 

the continuous increase in USPS Marketing Mail Flats costs and the decline of USPS 

Marketing Mail Flats contribution, the Commission has directed the Postal Service to 

increase USPS Marketing Mail Flats prices by at least 2 percentage points above the USPS 

Marketing Mail class average in the next Market Dominant price adjustment. See Chapter 3, 

supra, at 70-71.

As depicted in Table VI-1, despite the Commission’s directive for the Postal Service to 

develop a plan to reduce the cost of flats, the unit cost of almost every flats product 

increased from FY 2015 to FY 2018. BPM Flats was the only flats product where unit costs 

declined.

 

367 Docket No. RM2018-1, Notice of Inquiry No. 1, August 17, 2018.

368 See Order No. 5004.
Docket No. ACR2018 - 215 -

Table VI-1

Flats Products’ Unit Costs (cents), FY 2015–FY 2018

Product or Class FY 2015 FY 2016 FY 2017 FY 2018

FY 2015 to FY 

2018 % Change

First-Class Mail Flats 93.4 97.5 105.8 112.9 20.8%

USPS Marketing Mail High Density & Saturation Flats 

& Parcels 10.5 10.8 11.2 12.1 15.4%

USPS Marketing Mail Carrier Route 20.6 19.6 21.0 24.2 17.6%

USPS Marketing Mail Flats 50.1 47.1 52.0 59.0 17.7%

Periodicals 36.0 36.5 37.4 37.9 5.2%

Bound Printed Matter Flats 58.0 49.3 50.1 50.1 -13.6%

Source: PRC–LR–ACR2018/9.

In FY 2018, service performance declined for flats as discussed in detail in Chapter 5. See 

Chapter 5 at 124, supra and Table VI-2. Since inception of the current service performance 

measurement system, the Postal Service has only met a service performance target for a 

flats product once (USPS Marketing Mail Carrier Route in FY 2017).

Table VI-2

Flats Products’ Service Performance Results, FY 2014–FY 2018

Product Target 

(%)

% On-Time FY 2018 

Compared 

to Target FY 2014 FY 2015 FY 2016 FY 2017 FY 2018

First-Class Mail Flats 95.25 72.60 65.28 70.86 73.93 70.98 -24.27

USPS Marketing Mail Carrier 

Route 91.00 81.40 82.02 83.90 91.36 89.53 -1.47

USPS Marketing Mail Flats 91.00 76.20 73.78 81.40 80.37 76.53 -14.47

Periodicals Outside County 91.00 80.80 77.57 79.74 85.32 85.30 -5.70

Bound Printed Matter Flats 90.00 60.20 45.20 53.56 56.67 55.23 -34.77

Source: PRC–LR–ACR2018/9.

1. Bundle Processing

In the FY 2015 ACD, the Commission found that data related to bundle breakage did not 

fully indicate the scope and scale of bundle breakage. FY 2015 ACD at 167. Since FY 2015, 

the Postal Service began improving its reporting on bundle breakage. The Postal Service 

notes that beginning in Quarter 2 of FY 2018, it “bolstered its bundle breakage tracking,” 

adding the ability to detect pieces from broken bundles on additional machines. FY 2018 

ACR at 31. In addition, the Postal Service is utilizing the “Bundle Breakage Dashboard” to 

determine the root cause of bundle breakage. Id. at 32. Finally, the Postal Service discusses 

that it is reviewing “Bundle Leakage data” to gain insight into improper flows and manual 

handlings of bundles. Id.
Docket No. ACR2018 - 216 -

The Postal Service provided the data in Table VI-3 on Bundle Breakage Performance from 

FY 2016 to FY 2018. These data show that the percent of broken bundles increased 

substantially in FY 2018. However, the Postal Service explains that, in FY 2018, it improved 

its ability to detect broken bundles, which influence these results. FY 2018 ACR at 30-31.

Table VI-3

Bundle Breakage

FY Total Bundles Broken 

Bundles 

% Broken 

2016 497,658,730 12,960,619 2.60% 

2017 492,575,354 13,882,003 2.82% 

2018 460,468,758 22,081,833 4.80%

Source: Docket No. ACR2017, Responses of the United States Postal Service to Questions 1-4 of Chairman’s 

Information Request No. 14, February 12, 2018, question 4; FY 2018 ACR at 31.

In Docket No. RM2018-1, the Commission has proposed that the Postal Service provide 

data on the cost and service impact of bundle processing on flat-shaped products, and 

Bundle Breakage Visibility Reports. Order No. 5004 at 12, 16-19. The Commission 

anticipates that Bundle Breakage Visibility Reports will provide additional insight into 

bundle processing by providing information related to bundle breakage, such as the 

number of broken bundles by class, product, facility and machine type. Id. These data will

allow for more meaningful analysis, by allowing the Commission, the Postal Service, and 

stakeholders to consistently measure and track bundle breakage data over time.

2. Low Productivity on Automation Equipment

In FY 2015, the Commission found that the productivities for the primary machines used to 

process flats, the automated processing on the APBS, the APPS, and the AFSM 100, were 

declining. FY 2015 ACD at 167-68. As shown in Table VI-4, the productivities for AFSM100 

and APPS continue to decline, while the productivity for APBS improved by 4.1 percent in 

FY 2017 and FY 2018. Table VI-4 also shows that, from FY 2008 to FY 2018, these 

productivities have declined between 16.9 percent and 48.5 percent.
Docket No. ACR2018 - 217 -

Table VI-4

Pieces Per Hour (PPH) Sorted

AFSM100 Incoming 

Secondary SPBS/APBS Incoming APPS Incoming

FY PPH % Change PPH % Change PPH % Change

2008 3273 252 498

2009 3138 -4.1% 224 -10.8% 451 -9.3%

2010 2998 -4.5% 208 -7.2% 430 -4.7%

2011 2898 -3.3% 201 -3.4% 397 -7.7%

2012 2692 -7.1% 220 9.6% 361 -9.0%

2013 2725 1.2% 232 5.4% 350 -3.0%

2014 2685 -1.5% 219 -5.6% 319 -9.1%

2015 2673 -0.4% 205 -6.6% 304 -4.5%

2016 2567 -4.0% 194 -5.3% 271 -11.0%

2017 2326 -9.4% 202 4.1% 265 -2.2%

2018 2200 -5.4% 209 3.5% 256 -3.4%

FY 2008 – FY 2018 Change -32.8% -16.9% -48.5%

Source: PRC–LR–ACR2018/9.

In FY 2018, the Postal Service added 1,024 bins for sortation to APBS and APPS machines 

received an additional 426 bins. FY 2018 ACR at 28. For flat-shaped mail, these machines 

sort bundles, and the Postal Service asserts that making additional bins available reduces 

or eliminates the need for secondary sorts, thus reducing extra handling of bundles. Id. In 

addition, the Postal Service deployed a new Enhanced Package Processing System (EPPS) 

in FY 2018. Id. at 27. Due to declining pieces on the AFSM 100, the Postal Service removed 

10 AFSM 100 machines.369 The Postal Service asserts that there has been a loss of 

economies of scale related to volume declines, which has negatively affected the 

productivity of the AFSM 100. FY 2018 ACR at 28.

The FSS is another machine used by the Postal Service to process flats. In FY 2018, 22.5 

percent of flats that destinated in FSS zones were finalized on FSS equipment.370 The Postal 

Service spent $197.7 million on processing flats on FSS in FY 2018, a 5.0 percent decrease 

from FY 2017. See PRC–LR–ACR2018/9. The Postal Service attributes the decrease in total 

FSS costs to declining workload and increasing productivity. Responses to CHIR No. 11, 

question 2.b.

In Docket No. RM2018-1, the Commission has proposed that the Postal Service provide 

data on the cost and service impact of low productivity on automation equipment for flat-

 

369 Responses to CHIR No. 6, question 10.

370 Library Reference USPS–FY18–11, December 29, 2018, Excel file “USPS-FY18-11 MM Flats.xlsm,” tab “Coverage Factors,” cell E79.
Docket No. ACR2018 - 218 -

shaped products, and Mail Processing Variance Reports. Order No. 5004 at 12, 16-19. The 

Commission anticipates that Mail Processing Variance Reports will provide additional 

insight into low automation on mail processing equipment by providing information 

related to target workhours and target productivities. Id. These data will allow for more 

meaningful analysis, by allowing the Commission, the Postal Service, and stakeholders to 

consistently measure and track the Postal Service’s ability to meet its productivity targets 

over time.

3. Manual Sorting

In FY 2018, the Postal Service spent $416.1 million on manually processing flats. Responses 

to CHIR No. 11, question 2.a., and PRC–LR–ACR2018/9. The Postal Service explains that in 

FY 2018, the Commission approved a change that assigned additional costs to non-MODS 

manual cost pools. Responses to CHIR No. 11, question 2.a. The Postal Service asserts that 

when the approved FY 2018 methodology is applied to FY 2017 data, the cost of manually 

processing Flats in FY 2017 was $450.6 million. Id. Therefore, the Postal Service 

demonstrates that the cost of manually processing Flats in FY 2018 decreased 7.7 percent. 

According to the Postal Service, this decrease in cost is due primarily to declining flats 

volumes. Id. The available data for manual sorting lacks transparency, as there is no way to 

track and report the volume of flats that receive manual processing. The Commission and 

the Postal Service previously identified global issues with the cost and service performance 

of flats that are manually processed.371 The Postal Service intends to reduce manual 

processing by “ensuring that mechanical rejects are rerun on the machines, and working 

with mailers to reduce bundle breakage.” Responses to CHIR No. 11, question 2.a.

In Docket No. RM2018-1, the Commission has proposed that the Postal Service provide 

data on the cost and service impact of manual sorting on flat-shaped products, as well as 

eFlash Reports.372 Order No. 5004 at 8, 11-12, 16-19. The Commission anticipates that the 

eFlash Reports will provide additional insight into manual processing by providing 

information such as manually processed volumes, manual workhours, and handling times, 

as well as a manual cost analysis. Id. These data will allow for more meaningful analysis, by 

allowing the Commission, the Postal Service, and stakeholders to consistently measure and 

track manual processing data over time.

4. Productivity and Service Issues in Allied 

Operations

Visibility into allied operations is limited. One way the Postal Service gains insight into 

allied operations is through Work in Process (WIP) cycles. The Postal Service reports that 

 

371 See Periodicals Mail Study: A Joint Report of the United States Postal Service and Postal Regulatory Commission, September 2011, at 2.

372 eFlash Reports report delivery unit workhours (LDC 43 Unit Distribution Manual) data of manual distribution for letters and flats. Docket No. 

ACR2015, Response of the United States Postal Service to Commission Information Request No. 1, November 28, 2016 (Docket No. ACR2015 

Response to CIR No. 1). The eFlash system provides costs analysis based on manual distribution for letters and flats. Docket No. ACR2015 

Response to CIR No. 1.
Docket No. ACR2018 - 219 -

WIP cycle median hours increased from 52 hours to 56 hours for USPS Marketing Mail Flats 

and increased from 24 hours to 27 hours for Periodicals Flats. FY 2018 ACR at 30.

Table VI-5

Service Performance Diagnostics Tool

Median 5 Day Work in Process

USPS Marketing Mail Flats and Periodicals Flats, FY 2014–FY 2018

Time Period from Service Performance Diagnostics

USPS 

Marketing 

Mail Flats 

Median 

Hours

Periodicals 

Flats Median 

Hours

FY 2014 (Week ending 10/01/13 - 9/30/14) 49 21

FY 2015 (Week ending 10/01/14 - 9/30/15) 52 23

 FY 2016 (Week ending 10/01/15 - 09/30/16) 54 24

 FY 2017 (Week ending 10/01/16 - 09/30/17) 52 24

 FY 2018 (Week ending 10/01/17 - 09/30/18) 56 27

Source: PRC–LR–ACR2018/9.

As shown in Table VI-5, median WIP cycle times for USPS Marketing Mail Flats have 

increased 7 hours since FY 2014 and 6 hours for Periodicals. In FY 2014, as part of its 

efforts to improve the productivity of its mail processing network, the Postal Service 

introduced a load leveling program meant to create loads that can be more evenly 

processed across the workweek.373 However, the Postal Service has not quantified any 

associated cost savings for the load leveling operational changes.374

In Docket No. RM2018-1, the Commission has proposed that the Postal Service provide 

data on cost and service impacts of issues in allied operations, WIP metrics, and First-Class 

Mail Root Cause Point Impact Reports. Order No. 5004 at 12, 16-19. The Commission 

anticipates that WIP metrics and First-Class Mail Root Cause Point Impact Reports will 

provide additional insight into allied operations by providing information related to the 

measurement of time between operations and specific causes and impacts of service 

delays. Id. These data will allow for more meaningful analysis by allowing the Commission, 

the Postal Service, and stakeholders to consistently measure and track the time between 

operations and the causes and impacts of service delays.

 

373 See Docket No. ACR2015, Responses of the United States Postal Service to Questions 1-6, 8-10 of Chairman’s Information Request No. 11, 

February 16, 2016, question 9.

374 See Docket No. ACR2014, Responses of the United States Postal Service to Questions 1-2, 5-11 and 13-14 of Chairman’s Information Request 

No. 3, January 30, 2015, question 6.
Docket No. ACR2018 - 220 -

5. Increased Transportation Time and Cost

In the past 4 years, unit transportation costs have increased 13.7 percent overall. See Table 

VI-6. Since FY 2017, unit transportation costs have increased 15.5 percent. See PRC–LR–

ACR2018/9. The Postal Service explains that between FY 2017 and FY 2018, USPS 

Marketing Mail Flats unit transportation costs increased due to more mail being entered 

farther from its destination, while Carrier Route and Periodicals unit transportation costs 

increases were “likely a function of the overall surface transportation inflationary 

pressures and sampling variation.”375 The Postal Service notes that unit transportation 

costs for First-Class Mail Flats decreased in FY 2018, likely due to a decline in unit weight 

and the relative shift from surface to air transportation. Id.

Table VI-6

Flats Transportation Costs

FY 2015–FY 2018

FY 2015 FY 2016 FY 2017 FY 2018

Percent 

Change 

FY 2015 to 

FY 2018

Segment 14 Cost 712,179 757,237 628,652 669,236 -6.0%

Volume 21,489,192 20,544,661 19,265,292 17,793,202 -17.4%

Unit Cost (cents) 3.3 3.7 3.3 3.8 13.7%

Source: PRC–LR–ACR2018/9.

In Docket No. RM2018-1, the Commission has proposed that the Postal Service provide 

data on cost and service impacts of transportation issues, and SVWeb Report.376 Order No. 

5004 at 8, 12, 16-19. The Commission anticipates that SVWeb Reports will provide 

additional insight into transportation issues by providing information such as departure 

times, arrival times, space utilization, and national performance assessment goals. Id. These 

data will allow for more meaningful analysis, by allowing the Commission, the Postal 

Service, and stakeholders to consistently measure and track the Postal Service’s ability to 

efficiently transport flat-shaped mail and meet its goals.

 

375 Responses of the United States Postal Service to Questions 1-5 of Chairman’s Information Request No. 22, March 13, 2019, question 5.

376 The SVWeb applications allow managers to pull reports presenting Area, District, and facility data, such as the number of trips that have 

arrived and departed over a given period of time, the percentage of the load on each trip (utilization), and the on-time performance for each 

trip. Docket No. ACR2015, Third Response of the United States Postal Service to Commission Requests for Additional Information in the FY 2015 

Annual Compliance Determination, Report Regarding Information about Flats Data Systems, July 26, 2016, at 60-61 (120-Day Response). Using 

these reports, the Postal Service is able to track the usage of transportation resources, and identify opportunities to mitigate costs. 120-Day 

Response at 60-61.
Docket No. ACR2018 - 221 -

6. Last mile/delivery

The Postal Service spent a total of $1.2 billion in city carrier in-office costs for flats, which 

include casing costs for flats in FY 2018. See PRC–LR–ACR2018/9. Casing costs for Flats 

were expected to decrease as a result of the implementation of the FSS.377 However, the 

unit in-office delivery costs increased from 5.8 cents in FY 2017 to 6.5 cents in FY 2018, a 

12.2 percent increase. See Figure VI-1. The Postal Service provides some explanations for 

this increase, including that more mail required casing because less mail was processed on 

FSS equipment.378

Figure VI-1

Cost Segment 6: City Delivery Carriers – Office Activity

Unit Costs, FY 2008–FY 2018

Source: PRC–LR–ACR2018/9.

When the additional mail processing costs associated with the FSS are added to the city 

carrier in-office costs, the Postal Service spent $1.4 billion processing flats to DPS in FY 

2018.379 This is relatively unchanged from FY 2017, despite a 7.8 percent decline in volume 

during the same period. Id. This is nearly the amount spent casing flats in FY 2008, when 

 

377 Docket No. ACR2015, Responses of the United States Postal Service to Questions 1-15, 17-29 of Chairman’s Information Request No. 7, 

February 8, 2016, question 7.

378 Responses to CHIR No. 6, question 7. The volume of USPS Marketing Mail Flats processed on FSS equipment declined from 16 percent in FY 

2017 to 11 percent in FY 2018. Id. Similarly, for USPS Marketing Mail Carrier Route, volume processed on FSS equipment declined from 18 

percent in FY 2017 to 12 percent in FY 2018. Id.

379 The cost of FSS processing in MODS and NDC facilities was $198 million. See USPS–FY18–26.
Docket No. ACR2018 - 222 -

volume was 93.5 percent higher than FY 2018.380 In FY 2008, the Postal Service manually 

cased all flats because there were no FSS machines. Despite the addition of 100 FSS 

machines and lower volume, the Postal Service spent nearly the same total amount in the 

final sortation operation for flats in FY 2018.

In Docket No. RM2018-1, the Commission has proposed that the Postal Service provide 

data on cost and service impacts of last mile/delivery flats, and Last Mile Impact Reports. 

Order No. 5004 at 12, 17-19. The Commission anticipates that Last Mile Impact Reports 

will provide additional insight into last mile/delivery of flats by providing information 

related to on-time scores and last mile impacts. Id. These data will allow for more 

meaningful analysis, by allowing the Commission, the Postal Service, and stakeholders to 

consistently measure and track the impact of delivery on service performance scores.

C. Comments

PostCom, MPA/ANM, Quad, ACMA, and the Public Representative filed comments related to 

Chapter 6 and Docket No. RM2018-1. The Postal Service filed Reply Comments regarding 

flats operational changes and Docket No. RM2018-1.

MPA/ANM, Quad, ACMA, and the Public Representative are concerned that the Postal 

Service is not effectively addressing flat-shaped mail cost and efficiency issues. MPA/ANM 

Comments at 1-4; Quad Comments at 1-2; ACMA Comments at 25-26; PR Comments at 43-

44. Specifically, MPA-ANM is concerned with the Postal Service’s failure to improve AFSM 

100 productivity, FSS Throughput per Hour, and FSS DPS percentages. MPA/ANM 

Comments at 2-4. Quad is similarly concerned about the cost of FSS machines and the 

reliability of bundle breakage data. Quad Comments at 1-2. Quad comments that the Postal 

Service “needs to fix or remove the FSS from the Flats processing stream. . . .” Id. at 2. ACMA 

states that the Postal Service has failed to design and run a low-cost delivery system for 

flats. ACMA Comments at 25. ACMA urges the Commission to “escalate this matter and 

compel progress, or at the very least, demand analysis, straight answers, and solid data.” Id. 

at 26. The Public Representative concludes that the cost coverage for USPS Marketing Mail 

Flats is “deadlocked” and operational initiatives do not appear to be effectively reducing 

costs. PR Comments at 44.

PostCom states that it appreciates the efforts of the Commission to explore the issue of flats 

costs in a more exhaustive fashion. PostCom Comments at 11. PostCom also suggests that 

open access to Informed Visibility data, with appropriate safeguards, would be beneficial to 

all parties. Id. at 14. Based on the Postal Service’s statement that it is unable to estimate the 

impact of operational initiatives on flats costs, PostCom asserts that “there is no reason to 

expect that the operational changes outlined by the Postal Service will produce meaningful 

impacts.” Id. at 11.

 

380 As detailed in PRC–LR–ACR2018/9, the cost segment 6 in-office cost for flats in FY 2008 was $1.549 billion, $195 million more than the 

combined FSS mail processing and in-office cost of $1.354 billion in FY 2018. As further detailed in PRC–LR–ACR2018/9, flats volume was 34.35 

billion pieces in FY 2008 and declined to 17.75 billion pieces in FY 2018, which represents a 48 percent decline.
Docket No. ACR2018 - 223 -

In its reply comments, the Postal Service states that “the appropriate forum for addressing 

the flats costs issues raised by ACMA and others is Docket No. RM2018-1.” Postal Service 

Reply Comments at 11 (footnote omitted). The Postal Service asserts that it is “constantly 

seeking operational improvements to process flat-shaped mail more efficiently.” Id. at 12 

(footnote omitted).

D. Next Steps and Status of Docket No. 

RM2018-1

The Commission shares the concerns of the commenters that the Postal Service is not 

effectively addressing cost and service issues related to flats. The Commission is 

particularly concerned with the lack of a specific Postal Service plan to address these issues 

amid increasing costs, increasing losses, and declining service performance for flats. For 

example, the Commission is concerned that the Postal Service is not able to promptly 

respond to declining FSS operational metrics, and is instead still in the process of 

developing a team to address FSS issues, without a specific timeline to make any changes in 

FY 2019.

In Docket No. RM2018-1, the Commission proposed reporting requirements to increase the 

transparency of information related to flats, and the accountability of the Postal Service 

when it reports on operational initiatives designed to reduce flats costs. Order No. 5004 at 

14-21. As discussed above, this information should provide more insight into the specific 

areas that impact flats, as well as the impact of operational initiatives on flats costs and 

service issues over time. The Commission anticipates that the data reporting will lead to 

the development of measurable goals to decrease the costs and improve the service of flats.

In the meantime, the Commission will continue to encourage the Postal Service to use its 

data to ensure it is making cost-effective decisions. Id. at 6.
Docket No. ACR2018 Appendix A

 Page 1 of 25

Appendix A: Key Commission Findings 

and Directives Requiring Postal Service 

Action for Annual Compliance Reports

KEY COMMISSION FINDINGS AND DIRECTIVES REQUIRING POSTAL SERVICE ACTION 

FOR FUTURE ANNUAL COMPLIANCE REPORTS (FY 2018 ACD) 

Periodicals Pricing Efficiency:

 The Commission directs the Postal Service to provide an updated version of the 

Periodicals Pricing Report in its FY 2019 ACR. The report must include an analysis of 

how the pricing in Docket No. R2019-1 impacted the cost, contribution, and revenue of 

Periodicals in FY 2019 and whether the new pricing improved the efficiency of 

Periodicals pricing in FY 2019. FY 2018 ACD, Chapter 2 at 22.

USPS Marketing Mail Flats:

 The Commission finds that the issues raised in the FY 2010 ACD regarding USPS 

Marketing Mail Flats have significantly worsened, continuing a downward trend that 

began to accelerate in FY 2014. Despite the Postal Service’s efforts to reduce USPS 

Marketing Mail Flats’ costs through operational initiatives—efforts it is unable to 

measure—unit costs increased substantially over the last fiscal year. From FY 2010 to 

FY 2018, the cost coverage for USPS Marketing Mail Flats has decreased 13.1 

percentage points. In addition, the Postal Service remains unable to predict, using 

reasonable assumptions, when the USPS Marketing Mail Flats product will cover costs,

or what the impact is of any of the Postal Service’s cost saving initiatives. Furthermore, 

in the last two Market Dominant price adjustments the Postal Service has chosen to 

increase USPS Marketing Mail Flats’ prices only minimally above average. As the 

Commission has found before, it has broad authority to develop and implement a 

remedy to address an “extreme case” of a violation of 39 U.S.C. § 101(d).1 The remedy 

that the Commission implemented in its FY 2010 ACD has proven insufficient to rectify 

the inadequate cost coverage of USPS Marketing Mail Flats. The Postal Service has 

chosen to pursue only minimal above-average price increases for this product, and it 

has been unable to reduce the product’s costs. USPS Marketing Mail Flats continues to 

constitute an “extreme case” of deficient cost coverage. Therefore, the remedy must be 

 

1

See Order No. 1427; see also USPS v. Postal Regulatory Comm’n, 676 F.3d 1105, 1107-08 (D.C. Cir. 2012).
Docket No. ACR2018 Appendix A

 Page 2 of 25

advanced. In the next generally applicable Market Dominant price adjustment, the 

Postal Service must propose a price increase for USPS Marketing Mail Flats that is at 

least 2 percentage points above the class average for the USPS Marketing Mail class. 

Additionally, the Postal Service must continue responding to the requirements of the 

FY 2010 ACD directive by reducing USPS Marketing Mail Flats’ costs and providing 

required documentation of those efforts in future Annual Compliance Reports. 

Moreover, the Postal Service must continue to comply with the FY 2015 directive, as 

further discussed in Chapter 6 of this report. FY 2018 ACD, Chapter 3 at 70-71.

USPS Marketing Mail Parcels:

 The Commission finds that FY 2018 revenue for USPS Marketing Mail Parcels was not 

sufficient to cover attributable cost. The Postal Service’s approach to improving cost 

coverage through above-average price increases in future Market Dominant price 

adjustments is appropriate, yet still inadequate. The Commission strongly recommends 

that the Postal Service increase USPS Marketing Mail Parcels’ prices by at least 2 

percentage points above the average price increase for the USPS Marketing Mail class. 

If the Postal Service chooses not to increase USPS Marketing Mail Parcels’ prices by at 

least 2 percentage points above average, it must provide an estimate of the impact of 

the price increase it proposes on USPS Marketing Mail’s class-wide contribution and 

USPS Marketing Mail Parcels’ specific contribution, as well as the impact of a 2 

percentage point above-average price increase on USPS Marketing Mail’s class-wide 

contribution and USPS Marketing Mail Parcels’ specific contribution. In addition to 

above-average price increases, the Postal Service should continue to expend a 

reasonable amount of resources given the size of the product to explore and implement 

opportunities to further reduce the unit cost of USPS Marketing Mail Parcels and 

report on those opportunities and results in the FY 2019 ACR. FY 2018 ACD, Chapter 3 

at 77.

Inbound LC/AO Mail Costing Methodology:

 For purposes of this ACD, the Commission accepts the Postal Service’s revenue 

distribution for inbound LC/AO mail. The Commission concludes however, that this is a 

change in analytical principles that the Commission has not approved and directs the 

Postal Service to file a petition for the initiation of a proceeding to consider this 

proposed change in analytical principles within 90 days of issuance of this ACD.

FY 2018, Chapter 3 ACD at 80.

Inbound Letter Post:

 The Commission finds that FY 2018 revenue for Inbound Letter Post was not sufficient 

to cover attributable cost. The Commission recommends that the Postal Service, in 

coordination with the Department of State, negotiate bilateral and multilateral 

agreements that contain rates for UPU letter post mail that are more compensatory 
Docket No. ACR2018 Appendix A

 Page 3 of 25

than terminal dues. The Commission further recommends that the Postal Service file 

rates for the Competitive Inbound Small Packets and Bulky Letters product as soon as 

possible. FY 2018 ACD, Chapter 3 at 84.

 The Commission directs the Postal Service to provide both International Mail 

Measurement System (IMMS) and QLMS CY 2018 and CY 2019 performance reports for 

Inbound Letter Post, aggregations of weekly failure reports, and an analysis of the 

failures and steps being taken to improve service performance in the FY 2019 ACR. The 

Commission also directs the Postal Service to state in its FY 2019 ACR whether it 

forfeited revenue in CY 2018 and CY 2019 based on its QLMS results for the Inbound 

Letter Post product. If the Postal Service forfeited revenue in CY 2018 and CY 2019, the 

Commission directs the Postal Service to provide the forfeited amounts for CY 2018 

and for CY 2019 based on all results available to date and explain how this amount is 

calculated based on service performance results. Id. at 86.

Media Mail/Library Mail:

 The Commission finds that FY 2018 revenue for Media Mail/Library Mail was not 

sufficient to cover attributable cost. However, the Postal Service’s approach to improve 

cost coverage through above-average price increases in future Market Dominant price 

adjustments is appropriate. The Commission also encourages the Postal Service to 

explore opportunities to further reduce the unit cost of Media Mail/Library Mail.

FY 2018 ACD, Chapter 3 at 92.

Competitive NSAs:

 The Commission finds that Priority Mail Contract 179 and Priority Mail Contract 433 

were not in compliance with 39 U.S.C. § 3633(a)(2) in FY 2018. Because Priority Mail 

Contract 179 is no longer active, no further action is required. For Priority Mail 

Contract 433, the Commission directs the Postal Service to change from quarterly 

reporting to monthly reporting starting with April 2019, with each monthly report due 

no later than 30 days after the end of that month. Additionally, the Commission directs 

the Postal Service to report within 90 days of issuance of this ACD whether it intends to 

renegotiate prices for Priority Mail Contract 433. FY 2018 ACD, Chapter 4 at 101.

International Cost and Revenue Analysis:

 The Commission directs the Postal Service to incorporate inbound M-Bags into the 

International Direct Sacks—M-Bags Competitive product in future ICRA filings.

FY 2018 ACD, Chapter 4 at 103.

 For purposes of this ACD, the Commission accepts the Postal Service’s distribution of 

PRIME enhanced payments. The Commission concludes however, that this is a change 

in analytical principles that the Commission did not approve and directs the Postal 
Docket No. ACR2018 Appendix A

 Page 4 of 25

Service to file a petition for the initiation of a proceeding to review this proposed 

change in analytical principles within 90 days of issuance of this ACD.2

International Priority Airmail:

 The Commission finds that IPA was not in compliance with 39 U.S.C. § 3633(a)(2) in 

FY 2018. The Commission directs the Postal Service to report on the following issues 

involving IPA within 90 days of the issuance of this ACD:

o The feasibility of directly estimating the costs of the IPA product.

o The feasibility of developing country-specific information on IPA NSA volume or, 

alternatively, a methodology to distribute settlement charges more accurately.

o The estimated variance of the reported non-NSA IPA product costs based on an 

analysis of the variance of each of the measurements used to calculate non-NSA 

IPA product costs. This analysis should include the variance at the cost segment 

and component level.

Additionally, the Commission directs the Postal Service, when it files a petition for the 

initiation of a proceeding to consider the proposed change in analytical principles for 

PRIME enhanced payments, to ensure that the proposed distribution does not allocate 

these NSA-specific costs to the non-NSA IPA product.

3

International Ancillary Services:

 The Commission finds that International Ancillary Services was not in compliance with 

39 U.S.C. § 3633(a)(2) in FY 2018. The Commission directs the Postal Service to 

investigate the discrepancies between published rates and reported revenue per piece. 

The Commission further directs the Postal Service to file a report within 120 days of 

issuance of this ACD on the results of this investigation and on the feasibility of 

disaggregating indemnities between insurance included in the product and additional 

insurance purchased for the mailpiece. FY 2018 ACD, Chapter 4 at 106.

International Money Transfer Service—Inbound:

 The Commission finds that IMTS—Inbound was not in compliance with 39 U.S.C. 

§ 3633(a)(2) in FY 2018. The Commission directs the Postal Service to provide an 

update on the status of the request for a delegation of authority under the Circular 175 

process from the Department of State to terminate or renegotiate the agreements that 

comprise the IMTS—Inbound product within 120 days of issuance of this ACD.

FY 2018 ACD, Chapter 4 at 107.

 

2

Id.; see also section 4.C.3.b., supra (describing an additional requirement when filing the required petition).

3

FY 2018 ACD, Chapter 4 at 105; see section 4.C.3.b., supra.
Docket No. ACR2018 Appendix A

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Competitive Outbound International Products Consisting of NSAs:

 The Commission concludes that Competitive outbound international products 

consisting of NSAs satisfied 39 U.S.C. § 3633(a)(2) because revenue exceeded 

attributable cost for each product. When the Postal Service files its FY 2019 ACD it 

should correctly identify all Competitive outbound international products consisting of 

NSAs that do not cover costs. FY 2018 ACD, Chapter 4 at 109.

Competitive Nonpostal Services:

 The Commission finds that Officially Licensed Retail Products (OLRP) was not in 

compliance in FY 2018, as revenue did not cover attributable costs. The Commission 

directs the Postal Service to identify and implement ways to bring cost coverage to or 

above 100 percent for OLRP. FY 2018 ACD, Chapter 4 at 110.

First-Class Mail Service Performance:

 The Commission finds that the Postal Service did not meet its service performance 

targets for First-Class Mail in FY 2018. The Commission also recognizes that the Postal 

Service has made progress in developing quantitative analysis linking its root cause 

assessments with the impact on service performance results for First-Class Mail. The 

Commission directs the Postal Service to apply its data leveraging techniques to 

improve service performance for all First-Class Mail products in FY 2019. FY 2018 

ACD, Chapter 5 at 170.

 The Commission is concerned that service performance results for First-Class Mail 

Single-Piece Letters/Postcards declined from FY 2017 to FY 2018, and determines that 

First-Class Mail Single-Piece Letters/Postcards is not in compliance for the fourth year 

in a row. Therefore, in addition to directing the Postal Service to improve service 

performance results for First-Class Mail Single-Piece Letters/Postcards in FY 2019, the 

Commission directs the Postal Service to provide information for each of the seven 

geographic Postal Service Areas on the following two matters.

 First, for each Area, the Postal Service shall evaluate the efficacy of its FY 2019 

efforts to improve First-Class Mail service performance. This evaluation shall 

describe the Area’s progress made toward addressing the top root causes of 

First-Class Mail service performance failures in FY 2018 and explain how the 

Area’s progress (or lack thereof) toward addressing each root cause has 

affected on-time service performance for First-Class Mail. Where appropriate, 

this evaluation shall indicate if the reported progress and effect on 

performance apply only to particular categories of First-Class Mail pieces (e.g., 

based on shape, product, or service standard).
Docket No. ACR2018 Appendix A

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 Second, for each Area, the Postal Service shall provide a detailed plan to 

improve First-Class Mail service performance that describes each planned 

action, identifies the problem that the planned action is expected to remediate, 

and provides an estimated timeframe for implementation and completion of 

each planned action. Where appropriate, this plan shall indicate if the planned 

action, underlying problem, and estimated timeframe apply to only particular 

categories of First-Class Mail pieces (e.g., based on shape, product, or service 

standard). FY 2018 ACD, Chapter 5 at 171.

 The report for each Area shall identify a responsible Postal Service representative, 

with knowledge of these two matters specific to the Area, who will be available to 

provide prompt responses to requests for clarification from the Commission. The 

report for each Area shall be filed within 90 days of the issuance of this report. An 

updated report from each Area shall be filed at the time of the FY 2019 ACR. The Postal 

Service is encouraged to file a motion for clarification under 39 C.F.R. § 3001.21(a) in 

Docket No. ACR2018 should clarification be necessary. FY 2018 ACD, Chapter 5 at 

171.

 Additionally, to facilitate the monitoring of First-Class Mail service performance 

(particularly for Single-Piece Letters/Postcards), the Commission directs the Postal 

Service to provide trackable data that is consistently collected and will continue to 

improve transparency. The Commission directs the Postal Service to provide the 

following data, described in items 1 through 6 below, for First-Class Mail in FY 2019. 

Data shall be provided for FY 2019 Quarter 1, Quarter 2, and “mid-year”4 within 90

days of the issuance of this report. Data shall be provided for FY 2019 Quarter 3, 

Quarter 4, “second-half”5 and annualized for the fiscal year, in the FY 2019 ACR.

1. The top five root cause point impacts for First-Class Mail, disaggregated by 

shape/product and service standard6

2. The point impact data for First-Class Mail Single-Piece Letters/Postcards, 

disaggregated by service standard presented for the nation, each Area, and 

each district7 attributable to:

a) Collection delays

b) Origin processing delays

c) Origin missent

 

4 Mid-year refers to the aggregation of the data for Quarters 1 and 2 of FY 2019.

5

Second-half refers to the aggregation of the data for Quarters 3 and 4 of FY 2019. Annualized refers to the aggregation of the data for all 4 

quarters of FY 2019.

6

See, e.g., Additional Results File, tabs “Q20 - SPFC” and “Q20 – PFCM.”

7

See, e.g., Additional Results File, tabs “Q30 Two-Day” and “Q30 Three-to-Five-Day.”
Docket No. ACR2018 Appendix A

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d) AADC/ADC processing delays, presented in three separate tables specific 

to air transportation, ground transportation, and both

e) Late incoming secondary processing

f) Miss by LPO

g) Last mile failures

3. The air carrier capacity requested, air carrier capacity received, and air 

capacity gap calculated, using daily cubic feet volume8

4. The number of CLTs (any HCR that is late more than 4 hours), presented for 

the nation, each Area, and each district9

5. The performance for each national operating plan target (also referred to 

as the 24-Hour Clock national clearance goals), presented for the nation, 

each Area, and each district10

6. The 10 facilities with the most failures in meeting each of the 24-Hour Clock 

national clearance goals during FY 2019. For each facility identified, please 

state the number of times that the facility failed to meet that national 

clearance goal during FY 2019, and the corresponding number of times that 

the facility failed to meet that national clearance goal during FY 2018.

11

 Where appropriate, the Postal Service shall explain the reasons for any differences in 

calculation of these data in FY 2019 versus FY 2018, and shall propose a method for 

comparing the FY 2019 data to the FY 2018 data. The Postal Service shall provide 

these data in an Excel spreadsheet format. If the Postal Service cannot provide 

responsive data at the requested level of granularity, then responsive data should be 

provided at the most practicable level of granularity, along with a narrative 

identifying and explaining the level of granularity provided in the response. The Postal 

Service is encouraged to file a motion for clarification under 39 C.F.R. § 3001.21(a) in 

Docket No. ACR2018 should clarification be necessary. FY 2018 ACD, Chapter 5 at171-

173.

USPS Marketing Mail Service Performance:

 The Commission expects that the service performance results for the USPS Marketing 

Mail products (High Density and Saturation Flats/Parcels, Letters, Carrier Route, Flats, 

and Every Door Direct Mail—Retail) that did not achieve their FY 2018 service 

 

8

See, e.g., FY 2018 Root Cause File, tab “Q4a.”

9

See, e.g., FY 2018 Root Cause File, tab “Q4c.”

10 See, e.g., FY 2018 Root Cause File, tab “Q1a.”

11 See, e.g., Library Reference USPS–FY18–NP30, December 28, 2018, Excel file “Response2 - ACD.FCM.FY18Q3Q4.Q1b.NONPUBLIC.xlsx.”
Docket No. ACR2018 Appendix A

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performance targets will improve in FY 2019. The Commission directs the Postal 

Service to apply its data leveraging techniques to improve service performance for 

these products. FY 2018 ACD, Chapter 5 at 179.

 If the service performance results for any USPS Marketing Mail product do not achieve 

the applicable annual service performance target in FY 2019, then the FY 2019 ACR 

shall include: (1) the top five root cause point impacts for the product for each quarter 

and annually for FY 2019, disaggregated by shape/product and entry level/service 

standard; (2) an evaluation of the efficacy of the Postal Service’s FY 2019 efforts to 

improve this product’s service performance (including any progress toward addressing 

the applicable top root cause point impacts reported for FY 2018); and (3) a detailed 

plan explaining how this product’s results will be improved. If the Postal Service 

cannot provide responsive data at the requested level of granularity, then responsive 

data should be provided at the most practicable level of granularity, along with a 

narrative identifying and explaining the level of granularity provided in the response. 

Where appropriate, the Postal Service shall specifically address how the evaluation 

and plan apply to mailpieces by entered at origin versus mailpieces entered further 

into the mail stream. FY 2018 ACD, Chapter 5 at 180.

Periodicals Service Performance:

 In-County and Outside County Periodicals service performance results continued to fall 

substantially short of performance targets in FY 2018. The Commission directs the 

Postal Service to apply its data leveraging techniques to improve service performance 

for Periodicals. Pending Docket No. RM2018-1 is considering the development of 

reporting requirements related to flats operational cost and service issues. The 

Commission also directs that the FY 2019 ACR shall include: (1) an evaluation of the 

efficacy of the Postal Service’s FY 2019 efforts to improve service performance for InCounty and Outside County Periodicals (including any progress toward addressing the 

failure to process mail in FIFO order and failure to run to daily processing capacity 

described in the FY 2018 ACR) and (2) a detailed plan explaining how these products’ 

results will be improved. FY 2018 ACD, Chapter 5 at 182.

Package Services Service Performance:

 FY 2018 BPM Flats service performance results were substantially below other 

Package Services products and the applicable percentage on-time service performance 

target for the seventh consecutive year. The Commission directs the Postal Service to 

apply its data leveraging techniques to improve service performance for BPM Flats. 

Pending Docket No. RM2018-1 is considering the development of reporting 

requirements related to flats operational cost and service issues. The Commission also 

directs that the FY 2019 ACR shall include: (1) an evaluation of the efficacy of the 

Postal Service’s FY 2019 efforts to improve service performance for BPM Flats 

(including any progress toward addressing the manual processing issues described in 
Docket No. ACR2018 Appendix A

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the FY 2018 ACR) and (2) a detailed plan explaining how this product’s results will be 

improved. FY 2018 ACD, Chapter 5 at 185.

 FY 2018 Media Mail/Library Mail service performance results were near the service 

performance target. The Commission expects that the service performance results for 

Media Mail/Library Mail will improve in FY 2019. If the results for Media Mail/Library 

Mail do not achieve the service performance target in FY 2019, then the FY 2019 ACR 

shall include: (1) an evaluation of the efficacy of the Postal Service’s FY 2019 efforts to 

improve service performance for Media Mail/Library Mail (including any progress 

toward addressing the manual processing issues described in the FY 2018 ACR) and 

(2) a detailed plan explaining how this product’s results will be improved. Id.

Special Services Service Performance:

 The Postal Service exceeded service performance targets for all reported Special 

Services products, except for Post Office Box Service, which was near its service 

performance target. The Commission expects the service performance results for Post 

Office Box Service will improve in FY 2019. If the results for Post Office Box Service do 

not achieve the service performance target in FY 2019, then the FY 2019 ACR shall 

include: (1) an evaluation of the efficacy of the Postal Service’s FY 2019 efforts 

(including the six planned actions described in the FY 2018 ACR) to improve on-time 

service performance for this product and (2) a detailed plan explaining how this 

product’s results will be improved. FY 2018 ACD, Chapter 5 at 189.

Post Office Suspensions:

 The Commission reiterates the importance of resolving all remaining suspended post 

offices as soon as possible. The Commission expects the Postal Service to resolve all 

remaining suspended post offices by the end of FY 2020, including the 94 additional 

post offices suspended in FY 2017 and FY 2018, by either reopening them or closing 

them in compliance with the post office discontinuance process. The Commission 

directs the Postal Service to continue to file quarterly updates on the status of the 662 

post offices suspended at the end of FY 2016 and actions taken to resolve them. The 

Postal Service must file this information within 40 days after the end of each quarter in 

FY 2019. The report for FY 2019, Quarter 4 must provide an updated plan for resolving 

all remaining suspended post offices, including post offices suspended in FY 2017, 

FY 2018, and FY 2019. If the Postal Service is unable to meet the timeline it provided 

for resolving the remaining suspended post offices, the Postal Service must explain in 

detail in the FY 2019 ACR why it was unable to do so. FY 2018 ACD, Chapter 5 at 197-

198.
Docket No. ACR2018 Appendix A

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Customer Satisfaction:

 Because customer satisfaction for residential, small/medium business, and large 

business customers declined in FY 2018, the Commission will continue to monitor 

customer satisfaction closely in FY 2019. The FY 2019 ACR must describe results of the 

Postal Service’s research into how large business customer experiences drive overall 

satisfaction with Market Dominant mailing services. The Commission recommends 

that the Postal Service examine customer satisfaction by mailing service or product 

type and focus on improving areas related to key drivers of customer satisfaction. 

FY 2018 ACD, Chapter 5 at 206.

 The Postal Service should continue to take appropriate actions to improve customer 

satisfaction with Market Dominant products for each customer type (residential, 

small/medium business, and large business) as outlined in the FY 2018 ACR. In the 

FY 2019 ACR, the Postal Service must describe actions taken to improve customer 

satisfaction for each customer type in FY 2019 and explain whether these actions were 

effective. Id. at 206-207.
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STATUS OF KEY COMMISSION FINDINGS 

AND DIRECTIVES REQUIRING POSTAL 

SERVICE ACTION FOR FUTURE ANNUAL 

COMPLIANCE REPORTS (FY 2017 ACD)

Periodicals Pricing Efficiency:

 The Commission directs the Postal Service to include an updated version of the 

Periodicals Pricing Report in its FY 2018 ACR. The report must include an analysis of 

how the pricing in Docket No. R2018-1 impacted the cost, contribution, and revenue of 

Periodicals in FY 2018 and whether the new pricing improved the efficiency of 

Periodicals pricing in FY 2018. FY 2017 ACD, Chapter 2 at 23.

 In the FY 2018 ACD, the Commission “concludes that, on the whole, the Postal 

Service’s report meaningfully responds to the Commission’s directive. In the 

Periodicals Pricing Report, the Postal Service provided a robust narrative and 

workpapers containing quantitative analyses.” FY 2018 ACD, Chapter 2 at 21.

Marketing Mail Flats:

 The Commission finds that, in FY 2017, no progress was made toward addressing the 

issues it raised in the FY 2010 ACD. Despite the Postal Service efforts to reduce flats 

costs through operational initiatives, unit costs increased substantially from FY 2016. 

The Commission understands that the migration of Carrier Route Flats played a 

significant role in the cost increase due to the migration of low cost pieces. However, 

even when Carrier Route and Flats data are combined, unit costs still increased and 

unit contribution decreased. The Postal Service must continue responding to the 

requirements of the FY 2010 ACD directive by proposing above-average price increases 

for USPS Marketing Mail Flats, striving to reduce USPS Marketing Mail Flats cost, and 

providing the required documentation of those efforts in future ACRs. FY 2017 ACD, 

Chapter 3 at 58.

 In the FY 2018 ACD, the Commission “finds that the issues raised in the 

FY 2010 ACD regarding USPS Marketing Mail Flats have significantly 

worsened, continuing a downward trend that began to accelerate in FY 2014. 

Despite the Postal Service’s efforts to reduce USPS Marketing Mail Flats’ costs 

through operational initiatives—efforts it is unable to measure—unit costs 

increased substantially over the last fiscal year. From FY 2010 to FY 2018, 
Docket No. ACR2018 Appendix A

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the cost coverage for USPS Marketing Mail Flats has decreased 13.1 

percentage points. In addition, the Postal Service remains unable to predict, 

using reasonable assumptions, when the USPS Marketing Mail Flats product 

will cover costs, or what the impact is of any of the Postal Service’s cost 

saving initiatives. Furthermore, in the last two Market Dominant price 

adjustments the Postal Service has chosen to increase USPS Marketing Mail 

Flats’ prices only minimally above average. As the Commission has found 

before, it has broad authority to develop and implement a remedy to address 

an ‘extreme case’ of a violation of 39 U.S.C. § 101(d).12 The remedy that the 

Commission implemented in its FY 2010 ACD has proven insufficient to 

rectify the inadequate cost coverage of USPS Marketing Mail Flats. The Postal 

Service has chosen to pursue only minimal above-average price increases for 

this product, and it has been unable to reduce the product’s costs. USPS 

Marketing Mail Flats continues to constitute an ‘extreme case’ of deficient 

cost coverage. Therefore, the remedy must be advanced. In the next generally 

applicable Market Dominant price adjustment, the Postal Service must 

propose a price increase for USPS Marketing Mail Flats that is at least 2 

percentage points above the class average for the USPS Marketing Mail class. 

Additionally, the Postal Service must continue responding to the 

requirements of the FY 2010 ACD directive by reducing USPS Marketing Mail 

Flats’ costs and providing required documentation of those efforts in future 

Annual Compliance Reports. Moreover, the Postal Service must continue to 

comply with the FY 2015 directive, as further discussed in Chapter 6 of this 

report.” FY 2018 ACD, Chapter 3 at 70-71.

Money Orders:

 The Commission finds that FY 2017 revenue for Money Orders was not sufficient to 

cover attributable cost. The Commission directs the Postal Service to continue its 

investigation into debit card fee attribution and update the Commission on its 

progress and any potential corresponding methodological changes within 90 days of 

the issuance of this ACD. FY 2017 ACD, Chapter 3 at 63.

 The Postal Service filed a petition proposing to change the costing 

methodology for the treatment of debit card expenses on June 25, 2018.13

Proposal Four was approved by the Commission in Order No. 4757 on 

August 13, 2018.14 The Postal Service contends that had this methodology 

 

12 See Order No. 1427; see also USPS v. Postal Regulatory Comm’n, 676 F.3d 1105, 1107-08 (D.C. Cir. 2012).

13 Docket No. RM2018-7, Petition of the United States Postal Service for the Initiation of a Proceeding to Consider Proposed Changes in 

Analytical Principles (Proposal Four), June 25, 2018.

14 Docket No. RM2018-7, Order on Analytical Principles Used in Periodic Reporting (Proposal Four), August 13, 2018 (Order No. 4757).
Docket No. ACR2018 Appendix A

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been applied for FY 2017, Money Orders would have covered its attributable 

costs.

Incremental Cost Methodology:

 For its FY 2018 ACR filing, the Commission directs the Postal Service to reconcile the 

difference in methodology in calculating total attributable costs between the 

Incremental Costs Report and the CRA by including incremental costs at the class level 

in the CRA. The Commission also directs the Postal Service to report the componentlevel total and institutional costs in the Incremental Costs Report. FY 2017 ACD, 

Chapter 1 at 10.

 The Postal Service filed a petition seeking a change in analytical methodology 

for periodic reporting relating to incremental costing procedures on June 1, 

2018.15 The Commission approved Proposal Three in Order No. 4719 on July 

19, 2018.16

 The Postal Service reported the component-level total and institutional costs 

in Library References USPS–FY18–43 and USPS–FY18–NP10.

Inbound Letter Post:

 The Commission finds that FY 2017 revenue for Inbound Letter Post was not sufficient 

to cover attributable cost. The Commission directs the Postal Service, within 90 days, 

to submit an update on its collection of accurate shaped-based data, and development 

of costing models for Inbound Letter Post using this shape-based data if it has not yet 

filed a rulemaking proposal to implement shape-based costing for Inbound Letter Post 

in the Domestic Processing Model and the ICRA. FY 2017 ACD, Chapter 3 at 68.

 The Postal Service proposed a change in analytical principles to disaggregate 

the cost of Inbound Letter Post small packets from the cost of Inbound Letter 

Post letters and flats in Docket No. RM2018-8.17 The Commission approved 

this proposal in Order No. 4827.18

 The Commission recommends that the Postal Service identify and implement 

operational strategies to lower costs for Inbound Letter Post in FY 2018, particularly 

 

15 Docket No. RM2018-6, Petition of the United States Postal Service for the Initiation of a Proceeding to Consider Proposed Changes in 

Analytical Principles (Proposal Three), June 1, 2018.

16 Docket No. RM2018-6, Order on Analytical Principles Used in Periodic Reporting (Proposal Three), July 19, 2019 (Order No. 4719).

17 Docket No. RM2018-8, Petition of the United States Postal Service for the Initiation of a Proceeding to Consider Proposed Changes in 

Analytical Principles (Proposal Five), June 26, 2018.

18 Docket No. RM2018-8, Order on Analytical Principles Used in Periodic Reporting (Proposal Five), September 21, 2018 (Order No. 4827).
Docket No. ACR2018 Appendix A

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the costs for small packets. The Commission also recommends that the Postal Service 

continue to pursue compensatory terminal dues in the UPU and to pursue bilateral 

agreements that contain Inbound Letter Post rates that are more compensatory than 

UPU terminal dues. FY 2017 ACD, Chapter 3 at 68.

 The Postal Service requested to transfer the Inbound Letter Post Small 

Packets and Bulky Letters product to the Competitive Product list.19 The 

Commission approved this proposal in Order No. 4980.20 “Removal of small 

packets and bulky letters from the Inbound Letter Post product should 

improve the financial performance of the Inbound Letter Post product.” 

FY 2018 ACD, Chapter 3 at 83.

 In the FY 2018 ACD, “[t]he Commission finds that FY 2018 revenue for 

Inbound Letter Post was not sufficient to cover attributable cost. The 

Commission recommends that the Postal Service, in coordination with the 

Department of State, negotiate bilateral and multilateral agreements that 

contain rates for UPU letter post mail that are more compensatory than 

terminal dues. The Commission further recommends that the Postal Service 

file rates for the Competitive Inbound Small Packets and Bulky Letters 

product as soon as possible.” FY 2018 ACD, Chapter 3 at 84.

 The Commission directs the Postal Service to provide both IMMS and QLMS CY 2017 

and CY 2018 performance reports for Inbound Letter Post, aggregations of weekly 

failure reports, and an analysis of the failures and steps being taken to improve service 

performance in the FY 2018 ACR. FY 2017 ACD, Chapter 3 at 70.

 The Postal Service provided the requested performance reports for Inbound 

Letter Post in Library Reference USPS–FY18–NP30.

Market Dominant International NSAs:

 The Commission finds that the Inbound Market Dominant PRIME Tracked Service 

Agreement product did not meet the criteria of 39 U.S.C. § 3622(c)(10). The 

Commission directs the Postal Service to encourage more countries to participate in 

the Inbound Market Dominant PRIME Tracked Service Agreement, as more volume 

exchanged within this agreement should improve cost coverage. In addition, in 90 

days, the Postal Service shall file revised financial workpapers in Docket No. R2017-3 

to reflect actual year-to-date volume, revenue, and cost in FY 2018. FY 2017 ACD, 

Chapter 3 at 74.

 

19 Docket No. MC2019-17, United States Postal Service Request to Transfer Inbound letter Post Small Packets and Bulky Letters, and Inbound 

Registered Service Associated with Such Items to the Competitive Product List, November 16, 2018.

20 Docket No. MC2019-17, Order Conditionally Approving Transfer, January 9, 2019 (Order No. 4980).
Docket No. ACR2018 Appendix A

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 The Postal Service provided revised financial workpapers in Docket 

No. R2017-3 that reflect actual year-to-date volume, revenue, and cost in 

FY 2018.21

Media Mail/Library Mail:

 The Commission finds that FY 2017 revenue for Media Mail/Library Mail was not 

sufficient to cover attributable cost. However, the Postal Service’s approach to improve 

cost coverage through above-average price increases in future Market Dominant price 

adjustments is appropriate. The Commission also encourages the Postal Service to 

explore opportunities to further reduce the unit cost of Media Mail/Library Mail. 

FY 2017 ACD, Chapter 3 at 75.

 The Postal Service increased Media Mail/Library Mail prices by an 

above-average percentage in Docket No. R2019-1 and the Commission finds 

that the “Postal Service’s approach to improve cost coverage through aboveaverage price increases in future Market Dominant price adjustments is 

appropriate.” FY 2018 ACD, Chapter 3 at 92.

PHI NSA:

 The Commission finds that the PHI NSA did not meet the criteria of 39 U.S.C. 

§ 3622(c)(10)(A) in Contract Year 3. If the Postal Service provides the Commission 

with the amended contract for review, the filing shall include a volume forecast for the 

remainder of the PHI NSA and an estimate of the total contract net financial 

contribution. If an amended contract is not in effect by June 30, 2018, the PHI NSA will 

remain suspended. FY 2017 ACD, Chapter 3 at 76-77.

 “The Postal Service terminated the PHI NSA at the end of Contract

Year 4 . . . .”22

Domestic Competitive NSAs

 The Commission provisionally accepts the Postal Service’s estimates of domestic NSA 

attributable costs for purposes of the instant docket. The Commission finds, however, 

that the Postal Service’s estimate of domestic NSA attributable costs employs a new 

methodology, and directs the Postal Service to file a petition for the initiation of a 

 

21 Docket No. ACR2017, Second Response of the United States Postal Service to Commission Requests for Additional Information in the FY 2017 

Annual Compliance Determination, June 27, 2018.

22 FY 2018 ACD at 94; see Docket Nos. MC2014-21 and R2014-6, Notice of the United States Postal Service of Termination of Agreement, June 

19, 2018.
Docket No. ACR2018 Appendix A

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proceeding to consider proposed changes in analytical principles for the new 

methodology within 90 days of issuance of this ACD. FY 2017 ACD, Chapter 1 at 11.

 The Postal Service filed a petition for the initiation of a proceeding to 

consider proposed changes in analytical principles for the new methodology 

on June 1, 2018.23 On July 19, 2018, the Commission approved Proposal 

Three, “encompassing procedure one and procedure two, but modifies 

procedure two to include an additional threshold, as proposed by UPS.” 

Order No. 4719 at 10.

 The Commission finds that Priority Mail Contract 123, Priority Mail Contract 183, 

Priority Mail Contract 214, and Priority Mail Contract 228 were not in compliance 

with 39 U.S.C. § 3633(a)(2) in FY 2017. Because Priority Mail Contract 183, Priority 

Mail Contract 214, and Priority Mail Contract 228 are no longer active, no further 

action is required. The Commission directs the Postal Service to report within 30 days 

of issuance of this ACD on the result of its review of the cost model underlying Priority 

Mail Contract 123 and on any additional steps it plans to take to improve cost 

coverage. FY 2017 ACD, Chapter 4 at 84.

 The Postal Service filed a Notice of Extension and updated financial 

spreadsheets on June 1, 2018 for Priority Mail Contract 123.24 In FY 2018, 

Priority Mail Contract 123 is in compliance with 39 U.S.C. § 3633(a)(2).

IMTS—Outbound and Inbound:

 The Commission finds that IMTS—Outbound and IMTS—Inbound were not in 

compliance with 39 U.S.C. § 3633(a)(2) in FY 2017. Given the recurring volatility in 

unit costs, the Postal Service has not provided sufficient evidence that the FY 2018 

price increases will result in full cost coverage. Therefore, the Commission directs the 

Postal Service to increase the prices for IMTS—Outbound in order to bring the product 

into compliance in its next request for a rate adjustment for Competitive rates of 

general applicability. The Commission directs the Postal Service to request a 

delegation of authority from the Department of State under the Circular 175 process 

to terminate or renegotiate the agreements that comprise the IMTS—Inbound 

product, and to provide an update on the status of this process within 120 days of 

issuance of this ACD. If the Postal Service identifies competing priorities as a reason for 

it not being able to comply fully with the Commission’s directive, it should fully 

describe those competing priorities and provide a clear justification for why the 

Commission’s directive was not followed. FY 2017 ACD, Chapter 4 at 86.

 

23 Docket No. RM2018-6, Petition of the United States Postal Service for the Initiation of a Proceeding to Consider Proposed Changes in 

Analytical Principles (Proposal Three), June 1, 2018.

24 Docket No. CP2015-80, USPS Notice of Extension of Priority Mail Contract 123, June 1, 2018.
Docket No. ACR2018 Appendix A

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 The Postal Service updated the Commission that it had requested a 

delegation of authority from the Department of State under the Circular 175 

process to terminate the agreements that comprise the IMTS—Inbound 

product on July 26, 2018.25

 The Postal Service also proposed increased prices for IMTS—Outbound in 

Docket No. CP2019-3, which the Commission approved in Order No. 4876.26

Competitive International Ancillary Services:

 The Commission finds that International Ancillary Services was not in compliance with 

39 U.S.C. § 3633(a)(2) in FY 2017. The Commission directs the Postal Service to report 

within 90 days of issuance of this ACD on its evaluation of Outbound International 

Insurance cost reporting and whether a change in analytical principles is warranted. If 

the Postal Service does not determine that a change in analytical principles is 

warranted, the Commission directs the Postal Service to increase the prices for 

Outbound International Insurance in order to bring the product into compliance. 

FY 2017 ACD, Chapter 4 at 87.

 The Postal Service proposed changes to analytical principles concerning the 

costing methodology for Outbound International Insurance in Docket 

No. RM2018-9.27 The Commission approved the proposal in Order 

No. 4798.28

First-Class Mail Service Performance:

 The Commission finds that the Postal Service did not meet its service performance 

targets for First-Class Mail in FY 2017. The Commission directs the Postal Service to 

apply its data leveraging techniques to improve service performance for all First-Class 

Mail products in FY 2018. If the Postal Service does not maintain or improve its service 

performance results in FY 2018, the Postal Service shall include a detailed and 

product-specific plan in its FY 2018 ACR for how performance shall be improved. 

FY 2017 ACD, Chapter 5 at 144.

 “The Commission finds that the Postal Service did not meet its service 

performance targets for First-Class Mail in FY 2018. The Commission also 

 

25 Docket No. ACR2017, Third Response of the United States Postal Service to Commission Requests for Additional Information in the FY 2017 

Annual Compliance Determination, July 26, 2018.

26 Docket No. CP2019-3, Order Approving Price Adjustments for Competitive Products, November 13, 2018 (Order No. 4876).

27 Docket No. RM2018-9, Petition of the United States Postal Service for the Initiation of a Proceeding to Consider Proposed Changes in 

Analytical Principles (Proposal Six), June 26, 2018.

28 Docket No. RM2018-9, Order on Analytical Principles Used in Periodic Reporting (Proposal Six), August 28, 2018 (Order No. 4798).
Docket No. ACR2018 Appendix A

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recognizes that the Postal Service has made progress in developing 

quantitative analysis linking its root cause assessments with the impact on 

service performance results for First-Class Mail. The Commission directs the 

Postal Service to apply its data leveraging techniques to improve service 

performance for all First-Class Mail products in FY 2019.” FY 2018 ACD, 

Chapter 5 at 170.

 Although the improvements observed in the FY 2017 First-Class Mail service 

performance results are encouraging, particularly after the improvement reported in 

FY 2016, the Commission remains concerned that the FY 2017 service performance 

results reported for First-Class Mail Single-Piece Letters/Postcards have not returned 

to the level reported before FY 2015 and determines that First-Class Mail Single-Piece 

Letters/Postcards is not in compliance for the third year in a row. The Commission 

directs the Postal Service to improve service performance results for First-Class Mail 

Single-Piece Letters/Postcards in FY 2018. FY 2017 ACD, Chapter 5 at 145.

 “The Commission is concerned that service performance results for FirstClass Mail Single-Piece Letters/Postcards declined from FY 2017 to FY 2018, 

and determines that First-Class Mail Single-Piece Letters/Postcards is not in 

compliance for the fourth year in a row.” FY 2018 ACD, Chapter 5 at 171.

 To facilitate the monitoring of service performance (particularly for First-Class Mail 

Single-Piece Letters/Postcards), the Commission also directs the Postal Service to 

provide trackable data that is consistently collected and will continue to add 

transparency to the different processing phases of First-Class Mail Single-Piece 

Letters/Postcards. The Commission directs the Postal Service to provide the following 

information (as applicable) for FY 2018, Quarter 1, Quarter 2, and “mid-year” within 

90 days of the issuance of this report.29 The Commission directs the Postal Service to 

include the following information for FY 2018, Quarter 3, Quarter 4, “second-half” and 

annualized for the fiscal year, in the FY 2018 ACR.30 Except for items 1a, 1b, 4a, and 4c, 

all results should be disaggregated by service standard category (2-Day and 3-5- Day).

1. The 24-Hour Clock: 

a. The national level, area level, and district level performance for each 

national operating plan target (also referred to as the 24-Hour 

Clock national clearance goals) for each quarter and annually for FY 

2018.31

 

29 Mid-year refers to the aggregation of the date for Quarters 1 and 2 of FY 2018.

30 Second-half refers to the aggregation of the data for Quarters 3 and 4 of FY 2018. Annualized refers to the aggregation of the data for all four 

quarters of FY 2018.

31 See December 29, 2017 Public File, tab “Q1a.”
Docket No. ACR2018 Appendix A

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b. The 10 facilities with the most failures in meeting each of the 24-

Hour Clock national clearance goals during FY 2018. For each 

facility identified, please state the number of times that the facility 

failed to meet that national clearance goal during FY 2018, and the 

corresponding number of times that the facility failed to meet that 

national clearance goal during FY 2017.32

2. Collections/First Mile:

a. The national level, area level, and district level percentage of FirstClass Mail Single-Piece Letters/Postcards with collection delays.33

3. Origin Processing:

a. The air carrier capacity requested, air carrier capacity received, and 

air capacity gap calculated using daily cubic feet volume.34

b. The national level, area level, and district level percentage of FirstClass Mail Single-Piece Letters/Postcards that are classified as 

origin processing failures (root cause at origin).35

4. Transit:

a. The air carrier capacity requested, air carrier capacity received, and 

air capacity gap calculated using daily cubic feet volume.36

b. The national level, area level, and district level percentage of FirstClass Mail Single-Piece Letters/Postcards with AADC/ADC 

processing delays, presented in three separate tables specific to air 

transportation, ground transportation, and both.37

c. The national level, area level, and district level of CLTs (any HCR 

that is late more than 4 hours).38

5. Destination Processing: 

a. The national level, area level, and district level of TTMS aggregate 

estimates of First-Class Mail Single-Piece Letters/Postcards that 

 

32 See Docket No. ACR2017, Library Reference USPS–FY17–NP30, December 29, 2017, Excel file “Response2 -

ACD.FCM.FY17Q3Q4.Q1b.NONPUBLIC.xlsx.”

33 See December 29, 2017 Public File, tab “Q2b;” December 28, 2017 Public File, tab “Q2 and 3a.”

34 See December 29, 2017 Public File, tabs “Q3b” and “Q3c;” December 28, 2017 Public File, tab “Q3b.”

35 See December 29, 2017 Public File, tab “Q4f;” December 28, 2017 Public File, tab “Q3d.”

36 See December 29, 2017 Public File, tab “Q4a.”

37 See id., tabs “Q4b,” “Q4b_air,” “Q4b_surface,” “Q4c,” “Q4c_air,” and “Q4c_surface;” December 28, 2017 Public File, tabs “Q3c,” “Q3c_air,” 

and “Q3c_surface.”

38 See December 29, 2017 Public File, tab “Q4e.”
Docket No. ACR2018 Appendix A

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have already missed the service standard by the LPO within the 

destination processing phase.39

b. The national level, area level, and district level percentage of FirstClass Mail Single-Piece Letters/Postcards that are classified as 

destination processing failures (root cause at destination).40

6. Delivery/Last Mile:

a. The national level, area level, and district level of TTMS aggregate 

estimates of First-Class Mail Single-Piece Letters/Postcards with 

Delivery/Last Mile failures reported.41

b. The national level, area level, and district level volume and 

percentage of First-Class Mail Single-Piece Letters/Postcards subject 

to the 2-Day or the 3-5-Day service standards.42

The Commission expects that the Postal Service will provide this data and information 

consistent with the methodology used in Docket Nos. ACR2015, ACR2016, and 

ACR2017 and use an Excel spreadsheet format, if practicable. If the Postal Service 

cannot provide responsive information at the requested level of granularity, then 

responsive information should be provided at the most practicable level of granularity, 

along with a narrative identifying and explaining the level of granularity provided in 

the response. The Postal Service is encouraged to file a motion for clarification under 

39 C.F.R. § 3001.21(a) in Docket No. ACR2017 should clarification be necessary.

Furthermore, service performance results for First-Class Mail Flats continue to fall 

substantially short of annual performance targets. Pending Docket No. RM2018-1 is 

considering the development of reporting requirements related to flats operational 

cost and service issues. FY 2017 ACD, Chapter 5 at 145-148.

 The Postal Service complied with the data reporting as directed by the 

FY 2017 ACD; FY 2018 Root Cause File. Because the Postal Service did not 

improve service performance results for First-Class Mail, the Commission 

directs the Postal Service to provide additional data, an evaluation of the 

efficacy of the Postal Service’s improvement efforts, and a detailed 

improvement plan in FY 2019. The Commission is currently “considering the 

development of reporting requirements related to flats operational cost and 

service issues” in Docket No. RM2018-1. FY 2018 ACD, Chapter 5 at 170-173.

 

39 See id., tab “Q5b;” December 28, 2017 Public File, tab “Q3e.”

40 See Docket No. ACR2017, Responses to CHIR No. 11, question 6.

41 See December 29, 2017 Public File, tab “Q6a;” December 28, 2017 Public File, tab “Q3f.”

42 See December 29, 2017 Public File, tab “Q6b.”
Docket No. ACR2018 Appendix A

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Marketing Mail Service Performance:

 The Commission finds that the Postal Service has met its service performance targets 

for USPS Marketing Mail Letters, USPS Marketing Mail Carrier Route, USPS Marketing 

Mail Parcels, and USPS Marketing Mail High Density and Saturation Letters. The 

Commission expects that service performance results for these products will continue 

to meet or exceed the FY 2018 on-time performance target. If the service performance 

results for these products do not continue to meet or exceed the target in FY 2018, the 

Postal Service shall include a detailed and product-specific plan in its FY 2018 ACR for 

how service performance will be improved.

The Commission directs the Postal Service to apply its data leveraging techniques to 

improve service performance for the USPS Marketing Mail products that failed to meet 

the applicable annual service performance targets.

The Commission expects improvement in service performance results for USPS 

Marketing Mail Every Door Direct Mail—Retail and USPS Marketing Mail High Density 

and Saturation Flats/Parcels. If the Postal Service does not maintain or improve its 

service performance results for these products in FY 2018, the Postal Service shall 

include a detailed and product-specific plan in its FY 2018 ACR for how service 

performance will be improved.

FY 2017 USPS Marketing Mail Flats service performance results declined from the level 

reported in FY 2016. Moreover, USPS Marketing Mail Flats service performance results 

continued to fall substantially short of intended annual performance targets. Pending 

Docket No. RM2018-1 is considering the development of reporting requirements 

related to flats operational cost and service issues. FY 2017 ACD, Chapter 5 at 151.

 The Postal Service provided a plan for service improvement as directed by 

the Commission.43

 In FY 2017, the Commission directed the Postal Service to apply its data 

leveraging techniques to improve USPS Marketing Mail service performance. 

The Postal Service indicated that it applied these techniques in FY 2018. Id.

 The Postal Service failed to improve service performance results for USPS 

Marketing Mail. The Commission expects that the service performance 

results for the USPS Marketing Mail products (High Density and Saturation 

Flats/Parcels, Letters, Carrier Route, Flats, and Every Door Direct Mail—

 

43 Library Reference USPS–FY18–29, December 28, 2018, file “FY18-29 Service Performance Report.pdf,” at 13-14 (FY 2018 Service Performance 

Report).
Docket No. ACR2018 Appendix A

 Page 22 of 25

Retail) that did not achieve their FY 2018 service performance targets will 

improve in FY 2019. The Commission directs the Postal Service to apply its 

data leveraging techniques to improve service performance for these 

products. FY 2018 ACD, Chapter 5 at 179. The Commission is currently 

“considering the development of reporting requirements related to flats 

operational cost and service issues” in Docket No. RM2018-1. FY ACD 2018, 

Chapter 5 at 180.

Periodicals Service Performance:

 This was the fifth consecutive year that Periodicals did not meet its service 

performance targets. In-County and Outside County Periodicals service performance 

results continued to fall substantially short of performance targets. The Commission 

directs the Postal Service to apply its data leveraging techniques to improve 

Periodicals service performance. Pending Docket No. RM2018-1 is considering the 

development of reporting requirements related to flats operational cost and service 

issues. FY 2017 ACD, Chapter 5 at 153.

 In FY 2017, the Commission directed the Postal Service to apply its data 

leveraging techniques to improve Periodicals service performance. The 

Postal Service indicated that it applied these techniques in FY 2018. FY 2018 

Service Performance Report at 16.

 “In-County and Outside County Periodicals service performance results 

continued to fall substantially short of performance targets in FY 2018. The 

Commission directs the Postal Service to apply its data leveraging techniques 

to improve service performance for Periodicals.” FY 2018 ACD, Chapter 5 

at 182. The Commission is currently “considering the development of 

reporting requirements related to flats operational cost and service issues” in 

Docket No. RM2018-1. Id.

Package Services Service Performance:

 Media Mail/Library Mail and BPM Parcels service performance results continue to 

exceed the Postal Service’s annual service performance targets. BPM Flats service 

performance results were substantially below other Package Services products and the 

applicable percentage on-time service performance target for the sixth consecutive 

year. The Commission directs the Postal Service to apply its data leveraging techniques 

to improve BPM Flats service performance. Pending Docket No. RM2018-1 is 

considering the development of reporting requirements related to flats operational 

cost and service issues. FY 2017 ACD, Chapter 5 at 156.

 In FY 2017, the Commission directed the Postal Service to apply its data 

leveraging techniques to improve BPM Flats service performance. The Postal 
Docket No. ACR2018 Appendix A

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Service indicated that it applied these techniques in FY 2018. FY 2018 

Service Performance Report at 20-21.

 BPM Flats service performance results in FY 2018 “were substantially below 

other Package Services products and the applicable percentage on-time 

service performance target for the seventh consecutive year. The 

Commission directs the Postal Service to apply its data leveraging techniques 

to improve service performance for BPM Flats.” FY 2018 ACD, Chapter 5 at 

185. The Commission is currently “considering the development of reporting 

requirements related to flats operational cost and service issues” in Docket 

No. RM2018-1. Id.

Special Services Service Performance:

 The Postal Service exceeded service performance targets for all reported Special 

Services products, except for Post Office Box Service, which was near its service 

performance target. The Commission expects the service performance results for Post 

Office Box Service to improve in FY 2018. If Post Office Box Service does not achieve its 

service performance target in FY 2018, the Postal Service shall include in its FY 2018 

ACR an evaluation of the efficacy of the six planned actions identified in its FY 2017 

ACR and a detailed plan for how this product’s results will be improved. FY 2017 ACD, 

Chapter 5 at 158.

 “The Postal Service exceeded service performance targets for all reported 

Special Services products [in FY 2018], except for Post Office Box Service, 

which was near its service performance target.” FY 2018 ACD, Chapter 5 at 

189. The Postal Service included in its FY 2018 ACR a summary of its 

progress on the six planned actions, but the failure to complete all six 

planned actions affected its ability to meet the product’s service performance 

target. FY 2018 Service Performance Report at 25-26; January 11 Responses 

to CHIR No. 1, question 46. “The Commission expects the service 

performance results for Post Office Box Service will improve in FY 2019. If 

the results for Post Office Box Service do not achieve the service performance 

target in FY 2019, then the FY 2019 ACR shall include: (1) an evaluation of 

the efficacy of the Postal Service’s FY 2019 efforts (including the six planned 

actions described in the FY 2018 ACR) to improve on-time service 

performance for this product and (2) a detailed plan explaining how this 

product’s results will be improved.” FY 2018 ACD, Chapter 5 at 190.

Post Office Suspensions:

 For these reasons, the Commission finds that the Postal Service made significant 

progress in reducing the number of suspended post offices during FY 2017. The 

Commission also finds that the Postal Service complied with the Commission’s 

directives in the FY 2016 ACD to significantly reduce the number of suspended post 
Docket No. ACR2018 Appendix A

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offices, file quarterly updates on suspended post offices, and explain why the Postal 

Service was unable to meet the FY 2017 timeline for resolving suspended post offices.

See FY 2017 ACD at 166. The Commission appreciates that the Postal Service filed 

quarterly suspension updates on time and also proposed a timeline for resolving the 

remaining suspended post offices in FY 2018 and FY 2019. FY 2017 ACD, Chapter 5 

at 164.

 “The Postal Service fell short of its goal of resolving 169 suspended post 

offices in FY 2018. Nonetheless, the Postal Service made significant progress 

in reducing the backlog of post offices suspended at the end of FY 2016.” 

FY 2018 ACD, Chapter 5 at 197. The Postal Service complied with the 

Commission’s directive in the FY 2017 ACD to submit quarterly reports 

updating the Commission on the status of suspended post offices. 

Additionally, in the FY 2018 ACR, the Postal Service explained why it was 

unable to meet the timeline provided in the FY 2017 ACR for resolving 

suspended post offices and provided an updated timetable for resolving the 

remaining suspended post offices. FY 2018 ACR at 63-65.

Customer Satisfaction:

 The Commission directs the Postal Service to provide an analysis in the FY 2018 ACR 

and explain why large business customer satisfaction declined between FY 2015 and 

FY 2017. The Postal Service must also discuss the reasons for any further declines in 

customer satisfaction for residential, small/medium business, and large business 

customers.

The Commission finds that the Postal Service should take appropriate steps to improve 

customer satisfaction with Market Dominant products for all customers as outlined in 

the FY 2017 ACR. The Commission recommends that the Postal Service monitor the 

areas identified by the Public Representative to ensure that these concerns are 

addressed in FY 2018. In the FY 2018 ACR, the Postal Service must describe actions 

taken to improve customer satisfaction in FY 2018 and explain whether actions were 

effective. FY 2017 ACD, Chapter 5 at 171.

 In the FY 2018 ACR, the Postal Service identified factors influencing overall 

customer and product satisfaction results for large business customers. The 

Postal Service explained that it found it difficult to assess what drove 

customer satisfaction declines between FY 2015 and FY 2017, but for 

FY 2018, it conducted two assessments to understand the declines in 

satisfaction. FY 2018 ACR at 58. It identified three drivers that influence large 

business customer satisfaction; building customer relationships, the ease of 

contacting a representative, and issue/claim resolution. Id. at 58-59.
Docket No. ACR2018 Appendix A

 Page 25 of 25

 The Postal Service recognizes that it must perform further research to 

understand how large business customers’ experience with each product 

type is driving overall satisfaction, but it provides a preliminary breakdown 

of what it sees as the major drivers. Id. at 59.
Docket No. ACR2018 Appendix B

 Page 1 of 2

Appendix B: Commenters

2018 Annual Compliance Determination

Commenter Comment Citation Citation Short Form

Amazon.com Services, Inc. 

(Amazon)

Reply Comments of Amazon.com Services, 

Inc., March 1, 2019 Amazon Reply Comments

American Catalog Mailers 

Association (ACMA)

Initial Comments of the American Catalog 

Mailers Association (ACMA), February 14, 

2019

ACMA Comments

American Consumer Institute 

Center for Citizen Research (ACI)

Comments of American Consumer Institute 

Center for Citizen Research Regarding Docket 

No. ACR2018 Submitted to the Postal 

Regulatory Commission, January 31, 2019

ACI Comments

The Association of Magazine Media 

and the Alliance of Nonprofit 

Mailers (MPA/ANM)

Comments of MPA - The Association of 

Magazine Media and the Alliance of 

Nonprofit Mailers, February 14, 2019

MPA/ANM Comments

Association for Postal Commerce 

(PostCom)

Comments of the Association for Postal 

Commerce, February 19, 2019 PostCom Comments

Greeting Card Association (GCA) Comments of the Greeting Card Association, 

February 14, 2019 GCA Comments

National Association of Presort 

Mailers and Idealliance 

(NAPM/Idealliance)

Comments of the National Association of 

Presort Mailers and Idealliance, February 14, 

2019

NAPM/Idealliance 

Comments

National Postal Policy Council 

(NPPC)

Comments of the National Postal Policy 

Council, February 14, 2019 NPPC Comments

National Taxpayers Union (NTU) Comments of: Pete Sepp, President, National 

Taxpayers Union, February 25, 2019 NTU Comments

Parcel Shippers Association (PSA) Reply Comments of the Parcel Shippers 

Association, March 4, 2019 PSA Reply Comments
Docket No. ACR2018 Appendix B

 Page 2 of 2

Commenter Comment Citation Citation Short Form

Pitney Bowes Inc. (Pitney Bowes) Comments of Pitney Bowes Inc., February 14, 

2019 Pitney Bowes Comments

Public Representative (PR) Public Representative Comments, February 

14, 2019 PR Comments

Quad Graphics (Quad) Comments of Quad Graphics, February 14, 

2019 Quad Comments

Small Business & Entrepreneurship 

Council (SBE Council)

Comments of Small Business & 

Entrepreneurship Council on Docket No. 

ACR2018, January 31, 2019

SBE Council Comments

Taxpayers Protection Alliance (TPA)

Comments of Taxpayers Protective Alliance

on the 2018 Annual Compliance Report 

Docket No. ACR2018, January 31, 2019

TPA Comments

United Parcel Service, Inc. (UPS)

Initial Comments of United Parcel Service, 

Inc. on United States Postal Service’s Annual 

Compliance Report for Fiscal Year 2018, 

February 19, 2019

UPS Comments

United States Postal Service (Postal 

Service)

Reply Comments of the United States Postal 

Service, February 25, 2019

Postal Service Reply 

Comments

United States Postal Service (Postal 

Service)

United States Postal Service Reply Comments 

Regarding FY 2018 Performance Report and 

FY 2019 Performance Plan, February 22, 2019

Postal Service Reply 

Comments on FY 2018 

Performance Report and 

FY 2019 Performance Plan

United States Postal Service (Postal 

Service)

Postal Service Reply to UPS and PostCom 

Comments, March 1, 2019

Postal Service Reply 

Comments to UPS and 

PostCom
Docket No. ACR2018 Appendix C

 Page 1 of 2

Appendix C: Acronyms and 

Abbreviations

Acronym/Abbreviation Meaning

AADC Automated area distribution center

ACD Annual Compliance Determination

ACMA American Catalog Mailer Association

ACR Annual Compliance Report

ADC Area distribution center

AFSM Automated Flats Sorting Machine

APWU American Postal Workers Union

BPM Bound Printed Matter

BSN Business Service Network

CAGU Citizens Against Government Waste

Carlson Douglas F. Carlson

CEM Customer Experience Measurement

C.F.R. Code of Federal Regulations

CHIR Chairman’s Information Request 

CI Customer Insights

CPI Consumer price index

CPI-U Consumer price index for all urban consumers 

CPO Community Post Office

CPU Contract postal unit

CRA Cost and Revenue Analysis

DDU Destination delivery unit

DFSS Destination Flats Sequencing System

Discover Discover Financial Services

DNDC Destination network distribution center

DSCF Destination sectional center facility

ECSI Educational, cultural, scientific or informational (value)

EMS Express Mail Service

EPG E-Parcel Group

EXFC External First-Class Measurement

FedEx Federal Express Corporation

FSS Flats Sequencing System

FY Fiscal Year

GCA Greeting Card Association

GEPS Global Expedited Package Service

GREPS Global Reseller Expedited Package Service
Docket No. ACR2018 Appendix C

 Page 2 of 2

Acronym/Abbreviation Meaning

ICRA International Cost and Revenue Analysis

iMAPS Intelligent Mail Accuracy and Performance System

IMb Intelligent Mail barcode

IMMS International Mail Measurement System

IMTS-Inbound International Money Transfer Service-Inbound

IMTS-Outbound International Money Transfer Service-Outbound

Mixed ADC Mixed area distribution center

MPA & ANM Magazine Publishers of America, Inc., and Alliance of Nonprofit Mailers

IOCS In-Office Cost System

NAPM National Association of Presort Mailers

NDC Network distribution center

NPPC National Postal Policy Council

NSA Negotiated service agreement

NTU National Taxpayers Union

PAEA Postal Accountability and Enhancement Act

PHI PHI Acquisitions, Inc.

Pitney Bowes Pitney Bowes Inc.

POS Point of Sale

PostCom Association for Postal Commerce

PTS Product Tracking System

PR Public Representative

Progressive Progressive Direct Mail Advertising

QBRM Qualified Business Reply Mail

SASP Seamless Acceptance and Service Performance

SFS Stamp Fulfillment Services

TPA Taxpayers Protection Alliance

UFSM Upgraded Flats Sorting Machine

UHCC Utah Hispanic Chamber of Commerce

U.S.C. United States Code

UPS United States Parcel Service

UPU Universal Postal Union 

Valassis Valassis Direct Mail, Inc.

Valpak Valpak Direct Marketing Systems, Inc. and Valpak Dealers’ Association, Inc.

VPO Village Post Office
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