Annual Compliance 

determination report

Fiscal Year 2011

Postal Regulatory Commission

Submitted 3/28/2012 4:07:20 PM

Filing ID: 81771

Accepted 3/28/2012
 POSTAL REGULATORY COMMISSION 1

March 28, 2012

Letter From the Chairman

Ruth Y. Goldway

Chairman

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

Compliance Determination reviewing the performance of the U.S. Postal Service 

for Fiscal Year 2011. This annual review is required by the Postal Accountability 

and Enhancement Act (PAEA) and primarily focuses on financial transparency and 

compliance with pricing and service performance standards.

The Postal Service is continuing to experience severe financial losses. In FY 2011, 

the Postal Service lost $5.1 billion, and had Congress not deferred a statutorily 

required $5.5 billion payment into the Retiree Health Benefit Fund (RHBF), the loss 

would have totaled $10.6 billion. There is little reason to believe the Postal Service 

situation will improve in the near future. Mail volume continues to decline. More importantly, the Postal 

Service now faces a cash flow crisis related to the overly ambitious RHBF prefunding requirement. In FY 

2012, the Postal Service is obligated to pay both the $5.5 billion deferred from 2011 as well as $5.5 

billion due in FY 2012. It is unlikely to be able to do so.

Based on our review of information provided by the Postal Service, the Commission has determined the 

Postal Service to be largely in compliance with postal policies and the pricing requirements of the PAEA. 

Significant problems, however, remain. Ten Market Dominant products’ prices did not raise revenue 

sufficient to cover even their attributable costs, creating losses of $1.6 billion. Two were particularly 

problematic. Standard Mail Flats generated revenues $643 million less than its attributable costs, yet the 

Postal Service has repeatedly failed to utilize existing pricing options to address this growing Standard 

Mail intra-class subsidy. 

The other major problem area was Periodicals, a class with revenues $609 million below attributable 

costs. At the end of FY 2011, the Commission and the Postal Service jointly issued the “Periodicals Mail 

Study,” a report to Congress under Section 708 of the PAEA which examined, in part, how cost coverage 

for Periodicals might be improved. The Postal Service has indicated it is proceeding with operational 

changes recommended in the Report yet this year’s losses were greater than last year’s losses.
2 2011 Annual compliance determination

The Commission commends and continues to support the Postal Service’s efforts to innovate. In FY 2011, 

the Commission approved several pricing incentives designed to increase the value of the mail and 

slow the diversion of mail to electronic channels. The Commission also authorized several Postal Service 

market tests and the first market dominant Negotiated Service Agreement (NSA) since passage of the 

PAEA. The Postal Service continued to pursue competitive NSAs, agreeing to 67 in FY 2011. 

In FY 2011, in response to the Postal Service’s significant increase in post office closings, 103 

communities appealed the planned closing of their local post office to the Commission. These 

appeals demonstrate the value and relevance of local post offices to the communities they serve. The 

Commission plays an important role in allowing the public a forum to voice their concerns. However, 

only nine of these appeals were remanded for further review.

Congress and the Administration are considering legislative action to address the Postal Service’s 

structural problems. At the end of FY 2011, the Commission released its first five-year review of the 

PAEA, reporting on the operation of that statute and making recommendations for statutory changes 

that would benefit the Postal Service. The Commission suggested, for example, that Congress adjust 

the RHBF payment schedule to help address the Postal Service’s current liquidity challenge and clarify 

of the scope of appellate review for Postal Service determinations to close Postal Service operated 

retail facilities. We hope this Annual Compliance Determination helps to further inform Congress’ 

consideration.

I wish to thank Vice Chairman Nanci Langley and Commissioners Mark Acton and Robert Taub for their 

valuable work and contributions to this report. On behalf of my fellow Commissioners, I also want to 

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

Ruth Y. Goldway

Chairman
 POSTAL REGULATORY COMMISSION 3

Table Of Contents

Chapter I

Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Chapter II

Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Procedural History. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Chapter III

Legal Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Standard Mail Flats. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Periodicals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Timing of Market Dominant Price Adjustments and the ACR. . . . . . . . . . . . . . . . . . . . . . . 18

Chapter IV

Postal Service Financial Condition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Summary by Product. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Chapter V

Performance Plans & Program Performance Reports. . . . . . . . . . . . . . . . . . . . . . . . . 43

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Statutory Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Performance Goals and Indicators. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Strategic Initiatives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Public Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Evaluation of Statutory Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Review of Performance Goals and Strategic Initiatives. . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Chapter VI

Service Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Speed of Delivery and Reliability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

Customer Access. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

Customer Experience. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
4 2011 Annual compliance determination

Chapter VII

Market Dominant Products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

First-Class Mail. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

Periodicals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

Standard Mail. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

Package Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

Special Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136

Market Dominant International Products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142

Market Tests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150

Market Dominant Negotiated Service Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151

Chapter VIII

Competitive Products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153

Cross-Subsidy Provision: 3633(a)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154

Product Cost Coverage Provision: 3633(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156

Appropriate Contribution Provision: 3633(a)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .163

Competitive Market Tests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164

Competitive Products Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165

Chapter IX

Nonpostal Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167

FY 2011 Financial Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167

Appendix A

Financial Results Under Previous Classification. . . . . . . . . . . . . . . . . . . . . . . . . . . 169

Appendix B

Methodology Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173

Appendix C

Abbreviations and Acronyms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183

Appendix D

Commenters—2011 Annual Compliance Determination. . . . . . . . . . . . . . . . . . . . . 187
 POSTAL REGULATORY COMMISSION 5

Chapter I

Executive Summary

This report reviews the Postal Service’s performance in Fiscal Year 2011, fulfilling the Commission’s 

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

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

and on comments subsequently received from the public.

Principal Findings — Financial

In FY 2011, the Postal Service’s financial condition continued to deteriorate. At the end of FY 2012, it will not 

have sufficient cash to meet its Retiree Health Benefits Fund (RHBF) obligation. Even without this obligation, the 

Postal Service soon may be unable to meet payroll or pay its other bills.

The Postal Service’s cumulative loss over the last 5 years amounts to $25.3 billion. The Postal Service lost 

$5.1 billion in FY 2011, but the loss would have been $10.6 billion had Congress not deferred the RHBF 

payment at the end of FY 2011. The primary reason for the losses is the overly optimistic RHBF pre-funding 

requirement. If there had been no prefunding requirement, the cumulative 5-year loss would have been 

reduced to $4.4 billion. The prefunding obligation is also the primary reason the Postal Service has had to use 

almost all of its statutory authority to borrow funds.

Since the passage of the Postal Accountability and Enhancement Act (PAEA), volume has declined in all classes 

of mail, especially First-Class Mail, the Postal Service’s most profitable product. The combination of the price 

cap and the continuing decline of First-Class Mail prevents the Postal Service from generating sufficient funds 

from mail users to cover its institutional costs. First-Class Mail declined by 5 billion pieces in FY 2011 resulting 

in the Postal Service losing $1.0 billion in contribution to institutional costs. Had First-Class Mail remained at its 

2006 volume level, the Postal Service would have generated an additional $5.2 billion in contribution in FY 

2011 which exceeds the $5.1 billion loss noted above.
6 2011 Annual compliance determination

Principal Findings — Pricing

The rates and fees for Standard Mail Flats remain 

out of compliance as its losses grew from $577 

million in FY 2010 to $643 million in FY 2011. The 

Commission orders no new remedial action pending 

resolution of an ongoing judicial review of this matter.

Ten market dominant products failed to generate 

revenues sufficient to cover attributable costs, losing in 

the aggregate $1.6 billion, including:

 $609 million from Periodicals,

 $643 million from Standard Mail Flats, and 

 $112 million from Standard Mail Parcels/Not-Flat 

Machinables (NFMs);

For Periodicals, the Postal Service should continue 

to pursue opportunities identified by the Periodicals 

Study to reduce the costs of handling flats.

For Standard Parcels/NFMs, the Postal Service 

should continue to use its pricing flexibility to give this 

mail above average price increases.

The evaluation of cost coverage and contribution is 

important because it demonstrates that the losses from 

market dominant products contributed substantially to 

the Postal Service’s $5.1 billion loss in FY 2011. This 

indicates that the Postal Service has not been able to 

use its pricing flexibility to cover costs nor to maximize 

profit.

Of the 35 workshare discounts that exceeded 

avoided cost in FY 2011,16 did not satisfy 3622(e)

(2) and, except for one discount discussed in 

Chapter VII, the Postal Service is directed to align 

these discounts with avoided cost in the next market 

dominant price adjustment.

Competitive products, as a whole, have generated 

a profit, making a positive contribution to institutional 

cost, amounting to 7.8 percent, which exceeded 

the required 5.5 percent share; however, two 

international competitive products and one 

competitive special services product failed to cover 

attributable cost and thus did not comply with section 

3633(a)(2). The Postal Service is ordered to take 

steps to remediate the problem.

Principal Findings — Service Performance

The Commission must determine, for the year covered 

by the ACD, “whether any service standards in effect 

during such year were not met.” 39 U.S.C. 3653(b)

(2). This fulfills part of the required transparency and 

accountability of the PAEA. Moreover, maintaining or 

increasing service performance will help the Postal 

Service retain users of the mail. In some cases, 

particularly Package Services, improving service 

performance may result in volume growth.

The Postal Service is demonstrating success in meeting 

its service standard goals in the areas of single-piece 

First-Class Mail and Special Services. However, 

the Postal Service did not meet its delivery service 

standard target for the majority of market dominant 

products in FY 2011. Overall, the Commission 

regards low performance results for speed of delivery 

as an important issue the Postal Service must resolve 

and the Commission will closely monitor the reporting 

results in FY 2012. The Commission expects that in 

FY 2012, service performance results will be closer to 

established targets.

Significant issues continue to hinder the Intelligent 

Mail barcode system from fulfilling its potential 

as a useful component of service performance 

measurement. Despite the requirement that it report 

service performance for market dominant products 

in FY 2011, results for many products were only 
 POSTAL REGULATORY COMMISSION 7

available for one quarter. If continued progress is 

not evident, the Commission will review its decision 

to allow the use of the hybrid system for service 

performance measurement. 

Principal Findings — Filing Requirements

Contrary to the Commission’s rules, which require 

that the Postal Service’s Annual Compliance Report 

be submitted based on existing, approved costing 

methodologies, the Postal Service filed certain 

attributable costs and cost avoidance estimates based 

on proposed methodological changes still pending 

before the Commission. These filings were made less 

than a month before the Annual Compliance Report. 

FY 2011’s Annual Compliance Report and Annual 

Performance Plan and descriptions of strategic 

initiatives did not contain information similar to the 

level of detail provided in FY 2010. Future Annual 

Compliance reports must adhere to the Commission’s 

rules as specified in 39 CFR part 3050.

The Postal Service’s flexibility under the PAEA includes 

deciding when to implement rate changes. However 

the FY 2011 schedule necessarily required reliance 

on data over one year old. Use of more current data 

would allow for more cost-based rates and, in all 

likelihood, minimize the need for remedial action by 

the Commission.
8 2011 Annual compliance determination
 POSTAL REGULATORY COMMISSION 9

Chapter II

Background

Introduction

Statutory context. Ongoing, systematic reporting and assessment of the financial and operational performance 

of the United States Postal Service are mandated by two provisions of the Postal Accountability and 

Enhancement Act (PAEA). Pub L. 109-435, 120 Stat. 3198 (2006). The first provision, 39 U.S.C. 3652, 

requires the Postal Service to file certain annual reports with the Commission, including an Annual Compliance 

Report (ACR). See 39 U.S.C. 3652(a) and (g). The second provision, 39 U.S.C. 3653, provides for the 

Commission’s review of these annual reports, including an Annual Compliance Determination (ACD) regarding 

the compliance or non-compliance of various rates and service standards.1 Together, these provisions establish 

the ACD and the ACR as integrated mechanisms for achieving the PAEA’s objectives of providing ongoing 

accountability, transparency, and oversight.

Timeline and review of report. The Postal Service is required to file the ACR no later than 90 days after the 

end of each fiscal year, which ends September 30. The Commission is required to complete the ACD within 

90 days after receiving the ACR. The Postal Service filed the 2011 ACR on December 29, 2011. Thus, the 

Commission must issue the ACD no later than March 28, 2012.

Focus of the ACR. In accordance with section 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 ACR must report product 

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

the degree of customer satisfaction. For market dominant products with workshare discounts, the ACR must 

report the per-item cost avoided by the Postal Service by virtue of such discount, the percentage of such per1 Common abbreviations and acronyms are identified in Appendix C.
10 2011 Annual compliance determination

item cost avoided that the per-item workshare discount 

represents, and the per-item contribution to institutional 

costs. 39 U.S.C. 3652(a) and (b). 

Other reports. In conjunction with its filing of the 

ACR, the Postal Service must also file its most recent 

comprehensive statement on postal operations, its 

performance plan, and program performance reports. 

39 U.S.C. 3652(g).

Commission responsibilities. Under section 3653, 

the Commission’s corresponding responsibilities 

include providing an opportunity for comment on 

the Postal Service’s submission, 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. If no 

instance of non-compliance is found, the determination 

is written accordingly. 39 U.S.C. 3653 (a), (b). 

If a determination of non-compliance is made, the 

Commission is directed to take such action as it deems 

appropriate. The Commission is also required to 

evaluate annually whether the Postal Service has met 

the goals established under sections 2803 and 2804, 

and may make recommendations to the Postal Service 

related to the protection or promotion of public policy 

objectives of title 39. 39 U.S.C. 3653(d). 

Procedural History

On December 29, 2011, the Postal Service filed its 

2011 ACR, covering the period from October 1, 

2010 through September 30, 2011. In accordance 

with section 3652(g), the Postal Service concurrently 

filed its 2011 Comprehensive Statement on Postal 

Operations.2 The Comprehensive Statement included 

2 2011 Comprehensive Statement on Postal Operations, December 

29, 2011 (Comprehensive Statement). This document was filed as 

Library Reference USPS FY11-17.

the Postal Service’s 2011 Annual Performance 

Report and 2012 Performance Plan required by the 

Government Performance and Results Act, P.L. 103-62.

The ACR includes an extensive narrative discussion 

and a substantial amount of detailed public and nonpublic information contained in library references. 

The library references include the Cost and Revenue 

Analysis, the International Cost and Revenue Analysis, 

cost models supporting workshare discount analysis, 

and billing determinant information. Library Reference 

USPS-FY11-9 serves as a road map that summarizes 

other materials in the submission. It also includes a 

section on methodology changes and a section in 

response to Commission rule 3050.12 regarding 

data obsolescence. 

The Postal Service also filed its annual report to the 

Secretary of the Treasury regarding the competitive 

products fund, as required by section 2011(i) of title 

39, as part of library reference USPS-FY10-39 in 

conjunction with the other Competitive Products Fund 

materials required to comply with 39 CFR 3060.20 

through 3060.23.

On January 3, 2012, the Commission issued an 

order providing notice of the Postal Service’s filing, 

establishing Docket No. ACR 2011 as a formal 

docket to consider the filing, appointing a Public 

Representative to represent the interests of the general 

public, and providing an opportunity for public 

comment.3 It established February 3, 2012, as the 

deadline for comments and February 17, 2012, as 

the deadline for reply comments. 

Methodology changes. The Postal Service reports that 

the scope of new methodologies has been minimized 

3 See Notice of Postal Service’s Filing of Annual Compliance Report 

and Request for Public Comments, January 3, 2012 (Order No. 

1095); see also 77 FR 1521 (January 10, 2012).
 POSTAL REGULATORY COMMISSION 11

because it has generally replicated the methodologies 

most recently used by the Commission. It indicates, 

however, that several methodological changes are 

reflected in the ACR. It identifies and discusses these 

changes in a separate section of the road map 

document and in the prefaces to the appended 

materials. Additionally, the Postal Service filed 

proposals to change analytical principles since the 

filing of the 2010 ACR. It summarizes 12 proposals 

and proposed changes that were pending resolution 

as of the date of the filing, which have been 

incorporated into the 2011 ACR. Five proposals 

(Proposals 16 through 20) are still pending before the 

Commission, having been submitted shortly before the 

2011 ACR on November 30, 2011.

Product analysis. The Postal Service provides a 

detailed analysis of each market dominant product, 

including domestic negotiated service agreements 

entered into during FY 2011. It also presents 

information on workshare discounts responsive to 

39 U.S.C. 3652(b). The Postal Service presents a 

product-by-product analysis of competitive products 

and discusses available FY 2011 data regarding 

conformity with 39 U.S.C. 3633. Further, the Postal 

Service provides information on the five market 

tests conducted during FY 2011, and on nonpostal 

services. The Postal Service explains that the 

Commission linked reporting on nonpostal services to 

approval of classification in Docket No. MC2010-

24, a docket that was still pending at the close of FY 

2011. As a result, the Postal Service has provided 

information on two market dominant nonpostal 

services.

Confidentiality. In FY 2009, the Commission adopted 

rules governing the treatment of commercially sensitive 

information. 4 These rules require the Postal Service 

to apply for non-public treatment when it considers 

information required in periodic reports to be 

commercially sensitive. Its application must specify 

reasons for concluding the particular information is 

commercially sensitive and in need of non-public 

treatment, and describe with particularity the nature of 

the competitive harm that public disclosure is likely to 

cause. Accordingly, the Postal Service accompanied 

its 2011 ACR with an application for non-public 

treatment of certain competitive product information, 

including its supporting rationale.

Requests for additional information. On January 19, 

2012, Chairman’s Information Request (CHIR) No. 

1 was issued, directing the Postal Service to provide 

additional information to clarify estimates in the ACR. 

Three additional CHIRs were issued during the course 

of this proceeding. The Postal Service has responded 

to all information requests. In addition, the Postal 

Service subsequently filed supplemental information 

to support its responses. The Commission appreciates 

the Postal Service’s responsiveness to the information 

requests. 

4 See Docket No., RM2008-1, Final Rule Establishing Appropriate 

Confidentiality Procedures, June 19, 2009 (Order No. 225).
12 2011 Annual compliance determination
 POSTAL REGULATORY COMMISSION 13

Chapter III

Legal Issues

Introduction

Commenters raise several legal issues related to the 2011 ACR. Of particular concern are (1) Standard 

Mail Flats remain out of compliance with title 39, and (2) the Periodicals Class products’ compliance with 

title 39 notwithstanding the failure of those products to cover costs. Another, more theoretical issue is whether 

workshare discount passthroughs of less than 100 percent of avoided costs satisfy section 3622(a).1 Finally, 

in response to comments, the Commission discusses the impact that the Postal Service’s recent revision to the 

Schedule for Regular and Predictable Rate Changes may have on the data utilized during the ACD.

Standard Mail Flats

Background. On March 29, 2011, the Commission issued its FY 2010 ACD. The Commission concluded 

that because of the Postal Service’s failure to address the increasing cost contribution shortfall of the Standard 

Mail Flats product (then 81.6 percent), the prices in effect in FY 2010 for that product amounted to an unfair 

and inequitable apportionment of costs in violation of 39 U.S.C. 101(d). 2010 ACD at106. Pursuant to 

the authority granted to it by 39 U.S.C. 3653(c), the Commission directed the Postal Service to increase the 

cost coverage of the Standard Mail Flats product through a combination of above-average price adjustments 

and cost reductions until such time that revenue for the product exceeds attributable costs. Id. The Commission 

further directed the Postal Service to present a schedule of future above-CPI price increases for the Standard 

1 Two commenters assert that the Postal Service, by setting workshare discounts at a rate less than avoided costs, engages in a form 

of exclusionary pricing.According to these commenters, such discounts do not satisfy the directive that the Commission establish “a 

modern system for regulating rates and classes for market-dominant products.” Panzar Comments at15; Pitney Bowes Comments 

at 6. They ask that the Commission revise the rate regulations to require that workshare discounts be set at 100 percent of avoided 

cost. Regardless of the policy or legal merits of this proposal, neither commenter suggests that the Postal Service was out of 

compliance in FY 2011 because of workshare discounts. See also Chapter VII.
14 2011 Annual compliance determination

Mail Flats product within 90 days of the issuance 

of the FY 2010 ACD, with the schedule to be 

updated with each subsequent market dominant price 

adjustment and ACR. Finally, in order to provide 

increased transparency concerning the steps that the 

Postal Service is taking to eliminate the intra-class 

subsidy with respect to Standard Mail Flats, the 

Commission ordered the Postal Service to provide 

certain additional information in subsequent ACRs 

and notices of market dominant price adjustments until 

the revenue for the product exceeds attributable costs. 

Id. at 107.

D.C. Circuit litigation. On April 27, 2011, the Postal 

Service filed a petition with the United States Court 

of Appeals for the District of Columbia Circuit (D.C. 

Circuit) seeking review of the FY 2010 ACD relating 

to the Commission’s determination of non-compliance 

for the Standard Mail Flats product. In its Petition, the 

Postal Service argued, among other things, that the 

PAEA requires the Standard Mail class to cover costs, 

not the Standard Mail Flats product 2 within that class, 

and that the finding of non-compliance exceeded the 

Commission’s authority in ACD proceedings. Id. at 

7-8.; see also 2011 ACR at 28.

On May 17, 2011, the Postal Service moved to 

have the Commission stay that portion of the ACD 

requiring it to present a schedule of above-CPI price 

increases for Standard Mail Flats within 90 days. On 

May 27, 2011, the Commission granted this request 

and instituted a stay that will remain in effect until 

30 days following resolution of the Petition.3 Oral 

2 United States Postal Service v. Postal Regulatory Commission, 

No. 11-1117 (D.C. Cir. 2011), (April 27, 2011) at i 

(Petition). 3 Docket No. ACR2010, Order Granting Stay, May 27, 

2011, at 3 (Order No. 739).

argument in the case was held on February 7, 2012. 

The outcome of the case is pending before the Court.

FY 2011 Compliance. Pursuant to 39 U.S.C. 

3652(a)(1), the Postal Service is required to 

“demonstrate that all products during such year 

complied with all applicable requirements of [title 

39].” The Postal Service notes that it increased 

prices for the Standard Mail Flats product by 0.835 

percent in FY 2011 and argues that this “moderate 

increase” was made in an effort to “gradually 

move Standard Mail Flats towards 100 percent 

cost coverage without placing an undue burden on 

the already fragile catalog mailing industry, which 

depends heavily on Standard Mail Flats.” 2011 ACR 

at 28-29. The cost coverage for the Standard Mail 

Flats product, however, has decreased from 81.6 

percent in FY 2010 to 79.4 percent in FY 2011. The 

Postal Service concedes that pricing and efficiency 

measures need to be taken to move this product 

toward covering its costs and making an appropriate 

contribution toward institutional costs. Id. at 28.

Standard Mail, as a class, covers attributable costs 

and makes a substantial contribution to institutional 

costs. However, the 2011 ACR results show that 

the Standard Mail Flats product does not cover 

costs, and therefore does not make a contribution to 

institutional costs. Id.

Beginning as early as the FY 2008 ACD and 

reiterated in subsequent proceedings, the Commission 

has recognized some mailers’ concern that the 

Standard Mail Flats product does not cover costs 

and, as a consequence, imposes a disproportionate 

institutional cost burden on other Standard Mail 
 POSTAL REGULATORY COMMISSION 15

products, particularly the Standard Mail Letters and 

Carrier Route products.4 Since FY 2008 that burden 

has worsened. The Standard Mail Flats product’s 

contribution per piece, which was negative 2.2 

cents in FY 2008, has expanded to negative 9.5 

cents in FY 2011. In contrast, the Standard Mail 

Letters product’s contribution per piece was positive 

8.9 cents in FY 2011. An alternate way of viewing 

the increasing intra-class burden that the Standard 

Mail Flats product is imposing on the Standard Mail 

Letters and Carrier Route products is to compare 

the difference in unit contribution. In FY 2008, the 

difference in unit contribution between Standard Mail 

Flats and Standard Mail Letters was 11.2 cents. 

In FY 2011, the difference in unit contribution was 

18.4 cents. Similarly, in FY 2008, the difference in 

unit contribution between Standard Mail Flats and 

Standard Mail Carrier Route was 9.9 cents. In FY 

2011, the difference in unit contribution was 15.8 

cents. Despite the Commission’s repeated suggestions 

that Standard Mail Flats be priced above cost,5 the 

Postal Service had persisted in proposing belowaverage price increases for this product. However, 

its recent FY 2012 price increase of 2.209 percent 

is minimally higher than the average Standard Mail 

price increase of 2.133 percent.

Parties’ comments. Five commenters address the 

Postal Service’s Standard Mail Flats pricing strategy. 

L.L.Bean challenges the Postal Service’s proffered 

reason for continuing the below-cost pricing strategy 

-- concerns about placing an “undue burden” on the 

“fragile catalog mailing industry.” See 2011 ACR at 

4 See 2008 ACD at 61; see also 2009 ACD at 86; 2010 

ACD at 103; Docket No. R2009-2, Order No. 191 at 52-

53, and Docket No. R2010-2, Order No. 675 at 31. 5 See, e.g., Order No. 191, at 53; 2010 ACD at 103-104, 

107; 2009 ACD at 86-87.

29. L.L.Bean references a recent survey conducted 

by the American Catalog Mailers Association 

(ACMA) that found that only one-third of catalogs are 

mailed as Standard Mail Flats whereas two-thirds of 

catalogs are mailed as Carrier Route, a Standard 

Mail product that generates a positive contribution to 

institutional costs. L.L.Bean Comments at 1-2. L.L.Bean 

requests that the Commission issue a noncompliance 

determination for the Standard Mail Flats product in 

the 2011 ACD. Id. at 3. 

Claiming that previous efforts to control the costs of 

the Standard Mail Flats product have largely failed, 

Valpak argues that the Postal Service should be 

required to increase cost coverage by implementing 

consecutive above-average price increases. Valpak 

Comments at 58. Valpak suggests that if the D.C. 

Circuit Court affirms the Commission’s authority to 

make a finding of noncompliance and issue remedial 

orders, the Commission should direct that substantial 

price increases be made for Standard Mail Flats to 

ensure that the product makes a positive contribution 

to institutional costs in 3 years time. Id. at 60.

Noting the burden that cross-subsidization of the 

Standard Mail Flats product imposes on users of the 

Standard Mail Letters product, the National Postal 

Policy Council (NPPC) requests that the Commission 

remediate the cross-subsidization of Standard Mail 

products in a manner that reduces the burden on 

Standard Mail Letter mailers while accounting for 

the possible consequences that abrupt reductions 

in Standard Mail Flats volumes may cause. NPPC 

Comments at 2.

The Public Representative recognizes that the Postal 

Service did implement an above-average price 

increase of 2.209 percent for Standard Mail Flats in 
16 2011 Annual compliance determination

January 2012. However, the Public Representative 

notes that the Postal Service failed to provide the 

information that the Commission, in its FY 2010 ACD, 

ordered it to present concerning the elimination of the 

intra-class cross-subsidy.6 The Public Representative 

urges the Commission to request that the Postal 

Service submit a plan to bring the Standard Mail Flats 

product back into compliance. Public Representative 

Comments at 18-19. Valpak concurs with this request. 

Valpak Reply Comments at 26.

In contrast to the other commenters, the American 

Catalog Mailers Association (ACMA) challenges 

the premise that the Standard Mail Flats product is 

suitable for a cross-subsidy test. According to the 

ACMA, three products within the Standard Mail 

class – Standard Mail Flats, Carrier Route, and HighDensity & Saturation Flats and Parcels – are each 

composed of nonhomogeneous agglomerations of 

commercial and nonprofit items. ACMA Comments at 

25-27.

In their reply comments, both Valpak and L.L.Bean 

urge the Commission to make a formal finding of 

non-compliance. Valpak asserts that if the Commission 

does not make a finding of non-compliance, it could 

render the pending D.C. Circuit Court proceedings 

moot. Valpak Reply Comments at 20. Valpak also 

notes that under section 3653(e), a failure by the 

Commission to render a determination of noncompliance will create a rebuttable presumption that 

6 Specifically, the Commission ordered the Postal Service to 

provide, in the ACR: (1) a description of all operational 

changes designed to reduce Standard Mail Flats costs that 

were made in the previous year and an estimate of the 

financial effects of such changes, (2) a description of all 

costing methodology or measurement improvements made in 

the previous year and an estimate of the financial effects of 

such changes, and (3) a statement summarizing the historical 

and current year subsidy of the Standard Mail Flats product. 

See 2010 ACD at 107.

the rates for the Standard Mail Flats product were 

in compliance in FY 2011, thereby prejudicing 

the position of any putative mailer that might file a 

complaint with the Commission pursuant to section 

3662. L.L.Bean echoes these two concerns. L.L.Bean 

Reply Comments at 3.

The factual predicates that prompted the Commission 

to conclude in the FY 2010 ACD that the Standard 

Mail Flats product was not in compliance with title 

39, and which prompted the Commission to order 

remedial measures, remained during FY 2011. The 

Commission accordingly finds that the Standard Mail 

Flats product remained out of compliance.

Shortly after the close of FY 2011, the Postal Service 

filed notice with the Commission announcing, among 

other things, a planned increase in Standard Mail 

Flats rates of 2.209 percent, only 0.076 percent 

above the class average, 2.133 percent. Ordinarily, 

the Commission would consider the Postal Service’s 

subsequent filing. Given the pendency of the appeal 

before the D.C. Circuit, however, the Commission 

will hold action in this area in abeyance pending 

receipt of the Court’s decision. Following that, the 

Commission will take action as appropriate.

Periodicals

The Postal Service reports that in FY 2011 Periodicals 

continued not to cover attributable costs. In FY 

2011, the cost coverage of the Periodicals class 

declined slightly, to 74.9 percent from 75.5 percent 

in FY 2010. 2011 ACR at 32. Both products that 

comprise the Periodicals class – Within County and 

Outside County – have reported cost coverage 

shortfalls of similar ratio. Thus, a rebalancing pricing 

strategy which keeps the overall price cap intact at 

the class level, is not feasible. The Postal Service 

reports that if it increased Periodicals prices to cover 
 POSTAL REGULATORY COMMISSION 17

attributable costs, the resulting prices would drive 

many publishers out of the print business altogether. 

Id. at 33. It indicates, however, that it is continuing 

to pursue operational efficiencies and opportunities 

to fine-tune prices in an effort to improve the cost 

contribution of Periodicals. Id. at 33-34.

Valpak contends that the cost reductions that the 

Postal Service hopes to achieve cannot possibly 

resolve the cost coverage gap for Periodicals. 

Valpak Comments at 70. It contends that a noncompliance determination for this class is warranted 

on the basis of the repeated cost coverage shortfalls, 

which it asserts violate section 101(d), and many of 

the statutory objectives and factors listed in section 

3622. Id. at 72-78. Valpak therefore asks the 

Commission to make a non-compliance determination 

and either order a price adjustment above the cap, 

or order that the Periodicals products be discontinued 

and replaced with a discount. Id. at 80-81.

Time Inc. (Time) comments that it expects to see 

improvements in the cost coverage for Periodicals 

as the Postal Service implements various operational 

efficiencies. Specifically, Time is hopeful that 

eliminating Hot 2-C Processing, advancing the 

Critical Entry Time for Periodicals, and implementing 

the FSS and Network Consolidation will lead to cost 

reductions. Time Comments, Attachment A at 1-3.

As discussed in Chapter VII, the Commission 

concludes that the rates for Periodicals do not satisfy 

section 3622(c)(2), but it does not find the FY 2011 

Periodicals rates to be out of compliance with the 

applicable statutory provisions or the regulations 

promulgated thereunder. As the Commission 

explained in the FY 2010 ACD, a finding that a 

product fails to satisfy a provision of title 39 does 

not compel a finding of non-compliance. In making 

a compliance determination, the Commission must 

take into account numerous and sometimes conflicting 

considerations. For example, the Commission must 

take into account the effect that rate increases will 

have upon the general public, business mail users, 

and enterprises in the private sector of the economy 

engaged in the delivery of mail matter other than 

letters. 39 U.S.C. 3622(c)(3). The Commission must 

also take into account “the educational, cultural, 

scientific, and informational value to the recipient of 

mail matter.” 39 U.S.C. 3622(c)(12).

Periodicals and Standard Flats face distinguishable 

circumstances. Periodicals had cost coverage 

shortfalls in the years prior to the passage of the 

PAEA. Moreover, unlike Standard Mail, Periodicals 

as a class fails to cover costs, thus foreclosing a 

rebalancing pricing strategy. While this is a concern, 

there is no suggestion that the Postal Service has 

ignored its pricing flexibility under the PAEA with 

respect to the Periodicals products. In addition, 

management has not yet fully brought to bear 

efficiency enhancements, network adjustments, and 

related changes which could alter the attributable 

cost picture for Periodicals. The Commission finds it 

appropriate to allow more time for these measures 

to be implemented. The Commission takes seriously 

the concerns that price increases on Periodicals 

may, as a consequence, drive periodical publishers 

out of the print business. Nonetheless, the persistent 

negative contribution from Periodicals cannot endure 

indefinitely. See Postal Service Reply Comments at 

7. For the reasons stated above, the Commission 

is persuaded that affording the Postal Service 

an opportunity to realize new efficiencies is the 

appropriate course. 
18 2011 Annual compliance determination

Timing of Market Dominant 

Price Adjustments 

and the ACR

Under Commission regulations implementing the 

PAEA, the Postal Service is required to maintain on 

file with the Commission a Schedule for Regular 

and Predictable Rate Changes (Schedule). 39 CFR 

3010.7(a). The Postal Service is required to file a 

revised schedule when it deems it appropriate to 

change the Schedule. 39 CFR 3010.7(e). To date, 

the Postal Service has established or updated the 

Schedule on three occasions – February 11, 2008, 

January 13, 2011, and October 18, 2011 – with 

the proposed rate changes taking effect approximately 

three months later.7 In the notice accompanying its 

most recent market dominant price adjustment, the 

Postal Service indicated that it intends to implement 

price adjustments in January of each year. 

By statute, the Postal Service is required to file its 

ACR no later than 90 days after the end of each 

fiscal year (i.e., December 29). 39 U.S.C. 3652(a). 

The Commission is then required to issue its ACD 

within 90 days after receiving the ACR. 39 U.S.C. 

3653(b). The Postal Service filed the 2011 ACR on 

December 29, 2011. Thus, the Commission must 

issue the ACD no later than March 28, 2012. 

Two commenters — Valpak and the Public 

Representative — submitted comments regarding 

when the Postal Service should implement price 

changes in light of the statutory timing requirements 

of the ACD process. Valpak identifies two problems 

with the Postal Service’s proposed market dominant 

7 See United States Postal Service Notice of Market-Dominant 

Price Adjustment, February 11, 2008; United States Postal 

Service Notice of Market-Dominant Price Adjustment, January 

13, 2011; United States Postal Service Notice of MarketDominant Price Adjustment, October 18, 2011.

price adjustment annual implementation time frame. 

First, implementing price changes in the midst of a 

fiscal year creates technical challenges in completing 

the ACR because there are two sets of rates in effect 

during the fiscal year that is being reviewed for 

compliance. Second, implementing price adjustments 

in January creates a long delay between the 

Commission’s ACD, which provides guidance to the 

Postal Service on pricing, and the implementation 

of rate adjustments. Valpak Comments at 18. The 

Public Representative notes that by not implementing 

price adjustments until January, the Postal Service 

will deprive itself of the opportunity to promptly make 

improvements to problematic rates and discounts that 

it identifies as part of the ACR process in December. 

PR Comments at 25-26.

Valpak recommends that the Postal Service provide 

notice of price adjustments 2 to 3 months after 

the Commission issues the ACD with the price 

adjustments to take effect at the start of each fiscal 

year (i.e., October 1). The Public Representative 

recommends that the Postal Service file its notice of 

market dominant price adjustment after it files the ACR 

with the Commission. 

The Postal Service indicates that it is sympathetic 

to the commenters’ concerns. It notes that ideally it 

would implement price changes after the ACD is 

issued (typically late March) or at the start of the fiscal 

year (October 1). However, with respect to Valpak’s 

suggestion that the price adjustment be implemented 

on October 1, the Postal Service indicates that 

it cannot accommodate a start-of-the-fiscal year 

schedule because it cannot review the results from 

a fiscal year until after the fiscal year closes. Postal 

Service Reply Comments at 8. The Postal Service 

concedes that it could delay the implementation of 
 POSTAL REGULATORY COMMISSION 19

price adjustments until after the completion of the 

ACD process. However, it argues that to do so would 

undermine its statutory pricing flexibility. The Postal 

Service contends that it is best suited to balance these 

conflicting considerations and determine when during 

the year it will implement price adjustments. Id. at 9. 

The Postal Service has pricing flexibility under the 

PAEA, including deciding when to implement rate 

changes. However, rate adjustment notices filed 

in October, November, or December necessarily 

require reliance on data that may be more than one 

year old.8 This most recent schedule delays, and 

to some extent frustrates, the goals of transparency 

and accountability central to the PAEA. Use of more 

current cost data would be beneficial by allowing 

for more cost-based rates, fostering stable and 

predictable rates and, in all likelihood, minimizing the 

need for remedial action by the Commission.

8 See Section 701 Report, Analysis of the Postal Accountability 

and Enhancement Act of 2006, September 22, 2011; see 

also Docket No. R2012-3, Order on Adjustments for Market 

Dominant Products and Related Mail Classification Changes, 

November 22, 2011 (Order No. 987).
20 2011 Annual compliance determination
 POSTAL REGULATORY COMMISSION 21

Chapter IV

Postal Service Financial Condition

Introduction

The Postal Service’s basic function is to “provide postal services to bind the Nation together through the 

personal, educational, literary, and business correspondence of the people.” 39 U.S.C. 101(a). The 

Commission developed a modern ratemaking system as required by the PAEA which, among other things, 

“assures adequate revenues, including retained earnings, to maintain financial stability.” Despite this objective, 

the Postal Service’s ability to continue to meet its service obligation is in serious jeopardy, in part, due to its 

inability to generate sufficient revenues to meet all of its financial obligations.

Since the passage of the PAEA, volume has declined in all classes of mail, especially First-Class Mail—the 

Postal Service’s most profitable product. In addition, mandated payments into the Retiree Health Benefits 

Fund have seriously eroded the Postal Service’s ability to fulfill the mandates of title 39. This chapter provides 

an overview of the Postal Services finances. It includes a discussion of the liquidity problems that the Postal 

Service has experienced over the past 3 years, the problem of declining volumes and revenues, legislative 

reform, and the Retiree Health Benefits Fund. It also discusses class/product volume, revenue and cost data, 

as well as overall work hours, and productivity.

Overview

FY 2011 marked the fifth consecutive year of financial losses for the Postal Service. The net loss of $5.1 

billion in FY 2011 would have been significantly higher if the payment of $5.5 billion for the Retiree Health 

Benefits Fund had not been deferred by Congress.1 The largest net loss in Postal Service history occurred in 

1 Congress has actually deferred the retiree health benefits payment several times through continuing resolutions, first deferring the payment to October 

4, 2011 (P.L. 112-33), then deferring the payment further to November 18, 2011 (P.L. 112-36), and finally deferring the payment to August 1, 

2012 (P.L. 112-74, Consolidated Appropriations Act).
22 2011 Annual compliance determination

FY 2010 when losses amounted to $8.5 billion. 

Since FY 2007, the Postal Service has lost $25.3 

billion. These losses have created a situation where 

there may not be enough cash or borrowing authority 

available to finance postal operations beyond the 

summer of 2012. As shown in Table IV–1 below, the 

continued losses have seriously eroded the retained 

earnings and increased the total debt of the Postal 

Service. Total debt now stands at $13 billion as of 

the end of FY 2011, only $2 billion less than the 

statutory limit of $15 billion.

Continuing Liquidity Issues

Liquidity, or the availability of cash through operating 

revenues and debt, is the most important requirement 

for any business organization. Without the ability to 

generate sufficient cash from business operations, 

or to access sufficient debt capacity to invest in the 

business, an organization cannot continue to operate. 

The Postal Service’s ability to generate cash from 

operations has been severely hampered due to the 

continuing decline in mail volumes, especially FirstClass Mail, which provides the highest contribution 

to institutional costs. The significant payments to the 

Retiree Health Benefits Fund, inflation-based caps 

on prices for most products the Postal Service offers, 

and the increasing cost of maintaining a growing 

network of delivery points have also restricted the 

Postal Service’s ability to generate sufficient cash from 

operations. Over the last 5 years, the Postal Service 

has relied on debt and Congressional intervention2

to continue to provide service to the American 

public as required under title 39. The acquisition of 

debt was primarily to make the statutorily required 

payments to pre-fund retiree health benefits, which in 

turn denies the Postal Services the ability to invest in 

capital improvements, technology, or other means of 

enhancing operations.

In each ACD since FY 2008, the Commission has 

raised the issue of declining Postal Service liquidity. In 

the FY 2008 ACD, the Commission detailed the cash 

flows of the Postal Service and noted that the 

...significant declines in revenues and the 

inability of the Postal Service to reduce costs 

fast enough could significantly increase the 

[expected] net loss for FY 2009 to as much as 

2 The deferrals of the FY 2011 payment noted above and the deferral 

of $4 billion of the scheduled $5.4 billion due on September 30, 

2009. P.L. 111-68, Continuing Appropriations Resolution, 2010.

Table IV–1—Financial Position of USPS FY 2006–2011 

($ in Millions)

FY

2006

FY

2007

FY

2008

FY

2009

FY

2010

FY

2011

Net Income (Loss) before RHB and Workers Comp Adj. $900 $3,216 $3,211 $(1,051) $(505) $(2825)

Payments to Retiree Health Benefits Fund - 8,358 5,600 1,400 5,500 –

Workers Comp Liability Adj. - –- 417 1,343 2,500 2,242

Net Financial Loss 900 (5,142) (2,806) (3,794) (8,505) (5,067)

Retained Earnings 6,276 1,134 (1,672) (5,466) (13,971) (19,038)

Total Debt 2,100 4,200 7,200 10,200 12,000 13,000

Source: USPS Financial Statements, FY 2006–2011
 POSTAL REGULATORY COMMISSION 23

$6.5 billion. The ability to finance a net loss of 

this magnitude would be problematic at best, 

as the Postal Service is currently limited in ways 

in which it can raise cash fast enough to cover 

this estimated loss. If current conditions continue 

there is a very real possibility that the Postal 

Service will not be able to pay some of the 

large year-end payments for the retiree health 

benefits fund and workers compensation.3

Subsequently, in the FY 2009 ACD, the Commission 

noted that the Postal Service was on a financial path 

that would put its section 101 mandates at risk and 

that the Postal Service should utilize its flexibility and 

authority under current law to address its financial 

instability.4 The Commission continued to express 

concern regarding the continuing financial losses 

and the liquidity of the Postal Service in the FY 2010 

ACD. There it noted that while the Postal Service had 

made some strides in reducing costs and was able to 

meet all of its financial obligations during that year. 

Nevertheless, the Commission noted that conditions 

which existed in prior years remained, and were still 

creating an adverse affect on Postal Service finances 

and the ability to generate sufficient cash to meet all 

its financial obligations.

In this ACR, Valpak comments that the aggressive 

pre-funding requirement for retiree health benefits 

has put an unbearable strain on Postal Service 

finances. Valpak Comments at 3. Valpak also 

notes that without the pre-funding requirement, the 

net operating losses over the past 5 years would 

have been just slightly more than $4 billion rather 

than over $25 billion. Valpak states that the pre3 Postal Regulatory Commission FY 2008 Annual Compliance 

Determination at 24-25. 4 Postal Regulatory Commission FY 2009 Annual Compliance 

Determination at 22.

funding requirement alone has driven the Postal 

Service to the brink of insolvency. Id. at 5-7. The 

Public Representative comments that unless the Postal 

Service is able to maintain sufficient liquidity, it will 

be unable to provide universal service, and that its 

ability to provide effective and regular postal services 

will be in jeopardy. PR Comments at 3. The Public 

Representative also notes that until the Congress acts 

to alleviate the burden of pre-funding retiree health 

benefits, the financial stress of the Postal Service will 

continue unabated. Id. at 5.

Declining Volumes and Revenues

In general, the public reports filed by the Postal 

Service which include volumes and revenues usually 

contain data from the current year and the prior year 

for comparison purposes. The previous year’s data 

are sometimes revised to reflect corrections resulting 

from audits and reviews. Data are also restated due 

to methodological changes implemented by the Postal 

Service in the reporting year. These methodological 

changes are implemented for the current year’s 

data, and the prior year’s data is restated in order to 

facilitate comparative analysis.

For the purposes of this chapter, the comparisons 

of volumes and revenues are based on the data 

reported in the FY 2011 Revenue, Pieces, and 

Weight Reports (RPW) and the Postal Service’s 

Form 10-K filing. The comparative figures in those 

reports reflect methodological changes from the 

previous year’s reporting that were approved by 

the Commission subsequent to the issuance of the 

FY 2010 ACD. The Postal Service notified the 

Commission of the changes to the comparative data 

upon the filing of the FY 2011 RPW reports.5 This 

5 Transmittal letter from Daniel J. Foucheaux, Jr. to Commission Secretary 

Shoshana M. Grove accompanying filing of Quarters 1 through 3 FY 

2011 RPW reports, November 25, 2011.
24 2011 Annual compliance determination

presents a problem for year-to-year comparisons 

because the revised FY 2010 RPW figures are 

not reflected in the FY 2010 ACD. For longer 

run comparisons like the data presented in the 

mail volume section, the revised RPW figures are 

appropriate because the Postal Service’s historic 

RPW data reflect revisions based on corrections to 

audited figures. Thus, for consistency, trend analyses 

should be based on the historic data with revisions. 

However, for the year-to-year ACD comparisons, the 

Commission cannot restate the figures in the previous 

ACD to reflect after-the fact Postal Service revisions. 

Therefore, in subsequent chapters, current year 

volume and revenues by product are compared to the 

data as reported in the FY 2010 ACD. This maintains 

consistency among ACDs.

In FY 2011, mail volumes and revenues for First-Class 

Mail and Periodicals continued to decline although 

at a slower pace than in the previous 3 years. As 

shown in Table IV–2, First-Class Mail declined by 5 

billion pieces. Single-Piece volumes were down 10.5 

percent, a little over 3 billion pieces, or more than half 

of the total First-Class volume loss. First-Class presort 

declined 3.7 percent, or about 1.7 billion pieces.

Mail volume increased for Standard Mail, Package 

Services, and competitive products. Standard Mail 

volumes increased 2.2 billion pieces, or 2.6 percent, 

and market-dominant Package Service volumes 

were 2.8 percent higher than last year. Competitive 

products, which include Priority Mail and Parcel 

Select, increased 6.1 percent over last year.

As shown in Figure IV–1, the volume loss in First-Class 

Mail decreased contribution to institutional costs by 

$1 billion.6 The increase in Standard Mail volume 

6 Multiple 5 billion pieces by $0.216 (the average contribution per 

piece for First-Class Mail).

only added $150 million toward the contribution to 

institutional costs, not enough to make up for the loss 

from First-Class Mail.7 It takes approximately three 

pieces of Standard Mail to replace the contribution 

per piece from First-Class Mail. Thus, to cover the 

lost contribution from the First-Class volume decline, 

Standard Mail would have had to increase by more 

than 15 billion pieces, or 18 percent.

As First-Class volume continues to erode, the Postal 

Service’s ability to cover its institutional cost also 

erodes. The Postal Service has focused on reductions 

of service in several initiatives outlined in its five-year 

plan to reduce its annual deficits. These include the 

reduction of delivery days from the current 6 to 5, and 

the elimination of overnight service standards for FirstClass Single-Piece Mail and Periodicals in conjunction 

with the downsizing of its mail processing network. 

The Postal Service also proposes to close post offices 

and other retail facilities in an effort to lower costs.

7 Multiply 2.2 billion pieces by $0.068 (the average contribution per 

piece for Standard Mail).

Figure IV–1—First Class Volumes and 

Contributions to Institutional Costs 

FY 2000 – 2011

F rst Class Volum s

i st Class Contributions t Institutiona Cos s

in Millionsin Millions

0

20,000

40,000

60,000

80,000

100,000

120,000

14,000

15,000

16,000

17,000

18,000

19,000

20,000

21,000

22,000

23,000

24,000

25,000

FY 

2011

FY 

2010 FY 

2009

FY 

2008 FY 

2007

FY 

2006 FY 

2005

FY 

2004 FY 

2003

FY 

2002 FY 

2001

FY 

2000
 POSTAL REGULATORY COMMISSION 25

Table IV–3 shows mail revenues by class. The decline 

in First-Class volume led to reductions in revenues for 

the year. Total First-Class revenue dropped almost $2 

billion from the previous year which was slightly offset 

by revenue increases in Standard Mail, Package 

Services, and competitive products. Because these 

increases were not enough to offset the significant 

reductions in First-Class revenues, total revenues were 

$1.3 billion less than last year.

As shown in Table IV–4, total expenses for FY 2011 

were 6.3 percent less than last year primarily due 

to the deferment of the $5.5 billion payment to the 

Retiree Health Benefits Fund into FY 2012. Total 

compensation costs declined $858 million from last 

year due to the Postal Service’s continuing efforts to 

reduce work hours. Some of these savings were offset 

by increases in Federal Employee Retirement System 

(FERS) retirement costs, as calculated by the Office of 

Table IV–2—Mail Volumes 

($ in Millions)

FY 2011 FY 2010

Increase or

(Decrease)

%

Change

First-Class 73,521 78,514 -4,994 -6.4%

Periodicals 7,077 7,269 -193 -2.7%

Standard Mail 84,692 82,525 2,167 2.6%

Package Services 675 657 18 2.8%

Other 496 506 -10 -1.9%

Total Mailing 

Services 166,461 169,471 -3,010 -1.8%

Total Shipping 

Services 1,473 1,389 85 6.1%

Total Mail 167,934 170,860 -2,925 -1.7%

Source: USPS FY 2011 Form 10-K at 18

Table IV–3—Mail Revenues 

($ in Millions)

FY 2011 FY 2010

Increase or

(Decrease)

%

Change

First-Class 32,178 34,152 -1,974 -5.8%

Periodicals 1,821 1,879 -58 -3.1%

Standard Mail 17,826 17,331 495 2.9%

Package Services 1,606 1,544 62 4.0%

Other 3,285 3,681 -395 -10.7%

Total Mailing 

Services 56,717 58,587 -1,870 -3.2%

Total Shipping 

Services 8,994 8,464 531 6.3%

Total Mail 65,711 67,051 -1,340 -2.0%

Source: USPS FY 2010 Form 10-K at 19

Table IV–4—Total Expenses–FY 2011 

($ in Millions)

FY 2011 FY 2010

Change in

Amount

Percent

Change

Compensation & Benefits $48,312 $49,036 $(725) -1.5%

Retiree Health Expenses 2,441 7,747 (5,307) -68.5%

Workers Compensation 3,672 3,567 105 2.9%

Transportation 6,389 5,878 512 8.7%

Supplies & Services 2,302 2,271 31 1.4%

Depreciation and Amortization 2,313 2,469 (156) -6.3%

Other Expenses ,203 4,459 744 16.7%

Total Operating Expenses $70,631 $75,427 $(4,796) -6.4%

Interest Expense 172 156 17 10.7%

Total Expenses $70,803 $75,582 $(4,779) -6.3%
26 2011 Annual compliance determination

Personnel and Management (OPM), and increases 

in premiums for health benefits for both current 

employees and retirees. Higher fuel costs drove nonpersonnel expenses. Transportation costs increased 

over $500 million and vehicle maintenance costs 

increased over $150 million. Additionally, the 

Postal Service charged to expenses $448 million for 

legal costs and contingent liabilities associated with 

arbitration awards. This expense is a one-time charge 

and represents the Postal Service’s best estimate of the 

costs of these rewards.

The Postal Service was only able to meet all of its 

financial obligations during FY 2011 because of the 

deferment of the $5.5 billion payment to the Retiree 

Health Benefits Fund into FY 2012. Without this 

deferment, the Postal Service would have defaulted 

on the mandated payment. This one-year deferment is 

not a solution to the current financial problems facing 

the Postal Service. The Postal Service’s FY 2012 

Integrated Financial Plan (IFP) shows an expected 

net loss of $14.1 billion, of which $11.1 billion is 

the payment for the deferred FY 2011 Retiree Health 

Benefit Fund payment of $5.5 billion and the currently 

scheduled Retiree Health Benefit Fund payment of 

$5.6 billion due on September 30, 2012. Given its 

current financial state, the Postal Service will not have 

sufficient cash to make these payments. The current 

financing plan in the FY 2012 IFP, including the 

payments, shows a shortfall of $10.5 billion.

Despite undertaking several initiatives over the past 

few years to reduce costs, the Postal Service has not 

been able to offset the reductions in revenues due to 

rapidly declining volumes, the aggressive payment 

schedule that applies to its Retiree Health Benefits 

Fund, and its own limited use of its rate setting 

flexibility and new revenue opportunities. In FY 2010, 

the Postal Service developed a 10-year action plan 

that identified ways to increase revenues and control 

costs. This has now evolved into a five-year plan, 

which includes a downsizing of its mail processing 

network, closing retail post offices, amending service 

standards, and reducing the number of delivery days 

from 6 to 5. Under the plan, the Postal Service would 

leave the Federal Employee Health Benefits program 

and establish its own health benefits plan. It believes 

that this would significantly reduce its health care 

costs, thereby reducing the need to pre-fund retiree 

health benefits. Overall, the Postal Service estimates 

that it can reduce its costs by over $20 billion by FY 

2015. The Postal Service’s recovery plan, however, 

relies on legislative reform to provide almost half of 

the projected $20 billion in savings.8

Legislative Reform

Both the House of Representatives and the Senate 

have drafted legislative proposals over the past year 

which would reform the Postal Service’s finances. Two 

proposals have been passed through their respective 

oversight committees9 and are awaiting floor 

consideration.

The Senate bill, S. 1789, 21st Century Postal Service 

Act, would allow surplus funds in the FERS annuity 

fund to be transferred to the Postal Service fund but 

would restrict their use to incentivizing employees 

to retire or separate, reduce Postal Service debt, 

or make the required payments to the Workers 

Compensation Fund or the Retiree Health Benefits 

Fund. It would also move the start date for actuarial 

funding of the retiree health benefits from FY 2017 

8 Details of the Postal Service’s new business plan can be found on the 

Postal Service website at http://about.usps.com/news/nationalreleases/2012/pr12_029.htm. 9 The House Committee on Oversight and Government Reform and the 

Senate Committee on Homeland Security and Government Affairs.
 POSTAL REGULATORY COMMISSION 27

to FY 2012 and eliminate the scheduled payments 

due in FY 2011 through FY 2016. The legislation 

also includes provisions on five-day delivery, retail 

alternatives, post office and mail processing facility 

closures. The proposed legislation also would allow 

the Postal Service to provide non-postal products and 

services that utilize the processing, transportation, 

delivery, retail network, or technology infrastructure of 

the Postal Service after review by the Commission.

The legislation proposed in the House of 

Representatives, is H.R. 2309, The Postal Reform 

Act of 2011. It also would allow the transfer of 

surplus funds in the FERS annuity fund to the Postal 

Service. It establishes two new organizations. One 

federal oversight entity would be the Commission 

on Postal Reorganization (CPR) which would 

make recommendations on the structure of the 

Postal Service’s retail, mail processing, and area 

administration network. The structure of the CPR is 

based closely on the military Base Realignment and 

Closure (BRAC) system. The other entity would be 

established upon the Postal Service’s default on any 

obligation due to the Department of Treasury, including 

the pre-funding payment to the Retiree Health Benefits 

Fund. The Postal Service Financial Responsibility and 

Management Assistance Authority (The Authority) 

would serve as an advisory board to the Board of 

Governors and senior Postal Service management 

for the first 2 fiscal years after the default. If the Postal 

Service’s annual deficit is still $2 billion or more after 

those two advisory years, The Authority would assume 

power to change the Postal Service’s operations and 

finances.10 Other important changes proposed in the 

legislation would allow the Postal Service to declare 

up to 12 days for non-delivery of mail, increase rates 

10 This power currently resides with the Board of Governors.

for nonprofit and loss making postal products, and 

changes arbitration rules that apply to impasses in 

labor negotiations. The proposed legislation would 

also allow more flexible service arrangements with 

state and local governments and allow the Postal 

Service to sell advertising space at postal facilities and 

on postal vehicles.

Retiree Health Benefits Fund

One of the primary issues regarding the Postal 

Service’s financial difficulties since the passage of 

PAEA remains the pre-funding requirements of the 

Retiree Health Benefits Fund.

In its comments, Valpak has characterized the retiree 

health benefit pre-funding schedule as “impossible.” 

Valpak Comments at 19. Valpak also advises that a 

truly viable funding of the retiree health benefits will 

not occur until the Postal Service is able to generate 

operating profits sufficient to reduce debt and restore 

its net worth to the levels before enactment of the 

PAEA. Id. at 21-23. To meet this goal, the Postal 

Service would have required more than $11 billion 

in additional revenue in FY 2011. This amount would 

have allowed the Postal Service to make its payment 

to the Retiree Health Benefits Fund, cover operating 

losses, and possibly invest some amount to improve 

or replace deteriorating assets.

Valpak has also urged the Commission to evaluate 

the Postal Service’s compliance without limiting 

the review to current law. Valpak says that the 

Commission should present one or more alternative 

scenarios assuming small payments to the Retiree 

Health Benefits Fund or no payments at all. Id. at 24.

The Commission has discussed the effects of the 

pre-funding requirement for retiree health benefits 

several times over the past 3 years, as well as in 
28 2011 Annual compliance determination

Congressional testimony. The Commission conducted 

an analysis of the Retiree Health Benefits Fund 

valuation and payment requirements in its July 

30, 2009 report.11 In its report, the Commission 

recommended several revisions to the Office of 

Personnel Management’s (OPM) valuation of the 

liability and a payment schedule that was less than is 

currently required. The Commission also extensively 

discussed the effects of the pre-funding requirement in 

Order No. 547 denying the Postal Service’s request 

for an exigent rate increase. The effect of the prefunding requirement on the Postal Service’s finances 

has been highlighted in the last three ACDs, as well 

as this one. Finally, the Commission, in its report 

to Congress required by section 701 of the PAEA, 

discussed the issue extensively and presented optional 

financing mechanisms for retiree health benefits for 

Congress to consider.

The PAEA requires that information on the funding 

status of the retiree health benefit liability be provided 

every year in the annual Postal Service Form 

10-K statement. This information is compiled and 

reported to the Postal Service by OPM. It shows the 

obligations, costs, and funding status of the Retiree 

Health Benefits Fund. As of the end of FY 2011, the 

total actuarial liability for retiree health benefits was 

$90.3 billion, a reduction of over $700 million from 

the total liability at the beginning of the year. Total 

assets in the Retiree Health Benefits Fund amounted to 

$44.1 billion, leaving an unfunded liability of $46.2 

billion, a reduction of $2.3 billion from the prior year.

11 The analysis was requested by the House Oversight and Government 

Reform Subcommittee on the Federal Workforce, the Postal Service, 

and the District of Columbia.

Long Term Outlook

The Postal Service has significantly reduced labor 

costs over the past 4 years through major reductions 

in work hours and employees. It has also decreased 

operating costs by renegotiating vendor contracts and 

restructuring delivery routes. However, these efforts 

have not been enough to offset the reductions in 

revenues or finance the needed capital improvements 

to the universal network.

Legislative mandates to pre-fund large legacy 

retirement costs have severely eroded the Postal 

Service’s ability to finance its current processing and 

delivery networks. Continued degradation of volumes 

and revenues due in large part to diversion to 

electronic alternatives and a price cap on most Postal 

Service products have also contributed substantially to 

the Postal Service’s financial problems. 

The most immediate need is a change in the prefunding requirements for retiree health benefits. 

Dramatically reducing the required pre-funding, or 

even eliminating it altogether, will not, in and of 

itself, make the Postal Service financially viable. 

It will, however, provide time and resources for 

rational and efficient right-sizing of the processing 

and transportation networks that are needed to 

reduce the large fixed costs associated with this 

network. Additional time and resources are also 

needed to adjust rates and to encourage innovation 

and competitive product expansion. Innovative retail 

options need to be developed to ensure that every 

American business and household has sufficient 

access to the products and services provided by the 

Postal Service at an affordable cost.

Changes to the business model, not just cost 

reductions, are imperative if the Postal Service is to 
 POSTAL REGULATORY COMMISSION 29

survive as the largest, most efficient provider of mail 

services in the world and to ensure that the universal 

service obligations of the Act are met.

Financial Reporting Requirements

Section 3654 of title 39 requires the Postal Service 

to file with the Commission certain reports that 

conform to the Securities and Exchange Commission 

(SEC) regulations.12 The reports to be filed with the 

Commission are the annual Form 10-K, the quarterly 

Form 10-Q, and Form 8-K.

Form 10-K is an annual report which contains 

a comprehensive summary of a company’s 

performance, including the audited financial 

statements. The report also includes information 

regarding the executive compensation policies 

of the company, and detailed information on 

the compensation and benefits packages of all 

senior executive officers. This report is due to the 

Commission within 60 days of the end of the 

reportable fiscal year.

Form 10-Q is a similar report to Form 10-K, but filed 

on a quarterly basis. Form 10-Q provides quarterly 

financial reports and a management discussion of the 

Postal Service’s operations and finances, including 

management’s assessment of the outlook for the rest of 

the year. Form 10-Q is required to be filed with 

the Commission within 40 days of the end of the 

fiscal quarter.

Form 8-K is a report that includes major public 

announcements that could materially affect the 

financial status of the Postal Service. This would 

include public releases of financial information within 

a press release, public speeches, or presentations by 

12 This requirement is also embodied in the Commission’s Rules of 

Practice and Procedure under section 3050.40.

operating managers or senior executives to Congress. 

It would also include any updates of significant events 

that would affect the financial standing of the Postal 

Service between filings of Form 10-K and/or Form 

10-Q, such as resignations, promotions, or retirements 

of senior executive officers. Form 8-K must be filed 

within 3 business days of the occurrence of the 

reportable event.

The Postal Service filed the required FY 2011 Forms 

10-Q in February 2011 (Quarter 1), May 2011 

(Quarter 2), and August 2011 (Quarter 3). All filings 

were within the specified 40-day time frame. Form 

10-K for FY 2011 was filed on November 16, 2011.

During FY 2011, the Postal Service filed eight Form 

8-K’s, notifying the Commission of senior executive 

personnel changes and publicly reported financial 

results. All of the filed Form 8-K’s were within the threeday time limit.

Summary by Product

Revenue, Profit, and Losses

This section contains a general review of revenues, 

attributable costs, and volumes at the product level. 

More detailed discussion is included in Chapter VII 

on market dominant products and in Chapter VIII on 

competitive products.

For competitive products, section 3633(a)(2) requires 

that the revenue for each product cover its attributable 

cost.

For market dominant products, the PAEA includes 9 

objectives and 14 factors which the Postal Service 

must consider when adjusting market dominant prices. 

Among these many different considerations are revenue 

adequacy and the need to generate revenue that 

covers the direct and indirect cost of each class or type 
30 2011 Annual compliance determination

of service. The PAEA provides the Postal Service with 

the pricing flexibility to balance these considerations. 

However, the analysis in this chapter and in Chapter 

VII suggests that the Postal Service is not taking full 

advantage of its pricing flexibility to address lossmaking products. In FY 2011, 10 market dominant 

products failed to generate sufficient revenues to cover 

their direct and indirect costs. The losses for these 

products amounted to $1.6 billion in total.

The direct and indirect costs of all products and 

services represent about 60 percent of the total 

cost of the Postal Service. Pricing market dominant 

products to cover at least direct and indirect cost 

should not present an insurmountable hurdle for 

pricing market dominant products, yet the problem 

persists as evidenced by the continuing losses. The 

remainder of this section contains a discussion of 

product profit and losses, and product volumes.

Table IV–5 shows the volumes, revenues, attributable 

costs, contributions to institutional costs, and cost 

coverage for postal products, reflecting the current 

mail classification.13 Table B–1 in Appendix B 

presents the same financial information by subclass, 

reflecting the mail classification prior to the PAEA, thus 

allowing the comparison of FY 2011 financial results 

with the financial results of previous fiscal years.

The RPW system and the billing determinants are 

the main sources for volumes and revenues in Table 

IV–5. Report B of the Postal Service’s Cost Model 

is the source for the attributable costs (variable- and 

product-specific) for domestic mail. The International 

Cost and Revenue Analysis (ICRA) is the source for the 

13 For a detailed presentation of the financial performance, see public 

library reference PRC-ACR2011-LR1 (which covers only market 

dominant products and NSAs) and non-public library reference 

PRC-ACR2011-NP-LR1 (which covers market dominant, competitive 

products, and NSAs).

attributable costs for international mail. As in previous 

years, the volume, revenue, and weight figures 

that the Postal Service submitted were not internally 

consistent.14 The lack of internally consistent figures 

adds to the difficulty of validating the Postal Service’s 

numbers within the statutory time constraints for issuing 

the ACD. As in previous compliance determinations, 

the Commission has used audited revenues and 

expenses in the analysis of the financial results for 

postal products and NSAs. Thus, the revenues and 

expenses used in the Commission’s financial analyses 

are consistent with the Postal Service’s audited 

financial statements.

Profit and Losses by Product

As Table IV–5 shows, Postal Service attributable costs 

totalled $41.3 billion in FY 2011, or 58.3 percent of 

its total costs, leaving $29.6 billion of institutional (or 

overhead) costs to be recovered from product revenue 

contributions that are greater than their costs. In part, 

because of mail volume declines and high costs of 

certain products, the revenue generated from the sale 

of postal products contributed only $24.4 billion to 

the recovery of institutional costs, leaving a negative 

net contribution (a loss) of $5.2 billion. The Postal 

Service received $95.3 million of Congressional 

appropriations partially covering legislated mandatory 

costs and $28.2 million of investment income, 

leaving the Postal Service with a net loss of $5.1 

billion for FY 2011.

In FY 2011, 3 competitive mail products and 10 

market dominant products did not generate sufficient 

revenue to cover their attributable costs. Thus, these 

14 As documented in library reference PRC-ACR2011-NP-LR-1, there 

are instances in the Postal Service’s FY 2011 CRA where volume, 

revenue, and weight figures do not precisely match the corresponding 

figures in the relevant source documents, such as the RPW system and 

the billing determinants.
 POSTAL REGULATORY COMMISSION 31

Table IV–5—FY 2011 Volume , Revenue, Cost and Cost Coverage by Class 

Current Classification (Products)

Volume

(000)

Revenue

($000)

Attributable

Cost

($000)

Contribution 

to

Institutional

Cost

($000)

Rev./Pc.

(Cents)

Cost/Pc.

(Cents)

Contribution 

to

Institutional

Cost/Pc.

(Cents)

Cost

Coverage

Competitive Mail

Express Mail 40,492 799,500 479,432 320,068 1,974.464 1,184.017 790.447 166.8%

Priority Mail 790,633 5,638,963 4,469,854 1,169,109 713.221 565.351 147.870 126.2%

Parcel Select and Parcel 

Return Service (PRS) 380,834 718,402 516,545 201,857 188.639 135.635 53.004 139.1%

Competitive International 

Mail 261,531 1,674,743 1,105,965 568,779 640.362 422.881 217.481 151.4%

Competitive Domestic 

Services 83,407 146,646 101,732 44,914 175.820 121.971 53.849 144.1%

Competitive International 

Services 2,021 11,688 6,476 5,212 578.248 320.405 257.844 180.5%

Total Competitive 

Mail and Services 1,473,490 8,989,942 6,680,004 2,309,938 610.112 453.346 156.766 134.6%

Market Dominant Mail

First-Class Mail

Single-Piece Letters and 

Cards 25,846,765 11,643,428 7,184,644 4,458,784 45.048 27.797 17.251 162.1%

Presort Letters and 

Cards 44,494,498 15,564,929 5,183,590 10,381,338 34.982 11.650 23.332 300.3%

Flats 2,230,920 2,819,164 1,946,399 872,764 126.368 87.246 39.121 144.8%

Parcels 637,982 1,286,003 1,168,973 117,030 201.573 183.230 18.344 110.0%

Outbound Single-Piece 

Mail Intl 310,335 648,080 438,476 209,605 208.832 141.291 67.541 147.8%

Inbound Single-Piece 

Mail Intl 44 216,756 249,709 (32,953) 86.8%

Standard Mail

High Density & 

Saturation Letters 5,653,875 772,149 349,010 423,139 13.657 6.173 7.484 221.2%

High Density & 

Saturation Flats & 

Parcels

11,424,568 1,885,335 882,761 1,002,574 16.502 7.727 8.776 213.6%

Carrier Route 9,367,761 2,235,782 1,647,828 587,954 23.867 17.590 6.276 135.7%

Letters 50,719,613 9,777,603 5,288,553 4,489,049 19.278 10.427 8.851 184.9%

Flats 6,791,672 2,499,669 3,142,862 (643,193) 36.805 46.275 (9.470) 79.5%

Not Flat-Machinables 

and Parcels 733,770 655,613 767,298 (111,685) 89.349 104.569 (15.221) 85.4%

Inbound NSA Mail Intl 712 316 87 229 

Periodicals

Within County 661,561 69,966 89,250 (19,283) 10.576 13.491 (2.915) 78.4%

Outside County 6,415,178 1,751,169 2,340,774 (589,605) 27.297 36.488 (9.191) 74.8%
32 2011 Annual compliance determination

Table IV–5—FY 2011 Volume, Revenue, Cost and Cost Coverage by Class 

Current Classification (Products)—Continued

Volume

(000)

Revenue

($000)

Attributable

Cost

($000)

Contribution 

to

Institutional

Cost

($000)

Rev./Pc.

(Cents)

Cost/Pc.

(Cents)

Contribution 

to

Institutional

Cost/Pc.

(Cents)

Cost

Coverage

Package Services

Single-Piece Parcel Post 70,218 732,901 821,119 (88,217) 1,043.754 1,169.388 (125.634) 89.3%

Inbound Surface Parcel 

Post (at UPU Rates) 1,017 24,250 10,725 13,525 2,383.777 1,054.290 1,329.487 226.1%

Bound Printed Matter 

Flats 251,831 205,156 125,417 79,739 81.466 49.802 31.664 163.6%

Bound Printed Matter 

Parcels 245,282 310,642 314,562 (3,920) 126.647 128.245 (1.598) 98.8%

Media and Library 

Mail 107,829 332,607 431,068 (98,460) 308.459 399.771 (91.312) 77.2%

Inbound NSA Mail Intl 14 30 2 28 

U.S. Postal Service 

Mail 434,596 

Free Mail 61,854 51,111 (51,111) 82.631 

Total Market 

Dominant Mail 166,460,877 53,431,549 32,434,216 20,997,333 32.099 19.485 12.614 164.7%

Market Dominant Services

Ancillary Services

Certified Mail 251,222 708,755 599,328 109,428 282.123 238.565 43.558 118.3%

COD 819 6,678 4,373 2,304 814.927 533.710 281.218 152.7%

Insurance 34,573 116,652 103,411 13,241 337.406 299.109 38.297 112.8%

Registered Mail 2,688 45,236 42,809 2,427 1,682.930 1,592.633 90.297 105.7%

Stamped Envelopes 10,650 6,886 3,764 154.7%

Stamped Cards 1,611 820 791 196.5%

Other Ancillary 

Services 1,698,368 771,746 579,485 192,261 133.2%

Money Orders 115,510 172,696 123,438 49,258 149.508 106.864 42.644 139.9%

Post Office Box Service 801,899 592,763 209,135 135.3%

Caller Service 92,162 27,785 64,377 

Other Special Services 35,541 17,674 17,867 

International Services 1,845 32,707 38,811 (6,104) 84.3%

Other Income 397,737 397,737 

Total Mail and 

Services 167,934,367 65,615,560 41,251,803 24,363,757 39.072 24.564 14.508 159.1%

Institutional Costs 29,553,781 

Appropriations: Revenue 

Forgone 95,285 

Investment Income 28,167 

Total Revenues 65,739,012 

Total Costs 70,805,584 

Net Income (Loss) (5,066,572)

Source: Library Reference PRC-ACR2011-LR1
 POSTAL REGULATORY COMMISSION 33

products contributed to the Postal Service’s annual 

losses. The negative contribution from the 10 market 

dominant products amounted to $1.6 billion. Table 

IV–6 shows the market dominant products that 

made negative contributions to institutional costs. 

The negative contribution from the three competitive 

products totalled only $4.3 million. The competitive 

products as a group generated a pre-tax net 

income of $684.3 million and contributed more to 

institutional costs than the required 5.5 percent. By 

law, the Postal Service must compute an assumed 

Federal income tax on its net income from competitive 

products each year and transfer that amount to the 

Postal Service Fund. 39 U.S.C. 3634(b).

The negative contributions of (losses from) two of 

the products, Standard Flats and Outside County 

Periodicals, amounted to $1.2 billion, or about 77 

percent of the total shortfall.

Table IV–5 shows that with the exception of Inbound 

International Single-Piece Mail (Letter Post), all 

First-Class Mail products covered their respective 

attributable costs. As in previous years, in FY 2011, 

First-Class Presort Letters and Cards was the most 

successful postal product financially. Its volume was 

the second highest—44.5 billion pieces, or 27 

percent of total mail volume. It generated the largest 

amount of revenue, $15.6 billion, or 24 percent of 

total revenue. It also made the largest contribution 

to institutional costs at $10.4 billion, or about 

43 percent of the total contribution from all postal 

products. Its per-piece contribution was 23.3 cents, 

which is about 2.6 times higher than the per-piece 

contribution of Standard Letters. Its cost coverage of 

300.3 percent was the highest of all products.

As in previous years, Standard Flats, and Standard 

Not-Flat Machinables/Parcels did not cover their 

attributable costs in FY 2011. First-Class Flats and 

Bound Printed Matter (BPM) Flats made positive perpiece contributions of 39.1 cents and 31.7 cents 

respectively, whereas Standard Flats made a negative 

per-piece contribution of 9.5 cents. The average 

revenues for First-Class Flats and BPM Flats were 3.4 

and 2.2 times higher, respectively, than Standard Flats.

As in previous years, Periodicals did not cover 

attributable costs in FY 2011. The cost coverage 

for Outside County Periodicals declined from 75.5 

percent in FY 2010 to 74.8 percent in FY 2011, 

while the cost coverage for Within County Periodicals 

showed an improvement from 75.4 percent in FY 

2010 to 78.4 percent in FY 2011.

Three of the four domestic Package Service products 

(Single-Piece Parcel Post, Bound Printed Matter 

Table IV–6—List of Market Dominant Products 

and Services with Respective Negative 

Contribution to Institutional Costs 

($ in Millions)

1 First-Class, Inbound International SinglePiece Mail (33.0)

2 Standard, Flats (643.2)

3 Standard Not Flat-Machinables and Parcels (111.7)

4 Periodicals, Within County (19.3)

5 Periodicals, Outside County (589.6)

6 Package Services, Single-Piece Parcel Post (88.2)

7 Package Services, Bound Printed Matter 

Parcels (3.9)

8 Package Services, Media and Library Mail (98.5)

9 Special Services, Stamp Fulfillment Services (2.1)

10 Special Services, International Ancillary 

Services (6.1)

Total (1,595.6)

Source: Library Reference PRC-ACR2010-LR1
34 2011 Annual compliance determination

Parcels, and Media and Library Mail) failed to cover 

their attributable costs.

With the exception of International Ancillary Services, 

which recorded a cost coverage of 84.3 percent, 

cost coverage for market dominant Special Services 

products exceeded 100 percent in FY 2011.

Analysis of Current Problems in Business 

Model

Many market dominant products that are shrinking 

realize profits. Conversely, many market dominant 

products that are growing or stabilized are 

contributing minimally.

The following breakdown of contributions to 

institutional costs is derived from Table IV–5. In 

FY 2011, domestic products accounted for 96.9 

percent of the total contribution to institutional 

costs—with 89.8 percent coming from domestic 

market dominant products and 7.1 percent coming 

from domestic competitive products. International 

products accounted for the remaining 3.1 percent of 

the total contribution to institutional costs—with 0.8 

percent coming from international market dominant 

products and 2.4 percent coming from international 

competitive products.

Figure IV–2 illustrates the contribution to institutional 

costs by each mail class. In FY 2011, First-Class 

Mail contributed $16 billion, or 66 percent, to the 

Postal Service’s institutional costs. First-Class Mail 

volume, however, appears to be the most susceptible 

to diversion to electronic services, such as electronic 

mail, online bill payment and presentment, and 

online banking. In the past 10 years, First-Class 

Mail volume decreased by 30.1 billion pieces, or 

34.4 percent. This was due, in significant part, to 

increased adoption of these technologies. In light of 

its dependency on First-Class Mail, the Postal Service 

is vulnerable to the continuing volume erosion to 

electronic services, threatening its financial stability.

Figure IV–2 also shows that Standard Mail accounted 

for $5.7 billion, or 21.7 percent, of the total 

contribution to institutional costs in FY 2011. Cost 

coverage for market dominant Package Services 

has been below 100 percent in FY 2009 and FY 

2010. Periodicals contribution to institutional costs 

has been negative since FY 1997. Periodicals and 

market dominant Package Services continued to make 

negative contributions to institutional costs in FY 2011.

Package Services

$(97)

-0.4%

Periodicals

$(609)

-2.5%

First Class

$16,007

65.7%

Other Mail

$3,315

13.6%

Standard

$5,748

21.7%

First Class

Package Services

Other Mail †

Standard

Periodicals

Figure IV–2—FY 2011 

Contribution to Institutional (Overhead) 

Costs by Class 

(Dollars in Millions)

† Includes Express Mail, Priority Mail, Parcel Select, Parcel Return 

Service, International Competitive Mail, Free Mail, Special Services 

and Other Income.
 POSTAL REGULATORY COMMISSION 35

Mail Volumes Trends

Figure IV–3 shows annual mail volume changes for 

the past 10 years. While the most recent economic 

recession ended in June 2009,15 the effects of 

the economic slowdown and the rate at which 

mail is migrating from traditional postal hard copy 

services to electronic media continue to negatively 

impact mail volume. Although the rate of volume 

decline diminished in FY 2011, its downward trend 

continued with a decrease of 2.9 billion pieces, or 

1.7 percent.16 In the past four years (2008 – 2011), 

the total volume has declined by 44.3 billion pieces, 

or about 21 percent.

Over the past decade, the Postal Service has 

experienced volume reductions in 7 years and volume 

increases in 3 years. For the decade as a whole, 

15 National Bureau of Economic Research (NBER), Business Cycle 

Dating Committee, September, 2010. 16 As pointed out earlier, the Postal Service makes revisions to RPW 

volumes and revenues due to corrections from audits and reviews, as 

well as due to periodic methodological changes. Volume comparisons 

in this section are based on revised RPW numbers.

volume declined at an average annual rate of 2.1 

percent. In contrast, mail volume grew at an average 

annual rate of 2.0 percent during the 1970s, 4.9 

percent during the 1980s, and 2.2 percent during 

the 1990s. In FY 2011, mail volume was 167.9 

billion pieces, returning to FY 1992 levels.

The volume increases in FYs 2004, 2005, and 

2006 coincided with the formation of the “housing 

bubble,” which generated an unusually high demand 

for mail-based advertising regarding mortgage 

financing and refinancing, and credit card issuance. 

Figure IV–4 compares the growth of total mail volume 

with the growth of the U.S. Gross Domestic Product 

(GDP) over the past 42 years.

From FY 1970 to FY 2000, the growth of mail 

volume closely matched the growth of the U.S. 

economy. During the last 31 years of the 20th 

century, GDP and mail volume grew at an average 

annual rate of 3.2 percent and 3.1 percent, 

respectively. Since FY 2001 however, this close 

relationship between GDP and mail volume growth 

has deteriorated. During the first 11 years of the 

Figure IV–3—Total Mail Volume 

Annual Growth Rates 

FY 2002–2011

-15

-13

-11

-9

-7

-5

-3

-1

1

3

5

2011201020092008200720062005200420032002

-2.2

-0.3

1.9

2.7

0.6

-0.4

-4.5

-12.8

-3.3

-1.7

Annual Percent Change

Fiscal Year

Average Annual Growth -2.1%

Figure IV–4—Gross Domestic Product (GDP) 

and Total Mail Volume Growth 

FY 1969–2011

1.00

1.25

1.50

1.75

2.00

2.25

2.50

2.75

3.00

3.25

'11 '09 '07 '05 '03 '01 '99 '97 '95 '93 '91 '89 '87 '85 '83 '81 '79 '77 '75 '73 '71 '69

Index (1970=1.00)

Fiscal Year

GDP (Chained to 2005 Dollars)

Total Mail Volume
36 2011 Annual compliance determination

current century, GDP has grown at an average 

annual rate of 1.6 percent whereas mail volume has 

declined at an average annual rate of 1.9 percent. 

This has created a gap of 3.5 percentage points 

between the average changes in the two measures. 

Over the past 11 years, GDP has grown at a steady 

rate, with the exception of a 0.3 percent decline in 

FY 2008 and a 3.5 percent decline in FY 2009, 

both due to the economic recession. In contrast, mail 

volume has stagnated or declined, with the exception 

of the short period of growth from FY 2004 through 

FY 2006.

In FY 2011, mail volume declined by 1.7 percent 

even though GDP grew by 1.7 percent. This created 

a gap of 3.4 percentage points between the two 

measures. This recent divergence between the trends 

in mail volume and GDP is expected to continue in 

the future. The Postal Service cannot rely on economic 

recovery to return to profitability. The Postal Service’s 

financial sustainability is at greater risk than in the 

past and understanding the potential of each mail 

product to generate additional revenue is more 

important than ever.

First-Class Mail Single-Piece Letters/Postcards

As Figure IV–5 shows, First-Class Mail Single-Piece 

Letters/Postcards volume continues its recent rapid 

decline. In FY 2011, First-Class Mail Single-Piece 

Letters/Postcards volume decreased by 3.2 billion 

pieces, or 10.3 percent. Over the past 10 years, the 

average annual decrease in First-Class Mail SinglePiece Letters/Postcards volume was 6.4 percent. As 

a result, First-Class Mail Single-Piece Letters/Postcards 

has lost 25.2 billion pieces, or about half of its total 

volume over this period.

First-Class Mail Presort Letters/Postcards

In the past, the growth of First-Class Mail Presort 

Letters/Postcards mitigated the decline of First-Class 

Mail Single-Piece Letters/Postcards. Recently, FirstClass Mail Presort Letters/Postcards has declined as 

well by 2.2 percent in FY 2008, 7.8 percent in FY 

2009, 3.5 percent in FY 2010, and 3.7 percent in 

2011. The decline in First-Class Mail Presort Letters/

Postcards volume can be attributed to electronic 

presentment of bills and financial statements and the 

economic slowdown which has adversely affected the 

financial industry.

Figure IV–6 shows the annual growth rates for total 

First-Class Mail over the past 10 years.

In FY 2011, total First-Class Mail volume decreased 

by 6.4 percent, or 5 billion pieces. The volume 

decline continued a downward trend that started 

-5.4

-2.9

-3.8 -3.6

-8.0

-9.8 -10.1 -10.3

-4.2

-3.1

Annual Percent Change

Fi l Y

Average Annual Growth -6.4%

-12

-10

-8

-6

-4

-2

0

2011201020092008200720062005200420032002

Figure IV–5—First-Class Mail Single-Piece 

Letters/Postcards Volume 

Annual Growth Rates FY 2002–2011

Source: Postal Service Revenue, Piece, and Weight (RPW) reports.
 POSTAL REGULATORY COMMISSION 37

in 2002. Over the past decade, First-Class Mail 

volume has lost 30.1 billion pieces, or 29.1 percent 

of its volume. The average annual rate of loss was 

3.4 percent. At the end of FY 2011, First-Class Mail 

volume was 73.5 billion pieces, about the same level 

as in FY 1985.

Most of the First-Class Mail volume losses are due to 

electronic diversion. Therefore, they are likely to be 

permanent. The permanent loss of First-Class Mail 

volume is particularly troubling because revenue from 

this class of mail covers most of the Postal Service’s 

institutional costs. Standard Mail would have to 

increase by three pieces to compensate for the lost 

contribution to institutional costs for each lost piece of 

First-Class Mail.

Standard Mail

Standard Mail is the largest class by volume, 

comprising 50.4 percent of all mail delivered by the 

Postal Service in FY 2011. Figure IV–7 presents the 

annual growth rates for Standard Mail during the past 

decade. Signs of economic recovery can be seen 

in Standard Mail volume growth. After declining by 

4.3 percent in FY 2008, and 16.8 percent in FY 

2009, Standard Mail volume grew by 0.1 percent 

in FY 2010 and 2.6 percent in FY 2011. Standard 

Mail volume in FY 2011 was 84.7 billion pieces, 

81.8 percent of its peak volume of 103.5 billion 

pieces in FY 2007. This represents a decline from its 

peak volume of almost 18.8 billion pieces. Over the 

past decade, Standard Mail volume declined at an 

average annual rate of 0.6 percent.

Since FY 2005, Standard Mail volume has exceeded 

First-Class Mail volume every year, except for FY 

2009. However, even if the disparity in contribution 

per piece between First-Class Mail and Standard Mail 

can be adjusted, the growth in Standard Mail will not 

be sufficient to stabilize Postal Service finances.

-10

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

2011201020092008200720062005200420032002

-1.6

-1.2

-3.3

-1.1

.1

-0.6

-4.8

-8.7

-5.8

-6.4

Annual Percent Change

Fiscal Year

Average Annual Growth -3.4%

Figure IV–6—Total First-Class Mail Volume 

Annual Growth Rates FY 2002–2011

Source: Postal Service Revenue, Piece, and Weight (RPW) reports.

Figure IV–7—Standard Mail Volume 

Annual Growth Rates FY 2002–2011

Source: Postal Service Revenue, Piece, and Weight (RPW) reports.

-20

-15

-10

-5

0

5

10

2011201020092008200720062005200420032002

-3.0

3.7

5.6 5.6

1.5 1.0

-4.3

-16.8

2.6

0.1

Annual Percent Change

Fiscal Year

Average Annual Growth -0.6%
38 2011 Annual compliance determination

Periodicals

Figure IV–8 presents the annual change in Periodicals 

volume over the past 10 years. In FY 2011, 

Periodicals volume decreased by 2.7 percent. This is 

the eleventh consecutive annual volume decline.

During the past decade, Periodicals has lost about 

one-third of its volume, averaging a decrease of 3.5 

percent annually. It is expected that the Periodicals 

class will continue losing volume in the future. Losses 

from Periodicals grow even as volume declines. The 

Postal Service is not able to correct rates using its 

pricing flexibilities because the CPI cap applies to 

classes.

Package Services

Package Services faces considerable market 

competition from private parcel carriers. At the 

same time, it serves a growing market as consumers 

increasingly use the Internet for online purchases. 

Figure IV–9 shows the annual change in Package 

Services volume over the past decade. The economic 

recovery has helped reverse the downward volume 

trends of Package Services. In FY 2011, Package 

Service’s volume grew by 10.7 percent after suffering 

a 1.8 percent volume decline in FY 2010. Over the 

past decade, however, Package Services volume has 

declined at an average annual rate of 0.3 percent.

The growth rates presented in Figure IV–9 were 

calculated by aggregating the volumes of four market 

dominant products and two competitive products in 

order to maintain continuity with prior years’ data. 

The Table IV–7 presents the growth rates for FY 2011 

of all six products included in the Package Services 

growth rate calculations.

The economic recovery had a significant positive 

impact on Parcel Select volume. In FY 2011, Parcel 

Select volume increased by 27.8 percent, on top of 

its growth of 20.4 percent in FY 2010. Parcel Return 

Service volume continues its unparalleled growth, with 

annual volume increases of 55.9 percent in FY 2010 

and 33 percent in FY 2011. The Postal Service 

-10

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

2011201020092008200720062005200420032002

-2.5

-3.8 -3.8

-2.0

-0.7 -0.5

-2.7

-2.2

-8.0 -8.2

Annual Percent Change

Fiscal Year

Average Annual Growth -3.5%

Figure IV–8—Periodicals Volume 

Annual Growth Rates FY 2002–2011

Source: Postal Service Revenue, Piece, and Weight (RPW) reports.

-16

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

2011201020092008200720062005200420032002

-1.6 -1.1

5.0

0.3

3.0

0.8

-4.9

-12.1

-1.8

10.7

Annual Percent Change

Fiscal Year

Average Annual Growth -0.3%

Figure IV–9— Package Services Volume 

Annual Growth Rates FY 2002–2011

Source: Postal Service Revenue, Piece, and Weight (RPW) reports.
 POSTAL REGULATORY COMMISSION 39

attributes the significant growth to its effective pricing, 

and beneficial trends in electronic commerce.17

Work Hours

In an effort to control costs, the Postal Service has 

aggressively reduced work hours each year since FY 

2002, with the exception of FY 2005. Table IV–8 

presents the cumulative change in work hours and 

labor compensation over the past 10 years. Over 

the past decade, the Postal Service shed 453.1 

million, or 28.3 percent, of its work hours, saving 

$18.8 billion in labor costs. These savings averaged 

more than $1.9 billion per year — a commendable 

achievement considering the difficulties that the Postal 

Service had experienced trying to contain work 

hours in the 1980s and 1990s, despite its heavy 

investments in automation.

Table IV–9 shows the FY 2011 reduction in Postal 

Service work hours and savings in labor compensation 

17 United States Posted Service 2011 Annual Report to Congress, pages 

12 and 13.

Table IV–7—Package Services Products 

FY 2011 Annual Growth Rates

Percent

Change

Market Dominant Products

Single-Piece Parcel Post 13.4

BPM Flats 9.6

BPM Parcels 0.2

Media and Library Mail -10.6

Market Dominant Products 2.8

Competitive Products

Parcel Select 27.8

Parcel Return Service 33.0

Competitive Products 24.4

All Products 10.7

Source: Postal Service RPW report

Table IV–8—Change in Workhours and 

Compensation by Craft Over Ten 

FY 2002–2011 

($ in Millions)

Workhours Nominal

Compensation

Change Change

Percent 

Change

Supervisors (25.6) (30.2) (1,254.04)

Clerks & Mail Handlers (305.9) (46.0) (12,167.20)

City Carriers and Vehicle 

Drivers (99.4) (20.5) (4,169.26)

Rural Cariers 4.8 2.8 91.43 

Other Employees (26.9) (14.0) (1,345.36)

Total (453.1) (28.3) (18,844.44)

Source: USPS Annual Tables, FY 2011 TFP

Table IV–9—FY 2011 Change in Workhours 

and Labor Compensation by Craft 

($ in Millions)

Workhours Nominal

Compensation

Change Change

Percent 

Change

Supervisors (3.6) -5.7% (202.6)

Clerks & Mail Handlers (13.8) -3.7% (658.6)

City Carriers and Vehicle 

Drivers (8.2) -2.1% (401.4)

Rural Carriers 0.6 0.4% 25.0 

Other Employees (9.2) -5.3% (491.1)

Total (34.1) -2.9% (1,728.6)

Source: USPS Annual Tables, FY 2011 TFP
40 2011 Annual compliance determination

by craft. In FY 2011, responding to lower mail 

volumes, the Postal Service eliminated 34.1 million (or 

2.9 percent) of its work hours, saving $1.7 billion in 

labor costs. This work hour reduction was equivalent 

to 26,657 full-time employees.18 Moreover, it followed 

reductions of 75.1 million work hours in FY 2010 and 

115.3 million work hours in FY 2009. 

In FY 2011, work hours for all crafts were reduced 

except for rural carriers. Similar to FY 2010, clerks 

and mail handlers experienced the greatest reduction, 

losing 13.8 million work hours, or 3.7 percent.

The Postal Service eliminated 1,100 delivery 

routes in FY 2010, and another 6,878 routes in FY 

2011.19 The majority of the route reductions resulted 

from implementation of the Flat Sequencing System 

(FSS) and through agreements with the National 

Association of Letter Carriers re-evaluating the routes 

of approximately 70,000 city delivery routes in 

non-FSS delivery facilities. Id. According to the Postal 

Service, FSS automated sequencing reduced the 

time it takes carriers to sequence mail in the office 

before they go out on the street to deliver mail. Route 

evaluations reduced base work hours, which allowed 

some routes to be eliminated. Both the implementation 

of the FSS and the re-evaluation of routes enabled 

the Postal Service to absorb the additional city and 

rural delivery points for city and rural carriers. City 

carrier and vehicle service driver hours decreased by 

8.2 million, or 2.1 percent, while rural carrier hours 

increased by 0.6 million, or 0.4 percent. Supervisor 

work hours decreased by 5.7 percent.

Over the past 3 years and as mail volumes declined, 

the Postal Service lowered its annual costs by 

18 USPS-FY11-17 – 2011 Annual Report to Congress at 28. See also 

FY 2011 Annual Report to Congress and Comprehensive Statement 

on Postal Operations at 24. 19 Postal Service 2011 Annual Report to Congress at 14.

reducing its FY 2008 career employees of 663,238 

to 552,251 in FY 2011—a reduction of 105,987 

career employees. Id. Over the past 10 years, the 

Postal Service reduced the work hours of all crafts, 

except for rural carriers, which have experienced an 

increase of 2.8 percent. Clerks and mail handlers 

experienced the greatest reduction, losing 305.9 

million work hours, or 46.0 percent. The work hours 

of supervisors and city carriers decreased by 30.2 

percent and by 20.5 percent, respectively.

Figure IV–10 depicts the annual number of work hours 

used by the Postal Service over the past 42 years. In 

FY 2011, the Postal Service delivered 167.9 billion 

pieces of mail 20 to 151.5 million delivery points 

using 1,148.8 million work hours. This is the lowest 

level of work hours the Postal Service has used over 

that entire 42-year period.

20 PRC Library Reference 11 Summary_LR-1.

1100

1200

1300

1400

1500

1600

1700

'11 '09 '07 '05 '03 '01 '99 '97 '95 '93 '91 '89 '87 '85 '83 '81 '79 '77 '75 '73 '71

Work Hours (in Millions)

Fiscal Year

Figure IV–10—U.S. Postal Service Work Hours 

FY 1970–2011

Source: USPS Annual Tables, FY 2011 TFP
 POSTAL REGULATORY COMMISSION 41

Productivity Measurement

The Postal Service is a labor intensive organization, 

with 75 percent of the value of its inputs consisting 

of labor.21 From 1970 to 1999, the labor force 

continued to grow despite heavy capital investments 

in automation (See Figure IV–11).

As a result, over this period, TFP growth fluctuated 

between short periods of productivity increases and 

productivity declines, creating a trend of insignificant 

gains in postal efficiency. From FY 1970 through FY 

2000, the Postal Service’s productivity increased 9.3 

percent, resulting in an average annual TFP growth 

of 0.3 percent. FY 2010 ACD at 38. By decade, 

the average annual TFP growth rates were as follows: 

0.7 percent during the 1970s; 0.0 percent during 

the 1980s; 0.2 percent during the 1990s and 1.2 

percent during FY 2000 through 2010.

From FY 2000 to FY 2011, the Postal Service 

reduced its labor force aggressively as its workload 

remained flat or declined. As a result, Postal Service 

21 Source: Postal Service Annual Tables, FY 2011 TFP, Table 47. The 

value of labor includes all wages and benefits for all employees and 

retirees, including craft employees, professional, administrative, and 

technical personnel.

efficiency improved from FY 2000 through FY 

2007. During this eight-year period, TFP grew at 

an average annual rate of 1.5 percent, five times 

faster than during the last 30 years of the last century. 

After achieving 8 consecutive years of productivity 

increase, the Postal Service registered TFP declines 

of 0.5 percent and 1.0 percent for FY 2008 and FY 

2009, respectively. The large drop in mail volume in 

FY 2008 and the record decline in FY 2009 made it 

difficult for the Postal Service to achieve productivity 

growth. In FY 2010, TFP increased by 2.2 percent22

and in FY 2011, it grew by 1.3 percent.23 The 

increase is a positive reflection of Postal Service 

efforts to cut work hours in the face of declining 

volumes. Over the past 10 years, TFP grew at an 

average rate of 1.0 percent annually.

TFP recognizes both mail volume and delivery 

points as components of the postal workload and 

assigns about 80 percent weight to mail volume 

and 20 percent to delivery points. Moreover, before 

merging mail volume with delivery points to calculate 

workload, TFP weights the volume of various postal 

products to account for variations in work content 

of mailpieces due to factors such as size, weight, 

preparation, and mode of transportation. Weighting 

pieces of mail to reflect their unequal work content 

allows them to be compared on a consistent basis, as 

“apples to apples.”

22 As revised in Postal Service TFP Tables for FY 2011, the growth rates 

reflect the revised FY 2010 TFP as reported in FY 2011. 23 Postal Service Response to CHIR 2, question 28.

100

105

110

115

120

125

'11 '09 '07 '05 '03 '01 '99 '97 '95 '93 '91 '89 '87 '85 '83 '81 '79 '77 '75 '73 '71

Index (1970=1.00)

Fiscal Year

Average Annual Growth

1970 - 99 = 0.3%

2000 - 11 = 1.1%

Trend 1970-99

Figure IV–11—U.S. Postal Service Total Factor 

Productivity (TFP) FY 1970–2011

Source: USPS Annual Tables, FY 2011 TFP
42 2011 Annual compliance determination
 POSTAL REGULATORY COMMISSION 43

Chapter V

Performance Plans & Program 

Performance Reports

Introduction

The PAEA requires the Commission to review the performance goals established in the Postal Service’s 2011 

Annual Performance Report (2011 Report) and 2012 Annual Performance Plan (2012 Plan). The Commission 

must evaluate whether the Postal Service has met the performance goals established in the 2011 Report, and 

evaluate the 2012 Plan. It may also provide recommendations to the Postal Service related to protecting or 

promoting public policy objectives in title 39. 39 U.S.C. 3653(d). 

In the FY 2010 ACD, the Commission found that the 2010 Annual Performance Report (2010 Report) and 

2011 Annual Performance Plan (2011 Plan) improved over past filings because they adhered more closely 

to statutory requirements and addressed the Commission’s concerns from prior ACDs. 2010 ACD at 41. 

However, the quality of information provided in the 2011 Report and 2012 Plan declined compared to what 

was provided in the previous year. The Postal Service provided fewer details about the performance goals, 

performance indicators, and strategic initiatives compared to last year’s filing.

Future Annual Performance Reports, Annual Performance Plans, and descriptions of strategic initiatives should, 

at a minimum, contain information similar in the level of detail provided in the 2010 Comprehensive Statement 

on Postal Operations,1 2010 Report, and 2011 Plan. 

As with the 2011 Plan, the 2012 Plan does not meet the statutory requirement of covering each program 

activity set forth in the Postal Service’s budget. See 39 U.S.C. 2803(a). 

1 Docket No. ACR2010, Library Reference USPS-FY10-17, at 51-53 (2010 Comprehensive Statement). 
44 2011 Annual compliance determination

To facilitate analysis and discussion, this chapter 

is divided into the following sections: Statutory 

Requirements, Performance Goals and Indicators, 

Strategic Initiatives, Public Comments, Evaluation of 

Statutory Requirements, and Review of Performance 

Goals and Strategic Initiatives. 

Statutory Requirements 

In each ACR filing, the Postal Service must submit 

copies of its most recent Annual Performance Report 

and Plan. 39 U.S.C. 3652(g). Since 2004, the 

Postal Service has combined the Annual Performance 

Report and Plan with the Comprehensive Statement 

on Postal Operations. In FY 2011, the Postal Service 

combined the Annual Performance Report and Plan, 

Comprehensive Statement on Postal Operations, and 

the Annual Report to Congress into a single report.2

In the 2011 ACR, the Postal Service filed the 2011 

Comprehensive Statement on Postal Operations 

(2011 Comprehensive Statement), the 2011 Report, 

and 2012 Plan as a library reference.3

Annual Performance Plan Requirements

Annual Performance Reports and Plans must meet 

the requirements set forth in 39 U.S.C. 2803 and 

2804.4 Annual Performance Plans must cover 

“each program activity set forth in the Postal Service 

2 Delivering the New Reality:2011 Annual Report to Congress 

and Comprehensive Statement on Postal Operations, available at 

http://about.usps.com/publications/annual-report-comprehensivestatement-2011/annual-report-comprehensive-statement-2011.pdf 

(Combined Report). 3 Library Reference USPS-FY11-17. 4 Chapter 28 of title 39, which includes sections 2803 and 2804, 

was added by the Government Performance and Results Act of 1993, 

Pub. L. No. 103-62, 107 Stat. 285 (1993).

budget....” 39 U.S.C. 2803(a). Section 2803(a) 

also requires Annual Performance Plans to:

 Establish performance goals defining the level of 

performance achieved by a program activity;5

 Express performance goals in an objective, 

quantifiable, and measurable form; 

 Describe the operational processes, skills and 

technology, and other resources needed to meet 

the performance goals;

 Establish performance indicators to measure the 

relevant outputs, service levels, and outcomes of 

each program activity;6

 Provide a basis for comparing actual program 

results with established performance goals; and

 Describe the means used to validate measured 

values. 

The Postal Service may express performance goals 

for a particular program activity in an alternative form 

if the Postal Service determines that expressing those 

goals in an objective and quantifiable manner is not 

feasible. The alternative form must describe “minimally 

effective” and “successful” programs. 39 U.S.C. 

2803(b).

The Postal Service may aggregate, disaggregate, 

or consolidate program activities when preparing 

the Annual Performance Plan. It may also prepare a 

non-public annex covering program activities under 

certain circumstances. 39 U.S.C. 2803(c) and (d). 

5 Performance goal means “a target level of performance expressed as 

a tangible, measurable objective, against which actual achievement 

shall be compared, including a goal expressed as a quantitative 

standard, value, or rate[.]” 39 U.S.C. 2801(3). 6 Performance indicator refers to “a particular value or characteristic 

used to measure output or outcome[.]” 39 U.S.C. 2801(4). 
 POSTAL REGULATORY COMMISSION 45

Annual Performance Report Requirements

Annual Performance Reports must cover program 

performance for each fiscal year. They must set forth 

the performance indicators established in the Annual 

Performance Plan, along with the actual performance 

achieved compared with the performance goals. 

If the Postal Service specifies performance goals in 

an alternative form by describing minimally effective 

and successful program activities, it must provide 

program results relating to those categories. Annual 

Performance Reports must include results for the 3 

preceding fiscal years. 39 U.S.C. 2804(a)-(c). 

Each Annual Performance Report must (1) review 

the success of achieving performance goals, (2) 

evaluate the Annual Performance Plan relative to the 

performance achieved towards the performance 

goals, and (3) include summary findings of those 

program evaluations.7 If a performance goal has 

not been met, the Postal Service must explain and 

describe why the goal was not met, as well as 

plans and schedules for achieving the goal. If the 

performance goal is impractical or infeasible, the 

7 Program evaluation means “an assessment, through objective 

measurement and systematic analysis, of the manner and extent to 

which Postal Service programs achieve intended objectives.” 39 

U.S.C. 2801(6).

Postal Service must explain why that is the case and 

recommend a course of action. 39 U.S.C. 2804(d). 

Performance Goals and 

Indicators

The 2011 Report and 2012 Plan set forth three 

performance goals: Improve Service, Improve 

Financial Performance, and Improve Safety and 

Employee Engagement. Response to CHIR No. 

2, question 19. To evaluate its progress towards 

achieving the performance goals, the Postal Service 

established seven performance indicators, which 

are described in more detail below. For each 

performance indicator, the Postal Service set annual 

targets for FY 2012 and published them in the 

2012 Plan. The 2012 Plan explains how results 

will be measured and describes any indicator or 

measurement changes from prior years. Combined 

Report at 32. 

The 2011 Report provides results against FY 2011 

targets and serves as a baseline for establishing FY 

2012 targets. The Postal Service states that it does 

not provide detailed data at the program level, but 

does describe the reporting tools and measurement 

systems used. Id. at 33. 
46 2011 Annual compliance determination

Table V–1 lists the seven performance indicators 

currently used by the Postal Service to evaluate 

performance towards achieving its three performance 

goals of Improve Service, Improve Financial 

Performance, and Improve Safety and Employee 

Engagement. For each performance indicator, the 

Postal Service provided actual results for fiscal years 

2009, 2010, and 2011, as well as targets for fiscal 

years 2011 and 2012. Of the seven performance 

indicators, three support Improve Service, two support 

Improve Financial Performance, and two support 

Improve Safety and Employee Engagement. 

FY 2011 Performance Indicator Changes

In past years, the Postal Service used service 

performance scores for Express Mail, Priority Mail, 

and Parcel Select as three additional performance 

indicators under Improve Service. 2010 ACD at 44. 

However, they were not included as performance 

indicators in FY 2011. 

The Postal Service explains that service performance 

scores for competitive products were not included as 

performance indicators because they are commercially 

sensitive. It notes that while the 2010 Report listed 

Express Mail, Priority Mail, and Parcel Select as 

performance indicators, the 2010 Report did not 

provide service performance scores for those products. 

Instead, the 2010 Report noted that “[c]ompetitive 

product performance is not publicly reported.” The 

Postal Service states that it removed competitive 

products from the list of performance indicators rather 

than include the same notation in the 2011 Report. 

Response to CHIR No. 4, question 10.

Also, Table V–1 does not include results for 

Operating Income and Deliveries per Work Hour 

(DPWH) in fiscal years 2009 and 2010 because 

these performance indicators were introduced in FY 

2011. In past years, the Postal Service used Total 

National Revenue and Total Factor Productivity (TFP) 

as performance indicators for Improve Financial 

Performance. In FY 2011, the Postal Service replaced 

them with Operating Income and DPWH. 2010 

ACD at 45. 

Performance goals and performance indicators are 

discussed in further detail, below. 

Table V–1—Comparison of Results with Targets for Performance Goals

Performance Goals Performance Indicator

2009 

Actual

2010 

Actual

2011 

Target

2011 

Actual

2012 

Target

Improve Service

First-Class Mail Single-Piece Letters/Postcards Overnight 96.2% 96.36% 96.65% 96.23% 96.65%

First-Class Mail Single-Piece Letters/Postcards 2 Days 93.7% 93.71% 94.15% 93.34% 94.15%

First-Class Mail Single-Piece Letters/Postcards 3-5 Days 92.2% 92.44% 92.85% 91.87% 92.85%

Improve Financial 

Performance

Operating Income ($ billions) -- -- (0.9) (2.2) (3.0)

Deliveries per Work Hour -- -- 40.4 39.9 42.2

Improve Safety and 

Employee

Engagement

OSHA Illness and Injury Rate 5.62 5.49 5.39 5.67 5.57

Voice of the Employee Survey 64.0 62.3 64.5 64.7 64.9

Sources: Combined Report at 33; Response to CHIR No. 4, question 14. Footnotes from the original table have been omitted.
 POSTAL REGULATORY COMMISSION 47

Improve Service

The three performance indicators that support Improve 

Service are First-Class Mail Single-Piece Letters/

Postcards Overnight, First-Class Mail Single-Piece 

Letters/Postcards 2 Days, and First-Class Mail 

Single-Piece Letters/Postcards 3-5 Days. The Postal 

Service uses First-Class Mail Single-Piece Letters/

Postcards service performance as a model for service 

performance reporting and management because it 

is the category of mail most familiar to Postal Service 

stakeholders. The Postal Service also measures 

service performance for other categories of mail, 

including Presort First-Class Mail, Standard Mail, 

Periodicals, Package Services, and Special Services. 

It reports measurement methods and quarterly service 

performance results on its website. Combined Report 

at 33. 

In FY 2011, service performance scores for FirstClass Mail Single-Piece Letters/Postcards fell below 

FY 2011 targets for all three performance indicators 

(Overnight, 2 Days, and 3-5 Days). The Postal 

Service explains that natural disasters in different 

parts of the United States affected its ability to meet 

FY 2011 targets. It also states that it has been 

undergoing organization realignment, which diverted 

some attention from service performance. Id. at 34. 

The Postal Service explains that unlike in previous 

years, service performance measurements in FY 

2012 will be based on combined domestic FirstClass Mail Single-Piece Letters/Postcards and Presort 

First-Class Mail On-Time Originating and Destinating 

Composite year-to-date results. To help ensure that it 

meets FY 2012 targets, the Postal Service states that 

it will continue to provide the field with useful tools 

to address the new combined First-Class Mail mix, 

such as diagnostic reports for Presort First-Class Mail. 

Response to CHIR No. 4, question 11. For a more 

detailed discussion of First-Class Mail Single-Piece 

Letters/Postcards performance, please see Chapter VI 

on Service Performance.

Improve Financial Performance

In FY 2011, the Postal Service changed the financial 

performance indicators by discontinuing its use of 

Total National Revenue and TFP. It replaced Total 

National Revenue with Operating Income, which is 

total operating revenues less total operating expenses. 

Operating expenses include all expenses other than 

pre-funding the Retiree Health Benefits Fund and 

adjustments to Workers Compensation liabilities that 

may result due to changes in discount rates. 2010 

ACD at 45.

In FY 2011, the Postal Service had an operating loss 

of $2.2 billion, which was $1.3 billion higher than 

the FY 2011 target operating loss of $0.9 billion. 

For FY 2012, the target is a loss of $3.0 billion. 

Combined Report at 33. 

The Postal Service also replaced TFP with DPWH 

as a financial performance indicator in FY 2011. 

DPWH is an efficiency measure comparing the total 

number of deliveries of all types with the total number 

of workhours used in all employee categories. The 

total number of deliveries is calculated by multiplying 

the number of delivery points by the number of 

delivery days. This number is then divided by the total 

number of workhours used in all employee categories, 

including managers and executives. The result is the 

number of annual deliveries completed per workhour 

used. Id. at 35. 

In FY 2011, DPWH of 39.9 deliveries did not 

meet the FY 2011 target of 40.4 deliveries. The 
48 2011 Annual compliance determination

Postal Service explains that one major reason for not 

achieving the target was slippage in the planned 

development schedule of the Flats Sequencing 

System (FSS). It notes that the vast majority of planned 

workhour reductions for FY 2011 were based on 

expected volume or workload loss and that there was 

no relief from contractual barriers hindering workforce 

flexibility. The Postal Service states that it was unable 

to reduce sufficient workhours at the pace necessary 

to achieve the target given its largely full-time regular 

workforce. Response to CHIR No. 4, question 12. 

In FY 2012, the target is 42.2. The Postal Service 

explains that this target was set based on expected 

large volume declines and projected savings from 

the Network Rationalization and Retail Access 

Optimization initiatives. It states that the FY 2012 

target will be difficult to achieve because of the 

Congressional request to delay implementing these 

initiatives until May 2012. It notes that volumes 

and workload are exceeding the FY 2012 budget 

expectation, which requires using additional work 

hours. Id.

Improve Employee Engagement

The Postal Service relies on two performance 

indicators to evaluate progress towards its 

performance goal of Improve Safety and Employee 

Engagement. It uses the Occupational Safety and 

Health Administration (OSHA) Illness and Injury Rate 

to measure improvements in safety. The OSHA Illness 

and Injury Rate measures the number of injuries 

and illnesses that occur per 100 employees. It is 

calculated by multiplying the total number of OSHA 

injuries and illnesses by 200,000 hours, which 

represents 100 employees working 2,000 hours per 

year. That number is then divided by the number of 

hours all employees actually worked, which excludes 

vacation, sick leave, holidays, and all other non-work 

time, paid or unpaid.8 Combined Report at 35.

In FY 2011, the OSHA Illness and Injury Rate of 

5.67 did not meet the FY 2011 target of 5.39. 

The Postal Service explains that the FY 2011 target 

was not achieved because of unprecedented winter 

weather across the United States during December 

2010 and January and February 2011. It asserts 

that the weather caused a spike in the OSHA Illness 

and Injury Rate from which the Postal Service did not 

recover. Response to CHIR No. 4, question 13.

The target for FY 2012 is 5.57. The Postal Service 

states that it is on target to achieve this goal and 

notes that it continually encourages and audits safety 

program implementation and monitors OSHA Illness 

and Injury Rates. Id.

The Postal Service tracks employee engagement and 

workplace concerns using an index consisting of 

employee responses to key questions from the Voice 

of the Employee (VOE) Survey. The performance 

indicator is the VOE Survey score, which is the 

average percent of employees responding favorably 

to eight questions from the VOE Index. These 

questions address the following issues: Strategic 

Direction, Trust, Contribution to Postal Service Growth, 

Communication, Diversity and Respect, Commitment, 

Personal Safety, and Work Effort and Quality. 

Combined Report at 35; Response to CHIR No. 4, 

question 14. 

The Postal Service states that survey responses have 

remained positive despite the challenges faced by the 

Postal Service and its employees. In FY 2011, the 

8 “How To Compute a Firm’s Incidence Rate for Safety Management,” 

Bureau of Labor Statistics, Injuries, Illnesses, and Fatalities, available 

at http://www.bls.gov/iif/osheval.htm.
 POSTAL REGULATORY COMMISSION 49

VOE Survey score was 64.7, which exceeded the 

FY 2011 target of 64.5 by 0.2 points. Combined 

Report at 33, 35. The FY 2012 target is 64.9. 

Response to CHIR No. 4, question 14. 

Strategic Initiatives

In the 2008 and 2009 ACDs, the Commission asked 

the Postal Service to produce Annual Performance 

Reports and Plans adhering more closely to the 

requirements of 39 U.S.C. 2803 and 2804. In 

the 2010 ACR, the Postal Service responded to the 

Commission’s request by introducing and describing 

nine strategic initiatives to help clarify the connection 

between performance goals and the actions necessary 

to achieve them. 2010 ACD at 46. 

The strategic initiatives were contained in an 

appendix to the 2010 Comprehensive Statement. 

2010 Comprehensive Statement at 51-53. The Postal 

Service described the purpose of each strategic 

initiative, the performance goal(s) supported, FY 

2011 targets, and results indicators used to measure 

success in meeting those targets. Table V–2 displays 

the information that was reported in the 2010 

Comprehensive Statement. 

However, the 2011 Comprehensive Statement 

does not contain as detailed information about the 

strategic initiatives as the 2010 Comprehensive 

Statement. The 2011 Comprehensive Statement 

contains a chart similar to Table V–2 that lists each 

strategic initiative and describes the progress made 

for each one during FY 2011. Combined Report at 

30. However, the chart does not provide FY 2012 

targets for each strategic initiative.9 Also, it does not 

9 In response to CHIR No. 2, question 16, the Postal Service provided 

FY 2012 targets for the Intelligent Mail strategic initiative.

describe the purpose of each strategic initiative and 

the performance goal(s) it supports. 

The Postal Service explains that it did not provide 

FY 2012 targets because it has initiated a 

comprehensive review of the strategic initiatives due 

to dramatic changes occurring in the Postal Service’s 

business environment. It notes that this process will 

restructure some existing strategic initiatives and 

develop new priorities and initiatives. It states that 

FY 2012 targets are currently under development. 

Response to CHIR No. 2, question 23. The Postal 

Service asserts that stakeholders can expect more 

details on more programs in FY 2012. Combined 

Report at 31. 

Intelligent Mail

Intelligent Mail is a strategic initiative that measures 

results based on the percentage of workshared mail 

containing an Intelligent Mail barcode (IMb). Initially, 

the FY 2011 target was for 90 percent of workshared 

mail, excluding Within-County Periodical volumes, to 

have either a Full-Service or Basic IMb. 2010 ACD 

at 46. In the 2010 ACR, the Postal Service revised 

this target.10

The Postal Service provides FY 2012 targets in the 

2011 ACR. Table V–3 lists the percentage of mail, 

by class, that is expected to contain a Full-Service or 

Basic IMb by the end of FY 2012, rounded to the 

nearest percent. 

In FY 2011, the Postal Service states that it has 

made substantial progress in improving its scanning 

infrastructure and processes and collaborating 

with mailers and mailing industry. It reports that the 

10 This target assumed that mailers would be required to use IMb by 

the end of May 2011 to receive an automation discount. The Postal 

Service revised this target because this assumption was no longer 

valid. Id.
50 2011 Annual compliance determination

percentage of eligible workshared mail containing 

an IMb increased from 52 percent in Quarter 1 to 

72 percent in Quarter 4. Mail using Postnet codes 

decreased from 44 percent to 25 percent during that 

same period. Combined Report at 30. 

The Postal Service explains that it is taking several 

steps to increase Full-Service IMb usage in FY 2012. 

It notes that in January 2012, it provided free visibility 

(container, tray, and piece level scans) for FullService IMb mailings to enable mailers to monitor the 

movement of mailings throughout the Postal Service 

network. It anticipates that free visibility will entice 

Table V–2—Strategic Initiatives that Support Performance Goals

Strategic 

Initiative

Performance Goals

Supported Results Indicator

FY 2011 

Target

Intelligent Mail 

Service

Increase the percentage of workshared mail containing an Intelligent Mail 

barcode. (Full-Service and Basic, excluding Periodicals Within-County 

volumes.)

90% 

by 

end of year

Employee 

Engagement

Financial 

Performance

Flats Sequencing 

System

Service Increase the percentage of flat mail in delivery point sequence for 

delivery zones on the Flats Sequencing System that have been operating 

for at least 6 months

Financial 72%

Performance

Expand Access 

Service Expand share of retail revenue generated by means other than at a postal 

retail counter. Financial 35%

Performance

Optimize Network

Service

Reduce total interior facility space. Reduce by 2.8 

million sq. ft. Financial 

Performance

Flexible Workforce

Service

Come in below the Integrated Financial Plan average workhour rate.

(Bargaining and casual employees, including wages, benefits, and 

existing contractual wage increases. Excludes current and prefunding 

payments for the Retiree Health Benefits Fund.)

$41.69/hour

Employee 

Engagement

Financial 

Performance

Reduce Energy Use Financial 

Performance Continue progress toward FY 2015 energy reduction goals. On target

Reduce Delivery 

Fixed Costs 

Financial 

Performance 

Increase average number of deliveries per route. 

(Combination of city and rural delivery routes)

589 

by end of year

Expand Products, 

Services, and 

Features

Service

Create new products, services, and features. 15 new

Employee 

Engagement

Financial 

Performance

Address 

Overfunded 

Legacy Costs

Employee 

Engagement Address legacy cost funding issues. All three 

Financial addressed

Performance 

Source: 2010 Comprehensive Statement at 53.
 POSTAL REGULATORY COMMISSION 51

mailers who are currently using Basic IMb to move to 

Full-Service IMb. It states that it is also implementing 

an IMb Small Business tool to enable small mailers to 

generate Full-Service IMb mailings through an easy 

to use web-based tool. Response to CHIR No. 2, 

question 16.

Flats Sequencing System

The FSS is a strategic initiative that measures results 

based on the percentage of flat mail in delivery point 

sequence (DPS) for delivery zones operational on the 

FSS for at least 6 months. The FY 2011 target was 

72 percent. 2010 ACD at 48. 

In FY 2011, the Postal Service reports that it 

increased the percentage of flat mail sorted in 

DPS. It notes that 23 of the 46 FSS sites have been 

operating 6 months or more. However, at these sites 

59 percent of flats on average were sorted in DPS, 

falling short of the FY 2011 target of 72 percent. Two 

sites exceeded the FY 2011 target with scores of 79 

percent. Combined Report at 30.

Expand Access

Expanding postal access is a strategic initiative that 

measures results based on increases in the proportion 

of retail revenue generated by means other than 

a postal retail counter. The FY 2011 target was 

35 percent. 2010 ACD at 48. The Postal Service 

exceeded this target by increasing the share of 

revenue generated from alternate channels to more 

than 35 percent. It notes that PC Postage led with 28 

percent revenue growth and that alternative access 

transactions have a lower per-dollar transaction 

rate than similar transactions at postal windows. 

Combined Report at 30. 

Optimize Network

Under this strategic initiative, the Postal Service 

adapts physical networks to changes in mail 

volume, mail mix, and customer behavior. Results 

are measured by reductions in total interior facility 

space, and the FY 2011 target was a reduction of 

2.8 million square feet. 2010 ACD at 48. The Postal 

Service exceeded this target by reducing interior 

space by over 4.4 million square feet from property 

disposals, lease terminations, and leased space 

reductions. It notes that it reduced annual rent paid 

to landlords by over $140 million compared to FY 

2010. Combined Report at 30. 

Flexible Workforce

Under the Flexible Workforce strategic initiative, 

the Postal Service seeks to reduce workhours and 

the cost of those hours. Id. Results are measured 

by the average hourly rate for bargaining and 

casual employees, including existing contractual 

wage increases. The results exclude Retiree Health 

Benefits Fund (RHBF) payments, which are not within 

management’s control. In FY 2011, the target was 

for the average hourly rate to fall below $41.69, the 

average hourly rate contained in the 2011 Integrated 

Financial Plan. 2010 ACD at 48. The Postal Service 

more than met this target with an average hourly rate 

of $41.60. Combined Report at 30. 

Table V–3—FY 2012 Year End 

 IMb Expectations

Mail Class Full-Service IMb Basic IMb

First-Class Mail 55% 34%

Standard Mail 38% 38%

Periodicals 55% 13%

Source: Response to CHIR No. 2, question 16.
52 2011 Annual compliance determination

Reduce Energy Use

The Postal Service proposes to reduce energy use 

each year, primarily for transportation fuel and utilities. 

Results are measured based on continued progress 

toward meeting the FY 2015 energy reduction goals 

set forth in the Strategic Sustainability Performance 

Plan. 2010 Comprehensive Statement at 52. These 

energy reduction goals include:

 Reduce Scope 1, 2, and 3 greenhouse gas 

emissions 20 percent by FY 2020;

 Reduce total facility energy use (billion Btu) 30 

percent by FY 2015;

 Reduce facility energy intensity (Btu/GSF) 30 

percent by FY 2015;

 Reduce Postal-vehicle petroleum fuel use 20 

percent by FY 2015;

 Increase Postal-vehicle alternative fuel use 10 

percent annually by FY 2015.11

The FY 2011 target for the Reduce Energy Use 

strategic initiative was for the Postal Service to be on 

track to meet these energy reduction goals. 2010 

Comprehensive Statement at 52; 2010 ACD at 49. 

As of FY 2010, the Postal Service was on track to 

meet most of its energy reduction goals.12 It increased 

postal vehicle alternative fuel use by 132.7 percent 

since FY 2005.13 The Postal Service reports that 

according to FY 2011 preliminary calculations, it has 

reduced total facility energy use by 25.6 percent and 

facility energy intensity by 22.4 percent. It states that 

it is on target to reducing Scope 1 and 2 greenhouse 

gas emissions 20 percent by FY 2020. However, it 

11 Response to CHIR No. 5, question 2. 12 The Postal Service provided FY 2010 data because FY 2011 results 

were not yet available. Combined Report at 30 n.1. 13 FY 2011 Strategic Sustainability Performance Plan, June 3, 2011, 

at 3, 37, available at http://about.usps.com/what-we-are-doing/

green/sspp/2011/usps_fy2011_sspp.pdf.

was not on track to meet its goals of reducing postal 

vehicle petroleum fuel use 20 percent by FY 2015 

and select Scope 3 greenhouse gas emissions 20 

percent by FY 2020. Response to CHIR No. 5, 

question 2. 

Reduce Delivery Costs

The Postal Service seeks to reduce fixed delivery costs 

because of declining volume and revenue per delivery 

point. Results are measured by the average number of 

deliveries per route for city and rural routes combined. 

The FY 2011 target was 589 deliveries per route by 

the end of the year. 2010 ACD at 49.

The Postal Service exceeded the FY 2011 target 

by increasing the average number of deliveries per 

route to 592. It notes that implementing the FSS 

reduced about 4,250 city routes and 154,000 rural 

workhours. It states that non-FSS route evaluations 

eliminated approximately 2,100 city routes, and 

sequencing performance of letter mail also improved. 

The number of routes eliminated does not include rural 

routes reduced by the FSS because rural reductions 

were measured by reduced workhours rather than 

reduced routes.14

Expand Products, Services, and Features

Under this initiative, the Postal Service provides 

customers with new mailing and shipping products, 

services, and features to meet their changing needs. 

Results are measured by the number of new products, 

services, and features created. The FY 2011 target 

was 15. 2010 ACD at 49.

14 Combined Report at 30; Response to CHIR No. 5, question 3. In FY 

2011, the Postal Service reports that it reduced the total number of 

city and rural delivery routes nationally by 6,878. Combined Report 

at 14. This number includes both city and rural routes reduced in FY 

2011 and does not distinguish between FSS and non-FSS reductions. 

Response to CHIR No. 5, question 3.
 POSTAL REGULATORY COMMISSION 53

In FY 2011, the Postal Service exceeded its target 

by unveiling 23 new products, services, and features 

in the areas of shipping, retail, marketing mail, and 

transactions and correspondence.15 It states that 12 

new products, services, and features were created 

to attract new mailers and included multiple new 

shipping services, Every Door Direct Mail, and a 

web-based direct mail hub. Combined Report at 9, 

30. It explains that 11 new products, services, and 

features were aimed at improving service to mailers 

by providing easy and convenient ways to develop 

direct mail online and manage customers’ mail more 

efficiently. Id.

Address Legislative Requirements for Funding

The purpose of this strategic initiative is to address 

funding requirements for the Civil Service Retirement 

System, the Federal Employee Retirement System, 

and the RHBF. The FY 2011 target was for the 

Postal Service to address all three funding issues. 

2010 ACD at 49. The Postal Service met this 

target by supporting an extensive outreach program 

to Congress and stakeholders, along with the 

Commission, the Postal Service Office of the 

Inspector General, and others. It states that legislation 

addressing several critical funding issues is being 

developed or has been introduced. Combined Report 

at 30. 

15 The 23 new products, services, and features are (1) Critical Mail; (2) 

ePacket; (3) ePostage; (4) Flat Rate Legal Size Express Mail Envelope; 

(5) Hold for Pickup; (6) Parcel Select Regional Ground; (7) Prepaid 

Forever Flat Rate Priority Mail; (8) Priority Mail Regional Rate Boxes; 

(9) Sample Showcase; (10) Returns Portfolio; (11) Gift Cards; (12) 

P.O. Box Real Mail Notification; (13) P.O. Box Street Addressing; 

(14) USPS.com: Spanish and Chinese Translations; (15) USPS.com: 

New/Updated Applications and Services; (16) USPS.com: New 

Mobile Devices Releases; (17) DM Hub; (18) Every Door Direct 

Mail; (19) Improved Saturation/High Density Program; (20) Mobile 

Barcode Promotion; (21) Alternate Postage; (22) Remittance Mail 

Redirect; and (23) Reply Rides Free/Second Ounce Free.

Public Comments

In Order No. 1095, the Commission solicited 

comments from interested persons concerning the 

Postal Service’s progress in meeting its performance 

goals. Order No. 1095 at 5. Valpak and the 

Public Representative submitted comments on the 

2011 Report and 2012 Plan. Both participants 

argue that the Annual Performance Report and Plan 

should include service performance measurements 

for Standard Mail. The Public Representative 

argues that the Annual Performance Report and 

Plan should include on-time service performance 

for Standard Mail products and establish Standard 

Mail performance as an organization-wide goal. 

PR Comments at 29. Similarly, Valpak contends that 

the Annual Performance Report should recognize 

Standard Mail as a “program activity” under 39 

U.S.C. 2803(a) and provide data on speed and 

reliability of delivery for Standard Mail products. 

Valpak Initial Comments at 107.

The Public Representative observes that the quality of 

information provided in the 2011 Comprehensive 

Statement declined compared to last year’s filing. He 

argues that the 2012 Plan does not meet the statutory 

requirement to cover each program activity set forth 

in the Postal Service’s operating budget. He reiterates 

concerns expressed by the Commission in the 2010 

ACD about using Operating Income and DPWH 

as performance indicators for the Improve Financial 

Performance performance goal. He notes that the 

Postal Service did not update the strategic initiatives 

to include FY 2012 targets and that the Postal Service 

failed to meet targets set for the Intelligent Mail and 

FSS strategic initiatives. PR Comments at 28-31. 
54 2011 Annual compliance determination

Evaluation of Statutory 

Requirements

In the FY 2010 ACD, the Commission found that the 

2010 Report and 2011 Plan improved over past 

filings because they adhered more closely to statutory 

requirements and addressed the Commission’s 

concerns from prior ACDs. 2010 ACD at 41. 

However, as the Public Representative notes, the 

quality of information provided in FY 2011 declined 

compared to FY 2010. The 2011 Report and 2012 

Plan contain less comprehensive descriptions of the 

performance goals and performance indicators. 

They also exclude three performance indicators used 

in the 2010 Report and 2011 Plan. The 2011 

Comprehensive Statement omits key details about the 

strategic initiatives that were provided in the 2010 

Comprehensive Statement, such as results indicators 

and FY 2012 targets. 

Future Annual Performance Reports, Annual 

Performance Plans, and descriptions of strategic 

initiatives should, at a minimum, contain information 

similar in the level of detail provided in the 2010 

Comprehensive Statement, 2010 Report, and 

2011 Plan.

As with the 2011 Plan, the 2012 Plan does not meet 

the statutory requirement of covering each program 

activity set forth in the Postal Service’s budget. See 39 

U.S.C. 2803(a). 

2011 Report

The 2011 Report satisfies the requirements in 

39 U.S.C. 2804, except for section 2804(d)(3)

(C). It sets forth the seven performance indicators 

established in the 2012 Plan and compares FY 2011 

results with FY 2011 targets. For each performance 

indicator, the 2011 Report reviews the Postal 

Service’s success in achieving the performance goals 

by evaluating progress towards FY 2011 targets. It 

evaluates the 2012 Plan relative to the performance 

achieved towards the FY 2011 performance goals 

and includes results for fiscal years 2008, 2009, and 

2010. Combined Report at 33; Response to CHIR 

No. 2, question 21. 

As discussed below, the Postal Service did not meet 

the performance goals for Improve Service and 

Improve Financial Performance. In those cases, the 

Postal Service must explain why it did not meet the 

performance goal and describe plans and schedules 

for achieving the performance goal. 39 U.S.C. 

2804(d)(3). If the performance goal is impractical 

or infeasible, the Postal Service must explain why 

that is the case and what action it recommends for 

achieving the goal. 

For the Improve Service performance goal, the 

Postal Service explains that First-Class Mail SinglePiece Letters/Postcards performance fell short of FY 

2011 targets because of organizational realignment 

and natural disasters in different parts of the United 

States. Combined Report at 34. Its plan for improving 

First-Class Mail Single-Piece Letters/Postcards 

performance includes continuing to provide the field 

with useful tools to address the new combined FirstClass Mail mix, such as new diagnostic reports for 

Presort First-Class Mail. Response to CHIR No. 4, 

question 11. 

Similarly, for the performance goal of Improve 

Financial Performance, the Postal Service explains 

that it did not achieve the FY 2011 target of 

40.4 DPWH because of slippage in the planned 

development schedule of the FSS and the lack of 

relief from contractual barriers hindering workforce 

flexibility. It states that the FY 2012 target of 42.2 
 POSTAL REGULATORY COMMISSION 55

would be difficult to achieve due to volumes and 

workload exceeding FY 2012 budget expectations 

and delays implementing the Network Rationalization 

and Retail Access Optimization initiatives. However, 

the Postal Service does not explain what action it 

recommends for achieving DPWH targets in future 

years. In cases where a performance goal would 

be difficult to achieve, Annual Performance Reports 

should explain what action the Postal Service 

recommends for achieving the performance goal in 

future years. See 39 U.S.C. 2804(d)(3)(C).

Finally, the 2011 Report includes summary findings 

of program evaluations completed during FY 2011. It 

provides links to the websites of the Commission, the 

Postal Service Office of the Inspector General, and 

the Government Accountability Office. Response to 

CHIR No. 2, question 22. 

2012 Plan

The 2012 Plan meets most of the statutory requirements 

listed in 39 U.S.C. 2803. However, as in previous 

years, the 2012 Plan does not “[cover] each program 

activity set forth in the Postal Service budget....”16

As the Commission previously stated, covering each 

program activity set forth in the Postal Service’s 

operating budget is an essential requirement of the 

Annual Performance Plan. 2010 ACD at 50. 

The 2012 Plan establishes three performance goals 

of Improve Service, Improve Financial Performance, 

and Improve Safety and Employee Engagement that 

define the level of performance to be achieved by a 

program activity. Response to CHIR No. 2, question 

19. It expresses each performance goal in objective, 

quantifiable, and measurable forms as the targets 

16 See 2010 ACD at 50. Program activity means “a specific activity 

related to the mission of the Postal Service[.]” 39 U.S.C. 2801(5).

and results set for each performance indicator. For 

example, the Improve Service performance goal is 

measured by service performance scores for FirstClass Mail Single-Piece Letters/Postcards. Likewise, 

Improve Financial Performance is expressed as 

Operating Income and DPWH, and Improve Safety 

and Employee Engagement is measured by the 

OSHA Illness and Injury Rate and the VOE Survey 

score. Combined Report at 33. 

The 2012 Plan establishes seven performance 

indicators used to measure or assess relevant outputs, 

service levels, and outcomes of each program 

activity. However, as noted below, the Commission 

is concerned about the adequacy of the performance 

indicators for the performance goals of Improve 

Service and Improve Financial Performance. The 

2012 Plan also provides “a basis for comparing 

actual program results with the established 

performance goals” by comparing FY 2011 results to 

FY 2011 targets for each performance indicator. See

39 U.S.C. 2803(a)(5). 

The 2012 Plan “briefly describe[s] the operational 

processes, skills and technology, and the human, 

capital, information, or other resources required to 

meet the performance goals[.]” Response to CHIR 

No. 2, question 20; see 39 U.S.C. 2803. The 

Postal Service provides further information in the 

Combined Report by explaining the processes, 

skills and technology, and resources for its four 

core business strategies. These strategies are: (1) 

strengthen the business-to-consumer channel; (2) 

improve the customer experience; (3) compete for the 

package business; and (4) become a leaner, faster, 

and smarter organization. Combined Report at 8-15. 
56 2011 Annual compliance determination

Finally, the 2012 Plan describes the objective 

measurement systems used to verify and validate 

measured values. For Improve Service, an independent 

third-party measures First-Class Mail Single-Piece 

Letters/Postcards service performance using a sampling 

system that records transit times between deposit 

and delivery of mailpieces. The Postal Service also 

maintains customer experience measurement programs 

supplemented by independent mystery shopper reports 

and analyses of complaints and telephone calls to 

customer contact centers. Id. at 34. 

For Improve Financial Performance, the Postal Service 

uses a measurement system that follows applicable 

rules and regulations of the Securities and Exchange 

Commission. Accounting systems and financial 

reports are also independently audited and subject to 

review by the Postal Service Office of the Inspector 

General and the Government Accountability Office. 

For Improve Safety and Employee Engagement, the 

Postal Service uses the OSHA Illness and Injury Rate, 

an industry-wide formula required by OSHA, and the 

VOE Survey score. Id. at 35.

Review of Performance Goals 

and Strategic Initiatives

The PAEA requires the Commission to evaluate whether 

the Postal Service has met the performance goals 

established in the 2011 Report and 2012 Plan. 39 

U.S.C. 3653(d). The Commission conducts this review 

by comparing FY 2011 results for each performance 

indicator against FY 2011 targets to evaluate progress 

towards meeting each performance goal. 

The Commission may also provide recommendations to 

the Postal Service that relate to protecting or promoting 

the public policy objectives in title 39. Id. Specific 

recommendations for each performance goal are 

listed below. In the FY 2010 ACD, the Commission 

recommended applying consistent terminology 

throughout Annual Performance Reports and Plans. 

The Postal Service responded by clearly identifying 

the performance goals and using unambiguous terms 

throughout the 2011 Report and 2012 Plan. 

Improve Service

The Postal Service did not meet the performance 

goal of Improve Service. Service performance scores 

for First-Class Mail Single-Piece Letters/Postcards fell 

below FY 2011 targets for all three performance 

indicators (Overnight, 2 Days, and 3-5 Days). They 

also declined compared to FY 2010 results. In 

addition, unlike FY 2011 targets, which were slightly 

higher than FY 2010 targets, FY 2012 targets are 

identical to FY 2011 targets. These factors indicate 

that the Postal Service’s progress towards meeting the 

Improve Service performance goal is declining rather 

than improving. 

In the FY 2010 ACD, the Commission expressed 

concerns about the adequacy of the performance 

indicators for the Improve Service performance 

goal. They were limited to service performance 

scores for one market dominant product (First-Class 

Mail Single-Piece Letters/Postcards) and three 

competitive products (Express Mail, Priority Mail, 

and Parcel Select). The Commission found that the 

Postal Service’s choice of performance indicators 

provided an incomplete picture of the measurement 

systems used to track service performance. It stated 

that limiting performance indicators to First-Class 

Mail Single-Piece Letters/Postcards, which comprises 

only 15.4 percent of total mail volume,17 and three 

competitive products fails to recognize that the Postal 

17 Revenue, Pieces and Weight Report FY 2011 Summary (Public), 

November 25, 2011. 
 POSTAL REGULATORY COMMISSION 57

Service offers multiple products and services. 2010 

ACD at 52. 

The Commission recommended that the Postal Service 

expand the number of performance indicators to 

include service performance scores for other market 

dominant products. Id. The Postal Service, however, 

did not adopt these recommendations in the 2011 

Report and 2012 Plan. Instead, it reduced rather 

than expanded the number of performance indicators 

by removing service performance scores for Express 

Mail, Priority Mail, and Parcel Select. Again, this 

indicates that the Postal Service is not progressing 

towards the Improve Service performance goal. 

The Postal Service states that service performance 

scores for competitive products were not included in 

the 2011 Report because they contain commerciallysensitive information. Response to CHIR No. 4, 

question 10. However, in the 2010 ACR, the Postal 

Service provided service performance targets for 

Express Mail, Priority Mail, and Parcel Select under 

seal.18 Thus, concerns about protecting commerciallysensitive information can be addressed by filing data 

under seal. See 39 U.S.C. 3652(f); 39 U.S.C. 

2803(d)(2).

The Commission reiterates concerns about the 

adequacy of performance indicators for the Improve 

Service performance goal. It recommends that the 

Postal Service expand the number of performance 

indicators to include service performance scores 

for other classes of market dominant mail, including 

Standard Mail. In future filings, the Postal Service 

should also file under seal both the targets and results 

for its competitive products, including Express Mail, 

Priority Mail, and Parcel Select.

18 Docket No. ACR2010, Library Reference USPS-FY10-NP32. 

Improve Financial Performance

The Postal Service did not meet the performance goal 

of Improve Financial Performance. FY 2011 results 

fell short of FY 2011 targets for both Operating 

Income and DPWH. As noted in the FY 2010 

ACD, the Postal Service’s current financial condition 

impedes improvements in financial performance. 

2010 ACD at 53. Revenues from FY 2007 to FY 

2011 have declined from a high of approximately 

$75 billion in FY 2007 to a low of approximately 

$66 billion in FY 2011. From FY 2007 to FY 2011, 

the Postal Service has experienced total cumulative 

losses of $25.3 billion. Combined Report at 21. 

For a more detailed discussion of the Postal Service’s 

current financial condition, please see Chapter IV on 

the Postal Service Financial Condition.

As the Public Representative notes, the Commission 

expressed concerns in the 2010 ACD about using 

Operating Income and DPWH as performance 

indicators for the Improve Financial Performance 

goal. Operating Income alone will not provide a 

complete and accurate picture of the Postal Service’s 

financial performance because it ignores the RHBF 

obligations and changes in Workers Compensation 

liabilities. While the RHBF obligation is beyond the 

Postal Service’s control, the Postal Service should 

nonetheless recognize in its performance goals 

the necessity of generating net income or loss. 

Otherwise, concentrating on just the “controllable” 

operating income could undermine the goal-setting 

process. Thus, the RHBF expenses and Workers 

Compensation liabilities must be accounted for as an 

expense of the organization. 2010 ACD at 54.

The Commission also recommended against 

replacing TFP with DPWH as a measure of 

productivity because DPWH does not recognize 
58 2011 Annual compliance determination

major workload components, such as collecting, 

processing, transporting, and sequencing of mail for 

delivery. It stated that DPWH considers the servicing 

of the expanding delivery network as the only 

component of postal workload. Id.

The Commission reiterates concerns about using 

Operating Income and DPWH as financial 

performance indicators. It recommends that the Postal 

Service use TFP as a performance indicator and report 

the RHBF obligations and Workers Compensation 

liability adjustments as part of its operating expenses. 

Improve Safety and Employee Engagement

The Postal Service partially met this performance 

goal. In FY 2011, the VOE Survey score exceeded 

the FY 2011 target by 0.2 points. The FY 2012 

target is 64.9, which is higher than the FY 2011 

target by 0.4 points. Response to CHIR No. 4, 

question 14.

However, the 2011 OSHA Illness and Injury Rate 

of 5.67 did not meet the FY 2011 target of 5.39. 

Although the Postal Service states that it is on track 

to achieve FY 2012 targets and thresholds, the FY 

2012 target is worse than the FY 2011 target. This 

indicates that the Postal Service’s progress towards 

improving safety is declining rather than improving. 

Strategic Initiatives

The strategic initiatives facilitate the Commission’s 

review of performance goals under 39 U.S.C. 

3653(d). The Commission reviews the strategic 

initiatives as part of its evaluation of whether the 

Postal Service met the performance goals established 

in the Annual Performance Report and Plan. 

As noted above, the 2011 Comprehensive Statement 

contains less detailed information about the strategic 

initiatives than the 2010 Comprehensive Statement. 

The Postal Service explains that it began implementing 

a rigorous, disciplined process for developing, 

reviewing, and tracking strategic initiatives in FY 

2011, and stakeholders can expect more details on 

more programs in FY 2012. Combined Report at 31. 

In future filings, the Commission expects that the Postal 

Service will provide more detailed information about 

the strategic initiatives as well. 

The parts of the 2012 Comprehensive Statement 

on Postal Operations related to performance plans 

should, at a minimum, contain information on strategic 

initiatives similar in the level of detail to that provided 

in the 2010 Comprehensive Statement. 

Specifically, the 2012 Comprehensive Statement on 

Postal Operations should include a chart similar to the 

one provided in the 2010 Comprehensive Statement 

that illustrates the relationships between the strategic 

initiatives and the three performance goals. This 

chart should also provide the results indicators used 

to measure progress in meeting targets. See 2010 

Comprehensive Statement at 53. The Postal Service 

should also describe the purpose of each strategic 

initiative and provide FY 2012 targets, FY 2012 

results, and FY 2013 targets. See id. at 51-53. This 

information will facilitate the Commission’s evaluation 

of the progress made for each strategic initiative. 

For the Expand Access strategic initiative, the Postal 

Service reported that it increased the share of revenue 

generated from alternative channels to more than 35 

percent. Combined Report at 30. However, it did 

not discuss how the scope of access was expanded 

throughout the nation. For example, it did not state 

whether the revenue generated from alternative 

channels came primarily from urban or rural areas. 
 POSTAL REGULATORY COMMISSION 59

Distinguishing between revenues generated from 

urban versus rural areas could help ensure that 

both urban and rural communities have expanded 

access to postal services. In subsequent filings, the 

Commission recommends that the Postal Service 

discuss how widely access was expanded throughout 

the nation for both urban and rural areas.

For the Expand Products, Services, and Features 

strategic initiative, the Postal Service reports that it 

introduced 23 new products, services, and features 

in the areas of shipping, retail, marketing mail, and 

transactions and correspondence. Combined Report 

at 30. However, the Postal Service does not state 

whether these new products, services, and features 

generated additional revenues. This information will 

help determine whether the new products, services, 

and features supported the performance goal of 

Improve Financial Performance. In subsequent filings, 

the Commission suggests that the Postal Service 

provide the revenues generated from each new 

product, service, or feature.

For the Reduce Energy Use strategic initiative, the 

Commission suggests that the Postal Service clearly 

identify the energy reduction goals and state whether 

it met the targets for each energy reduction goal. The 

Postal Service provided this information for FY 2011 

in response to CHIR No. 5, question 2. However, 

providing this information in the initial 2011 ACR 

filing would have facilitated the Commission’s review 

of the strategic initiatives. In future ACRs, the Postal 

Service is requested to provide this information in its 

initial filing.

The Commission recognizes that some of its 

recommendations may result in added costs 

and reporting responsibilities. However, these 

additional data and reports would provide more 

robust information for assessing the Postal Service's 

performance goals and plans that are produced 

pursuant to 39 U.S.C. 2803 and 2804. 
60 2011 Annual compliance determination
 POSTAL REGULATORY COMMISSION 61

Chapter VI

Service Performance

Introduction

Under the PAEA, the Commission is tasked with reviewing the Postal Service’s quality of service for all market 

dominant products, including speed of delivery, reliability, and the level of customer satisfaction. As noted in 

the Commission 701 Report1, reviewing quality of service allows assessment of whether the Postal Service 

is meeting the objective of maintaining the ”high quality service standards established under section 3691,” 

and furthers the objective of increasing transparency. This review is also important in relation to the rate cap 

requirements of 39 U.S.C. 3622(d)(1)(A) when analyzing whether quality of service is impacted in order to 

comply with rate cap requirements. In addition, service performance results are an indication of Postal Service 

efficiency, particularly when the Postal Service is focused on cutting costs. Finally, maintaining high levels of 

service in First-Class Mail may help the Postal Service retain volume in this class. Improving service in Standard 

Mail (advertising) and Package Services (fulfillment), two areas where the market is improving, may result in 

volume growth.

The discussion that follows examines the Postal Service’s service performance for market dominant products, 

customer access or the ability to obtain postal services, and the customer experience with postal services and 

products. It also includes the Postal Service’s progress in implementing meaningful measurement through the use 

of Intelligent Mail barcodes (IMb).

The fourth quarter of FY 2011 is the first quarter that the Postal Service has reported service performance 

results for the majority of its market dominant products. The level of Full Service Intelligent Mail participation 

continues to impact the reliability of many service performance results. Newly implemented critical entry 

times (CET) have also affected scores for some products. The Postal Service has taken the first steps towards 

1 Section 701 Report Analysis of the Postal Accountability and Enhancement Act of 2006, September 22, 2011.
62 2011 Annual compliance determination

reporting Standard Mail service performance by 

individual product, but work remains in providing 

meaningful, representative results in this area.

The Postal Service is demonstrating success in meeting 

its service standard goals in the areas of single-piece 

First-Class Mail and Special Services. However, the 

Postal Service is having difficulty meeting its service 

standard goals for most other market dominant 

products. Overall, the Commission regards low 

performance results for speed of delivery an important 

issue the Postal Service must resolve.

Speed of Delivery and Reliability

Measurement Systems

The Postal Service uses several performance 

measurement systems to measure the speed of 

delivery and reliability of market dominant products. 

Market dominant products are measured using (1) 

the External First-Class Mail (EXFC) system, (2) a 

hybrid measurement system based upon IMb, (3) 

the International Mail Measurement System (IMMS), 

(4) a Delivery Confirmation based system, and (5) 

Red Tag and Del-Trak. Specialized systems have 

been implemented for measuring individual Special 

Services products. The PAEA requires the Postal 

Service to measure the service performance of 

each market dominant product using measurement 

systems that are independent of or external to the 

Postal Service. 39 U.S.C. 3691(b)(1)(D). The Postal 

Service may seek an exception to this requirement by 

requesting approval from the Commission to utilize 

a measurement system under the direct control of or 

internal to the Postal Service. 39 U.S.C. 3691(b)

(2). In November 2008, the Commission granted a 

Postal Service request to proceed with development 

of an internal hybrid measurement system based on 

Intelligent Mail barcodes (IMb) to measure service 

performance for many of its products. 

EXFC

First-Class Mail Single-Piece Letters/Postcards and 

the single-piece category of First-Class Mail Flats 

are measured using the EXFC measurement system.2

This system is an external destination-based system 

managed by an independent contractor, IBM, which 

provides quarterly service performance measurement 

scores at both the postal area and district level.3

Delivery performance is measured from the street 

collection box to the delivery mailbox. When 

evaluating delivery performance, test mailers record 

the time they place First-Class Mail in the collection 

box. Those test mailpieces are sent to a nationwide 

panel of receivers who record when the mailpiece 

was delivered to their mailbox.4 Delivery performance 

is recorded on the basis of 3-Digit ZIP Code pairs.

Hybrid Measurement System

Most presorted letter and card shaped First-Class Mail 

and Standard Mail is evaluated through the Intelligent 

Mail Accuracy and Performance System (iMAPS). This 

is a hybrid measurement system utilizing both internal 

and external components. The internal component of 

the measurement system uses the mail arrival time to 

start the measurement clock and the final processing 

scan within the distribution network using IMb to stop 

the measurement clock. These data are augmented 

with a last-mile factor externally measured using 

third-party reporters to provide a complete end-toend measurement. Data collected is submitted to an 

external contractor to calculate service performance 

and generate the necessary reports.

2 2010 ACD at 58. 3 2009 ACD at 49. 4 Id.
 POSTAL REGULATORY COMMISSION 63

Delivery Confirmation based system

First-Class Mail Parcels are measured using the 

internal Product Tracking System (PTS). This system 

measures transit time from the time of mailing until the 

time of delivery of parcels for which customers have 

requested Delivery Confirmation.

IMMS

The International Mail Measurement System provides an 

independent measure of the domestic leg of the transit 

time for Inbound and Outbound Single-Piece First-Class 

Mail International. Specifically, the system measures the 

length of time between the domestic collection point 

and the outbound International Service Center (ISC) 

for outbound letters and between the inbound ISC and 

domestic delivery point for inbound letters.5 The IMMS 

system tests service in the same 892 3-Digit ZIP Code 

areas as EXFC. Further, the system employs a limited 

number of international locations to serve as the origin 

for inbound mail and the destination for outbound mail 

so that the mail passes through the ISC gateways where 

service measurement begins for inbound mail and ends 

for outbound mail.6

Red Tag and Del Trak

The Red Tag Monitoring Service is operated by the 

not-for-profit Red Tag News Publication Association 

to monitor service for association members. The 

Del-Trak System is operated by Time, Inc. to monitor 

service for several of its publications. Service is 

measured end-to-end using mailer-reported entry times 

to start-the-clock and external reporter delivery dates 

to stop-the-clock.7 The transit time for each of the 

tested publications is compared against the service 

5 Docket No. ACR2011, LR USPS-FY11-29, filename: Annual Report 

on Service Performance for Market Dominant Products at 3-4. 6 Id. at 6. 7 Id. at 17.

standards for Periodicals. Data from the two external 

systems are reviewed, combined and weighted by an 

independent contractor.

8

Intelligent Mail barcode 

IMb is a height-modulated barcode that encodes up 

to 31-Digits of mailpiece data. The IMb combines 

and expands the capabilities of the POSTNET 

barcode and the Planet Code barcode into one 

unique barcode.9 Scanning the IMb allows the Postal 

Service to track a mailpiece throughout the mail 

processing system.

Mailers are given a choice to register for Basic or FullService Intelligent Mail (Full-service). The Postal Service 

encourages Full-Service participation among mailers, in 

part because this option provides the data necessary 

to measure service performance. Full-Service allows 

the mailer to identify unique mailpieces throughout the 

mailstream along with other benefits such as start-theclock notification, discounts, and automated address 

correction.10 In quarter 4 FY 2011, only 42 percent 

of total commercial mail volume was IMb Full-Service 

certified.11 Subsequently, the percentage of Full-Service 

mailers decreased the following October to only 39 

percent participation.12 Table VI–1 compares the 

Postal Service’s 2010 estimate of Full Service IMb 

participation with actual 2011 participation.

There are significant issues hindering the 

implementation of IMb as a reliable measurement 

system. Problems with obtaining large enough sample 

sizes indicate that for some products the results cannot 

8 Id. 9 73 FR 36136 (June 25, 2008). 10 Retrieved at http://www.satorisoftware.com/learn/intelligent-mailbasic-vs-full-service.aspx. 11 Postal Service Presentation to Postal Regulatory Commission, January 

17, 2011. 12 The percentage of Standard Mail volumes using Full Service IMb 

decreased from 34.31 percent to 31.58 percent.
64 2011 Annual compliance determination

be deemed reliable. The inability to identify individual 

Standard Mail products means that the Postal 

Service cannot accurately report service performance 

measurement by product as required by 39 U.S.C. 

3652(a)(2)(B).13 The Service performance results for 

many products were only available for quarters 3 and 

4 (or in some cases, only quarter 4).

The Postal Service maintains that low participation 

rates coupled with new procedures for start-theclock scans are major factors for below-target 

service performance results. The Postal Service 

expects service performance for products using IMb 

to improve as more customers adopt Full-Service 

Intelligent Mail.14 It notes an increasing trend in FullService participation.15

Participant Comments

The Public Representative notes the Postal Service 

missed its FY 2011 target participation rate 

of 90 percent.16 He further contends the low 

participation rates do not fully explain the poor 

service performance results. The Public Representative 

suggests that the Postal Service provide a detailed 

plan of how it intends to increase participation in the 

Full-Service Intelligent Mail system.17

13 2010 ACD at 58. 14 Id. at 11. 15 Id. 16 PR Reply Comments at 30-31. 17 Id. at 33-34.

NPPC notes that the IMb measurement system is 

just getting underway and hopes that the new 

measurement system will show improved service 

performance in the FY 2012 ACR.18

Valpak suggests that the Postal Service entice 

small and larger mailers to use Full-Service IMb by 

expanding the rate differential.19

Commission Analysis

The Postal Service includes service performance 

results for most products in the FY 2011 ACR but 

problems remain in reporting Standard Mail. For 

example, Full-Service Standard Mail represents only a 

third of total Standard Mail volume. It anticipates total 

Full-Service participation will increase in FY 2012 

resulting in a range of 48 – 55 percent of Full-Service 

IMb pieces in the mailstream.20

The Commission recognizes that Full-Service volume 

has grown from approximately 7.5 billion pieces in 

quarter 2 of FY 2010 to approximately 13 billion 

pieces today.21 Moreover, Full-Service volume for 

First-Class Mail and Periodicals has increased to at 

least half of total volume for these classes.22 However, 

the Commission is concerned about the reliability 

of the reported service performance results for some 

products given the low participation rates. It is not 

clear whether the results based on the small sample 

size are representative of the universe within specific 

products. It has been 3 years since the Commission 

approved the use of IMb as a service performance 

measurement. It is imperative for the Postal Service to 

18 Comments of the National Postal Policy Council, February 3, 2012, 

at 11. 19 Valpak Comments at 116. 20 Postal Service update on IMb, November 29, 2011. 21 Postal Service Presentation to Postal Regulatory Commission, January 

17, 2011. 22 In FY 2010, First-Class Mail and Periodicals participation was 27.9 

and 29.2 percent, respectively.

Table VI–1—Pieces in Measurement

Mail Class FY 2011 Estimated FY 2011 Actual 

First-Class Mail 50.0% 62.0%

Standard Mail 36.5% 31.0%

Periodicals 54.6% 17.0%

Source: 2010 ACD and Postal Service presentation: Intelligent 

Mail Update
 POSTAL REGULATORY COMMISSION 65

find a reliable way to measure service performance. 

The Commission closely monitors progress in service 

performance measurement and continues to require 

the Postal Service to provide participation rate reports 

to the Commission on a monthly basis. If continued 

progress is not evident, the Commission will review its 

decision to allow use of the hybrid system for service 

performance measurement.

Temporary Waivers and Semi-Permanent 

Exceptions from Periodic Reporting

The Commission established a framework for the 

Postal Service to achieve full compliance with all 

service performance reporting requirements by the 

filing date of the FY 2011 ACR.23 As part of this 

process, the Postal Service was directed to seek 

temporary waivers from reporting where the Postal 

Service could not immediately begin reporting on 

specific products, and semi-permanent exceptions 

pursuant to 39 CFR 3055.3 where reporting would 

be impractical.

In FY 2011, the Postal Service requested waivers 

from service performance reporting requirements on 

many Postal Service products. The discussion below 

details the three dockets corresponding to the Postal 

Service’s request.

In Docket No. RM2011-1, the Postal Service 

requested temporary waivers from reporting for FirstClass Mail Flats at the District level; non-retail FirstClass Mail Parcels; all categories of Standard Mail; 

Outside County Periodicals; and non-retail Media 

Mail, Library Mail, and Bound Printed Matter Parcels.

In Docket No. RM2011-4, the Postal Service 

requested a semi-permanent exception, or alternative 

23 Docket No. RM2009-11, Order No. 465, Order Establishing 

Final Rules Concerning Periodic Reporting of Service Performance 

Measurements and Customer Satisfaction, May 25, 2010, at 18-24.

relief, for quarterly reporting of First-Class Mail Flats at 

the District level.

On November 24, 2010, the Postal Service filed 

a conditional notice of withdrawal concerning the 

temporary waiver request for District level reporting 

of First-Class Mail Flats previously filed in Docket No. 

RM2011-1.

In Docket No. RM2011-7, the Postal Service 

requested temporary waivers from quarterly reporting 

requirements for Standard Mail, Bound Printed Matter 

Flats, and certain Area and District level data for 

presort First-Class Mail and End-to-End Periodicals.

The issues appearing in Docket Nos. RM2011-1, 

RM2011-4, and RM2011-7 were addressed in 

Order No. 745.24 The Commission did not find a 

basis for granting exceptional relief and denied the 

requests for a waiver, semi permanent exception, or 

alternative forms of relief concerning First-Class Mail 

Flats and directed the Postal Service to begin quarterly 

reporting including District level service performance 

based upon available data from the existing EXFC 

system with the next due quarterly report. Standard 

statistical calculations describing the validity of data 

were to be included where appropriate.

The Postal Service’s request for a temporary waiver 

for presorted First-Class Mail Parcels appeared moot 

because this component of First-Class Mail Parcels 

has been reclassified within competitive products. See

Docket No. MC2011-22.

The Commission granted the request for a temporary 

waiver concerning presorted First-Class Mail, and 

directed the Postal Service to provide status reports 

as it indicated it would. Beginning with the FY 2011 

24 Docket Nos. RM2011-1, RM2011-4 and RM2011-7, Order 

Concerning Temporary Waivers and Semi-Permanent Exceptions from 

Periodic Reporting of Service Performance Measurement, June 16, 

2011. (Order No. 745).
66 2011 Annual compliance determination

quarter 4 report, the Postal Service was directed to 

report all data regardless of whether the data meets the 

Postal Service’s self-imposed data sufficiency thresholds, 

and where appropriate, include standard statistical 

calculations describing the validity of the data.

The Commission denied the request for a waiver 

concerning Standard Mail because the Postal Service 

did not comply with Commission directions for seeking 

waivers which require the Postal Service to present 

implementation plans including dates and milestones. 

The Postal Service did not present a plan reasonably 

calculated to achieve compliance with Standard Mail 

by the filing of this ACR or any other fixed date. The 

Commission directed the Postal Service to inform the 

Commission of its plan concerning the implementation 

of a measurement system capable of reporting service 

performance for individual Standard Mail products by 

August 1, 2011. While this issue was being resolved, 

the Postal Service was directed to report Standard Mail 

service performance as outlined in its waiver requests.

The Commission denied the request for a waiver 

concerning Periodicals because the Postal Service’s 

open-ended request to delay reporting is not 

consistent with the rules established in Order No. 

465 which require the Postal Service to present 

implementation plans including dates and milestones. 

Beginning with the FY 2011 quarter 4 report, the 

Postal Service was directed to report all Periodicals 

data regardless of whether the data meets the Postal 

Service’s self-imposed data sufficiency thresholds, 

and where appropriate, include standard statistical 

calculations describing the validity of the data. The 

Commission accepted the use of proxies and the use 

of Red Tag and Del-Trak data while a transition is 

being made to an IMb-based system.

For commercial Package Services, the Commission 

did not find acceptable the Postal Service’s proposal 

to move the start-the-clock event to the first en route 

scan without accounting for the period from when the 

Postal Service receives the mail until the first en route 

scan. The Commission determined that this change 

would not provide service performance measurement 

representative of the service being provided. The 

Postal Service was directed to present a plan to the 

Commission detailing how it intends to account for 

the period prior to the first en route scan by August 

1, 2011.25 Beginning with the FY 2011 quarter 4 

report, the Postal Service was directed to report all 

Package Services data regardless of whether the 

data meets the Postal Service’s self-imposed data 

sufficiency thresholds, and where appropriate, include 

standard statistical calculations describing the validity 

of the data.

The Postal Service requested a waiver from service 

performance reporting requirements on Stamp 

Fulfillment Services to allow time for the Postal Service 

to explore the feasibility of measuring the service 

performance of this product. The Postal Service 

eventually decided it was feasible to measure and 

report on this product and presented measurement 

and reporting proposals to the Commission, which 

the Commission approved.26

Finally, the Postal Service was granted a semipermanent exception from reporting for Applications 

and Mailing Permits.27

25 See Docket Nos. RM2011-1, RM2011-4 and RM2011-7, United 

States Postal Service Implementation Plan for Periodic Reporting of 

Service Performance Measurement for Standard Mail and Non-retail 

Package Services, August 1, 2011. 26 See Order No. 745. ; Docket No. RM2011-14, Order No. 947, 

Order Establishing Final Rule Concerning Periodic Reporting of 

Service Performance Measurements for Stamp Fulfillment Services, 

November 4, 2011. 27 Docket No. RM2010-14, Order No. 570, Order Approving Semi-
 POSTAL REGULATORY COMMISSION 67

The Postal Service’s measurement systems remain a 

work in progress. As discussed in subsequent sections, 

the Postal Service is now able to provide some level of 

reporting for most market dominant products. 

First-Class Mail

Single-Piece Letters/Postcards

The EXFC system’s statistical design includes FirstClass Mail Single-Piece Letters/Postcards. The Postal 

Service notes the maximum statistical margin of 

error for the performance estimate of First-Class Mail 

Single-Piece Letters/Postcards was +/- 2.0 percent 

with a 95-percent confidence level at the district and 

overnight, Two-day, and Three-day service standard 

level.28

For First-Class Mail Single-Piece First-Class Letters/

Postcards, service performance was better in quarters 

3 and 4 than in quarters 1 and 2. Figures VI–1 and 

VI–2 illustrate service performance for First-Class 

Mail Single-Piece Letters/Postcards overnight and 

two-day mail surpassed its annual targets of 96.65 

percent and 94.15 percent, respectively. Figure VI–3 

shows First-Class Mail Single-Piece Letters/Postcards 

three- to five-day narrowly missed the annual service 

performance target of 92.95 percent on time.

 First-Class Mail Single-Piece Letters/Postcards was 

the only mail product within any class to meet or 

surpass its annual service performance target for any 

service standard. 

permanent Exception from Periodic Reporting of Service Performance 

Measurement for Applications and Mailing Permits, October 27, 

20112010. 28 Library Reference Docket No. ACR2011, library reference USPSFY11-29, filename: Annual Report on Service Performance for 

Market Dominant Products at 7.

0

10

20

30

40

50

60

70

80

90

100

Quarter 1 Quarter 2 Quarter 3 Quarter 4 FY 2011 FY 2010

Percent 

On Time

Figure VI–2 

Single Piece Letters/Postcards — 2-Day

0

10

20

30

40

50

60

70

80

90

100

Quarter 1 Quarter 2 Quarter 3 Quarter 4 FY 2011 FY 2010

Percent 

On Time

Figure VI–1 

Single Piece Letters/Postcards — Overnight

0

10

20

30

40

50

60

70

80

90

100

Quarter 1 Quarter 2 Quarter 3 Quarter 4 FY 2011 FY 2010

Percent 

On Time

Figure VI–3 

Single Piece Letters/Postcards — 3- to 5-Day
68 2011 Annual compliance determination

Presorted Letters/Postcards

The Postal Service began commercial mail 

measurement based on Full-Service Intelligent Mail in 

quarter 4 FY 2010. FY 2011 saw a steady increase 

in certified mailers with all Full-Service commercial 

mailers being measured by quarter 4.29

As seen in Figure VI–4 service performance increased 

for overnight mail during the first three quarters of 

FY 2011 but decreased substantially in quarter 4. 

Figures VI–5 and VI–6 show that service performance 

improved from quarter 1 to quarter 4 for Two-day and 

Three- to Five-day mail. 

The Postal Service characterizes service results for 

Presorted Letters/Postcards as “particularly steady” 

in quarter 3 and 4.30 Overnight service, however, 

declined slightly from 96 percent on time in quarter 

3 to 91.1 percent on time in quarter 4. None of the 

service standard categories met the FY 2011 target. 

The Postal Service notes that service performance 

results increased throughout FY 2011 and believes 

this is due to implementation of a certification program 

for Full-Service Commercial Mailers. The certification 

process is designed to improve documentation, mail 

preparation and mail acceptance.

Prior to the fourth quarter, the Postal Service relied 

on mailer-provided information for start-the-clock 

scans and found it to be inconsistent.31 As a result, 

new rules for start-the-clock were implemented in FY 

2011 quarter 4. The Postal Service claims service 

performance results of several First-Class Mail 

29 Id. at 11. 30 Id. at 10. 31 Response to CHIR No. 4, question 17. The Postal Service explained 

that mailer provided scheduled ship date/time could be much earlier 

than the point it took possession of the mail. For example, if the 

scheduled ship date/time is prior to the CET but the Postal Service 

took possession of the mail after the CET, it would lead to start-theclock being Day 0 instead of Day 1.

0

10

20

30

40

50

60

70

80

90

100

Quarter 1 Quarter 2 Quarter 3 Quarter 4 FY 2011 FY 2010

Percent 

On Time

Figure VI–6 

Presorted Letters/Cards — 3- to 5-Day

0

10

20

30

40

50

60

70

80

90

100

Quarter 1 Quarter 2 Quarter 3 Quarter 4 FY 2011 FY 2010

Percent 

On Time

Figure VI–5 

Presorted Letters/Cards — 2-Day

0

10

20

30

40

50

60

70

80

90

100

Quarter 1 Quarter 2 Quarter 3 Quarter 4 FY 2011 FY 2010

Percent 

On Time

Figure VI–4 

Presorted Letters/Cards — Overnight
 POSTAL REGULATORY COMMISSION 69

products were adversely affected by the new rules, 

and the low number of certified mailers.32

In an effort to address First-Class Mail service 

performance, the Postal Service says it is working 

internally with its plants to address capacity issues 

and correct sizing for entry volumes.33 Off-loading 

is also an operation that the Postal Service wants 

to ensure is done in a service responsive manner. 

Further, the Postal Service will review all Customer 

Supplier Agreements (CSAs) for customer-requested 

container separations.34

The Postal Service’s IMb implementation has been a 

slow process for presorted First-Class Mail. In the first 

quarter, only 13 presorted First-Class Mail mailers 

were certified as meeting the criteria for providing 

accurate information for service measurement.35 The 

number of certified mailers grew to 100 mailers the 

second quarter and 118 in the third.36 Consequently, 

the total mail volume qualifying for measurement in 

the fourth quarter was approximately 30 percent of 

the total First-Class Mail Presorted Letters/Postcards.37

First-Class Mail Presorted Letters/Postcards did not 

meet its service performance target in FY 2011. The 

Postal Service expects service performance results to 

improve in FY 2012. The Commission will monitor 

32 Library Reference Docket No. ACR2011, library reference USPSFY11-29, filename: Annual Report on Service Performance for Market 

Dominant Products at 11. 33 Id. 34 A CSA is a written notice that confirms, for a commercial mailer, the 

origin-entry preparation requirements and the acceptance window 

times necessary for mail to be considered entered into the postal 

network on start-the-clock day 0. It may also include a schedule of 

transportation times, mail containerization specifications, designated 

postal mail facility entry locations, and time-sensitive mail instructions. 

(Retrieved from https://www.usps.com/nationalpremieraccounts/

csa.htm)). 35 Id. at 6. 36 Id. 37 Id.

results throughout FY 2012 before taking any action 

regarding this product. 

Flats

First-Class Mail Flats include both single-piece and 

presorted flats. They are measured via the EXFC 

system following the same process as Single-Piece 

Letters/Postcards.38 Single-piece flats performance is 

used as a proxy for presorted flats because sufficient 

data on presorted flats is not available.39

38 Id. at 2. 39 2011 ACR at 2. The Postal Service maintains that this approach 

is consistent with procedures outlined in the June 2008 Service 

Performance Measurement Plan. 

0

10

20

30

40

50

60

70

80

90

100

Quarter 1 Quarter 2 Quarter 3 Quarter 4 FY 2011 FY 2010

Percent 

On Time

Figure VI–7 

First-Class Flats — Overnight

0

10

20

30

40

50

60

70

80

90

100

Quarter 1 Quarter 2 Quarter 3 Quarter 4 FY 2011 FY 2010

Percent 

On Time

Figure VI–8 

First-Class Flats — 2-Day
70 2011 Annual compliance determination

Service performance for overnight, Two-day, and 

Three- to Five-day was below the annual targets 

of 96.5, 94.15, and 92.85 percent on time, 

respectively. Service performance was virtually the 

same in FY 2011 as it was in FY 2010. In the FY 

2010 ACD, the Commission told the Postal Service 

that it would need to improve service for First-Class 

Flats. In response to CHIR 5, the Postal Service stated, 

service performance for quarter 2 was significantly 

impacted by snow storms and fall flooding. The 

Postal Service states that a key strategy to improve 

service performance is to increase automation. Lean 

Six Sigma projects designed for this purpose were 

undertaken in FY 2011. The Commission reiterates 

the need for service performance to improve for FirstClass Flats.

Parcels

Parcel measurement includes both single-piece and 

presorted items.40 In FY 2011, parcel measurement 

included only retail parcels mailed over-the-counter 

at post offices because systems were not in place to 

40 Id. at 3. Docket No. ACR2011, library reference USPS-FY11-29, 

filename: Annual Report on Service Performance for Market Dominant 

Products at 3.

capture the start-the-clock information for commercial 

pieces mailed in bulk or from other locations.41

Consequently, 19.9 million parcels, representing 

only 4 percent of total First-Class Mail Parcels, were 

included in the measuring sample.42 The following 

figures illustrate First-Class Mail Parcels quarterly 

service performance for FY 2011.

Service performance for First-Class Mail Parcels was 

below the target in every service standard category. 

Three- to five-day showed a marked improvement 

41 Id. 42 Id. at 7.

0

10

20

30

40

50

60

70

80

90

100

Quarter 1 Quarter 2 Quarter 3 Quarter 4 FY 2011 FY 2010

Percent 

On Time

Figure VI–11 

Parcels — 2-Day

0

10

20

30

40

50

60

70

80

90

100

Quarter 1 Quarter 2 Quarter 3 Quarter 4 FY 2011 FY 2010

Percent 

On Time

Figure VI–10 

Parcels — Overnight

0

10

20

30

40

50

60

70

80

90

100

Quarter 1 Quarter 2 Quarter 3 Quarter 4 FY 2011 FY 2010

Percent 

On Time

Figure VI–9 

First-Class Flats — 3- to 5-Day
 POSTAL REGULATORY COMMISSION 71

from FY 2010, overnight and two-day did not show 

any improvement. The Postal Service must improve 

service performance for this product in FY 2012.

Inbound/Outbound Single-Piece First-Class Mail 

International Letters

Both Inbound and Outbound First-Class Single-Piece 

Mail International are measured using the International 

Mail Measurement System (IMMS) operated by an 

outside entity. The figures below illustrate the combined 

service standards of Inbound and Outbound service 

performance results increased from FY 2010.

Service performance results for First-Class Mail 

International was close to meeting target. However, 

as discussed in detail in the FY 2010 ACD, service 

performance for First-Class Mail International is 

measured using two different systems. Under the 

UNEX system, service performance declined relative 

to last year. See Chapter VII, International Mail, for a 

detailed discussion.

Standard Mail

Introduction

For the majority of Standard Mail products, service 

performance measurement using IMb began in 

quarter 3. Prior to that, Standard Mail measurement 

was based on data from a pilot test. The results for FY 

2011 are not comparable to prior years. This section 

presents the results for all products except parcels, 

0

10

20

30

40

50

60

70

80

90

100

Quarter 1 Quarter 2 Quarter 3 Quarter 4 FY 2011 FY 2010

Percent 

On Time

Figure VI–12 

Parcels — 3- to 5-Day

0

10

20

30

40

50

60

70

80

90

100

Quarter 1 Quarter 2 Quarter 3 Quarter 4 FY 2011 FY 2010

Percent 

On Time

Figure VI–14 

Outbound Single-Piece First-Class Mail 

International Letters

0

10

20

30

40

50

60

70

80

90

100

Quarter 1 Quarter 2 Quarter 3 Quarter 4 FY 2011 FY 2010

Percent 

On Time

Figure VI–13 

Inbound Single-Piece First-Class Mail 

International Letters
72 2011 Annual compliance determination

which were not measured, and separately for mixed 

products. Participant comments and Commission 

analysis are discussed at the end of the section.

Mixed Product

In FY 2011, the Postal Service used IMb to measure 

service performance for Standard Mail and 

attempted to report service performance results at 

the product level. Where product information was 

not available from the electronic documentation 

provided by Full-Service IMb mailers, the Postal 

Service reported service performance as either 

Mixed Product — Letters or Mixed Product — Flats. 

According to the Postal Service, 61 percent of letter 

and 91 percent of flat measurable volume fell into 

these two categories.

As seen in Figures VI–15 and VI–16, service 

performance results for both categories were below 

target. 

For Standard Mail Letters, non-saturation Flats, and 

Carrier Route, the Postal Service used documented 

entry times to start-the-clock and an IMb final 

processing scan to stop-the-clock.43

The Postal Service provides service performance 

measurement for destination entry mail in quarters 3 

and 4 and End-to-End Mail in quarter 4. Figure VI–17 

illustrates each product’s annual performance results 

versus target.44

Service performance for all but High Density 

Saturation Letters was significantly below target. 

The Postal Service states that new business rules for 

start-the-clock scan policies and increased Full-Service 

43 Id. at 11. 44 Not Flat-Machinables and Parcels were not included in FY 2011 

measurement. The Postal Service requested a waiver for Standard 

Mail parcels but, as explained above, the Commission denied this 

request. The Postal Service expects to begin partial reporting for 

Standard Mail parcels in FY 2012.

Figure VI–17 

Standard Mail Products

0

10

20

30

40

50

60

70

80

90

100

HD/Sat 

Flats

HD/Sat 

Letters

CarrierRouteLetters Flats

Percent 

On Time

0

10

20

30

40

50

60

70

80

90

100

Quarter 1 Quarter 2 Quarter 3 Quarter 4 FY 2011

Percent 

On Time

Figure VI–16 

Mixed Product Flats

0

10

20

30

40

50

60

70

80

90

100

Quarter 1 Quarter 2 Quarter 3 Quarter 4 FY 2011

Percent 

On Time

Figure VI–15 

Mixed Product Letters
 POSTAL REGULATORY COMMISSION 73

Intelligent Mail participation will increase the service 

performance results in the future.45

Standard Mail Participant Comments

The Public Representative makes two critical 

assessments of Standard Mail performance. First, 

the Postal Service should consider improvement of 

Standard Mail performance an organization-wide 

goal.46 Second, the Public Representative stresses that 

adequate improvement regarding IMb adoption rates 

has not been made in FY 2011. Consequently, the 

Public Representative suggests that the Postal Service 

provide to the Commission a detailed plan of how 

it intends to increase participation in the Full-Service 

Intelligent Mail System. The Public Representative 

concludes that if IMb does not improve, the 

Commission should review its decision to allow the 

Postal Service to proceed with the IMb-based hybrid 

measurement system.

Valpak echoes the Public Representative’s concern 

about the importance of Standard Mail saying, “the 

Performance Report does not mention Standard 

Mail...as ‘program activity that is a major function 

or operation...’”47 Further, Valpak suggests the Postal 

Service use the IMb system to improve the quality of 

service provided to Standard mail.48

Valpak observes two “non-product” categories 

presented in the service performance report: 

mixed letters and mixed flats/parcels.49 Further, 

the 4.4 billion pieces recorded in the performance 

measurement database represent only 5 percent of all 

Standard Mail (due to the double counting of origin 

and destinating mail). As a result, Valpak assesses that 

45 Id. at 16. 46 Public PR Comments at 29. 47 Valpak Comments at 107. 48 Id. at 116. 49 Id. at 110.

neither mailers nor the Commission have performance 

data for individual products within Standard Mail. 

Valpak’s overall assessment of Standard Mail 

performance is that service received was generally 

unpredictable and unreliable for any end-to-end 

Standard Mail product required to travel very far 

through the postal network. Also, Valpak assumes 

Standard mail will be the first to suffer and service 

performance deteriorate if the Postal Service succeeds 

in eliminating much (or all) of its excess capacity.50

Commission Analysis

Although the Postal Service attempted to report 

service performance results by product, for the 

majority of Standard Mail volume it was unsuccessful. 

The Postal Service attributes this failure to missing 

data on the part of mailers. The Commission notes 

that product level reporting is required under 39 

U.S.C. 3652(a)(2). The Postal Service must work with 

mailers to obtain the data necessary to accomplish 

product level reporting in FY 2012.

The Commission is also concerned that service 

performance for a substantial percentage of Standard 

Mail did not meet its target. The Postal Service 

indicates that as Intelligent Mail data develops, 

diagnostic information will help identify specific areas 

for improvement. The Postal Service is also removing 

unnecessary processes within its Network Distribution 

Centers (NDCs) and is working with plants to ensure 

start-the-clock scans and off-loading are performed 

in a service-responsive manner. The Commission will 

monitor the results of IMb and other Standard Mail 

service measurement processes throughout FY 2012 

before taking any action.

50 Id. at 116.
74 2011 Annual compliance determination

Periodicals

Periodicals service is measured end-to-end using mailerreported entry times to start-the-clock and external 

reporter delivery dates to stop-the-clock. In FY 2011, 

service performance was measured by combining 

this data with two external measurement systems.51

The Red Tag and Del-Trak systems do not include a 

representative sample of destination delivery unit (DDU) 

or Within County Periodicals. The service performance 

of all Periodicals is used as a proxy for both Within 

County and Outside County service performance.52

For FY 2011, Periodicals service performance was 

75.5 percent on-time versus a service goal of 91 

percent on-time.53 As Figure VI–18 shows, service 

performance for Periodicals has remained significantly 

below target since measurement began in FY 2009.

The Postal Service states that one of its key strategies 

for improving service performance for Periodicals is 

to maximize processing on automation. Processing 

on automation will enable service performance to be 

measured using the IMb rather than relying on Red 

Tag and Del-Trak systems. The Postal Service has 100 

Flats Sequencing Systems (FSS) in 42 processing sites 

providing flat automation to 42,737 delivery routes. 

In addition, the Postal Service performs certification 

audits to ensure compliance with standard operating 

procedures, adherence to CETs, proper identification 

of service commitments at postal facilities and 

automation processing. Finally, the Postal Service 

employed Lean Six Sigma projects to identify “Best 

51 Library Reference Docket No. ACR2011, library reference USPSFY11-29, filename: Annual Report on Service Performance for Market 

Dominant Products at 10, 17. 52 Id. at 19. 53 Service performance in FY 2009 was 73.7 percent on-time, which 

illustrates an increase since that time. However, performance has 

slightly decreased from FY 2010’s 76.7 percent on-time performance.

Methods” for upstream bundle operations, staging, 

signage and sort program scheduling.54

Periodical Participant Comments

Time Inc. recognized a trend of increasing nonreceipt and late delivery complaints for four weekly 

magazines. It claims that delivery complaints 

increased between July and September (when new 

CETs were implemented).55 Time Inc. and MPA, 

ANM, and ABM assert that the Postal Service must 

stabilize and improve the FSS process, successfully 

implement network consolidation, and adhere to 

other goals listed so that Periodicals improves its cost 

coverage and service performance.56

54 Id. at 21. 55 The Postal Service established new CET with four possible CETs 

depending on sortation preparation and FSS-destination ZIP codes. 

Codes. However, data limitations prompted the Postal Service to 

modify the CET requirements. Destination entry mail sent to an FSS 

designated ZIP Code received a CET of 08:00; all other Periodicals 

mail received 16:00 as the CET. 56 Time Reply Comments at 5; Reply Comments of Magazine Publishers 

of America, Inc., Alliance of Nonprofit Mailers and American 

Business Media at 9.

Figure VI–18 

Periodicals Annual Comparison

0

10

20

30

40

50

60

70

80

90

100

FY 2009 FY 2010 FY 2011

Percent 

On Time
 POSTAL REGULATORY COMMISSION 75

Commission Analysis

Service performance results for Periodicals Mail 

have not substantially improved since FY 2009 

and remain significantly below target. The Joint 

Periodicals Study,57 released in October 2011, 

outlined several operational strategies to increase 

efficiency of Periodicals mail processing and delivery. 

The Commission is hopeful that these strategies will 

improve the service performance of Periodicals Mail. 

Therefore, the Commission will allow time for these 

strategies to work before taking action. However, 

the Commission stresses the importance to Periodical 

mailers of reliable service performance. The Postal 

Service must improve service performance for 

Periodicals in FY 2012.

Package Services

Single-Piece Parcel Post

Single-Piece Parcel Post service is measured using an 

internal system called Product Tracking System (PTS). 

It measures transit time from the time of mailing until 

the time of delivery for Parcel Post items for which 

a customer requested delivery confirmation service. 

Figure VI–19 shows the quarterly service performance 

results for FY 2011. 

The Two- to Four-day service performance results are 

substantially higher than the Five- to Twenty-day results 

for all quarters. As seen in Figure VI–20, combined 

results for Single-Piece Parcel Post two- to -four day 

and five- to twenty-day have improved significantly 

since FY 2007.

57 Section 708 of the PAEA directed the Postal Service and the 

Commission to jointly address the quality of data for attributing costs 

to Periodicals and opportunities for operational efficiencies, including 

pricing incentives.

The Commission commends the Postal Service for 

improving its two- to four-day service performance. For 

five- to twenty-day mail, the Postal Service must address 

obstacles causing poor performance. If the current 

service standard is unmanageable, the Postal Service 

should develop a more realistic service performance 

target so mailer expectations can be met.

0

10

20

30

40

50

60

70

80

90

100

Quarter 1 Quarter 2 Quarter 3 Quarter 4

Percent 

On Time

2- to 4-Day 5- to 20-Day

Figure VI–19 

Single-Piece Parcel Post 

Quarterly Data

0

10

20

30

40

50

60

70

80

90

100

FY 2007 FY 2008 FY 2009 FY 2010 FY 2011

Percent 

On Time

Figure VI–20 

Single-Piece Parcel Post Annual Data 

FY 2007–FY 2011
76 2011 Annual compliance determination

Inbound Surface Parcel Post

Inbound Surface Parcel Post (at UPU rates) consists 

of items weighing between 4 and 70 pounds that 

originate in foreign countries and are transported to the 

United States. Service performance of the domestic leg 

of the product is estimated using Single-Piece Parcel 

Post as a proxy.58 FY 2011 service performance 

results were below target. However, as with SinglePiece Parcel Post, service performance has improved 

significantly since FY 2007. Therefore, the Commission 

takes no action.

Bound Printed Matter Flats

Bound Printed Matter (BPM) Flats is a commercial 

product used by businesses to send large catalogs 

and similar flat-shaped items too heavy to categorize 

as Standard Mail. Performance in FY 2011 is 

measured using IMb tracking scans and external data 

to extrapolate results for the entire volume of mail.59

Results are only available for quarter 4. Service 

performance results for both DDU entry and end-to-end 

were significantly below target for quarter 4. Neither 

DDU entry nor end-to-end reached 45 percent on 

time performance. Because there is only one quarter 

of data for which to measure service performance, 

the Commission cannot assess the actual service 

performance for FY 2011. The Commission expects 

that in FY 2012 the service performance results will be 

closer to the target.

Bound Printed Matter Parcels

BPM Parcels is a commercial product used by 

businesses to send books, directories, or large 

catalogs too heavy or rigid to qualify as BPM Flats.60

In FY 2011, the Postal Service began measuring 

58 Id. at 23. 59 Id. at 22. 60 Id.

performance using IMb. Service performance results 

are available for the fourth quarter only. Because 

there is only one quarter of data for which to measure 

service performance, the Commission cannot assess 

the actual service performance for FY 2011. The 

Commission expects that in FY 2012 the service 

performance results will be closer to the target.

Media Mail/Library Mail

Media Mail/Library Mail is a product whose content 

is restricted to books, noncommercial films, computerreadable media and similar media items that typically 

have educational, cultural, scientific or informational 

value. Service is measured using PTS in the same 

manner as Single-Piece Parcel Post.61 Figure VI–21 

illustrates service performance for Media Mail/Library 

Mail.62

61 Id. at 22. 62 Library Reference Docket No. ACR2010, library reference USPSFY10-29. Quarters 1, 2, and 4 resulted in 83.8, 84.7, and 90.4 

percent on-time delivery. Quarter 3 results were the highest with 91.8 

percent on-time delivery.

0

10

20

30

40

50

60

70

80

90

100

Quarter 1 Quarter 2 Quarter 3 Quarter 4 FY 2011 FY 2010

Percent 

On Time

Figure VI–21 

Media Mail/Library Mail 

FY 2007–FY 2011
 POSTAL REGULATORY COMMISSION 77

Service performance for Media Mail/Library Mail 

declined slightly from FY 2010 levels. Only quarter 

3 results met or exceeded the FY 2011 target. The 

Postal Service should improve service performance for 

this product.

Special Study on Service Performance in 

Noncontiguous Areas

The PAEA directed the Commission to submit a report 

on universal postal service and the postal monopoly. 

As a result of that study,63 the Commission found 

geographic scope to be one of the seven attributes 

of universal service. To explore whether quality of 

service was comparable across the geographic 

scope of the USO, the Commission included 

requirements for a special study in Order 292 and 

Order 465 as part of Rule 3055.7.

Pursuant to that order, the Postal Service provided 

a special study to evaluate final delivery service 

performance to the remote locations of Alaska, 

Honolulu and Caribbean Districts as compared to 

the service performance to the gateway cities of 

Anchorage, Honolulu and San Juan. Specifically, the 

study analyzed six 3-Digit ZIP Codes in Alaska; four 

in the Caribbean Districts; and three in Hawaii. See

USPS FY2011-29 at 2. 

In order to compare delivery service between 

the gateway and more remote parts of Alaska, 

Caribbean and Honolulu, results are reported at the 

3-Digit ZIP Code level. This approach allowed the 

Postal Service to distinguish the gateway from the 

more remote regions, and provide insight into the 

various geographic parts of each district.

63 Report on Universal Postal Service and the Postal Monopoly, 

December 19, 2008

Several outlying areas produced little or no measurable 

data for First-Class Mail. Further, no overnight service 

standard exists for First-Class Mail in Alaska. As such, 

it is difficult to assess overnight and two-day service 

performance for Alaska and the Caribbean. As seen 

in Table VI–2, performance for First-Class Mail three- to 

five-day did not deviate significantly from the gateway. 

As seen in Table VI–3, destination entry Standard 

Mail service performance in Alaska is lower in 

rural and remote areas than at the gateway. In the 

Caribbean, destination entered Standard Mail is 

lower for the gateway than for rural/remote areas. In 

Hawaii, however, service performance for destination 

entered Standard Mail is well below target in both 

the gateway and the islands other than Oahu. For 

example, service performance for Standard Mail 

Letters destination entry is 14.2 percent on time at the 

968 gateway and 0.3 percent on time at its outlying 

969 area. This result means that Standard Mail Letters 

are virtually never on-time at either the gateway or on 

the islands other than Oahu. Service performance for 

end-to-end Standard Mail is below 50 percent ontime in all areas.

Table VI–4 shows the service performance results for 

Periodicals Mail. Service performance results were 

lower than the national average in every area where 

the special study was conducted but particularly so 

for the Caribbean, where the average score was less 

than half the national average. Most outlier areas 

did not deviate significantly from the gateway except 

Caribbean area 008, whose Periodicals service 

performance was 16.7 percent on-time delivery.

As seen in Table VI–5, service performance results for 

Package Services were extremely low in all areas. 

This is especially true for Honolulu, where on-time 
78 2011 Annual compliance determination

service performance scores ranged from 6.0 percent 

to 8.0 percent. The Commission finds these results 

unacceptable and expects the Postal Service to 

improve service performance in these areas prior to 

its next scheduled Offshore Special Study. If service 

performance does not improve the postal Service must 

provide an explanation. 

In some cases, service performance for the gateway 

was better than the rural/remote areas and in 

other cases, rural/remote areas had better service 

performance than the gateways. As a result, the study 

concluded that there was no compelling evidence 

that service performance in the rural/remote areas of 

the noncontiguous locations is much lower than the 

gateway. However, in most cases the noncontiguous 

locations have among the lowest performance in 

the nation. The authors of the study recommended 

the Postal Service consider reviewing processing 

Table VI–3—Service Performance 

End-to-End Standard Mail

Letters Flats

Destination 

Entry

End-toEndDestination 

Entry

End-toEnd

Alaska 72.3 30.8 42.0 21.7

995 Gateway 80.3 31.5 46.1 27.8

995 Rural 75.3 31.6 36.8 18.0

996 66.8 28.1 41.4 14.0

997 65.0 36.4 32.6 21.9

998 42.4 22.1 N/A N/A 

999 54.3 31.7 N/A N/A 

Caribbean 68.6 34.0 56.8 29.4

009 Gateway 59.9 34.1 54.9 32.4

006 78.4 31.7 57.2 24.5

007 70.3 34.7 57.9 30

008 57.9 42.7 59.4 29

Honolulu 14.7 6.2 4.0 1.5

968 Gateway 14.2 7.4 7.1 2.6

967 15.1 5.7 2.7 1.0

969 0.3 4.8 1.2 1.2

Table VI–2—First-Class Mail 

Single-Piece Letters/Postcards/Flats

Overnight Two-Day

Three-to 

Five-Day

Alaska 96.3 97.1 91.4

995 Gateway 96.3 99.3 90.5

995 Rural NSS [1] 97.9 93.7

996 NSS [1] 98.1 95.3

997 NSS [1] 92.9 92.9

998 NSS [1] 96.5 87.6

999 NSS [1] 98.5 89.1

Caribbean 93.8 96.3 85.7

009 Gateway 94.4 97.2 85.6

006 93.7 96.4 84.5

007 93.6 94.7 85.7

008 87.7 96 91.8

Honolulu 97.5 NSS 91.9

968 Gateway 97.7 NSS 86.3

967 97.5 NSS 96.0

969 91.5 NSS 82.8

Presorted First-Class Mail Letters/Postcards

Overnight Two-Day

Three-to 

Five-Day

Alaska 96.6 98.0 93.5

995 Gateway 96.6 No Data 92.9

995 Rural NSS [1] 98.0 96.0

996 NSS [1] 98.0 95.9

997 NSS [1] No Data 94.4

998 NSS [1] No Data 89.5

999 NSS [1] No Data 87.7

Caribbean No Data No Data 85.3

009 Gateway No Data No Data 85.7

006 No Data No Data 83.7

007 No Data No Data 84.2

008 No Data No Data 92.1

Honolulu 96.3 NSS [1] 93.9

968 Gateway 97.0 NSS [1] 90.5

967 95.9 NSS [1] 95.9

969 No Data NSS [1] 89.3

1 NSS means No Service Standard
 POSTAL REGULATORY COMMISSION 79

operations and service standards in many of these 

situations given the unique logistics and circumstances 

in Alaska, Caribbean and Honolulu. The Commission 

agrees with this recommendation.

Special Services

All special services achieved their target service 

performance levels. Table VI–6 notes the relatively 

steady results versus FY 2010.

Customer Access

Pursuant to 39 CFR 3055.91, the Postal Service is 

required to provide information on customer access. 

Customer Access includes evaluation of access to retail 

facilities, the amount of time a customer has to wait in 

line to obtain postal services, and the availability of 

postal collection boxes and other collection points. The 

Table VI–4—Service Performace 

Periodicals

Alaska 63.1

995 Gateway 68.7

995 Rural 57.2

996 71.4

997 63.7

998 56.7

999 48.2

Caribbean 35.9

009 Gateway 41.8

006 34.1

007 43.7

008 16.7

Honolulu 70.7

968 Gateway 73.8

967 63.0

969 80.4

Table VI–5—Service Performace 

Package Service

Alaska 25.5

995 Gateway 31.3

995 Rural 21.9

996 25.9

997 21.5

998 21.2

999 21.7

Caribbean 21.0

009 Gateway 19.8

006 23.9

007 24.4

008 7.7

Honolulu 6.4

968 Gateway 6.9

967 6.0

969 8.0

Table VI–6—Special Services

Special Services Target

FY 2010

Percent 

On-Time

FY 2011

Percent 

On-Time

Ancillary Services 90 93.0 93.4

International Ancillary Services 90 99.2 99.6

Address List Services 90 100 93.3

Caller Services - NR [1] NR [1]

Change of Address Credit Card 

Authentication - NR [1] NR [1]

Confirm 90 99.6 99.7

International Reply Coupon 

Service - NR [1] NR [1]

International Business Reply Mail 

Service - NR [1] NR [1]

Money Orders 90 95.4 97.2

Post Office Box Service 90 94.3 93.1

Customized Postage - NR [1] NR [1]

Stamp Fulfillment Services - N/A [2] N/A [2]

1 NR indicates not required due to semi permanent exception 

from reporting

2 N/A indicates that measurement results are not yet available
80 2011 Annual compliance determination

number of delivery points also provides an indication 

of access to postal services. Post office suspensions 

and closings are evaluated because of their effect on 

obtaining postal services. Customer access is important 

to the Postal Service if it is to stem losses due to volume 

declines and potential changes in mailer behavior.64

Over the years, the Postal Service has reduced its 

retail network by removing collection boxes, closing 

postal facilities and changing operating hours. Access 

to postal services, however, may be increasing with 

alternative marketing channels. With planned plant 

consolidations and continued postal retail facility 

closings, it is even more important for the Postal Service 

to accelerate the development of alternative methods of 

providing access to postal products and services.

Retail Facilities

Table VI–7 provides the number of retail postal 

facilities by type for FY 2008 through FY 2011. 

Also, the changes in the number of facilities from prior 

years are shown. The Commission observes that the 

number of retail facilities closed in 2011 increased 

by more than 70 percent, from 274 facilities closed 

64 One of the Postal Service’s FY 2011 strategic initiatives was to 

expand postal access by means other than a postal retail facility.

in FY 2010 to 466 closures in FY 2011. In addition, 

it should be noted that while the number of Postal 

Service managed facilities closed in FY 2011 nearly 

tripled over FY 2010, the rate of closings of contract 

postal units and community post offices has declined 

by 40 percent from FY 2010 to FY 2011, from 140 

such closings in FY 2010 to 84 in FY 2011. 

On July 27, 2011, the Postal Service sought an 

advisory opinion from the Commission concerning 

a Postal Service initiative to perform discontinuance 

studies on over 3,600 postal retail facilities. As 

shown in Table VI–8, the RAOI identified 3,652 

retail facilities (post offices, stations and branches) 

for possible discontinuance. An additional 728 retail 

facilities “outside” the scope of the RAOI were also 

identified for possible discontinuance. Thus, a total of 

4,380 retail facilities are being or will be studied for 

possible discontinuance.

On December 15, 2011, the Postal Service advised 

the Commission that it “will delay the closing or 

consolidation of any post office until May 15, 

2012”.65 The Postal Service further indicated that 

65 United States Postal Service Notice of Status of the Moratorium on 

Post Office Discontinuance Actions, December 15, 2011, at 1 

(Notice).

Table VI–7—Postal Service Retail Factilities

Factility Type FY 2011 FY 2010 

FY2011 

Change 

from 

FY 2010 FY 2009

FY 2010 

Change 

from 

FY 2009

Postal Managed

Post Offices 26,927 27,077 (150) 27,161 (84)

Classified Stations, Branches and Carrier Annexes 5,219 5,451 (232) 5,501 (50)

Total Postal Managed 32,146 32,528 (382) 32,662 (134)

Contract Postal Units 2,904 2,931 (27) 3,037 (106)

Community Post Offices 706 763 (57) 797 (34)

Total Post Offices 35,756 36,222 (466) 36,496 (274)

Source: Comprehensive Statement of Postal Operations 2010, 2009 and 2008; Form 10-k (2011)
 POSTAL REGULATORY COMMISSION 81

it “will proceed with the discontinuance process for 

any post office in which a Final Determination was 

already posted as of December 12, 2011, including 

all pending appeals.” Id. It stated that the only “post 

offices” subject to closing prior to May 16, 2012 are 

those that were not in operation on, and for which 

a Final Determination was posted as of, December 

12, 2011. Id. It affirmed that it “will not close or 

consolidate any other post office prior to May 16, 

2012.” Id. at 2. Lastly, the Postal Service requested 

the Commission “to continue adjudicating appeals as 

provided in the 120-day decisional schedule for each 

proceeding.” Id.

The Postal Service’s Notice outlines the parameters of 

its newly announced discontinuance policy. Pursuant 

to the Postal Service’s request, the Commission will 

fulfill its appellate responsibilities under 39 U.S.C. § 

404(d)(5).

A determination to close or consolidate any post 

office may be appealed to the Commission within 30 

days after such determination is made available to 

customers of the office to be closed. The number of 

appeals filed appears to indicate how much citizens 

value the regulatory platform the Commission provides 

to consider Postal Service decisions. In these matters, 

the Commission’s role is limited by 39 U.S.C. 404(d)

(5) to assuring that the Postal Service has followed 

its closing review process, and if not, to remand 

for further consideration by the Postal Service. In FY 

2011, there were 103 appeals dockets reviewed by 

the Commission. In FY 2010, only 6 appeals were 

initiated. In FY 2012 to date, 125 appeals dockets 

had been initiated by the Commission. Table VI–9 

shows the disposition of appeals initiated in FY 2010 

and FY 2011.

39 U.S.C. 404(b) and the Postal Service’s regulations 

require the Postal Service to follow certain procedures 

before closing a post office. It must provide notice 

to the community 60 days prior to closing and invite 

public comments. In reaching a “Final Determination” 

Table VI–8—RAOI and Non-RAOI Listing 

by Category

Facility Type No. of Offices

RAOI Category 1 2,825

RAOI Category 2 384

RAOI Category 3 178

RAOI Category 4 265

Total RAOI Offices 3,652

Offices "Outside" of the RAOI 728

Grand Total 4,380

Category 1 = low earned workload and no greater than 

$27,500 in total annual revenue

Category 2 = FY 2010 revenue less than $600,000 and less 

than 2008 or 2009 and located within two miles 

of at least five Postal Retail/alternative access sites

Category 3 = FY 2010 Revenues less than $1 Million and 

located within 1/2 mile of at least five Postal 

Retail/alternative access sites

Category 4 = POs, Stations and Branches undergoing 

discontinuance studies, but had not advanced to 

the Community meeting Phase

Category 5 = Non-RAO Offices "outside" the Initiative, from 

LR - 3

Source: USPS-LR-N2011-1-2 and USPS-LR-N2011-1-3.

Table VI–9—Disposition of Commission 

Appeals Dockets 

FY 2011 and FY 2012

Disposition

FY

2011 2012

Affirmed 1 83

Dismissed 3 11

Remanded 1 8

Pending

Grand Total 6 102

Grand Total 102 125

Source: PRC Dockets section
82 2011 Annual compliance determination

to close a post office, the Postal Service must make a 

written determination which takes into consideration:

 The effect of closing on the community;

 The effect of closing on employees;

 The economic savings to the Postal Service and;

 Whether closing is consistent with postal policy 

to provide a “maximum degree of effective and 

regular postal services to rural areas, communities 

and small towns where post offices are not selfsustaining.”

In an appeal of a post office closure, it is the 

Commission’s responsibility to review the Postal 

Service’s Administrative Record upon which its 

decision was made. In its decisions, the Commission 

reviews the facts of each case and explains its 

reasoning so the public, the affected community 

and the Postal Service can be aware of the issues 

involved and the concerns of the Commissioners. The 

Commission will set aside any determination that is 

arbitrary, capricious or otherwise not in accordance 

with the law or is unsupported by substantial evidence 

in the record. The Commission also appoints an 

officer of the Commission, or “Public Representative” 

to represent the interests of the general public. The 

Commission may either affirm the Postal Service’s 

determination or remand the matter to the Postal 

Service for further consideration. The Commission 

may not, however, modify a determination of the 

Postal Service.

Delivery Points

Table VI–10 provides the number of residential and 

business delivery points by delivery type for FY 2008 

through FY 2011. The change in the number of 

delivery points in FY 2009, FY 2010 and FY 2011 

is also shown. The total number of delivery points 

continues to grow, but the rate of growth appears 

to be slowing. The total number of delivery points 

increased by 636,530 in FY 2011.

Table VI–10—Postal Service Delivery Points

Residential Delivery 

Points FY 2011 FY 2010

FY 2011 

Change 

from 

FY 2010 FY 2009

FY 2010 

Change 

from 

FY 2009 FY 2008 

FY 2003 

Change 

from 

FY 2008 

City Delivery 80,792,112 80,531,231 260,881 80,187,505 343,726 79,848,415 339,090 

Rural 39,067,740 38,638,280 429,460 38,264,946 373,334 37,684,158 580,788 

P.O. Box 15,891,349 15,739,698 151,651 15,601,883 137,815 15,639,031 (37,148)

Highway Contract 2,639,061 2,607,138 31,923 2,576,166 30,972 2,516,783 59,383 

Total Residential Delivery 138,390,262 137,516,347 873,915 136,630,500 885,847 135,688,387 942,113 

Business Delivery Points

City Delivery 7,487,332 7,457,500 29,832 7,483,461 (25,961) 7,436,965 46,496 

Rural 1,468,861 1,453,292 15,569 1,439,266 14,026 1,407,942 31,324 

P.O. Box 4,072,664 4,355,674 (283,010) 4,489,688 (134,014) 4,587,454 (97,766)

Highway Contract 72,872 72,648 224 72,966 (318) 71,538 1,428 

Total Business Delivery 13,101,729 13,339,114 (237,385) 13,485,381 (146,267) 13,503,899 (18,518)

Total Delivery Points 151,491,991 150,855,461 636,530 150,115,881 739,580 149,192,286 923,595 

Source: USPS Annual Report to Congress.
 POSTAL REGULATORY COMMISSION 83

Wait Time in Line 

In FY 2011, the national average customer wait time 

in line was 2 minutes and 45 seconds, which the 

Postal Service indicates was down 12 seconds from 

last year. The average customer wait time in line for 

each area was:66

 Capital Metro – 2 minutes and 40 seconds - 

down 21 seconds from last year;

 Eastern – 2 minutes and 26 seconds - equal to 

last year;

 Great Lakes – 2 minutes and 5 seconds - down 

12 seconds from last year;

 Northeast – 2 minutes and 35 seconds – down 

13 seconds from last year;

 Pacific – 3 minutes and 16 seconds – down 9 

seconds from last year;

 Southwest – 3 minutes and 3 seconds – down 25 

seconds from last year; and

 Western – 3 minutes – down 7 seconds from last 

year.

Beginning in FY 2010, the Postal Service measured 

wait time in line in the new Customer Experience 

Survey.67 Survey participants were asked how long 

they waited in line for a clerk during their last visit to 

a post office. The response categories were: one to 

3 minutes; 4 to 5 minutes; 6 to 10 minutes; 11 to 15 

minutes; and 16 minutes or more.

The average wait time in line results for customer 

responses for FY 2011 and FY 2010 are shown in 

Table VI–11 for small to medium size business and 

residential customers.68 In FY 2011, 70 percent of 

66 Responses of the United States Postal Service to Questions 1-18 and 

26-27 of Chairman’s Information Request No. 2, February 7, 2012, 

question 10 (Response to CHIR No. 2). 67 Library Reference Docket No. ACR2010, library reference USPSFY10-38, question 11 in residential and small to medium business 

surveys. 68 Large businesses were not asked this particular question.

small to medium business customers estimated they 

waited in line 5 minutes or less, and 73 percent 

of residential customers estimated they waited five 

minutes or less. Each of these results is an improvement 

over FY 2010 results. At the other end of the spectrum, 

30 percent of small to medium business customers 

reported a wait time in line of over 6 minutes and 27 

percent of residential respondents reported wait times 

of over 6 minutes. Once again, each of these results is 

an improvement over FY 2010.

Collection Points

Collection points are an important access channel 

for single-piece First-Class Mail. Collection points are 

defined locations where a customer drops off mail for 

collection by the Postal Service. These can include 

collection boxes, mailchutes, firm pickups, Automated 

Postal Center (APC) drops, lobby drops and mail 

collection racks. As shown in Table VI–12, collection 

boxes were 75 percent of total collection points in FY 

2011. All collection points are required to be entered 

Table VI–11—Wait Time In Line 

Weighted Average

Small/Medium

Business Residential

Wait Time In Line FY 2011 FY 2010 FY 2011 FY 2010

Less than 1 minute 18% 17% 19% 18%

1-3 minutes 29% 28% 31% 29%

4-5 minutes 23% 23% 24% 23%

Subtotal 5 minutes 

or less 70% 68% 73% 70%

6-10 minutes 17% 17% 15% 16%

11-15 minutes 7% 8% 6% 7%

16 minutes or more 6% 7% 5% 7%

Total 100% 100% 100% 100%

Source: USPS-FY11-38 and USPS-FY10-38
84 2011 Annual compliance determination

in the Collection Point Management System (CPMS) 

by the responsible district.69

Table VI–13 shows the number of collection points 

by the Postal Service administrative area for 2006, 

2010 and 2011 and the percentage change in 

collection points. Table VI–14 shows similar data, but 

for collection boxes only. As can be observed from 

the Tables VI–13 and VI–14, the number of collection 

points and collection boxes has declined steadily 

from their 2006 levels by nearly 20 percent and by 

approximately 3 percent between 2010 and 2011.

The number of collection points by type of location 

is shown in Table VI–15. The change in the number 

of collection points between 2006 and 2010 and 

between 2010 and 2011 is also shown. Table VI–15 

illustrates that collection points located in business 

areas, while still the largest number of collection points, 

have declined by over 4 percent between 2010 and 

69 The CPMS is an ongoing operational data system which is not 

built with a requirement that allows retrospective looks as of some 

particular point in time. It is frequently updated during any given 

time period. See Responses of the United States Postal Service to 

Questions 1, 3-6, 8-27, 29-37, and 39-42 of Chairman’s Information 

Request Mo. 1, January 27, 2012, question 27.

2011 and by nearly 23 percent between 2006 and 

2011. The number of residential collection points 

declined by 4 percent between 2010 and 2011 and 

by almost one-third (32 percent) between 2006 and 

Table VI–12—Types of Collection Points by 

USPS Administrative Area FY 2011

Area

Collection 

Boxes

Other 

Collection 

Points

Total 

Collection 

Points

Collection 

Box Share 

of Total

Capital Metro 14,968 6,571 21,530 69.5%

Eastern 29,366 9,250 38,675 75.9%

Great Lakes 21,788 6,415 28,203 77.3%

Northeast 32,428 5,976 38,345 84.6%

Pacific 18,596 4,600 23,196 80.2%

Southwest 20,659 11,956 32,127 64.3%

Western 26,204 11,297 37,998 69.0%

Grand Total 164,009 56,065 220,074 74.5%

Source: USPS Collection Point Management System.

Table VI–13—Total Collection Points by 

USPS Administrative Area

Area1 2011 2010 2006

2011 Change 

from 2010

2010 Change 

from 2006

Capital Metro 21,530 22,239 23,314 -3.2% -7.7%

Eastern 38,675 40,278 51,395 -4.0% -24.7%

Great Lakes 28,203 29,196 35,739 -3.4% -21.1%

Northeast 38,345 39,469 44,891 -2.8% -14.6%

Pacific 23,196 24,530 29,695 -5.4% -21.9%

Southwest 32,127 32,169 40,250 -0.1% -20.2%

Western 37,998 39,516 44,634 -3.8% -14.9%

Grand Total 220,074 227,397 269,918 -3.2% -18.5%

Source: USPS Collection Point Management System.

1 2006 and 2010 data adjusted to reflect 2011 Administrative Area Structure Changes
 POSTAL REGULATORY COMMISSION 85

2011. Collection points located outside of post offices 

declined by 4 percent between 2010 and 2011 and 

by 15 percent between 2006 and 2011.

Notably, however, post office lobby collection points 

increased by 5.6 percent between 2006 and 2011, 

but decreased by 1 percent between 2010 and 

2011. The availability of collection points (boxes and 

lobby drops as well as APCs) located at post offices 

is somewhat uncertain since the Postal Service is in 

the process of closing many retail facilities and also 

Table VI–14—Number of Collection Boxes by 

USPS Administrative Area

Area 2011 2010 2006

2011 

Change 

from 2010

2011 

Change 

from 2006

Capital Metro 14,968 15,564 19,699 -3.8% -24.0%

Eastern 29,366 30,298 39,690 -3.1% -26.0%

Great Lakes 21,788 22,253 28,143 -2.1% -22.6%

Northeast 32,428 33,121 39,025 -2.1% -16.9%

Pacific 18,596 20,048 24,905 -7.2% -25.3%

Southwest 20,659 21,676 28,385 -4.7% -27.2%

Western 26,204 27,574 31,734 -5.0% -17.4%

Grand Total 164,009 170,534 211,581 -3.8% -22.5%

Source: USPS Collection Point Management System.

1 2006 and 2010 data adjusted to reflect 2011 Administrative Area Structure Changes

Table VI–15—Number of Collection Points by Location-Type

Year Change in 

Number

Percent 

Change

 Change in 

Number

Percent 

Change

Location Type 2006 2010 2011 2006-2011 2010-2011

Business 108,418 87,391 83,587 (24,831) -22.9% (3,804) -4.4%

Residential 61,038 43,342 41,513 (19,525) -32.0% (1,829) -4.2%

Post Office Outside 53,665 47,579 45,632 (8,033) -15.0% (1,947) -4.1%

Post Office Lobby 37,110 39,636 39,175 2,065 5.6% (461) -1.2%

Customer Lobby 4,057 2,729 3,920 (137) -3.4% 1,191 43.6%

Other 3,191 4,357 3,772 581 18.2% (585) -13.4%

Contract Station 948 873 952 4 0.4% 79 9.0%

Mail Room 807 782 787 (20) -2.5% 5 0.6%

Customer Dock 464 337 264 (200) -43.1% (73) -21.7%

Airport 152 138 143 (9) -5.9% 5 3.6%

Goverment Building 68 233 263 195 286.8% 30 12.9%

Approved Shipper 66 66 66 

Grand Total 269,918 227,397 220,074 (49,844) -18.5% (7,323) -3.2%

Source: USPS Collection Point Management System
86 2011 Annual compliance determination

appears to be reducing access to lobbies after hours. 

This is important since by 2011, there were more 

collection points located at post offices (both outside 

and in the lobbies) than at any other type of location 

and represented nearly 40 percent of total collection 

points.

The Postal Service’s practice is, generally, to remove 

and relocate blue collection boxes that had been 

located outside of discontinued post offices. The 

Postal Service maintains, the critical driver is customer 

need. If a landowner agrees, a ready means of 

retrieving mail from the collection box can be 

found, and customer need exists, the collection box 

may be retained at the discontinued location. See

Response to CHIR No. 2, question 27. In addition, 

the Postal Service has stated that through the RAOI, 

APC availability will remain as it is, although APCs 

currently located in offices that are being closed will 

be relocated.70 The Postal Service has indicated 

that its current plans regarding improvement of its 

collection box network include taking a more active 

top-down management approach to its collection 

box network. The aim is to ensure convenient 

customer access to collection boxes, which may 

require relocation of boxes to higher traffic areas 

(grocery stores, shopping centers and other public 

gathering locations) while minimizing unwarranted 

collection box removals. In particular, area offices 

are examining collection box schedules and locations 

and must approve any local collection system 

changes. The Postal Service has determined that 

the need for a time decal box with a last collection 

of 5:00 p.m. or later is now to be defined in terms 

of a threshold number of average daily pieces. A 

70 Docket No. N2011-1, Advisory Opinion on Retail Access 

Optimization Initiative, December 23, 2011, at 109 (Docket No. 

N2011-1, Advisory Opinion).

business requirement for making a pickup time earlier 

must justify any such changes. These changes have 

stabilized last pickup times. Use of high density boxes 

in locations with multiple boxes should help reduce 

the cost without impacting customer convenience. 

The number of minutes between nominal (posted) and 

actual pickup times has been narrowed to twenty.71

Alternative Access 

In addition to providing postal products and services at 

postal retail counters, the Postal Service has continued 

to expand postal access through additional marketing 

channels. For FY 2011, over 35 percent of retail 

revenue was generated through means other than 

a postal retail counter. Table VI–16 identifies the FY 

2011 revenue each retail channel generated, the 

share of total retail revenue each contributed and 

the percent change in revenue provided in FY 2011 

and FY 2010. The Postal Service had set a goal of 

expanding alternative access to postal products and 

services to 35 percent. As shown in Table VI–16, the 

Postal Service appears to have met that goal at least in 

a broad sense. What is not clear, is whether alternative 

access points provide a sufficient range of services to 

customers in both urban and rural locations throughout 

the nation.

PC Postage and digital postage meters allow 

customers who mail frequently to print postage and 

shipping labels. The proportion of revenue generated 

by PC postage increased by just over 33 percent; 

from 12.4 percent of retail revenue in FY 2010 

to 16.5 percent in FY 2011. PC Postage vendors 

have been participating in pilot trials to enhance 

payment options for package returns. Another 

71 Responses of the United States Postal Service to Questions 1-17 

of Chairman’s Information Request No. 3, February 14, 2012, 

question 16.
 POSTAL REGULATORY COMMISSION 87

initiative focuses on qualifying PC Postage systems for 

federal government entities, which would provide an 

alternative to using postage meters and a competitive 

service for expedited shipments.

The Postal Service’s website allows customers to 

purchase stamps and philatelic products and order 

free shipping supplies. Also, customers may search 

and pay for a post office box as well as manage 

their post office box accounts online. The FY 2011 

revenue generated by the Postal Service’s website 

and Click-N-Ship was $462 million, an increase of 

over 9 percent from FY 2010.

The Postal Service has been selling stamp booklets at 

supermarkets, drug stores and other commercial outlets 

since the 1980s. Stamps are available at 70,000 

such locations and in FY 2011 generated $1.16 

billion which represented 6.8 percent of retail revenue.

Contract Postal Units (CPUs) and Community post 

offices (CPOs) offer a wide range of postal services 

other than just stamps and are operated by a host 

retailer. In FY 2011 there were just over 3,600 

operational CPUs. These generated $434 million in 

revenue which represented a decline from FY 2010 of 

4.4 percent. Its share of total retail revenue remained 

constant at 2.6 percent. Village post offices (VPOs) 

were introduced as part of the Postal Service’s RAOI. 

VPOs are a new concept for the Postal Service and 

will be considered in communities which have no post 

office or lose their post office. VPOs will be located 

in non-Postal Service establishments such as in a 

community business, town hall, or government center. 

By being located at business and other places that 

customers already frequent, VPOs, it is hoped, will 

offer Postal Service customers time-saving convenience 

and in many instances longer hours than regular post 

offices.72 The VPO will provide a select range of 

services that include the sale of First-Class Postage 

stamps, offering priority flat mail products, delivering to 

P.O. boxes and accepting mail.

Upon the opening of the Doe Run VPO in Missouri, 

the Postal Service pointed out that this VPO would 

be open 24/7 and will feature a blue collection box 

72 United States Postal Service Village Post Office—Fact Sheet, 

July 2011.

Table VI–16—Retail Revenue by Channel

Services

FY 2011 

Revenue

($ Millions)

Share of 

Total Retail 

Revenue

Change 

from

FY 2010

FY 2010 

Revenue

($ Millions)

Share of 

Total Retail 

Revenue

Change 

from

FY 2009

Post Offices $10,940 64.5% $(1,193) $12,133 69.3% (4.6%)

PC Postage $2,799 16.5% $619 $2,180 12.4% 17.3%

Stamps only sales by retail partners $1,155 6.8% $12 $1,143 6.5% (1.1%)

Automated Postal Centers (kiosks) $544 3.2% $(35) $579 3.3% 5.3%

Stamps by Mail/phone/fax $517 3.0% $8 $509 2.9% (0.7%)

Contract Postal Units $434 2.6% $(20) $454 2.6% 0.3%

Usps.com/Click-N-Ship $462 2.7% $39 $423 2.4% 16.2%

Other $103 0.6% $(9) $94 0.5% 13.1%

Total $16,954 100.0% $(579) $17,515 100.0% (1.3%)

Source: ACD 2010, P.75; ACD 2011, CHIR No. 2, Question 25.
88 2011 Annual compliance determination

outside as well as post office boxes inside which will 

be serviced by a clerk from a nearby office who will 

deliver to these boxes by 2:00 p.m. Monday through 

Saturday. The Postal Service also notes that the VPO 

will not weigh or rate packages, but will accept prepaid packages for free carrier pickup.73 It remains 

to be seen whether all VPOs will offer the range of 

services to be offered at the Doe Run VPO. 

As of the end of FY 2011, there were nine VPOs 

currently in operation. The Commission commends 

the Postal Service’s efforts to continue a high level 

of service to communities who have no post office 

or who have lost their post office. However, the 

Commission noted in an Advisory Opinion that VPOs 

are limited substitutes for full service postal retail 

facilities.74 The effort to establish VPOs will become 

even more important if the Postal Service continues to 

reduce the size of its postal-managed retail network.

Post Office Suspensions

Data provided by the Postal Service 75 and shown in 

Table VI–17, indicates that there were 197 offices 

under suspension at the beginning of FY 2011. In 

addition, 179 offices were suspended during FY 

2011. The 197 offices under suspension at the 

beginning of FY 2011 is considerably less than the 

number under suspension in early February 2010 

when data provided by the Postal Service indicated 

that nearly 400 post offices were under suspension. 

Thus, it appears that the Postal Service has made 

progress in resolving its backlog of suspended 

offices. It should also be noted from Table VI–17 

73 See USPS United States Postal Service Press Release, Postal Service to 

Open Missouri’s First Village Post Office, November 21, 2011. 74 Docket No. N2011-1, Advisory Opinion at 111. 75 CHIR No. 1, Question 28. 

that the status of post offices under suspension at the 

beginning of FY 2011 is somewhat uncertain. Post 

offices once suspended can either remain suspended, 

be closed or be re-opened. One office is currently 

listed as being studied for closure as part of the RAOI, 

and 12 more are currently listed as being studied 

for closure “outside” of the RAOI. For post offices 

suspended during FY 2011, 77 offices out of a total 

of 179 suspended offices (43 percent) are being 

studied for discontinuance. The Postal Service has 

recently revised its procedures for closing facilities. 

The Commission hopes that these streamlined post 

office closing procedures will result in the need 

for fewer suspensions and where suspension is 

necessary, in shorter durations.

Table VI–17—Number and Discontinuance 

Status of Suspended Offices

Listed for Closure Total 

Suspended 

Offices Time Period RAOI Outside 

of RAOI Unknown

Under 

Suspension at 

Beginning of FY 

2011

1 12 184 197

Suspended 

During FY 2011 37 40 102 179

Grand Total 38 52 286 440

Source: CHIR No. 1, Question 28
 POSTAL REGULATORY COMMISSION 89

Customer Experience

CEM system

39 U.S.C. 3652(a)(2)(B)(ii) requires the Postal 

Service to provide measures of the degree of 

customer satisfaction with the service provided for its 

market dominant products. In FY 2011, the Postal 

Service implemented a new approach for measuring 

customer experience and satisfaction.76 The CEM 

system randomly selects residential and small/medium 

business customers through surveys them via online 

or hard copy surveys.77 Large business customers 

were asked to complete an online survey only. The 

Commission compared survey responses from FY 

2010 and notes there were not any significant shifts 

in customer satisfaction in FY 2011.

CEM measures customer experience with market 

dominant products by asking participants to rate their 

product satisfaction using a six-point scale: Very 

Satisfied, Mostly Satisfied, Somewhat Satisfied, 

Somewhat Dissatisfied, Mostly Dissatisfied, and Very 

Dissatisfied.78 The Postal Service reported only the top 

two box scores of Very Satisfied and Mostly Satisfied.

The Postal Service identified more than 318,000 

retail customers and 300,000 small businesses 

to gauge residential and small business customer 

experience. In FY 2011, approximately 60 percent 

female and 40 percent male residential participants 

were surveyed. Forty percent were aged sixty-five 

or older and 30 percent had at least some college 

education. Most residential customers responded 

positively to their experience with the post office and 

76 2011 ACR at Page 11. 77 Id. at 12. 78 Id.

its employees. However, most negative sentiment in 

FY 2010 and FY 2011 regarded lack of prompt 

customer service at post office locations. Twentythree percent of customers responded “Strongly 

Disagree” or “Somewhat Disagree” when asked 

“Does your post office location provide enough open 

lines to appropriately serve customers?” Additionally, 

17 percent of participants “Strongly Disagree” or 

“Somewhat Disagree” when surveyed “Does your 

post office location provide sufficient self-service 

alternatives?” Approximately 30 percent of small 

businesses surveyed were either home offices, standalone, or businesses inside buildings with other 

businesses. Similar to residential customers, small 

businesses expressed most negative sentiment toward 

closed or inoperable post office lines and lack of selfservice alternatives. Thirty percent of responses either 

“Somewhat” or “Strongly” disagreed when surveyed 

“Does your post office location provide enough open 

lines to appropriately service customers?” Twenty 

percent of participants surveyed “Somewhat” or 

“Strongly” disagreed that the post office provides 

enough self-service alternatives.
90 2011 Annual compliance determination

Table VI–18 illustrates customer survey responses to 

questions regarding their feelings on each market 

dominant product. Specifically, the survey asked them 

to express their overall satisfaction for each market 

dominant product. The Postal Service reported only 

the top two box scores of Very Satisfied and Mostly 

Satisfied. Overall, customer satisfaction was steady 

and in some cases exceeded FY 2010 results.

Table VI–18—Customer Experience

Mailing Products and Services 

Residential % Small/Medium Business % Large Business %

FY 2010 FY 2011 FY 2010 FY 2011 FY 2010 FY 2011

First-Class Mail 93.7 94.2 92.4 93.0 90.2 92.1

Single-Piece Int’l 85.9 86.6 83.2 84.0 86.3 89.2

Standard Mail 83.3 84.1 85.9 87.0 84.5 85.6

Periodicals 86.1 87.0 83.8 85.1 82.8 84.3

Single-Piece Parcel Post 88.2 89.2 87.0 88.0 84.6 87.5

Media Mail 87.6 88.4 86.4 87.1 85.6 86.7

Bound Printed Matter 85.4 86.2 83.4 85.0 82.4 84.1

Library Mail 86.7 87.0 84.9 86.0 85.1 86.8
 POSTAL REGULATORY COMMISSION 91

Chapter VII

Market Dominant Products

Introduction

This chapter presents the Commission’s analysis, organized by class, of the financial results and rates for each 

market dominant product, for market dominant NSAs, for market dominant volume incentives, and for market 

dominant international products. The financial analysis focuses on cost coverage and pricing issues, including 

whether the class and its products generate adequate revenue to cover attributable costs. 

The relationship of revenue to attributable cost for each product is an important consideration and this 

importance is amplified by the Postal Service’s fiscal crisis. In the financial analysis section for each class, 

the Commission evaluates the relationship of revenue to attributable cost for each product. This relationship is 

viewed from two perspectives: (1) cost coverage which is a relative measure and (2) contribution which is an 

absolute measure. 

Section 3622 identifies 9 objectives and 14 factors that the Postal Service must balance when setting prices. 

One of the objectives the Postal Service must consider is revenue adequacy and one of the factors it must 

take into account is the requirement that each class of mail or type of mail service bear its direct and indirect 

postal costs. 

As the Postal Service, Congress and stakeholders address the Postal Service’s deteriorating financial situation, 

it is imperative to examine all the issues that contribute to the financial challenges including loss-making 

products and services. Over the past three fiscal years, the Postal Service lost $5.1 billion on products which 

generated insufficient revenues to cover their attributable costs. These products, because they did not cover 

their attributable costs, also made no contribution towards the institutional costs of the Postal Service. Such a 

result appears inconsistent with an objective of the modern system of ratemaking, namely, that the system of 

ratemaking “assure adequate revenues...to maintain financial stability.” See 39 U.S.C. 3622(b)(5). The loss 
92 2011 Annual compliance determination

from products that do not cover their attributable cost 

accounts for $1.6 billion, or 31 percent, of the Postal 

Service’s $5.1 billion net loss in FY 2011. 

The PAEA grants the Postal Service expanded pricing 

flexibility in exchange for stable and predictable rates 

under an inflation-based price cap. The informed and 

rational use of that pricing flexibility is an essential 

component of any long-term strategy to restore the 

Postal Service to profitability. The Postal Service 

must use its pricing flexibility to adjust prices for loss 

making products or risk the long-term sustainability of 

the postal system. It appears from the analyses in the 

sections that follow, that the Postal Service has been 

unable to take advantage of its pricing flexibility, 

especially in Standard Mail.

Given that attributable (direct and indirect) costs 

account for only about 60 percent of total costs, 

adjusting prices to cover attributable cost would not 

seem to pose a formidable challenge. Yet, the losses 

from some market dominant products persist. If the 

Postal Service’s revenues covered its total cost, it 

might be able to sustain the losses from these market 

dominant products, but it is now in dire financial 

straits. For these reasons, product cost coverage 

and plans to bring loss-making products to full cost 

coverage have to be an important consideration.

The principal findings for FY 2011 are summarized 

below:

 Ten products and services generated insufficient 

revenues to cover attributable costs. The total 

loss from these products is $1.6 billion. This only 

represents the amount necessary to reach 100 

percent cost coverage; increasing the revenue from 

these products to cover the loss would still not result 

in any contribution towards institutional costs.

 Two classes of mail fail to cover their attributable 

cost: Periodicals ($609 million) and Package 

Services ($191 million).

 Three products account for $1.4 billion of the loss: 

Standard Flats ($643 million), Standard NFMs/

Parcels ($112 million), and Outside County 

Periodicals ($590 million).

 The Commission finds that the FY 2011 rates for 

Standard Flats remain out of compliance. 

 Per-piece revenue from Standard Mail Nonprofit 

pieces was 56.38 percent of Standard Mail 

commercial per-piece revenues. However, the 

price adjustment proposed in Docket No. R2012-

3 is expected to produce an average revenue 

per piece that is 60 percent of Standard Mail 

commercial per-piece revenues as required by 39 

U.S.C. 3626(a)(6).

Each class section also contains a discussion of 

worksharing and other rate issues. Methodological 

issues affecting the development of estimates of 

worksharing-related cost avoidances are addressed, 

the resulting cost avoidances are compared with the 

corresponding discounts, and the discounts and other 

rate relationships are analyzed for consistency with 

the applicable statutory provisions.

The workshare findings for FY 2011 are summarized 

below:

 35 workshare discounts exceeded avoided costs.

 15 discounts qualified for a statutory exception.

 16 discounts did not satisfy 3622(e)(2).

 The Commission is unable to determine if 3 

discounts are consistent with section 3622(e) 

because of problems with the underlying costs.

 The evaluation of one discount has been 

temporarily suspended pending the outcome of 

Docket No. RM2010-13.
 POSTAL REGULATORY COMMISSION 93

There are other issues that do not fit neatly elsewhere 

in this chapter. Thus, in addition to presenting the 

principal findings, this introduction also includes 

a discussion of the effects of past and pending 

rulemakings, the price cap, revised cost avoidance 

estimates filed by the Postal Service in response 

to CHIR No. 2, and the basis for year-to-year 

comparison used in this chapter.

Past and Pending Rulemakings

The Commission calculates worksharing passthroughs 

utilizing methodologies approved by the Commission 

prior to the filing of the ACR. In November, the Postal 

Service filed two petitions to initiate proceedings 

to consider alternate methodologies, some of 

which affect cost models used for calculating 

cost avoidances.1 One was filed on November 

1 and the other on November 30. Although the 

first rulemaking was approved on January 20, 

2012, neither rulemaking was completed prior 

to the issuance of the ACR. Thus, for the sake of 

consistency, the entire current ACR should reflect 

only methodologies approved prior to the issuance 

of the ACR. The Commission emphasized this point 

in the last ACD, when it reiterated that the ACR 

must reflect approved methodologies in accordance 

with 39 CFR 3050.10. 2010 ACD at 6-7. Despite 

this clarification, the Postal Service used several 

unapproved methodologies in the current ACR.

One change involved modifying the IOCS to correctly 

assign tallies to Parcel Select rather than Parcel Post. 

The Postal Service incorporated this unapproved 

1 Docket No. RM2012-1, Petition of the United States Postal Service 

Requesting Initiation of a Proceeding to Consider Proposed Changes 

in Analytical Principles (Proposals Nine - Fifteen), November 1, 

2011. See also Docket No. RM2012-2, Petition of the United States 

Postal Service Requesting Initiation of a Proceeding to Consider 

Proposed Changes in Analytical Principles (Proposals Sixteen through 

Twenty), November 30, 2011.

methodology because it believes the results to be 

more accurate. Further, it did not provide a version of 

the CRA without the change because it is infeasible 

to do so, it argues, because of all the affected 

data systems. Thus, the Postal Service presented the 

Commission with a fait accompli and it has no choice 

but to accept the revised approach and to make its 

evaluations on that basis. The Commission directs 

the Postal Service to use approved methodologies in 

future submissions.

With respect to the use of other unapproved 

methodologies, most notably, Proposal Eighteen from 

Docket No. RM2012-2, which relates to the role of 

FSS in the cost avoidance models, the Commission 

relies on the methodologies approved prior to the 

issuance of the ACR in accordance with 39 CFR 

3050.1.2 Accordingly, the discussion and analyses 

that follow reflect this approach.

Several workshare discounts that exceed avoidable 

cost in FY 2011 were adjusted to achieve 100 

percent passthroughs in Docket No. R2012-3. 

However, the Postal Service relied on avoidable cost 

estimates from FY 2010. The Commission approved 

the rates the Postal Service proposed in Docket No. 

R2012-3, but some of the discounts that passed 

through no more than 100 percent of the FY 2010 

cost avoided increase to more than 100 percent 

when FY 2011 costs avoided are used. Thus, in 

some cases, the Docket No. R2012-3 prices fail to 

correct discounts that did not comply with section 

3622(e) in FY 2011. These issues are discussed in 

each class sub-section as applicable.

2 The other change modified the NSA cost model. That model is 

generally not evaluated in the ACD process, but rather when the 

Postal Service submits NSAs.
94 2011 Annual compliance determination

Price Cap

In the past two ACDs, the Commission has reviewed 

the application of the price cap from a postimplementation perspective. In accordance with the 

Commission’s rules, when the Postal Service files a 

notice of market dominant price adjustment, it uses 

historical billing determinants to ensure compliance 

with the applicable price cap. The Commission 

reviews the price adjustments on that basis and this is 

referred to as a pre-implementation review. However, 

the pre-implementation review does not account for 

the effect of price changes on billing determinants. 

For this reason, the Commission conducts a postimplementation review in the ACD.

In the FY 2009 ACD, the Commission evaluated the 

effects of the price changes from Docket No. R2008-

1 because those rates had been in effect for a year, 

which is required for a useful comparison. In the FY 

2010 ACD, the Commission was able to evaluate 

the effects of the price changes from Docket No. 

R2009-2 because there were sufficient data to do so. 

The Postal Service did not file market dominant price 

adjustments during FY 2010, so there are no price 

changes to evaluate. Although price adjustments from 

Docket No. R2011-2 became effective April 17, 

2011, there is not a full year’s data available that 

reflect those prices being in effect. For this reason, the 

Commission cannot conduct a post-implementation 

review of the price cap from that docket.

Revised Cost Avoidance Estimates

On March 2, 2012, with its response to Question 

2 of Chairman’s Information Request No. 1, the 

Postal Service filed revised Standard Mail letters 

and First Class Mail letters mail processing cost 

avoidance models. These models correct errors in the 

calculations of the incoming secondary mail volume 

percentages found in USPS-FY10-10 and USPSFY11-10. In particular, the revision changes the FY 

2010 and FY 2011 measures of the proportions of 

DBCS sorted DPS mail, CSBCS sorted DPS mail, and 

mail not sequenced.

The mail processing cost models calculate DPS 

percentages by presort level which are inputs into the 

delivery cost avoidance model. However, the Postal 

Service did not update the delivery cost model for 

First-Class Mail and Standard Mail with the revised 

DPS percentages from the revised mail processing 

cost models. 

To provide more accurate results, the Commission 

updated the delivery cost avoidance model to reflect 

the revised DPS percentages. See PRC-ACR2011-

LR2. For its cost avoidance calculations for First-Class 

Mail and Standard Mail, the Commission uses the 

revised mail processing cost avoidances from the 

Postal Service’s revised Standard Mail letters and First 

Class Mail letters mail processing cost avoidance 

models and delivery cost avoidances from the 

delivery cost model revised by the Commission.

Year-to-Year Comparisons

As explained in Chapter IV, the Postal Service revises 

some RPW volume and revenue estimates for previous 

years. In that chapter, the Commission uses the 

revised figures for year-to-year comparisons. In this 

chapter, the Commission uses figures from past ACDs 

for year-to-year comparisons, which do not reflect 

any post-ACD revisions to RPW figures. Chapter IV 

provides a more comprehensive view of the Postal 

Service’s finances, whereas this chapter provides 

a more detailed analysis of products. Because 

compliance analysis is based on current RPW figures 
 POSTAL REGULATORY COMMISSION 95

rather than after-the-fact revisions, using previous 

ACDs for comparison purposes provides consistency.

First-Class Mail

Introduction

First-Class Mail consists of six products: Single-Piece 

Letters/Postcards, Presort Letters/Postcards, Flats, 

Parcels, Outbound Single-Piece First-Class Mail 

International, and Inbound Single-Piece First-Class 

Mail International. The class had a volume of 73.5 

billion pieces in FY 2011. First-Class Mail accounts 

for 44 percent of total volume and 66 percent of total 

contribution. Both volume and contribution decreased 

from FY 2010 by 6.0 percent and 5.6 percent, 

respectively.

The principal FY 2011 findings for First-Class Mail are:

 Nine worksharing discounts exceed avoided cost. 

» Two discounts were properly justified under 

section 3622(e).

» Four discounts were not properly justified under 

section 3622(e).

– One discount was properly re-aligned in 

Docket No. R2012-3.

– The Postal Service must properly align the 

other three discounts in the next market 

dominant price adjustment.

» The Commission is unable to determine if two 

discounts are consistent with the statute because 

of problems with the underlying costs.

» The evaluation of one, the Mixed AADC 

automation discount, has been temporarily 

suspended pending the outcome of Docket No. 

RM2010-13.

 All domestic First-Class Mail products covered cost 

in FY 2011.

Financial Analysis

The FY 2011 First-Class Mail cost coverage was 

199.0 percent. As Table VII–1 shows, total First-Class 

Mail FY 2011 revenue was $32.2 billion, which 

covered its attributable cost of $16.2 billion and 

contributed $16.0 billion to institutional cost. FirstClass Mail’s cost coverage decreased from 199.3 

percent in FY 2010 to 199.0 percent in FY 2011 

due to the change in the mail mix. 

Increases in unit attributable costs for all domestic FirstClass Mail products were less than the 2.7 percent 

increase in the CPI-U for FY 2011. Compared with 

FY 2010, the unit attributable cost for single-piece 

letters and cards increased 2.2 percent; the unit cost 

for presort letters and cards decreased 0.3 percent; 

the unit cost for Flats increased 0.9 percent; and the 

unit cost for Parcels decreased 7.1 percent. For FY 

2011, First-Class Mail unit attributable cost increased 

by 0.7 percent on average. Each domestic First-Class 

Mail product covered its attributable cost in FY 2011.

In FY 2010, Parcels had a 100.1 percent cost 

coverage. In Docket No. R2011-2, the Commission 

approved an above average increase of 2.6 percent 

for Parcels. The Commission also approved a uniform 

price for parcels weighing up to 3 ounces. These 

changes collectively increased the cost coverage for 

the Parcels product to 110 percent. Additionally, the 

Commission approved the transfer of commercial 

First-Class parcels to the competitive products list. The 

transfer did not occur during FY 2011 and thus does 

not affect the findings for this fiscal year3.

3 See Postal Service Response to Chairman’s Information Request No. 

1, question 24
96 2011 Annual compliance determination

Comments

National Postal Policy Council (NPPC), Direct 

Marketing Association, Inc./National Association 

of Presort Mailers/Parcel Shippers Association 

(DMA/NAPM/PSA) and Pitney Bowes have 

expressed concerns about the high cost coverage for 

commercial bulk First Class Letters. DMA/NAPM/

PSA assert that the relative contribution of Presort is 

too high compared with Single-Piece and that the 

gap between the two has been growing. DMA/

NAPM/PSA Comments at 1. DMA/NAPM/PSA 

also contend that minimizing the disparity in unit 

contributions between First-Class Mail Single-Piece 

Letters/PostCards and Presort Letters/Postcards would 

not only create a more equitable price schedule, but 

would also increase total contribution. Id. at 2 - 3. It 

claims that Presort Letters/Postcards are more price 

sensitive than Single-Piece Letters/Postcards. Id.

Table VII–1—First-Class Mail 

FY 2011 Volume, Revenue, Cost, Contribution, and Cost Coverage by Product

First-Class Mail Volume

Total 

Revenue

Attributable

Cost

Contribution 

to

Institutional

Cost Rev./Pc.

Cost/Pc. 

(Cents)

Contribution 

to

Institutional

Cost/Pc. 

(Cents)

Cost 

Coverage

Single-Piece Letters 24,550,824 11,261,338 6,848,209 4,413,129 45.869 27.894 17.975 164.4%

Single-Piece Cards 1,295,941 382,090 336,435 45,655 29.484 25.961 3.523 113.6%

Total Single-Piece 

Letters and Cards 25,846,765 11,643,428 7,184,644 4,458,784 45.048 27.797 17.251 162.1%

Presort Letters 41,740,735 14,963,092 4,963,359 9,999,733 35.848 11.891 23.957 301.5%

Presort Cards 2,753,763 601,837 220,231 381,605 21.855 7.997 13.858 273.3%

Total Presort Letters 

and Cards 44,494,498 15,564,929 5,183,590 10,381,338 34.982 11.650 23.332 300.3%

Single-Piece Flats 1,577,051 2,264,945 1,488,616 776,328 143.619 94.392 49.227 152.2%

Presort Flats 653,869 554,219 457,783 96,436 84.760 70.011 14.749 121.1%

Total Flats 2,230,920 2,819,164 1,946,399 872,764 126.368 87.246 39.121 144.8%

Single-Piece Parcels 621,319 1,260,228 1,143,605 116,623 202.831 184.061 18.770 110.2%

Presort Parcels 16,663 25,775 25,369 407 154.687 152.246 2.441 101.6%

Total Parcels 637,982 1,286,003 1,168,973 117,030 201.573 183.230 18.344 110.0%

Total Domestic 

First-Class Mail 73,210,165 31,313,523 15,483,607 15,829,916 42.772 21.150 21.623 202.2%

Total International 

First-Class Mail 310,379 864,837 688,184 176,652 278.639 221.724 56.915 125.7%

Total First-Class 

Mail 73,520,543 32,178,360 16,171,791 16,006,569 43.768 21.996 21.772 199.0%

Source: PRC-ACR2011-L1
 POSTAL REGULATORY COMMISSION 97

Consequently, the loss of revenue from lowering the 

price of Presort Letters/Postcards would be more than 

offset by the gain in revenue from a price cap neutral 

increase in the price of Single-Piece Letters/Cards. Id.

They urge the Commission to allow the Postal Service 

to take incremental steps immediately to minimize 

this disparity. DMA/NAPM/PSA Comments at 1; 

Pitney Bowes Comments at 5. NPPC contends that 

the rates for First-Class Automation and Presort Letters/

Postcards mail product generate an excessive cost 

coverage. NPPC Comments at 2-3. It suggests that to 

give “Presort Mailers necessary relief and to ensure 

ongoing compliance by Presort rates with sections 

3622(b)(1) and (b)(8), the Commission should 

complete its workshare rulemaking....” Docket No. 

RM2010-13. Id. at 7.

Commission Analysis

NPPC draws attention to sections 3622(b)(1) 

and 3622(b)(8) of the Postal Accountability and 

Enhancement Act. These sections delineate only two 

of the nine objectives that the Commission considers 

when determining compliance. Market dominant 

mailers also have the additional protection of a 

price cap to shield them from excessive pricing. 

One objective of section 3622 is to allow the Postal 

Service pricing flexibility. Applying the CPI cap at 

the class level rather than the product level gives 

the Postal Service ability to apply non-uniform price 

adjustments within a class.

Worksharing 

The following 9 worksharing discounts exceeded 

avoided cost: (1) Qualified Business Reply Mail 

(QBRM) Letters; (2) QBRM Cards; (3) Mixed AADC 

Automation Letters; (4) AADC Automation Letters; 

(5) Mixed AADC Automation Cards; (6) AADC 

Automation Cards; (7) 5-Digit Automation Cards; (8) 

ADC Automation Flats; and (9) 3-Digit Automation 

Flats. The avoided cost calculations that form the 

basis of these passthroughs employ the accepted 

methodology. Table VII–2 shows the workshare 

discounts for letters, flats, and parcels. Table VII–3 

shows the workshare discounts for cards. Below, 

the Commission discusses passthroughs above 100 

percent in the same order as listed above.

QBRM

The discounts for QBRM Letters and Cards 

passthrough 287.5 percent of avoided cost. See

Table VII–2 for letters and Table VII–3 for cards. 

The excessive passthrough appears to result from 

continuing decreases in avoided cost. 

In the FY 2010 ACD, the Commission expressed 

concern that the current costing methodology 

underestimated the cost avoidance. A change in 

methodology is currently under consideration in 

Docket No. RM2012-2. Pending disposition of 

that proceeding, the Commission will not determine 

whether the discounts are consistent with section 

3622(e). Accordingly, no further action is warranted 

at this time.

Automation Letters

The Postal Service calculates the following 

passthroughs of avoided costs for automation letters: 

Mixed AADC, 147.1 percent and AADC, 104.8 

percent.

In Order No. 536, the Commission suspended the 

evaluation of the automation Mixed AADC letter 

discount with regard to section 39 U.S.C. 3622(e) 

pending the outcome of Docket No. RM2010-13, 

which seeks to determine the appropriate base or 

reference group for calculation of costs avoided by 
98 2011 Annual compliance determination

worksharing. NPPC disagrees with the decision to 

maintain the link between Presort mail and SinglePiece mail. NPPC Comments at 6. It further asserts 

that the Single-Piece benchmark is not consistent with 

the requirement stated in 39 U.S.C. 3622(b)(1) to 

maximize incentives to reduce cost. Id.

The Postal Service justifies the AADC automation 

letters discounts with the exception granted in 39 

Table VII-2—First-Class Mail Letters, Flats, and Parcels 

Workshare Discounts and Benchmarks

Type of Worksharing

(Benchmark)

FY 2011

Year-End Discount 

(cents)

Unit Cost Avoidance 

(cents) Pass-through

First-Class Mail Automation Letters

Barcoding & Presorting

Automation Mixed AADC Letters

 (Bulk Metered Mail (BMM) Letters) 5.0 3.4 147.1%

Automation AADC Letters

 (Automation Mixed AADC Letters) 2.2 2.1 104.8%

Automation 3-Digit Letters

 (Automation AADC Letters) 0.3 0.4 75.0%

Automation 5-Digit Letters

 (Automation 3-Digit Letters) 2.5 2.5 100.0%

First-Class Mail Automation Flats

Barcoding & Presorting

Automation ADC Flats

 (Automation Mixed ADC Flats) 12.0 5.6 214.3%

Automation 3-Digit Flats

 (Automation ADC Flats) 5.8 4.6 126.1%

Automation 5-Digit Flats

 (Automation 3-Digit Flats) 17.4 18.8 92.6%

First-Class Mail Presorted/Business Parcels

Barcoding & Presorting

Presort 3-Digit Parcels

 (Presort ADC Parcels) 8.6 75.6 11.4%

Presort 5-Digit Parcels

 (Presort 3-Digit Parcels) 13.2 46.4 28.4%

First-Class Mail Nonautomation Letters

Presorting

Nonautomation Presort Letters

 (Bulk Metered Mail (BMM) Letters) 2.6 2.7 96.3%

Qualified Business Reply Mail

Barcoding

QBRM [1]

 (Handwritten Reply Mail) 2.3 0.8 287.5% 

1 The QBRM cost avoidance presented here is estimated using the USPS methodology. The Commission found in R2006-1 that this 

underestimated avoided costs, but that the alternative on the record overestimated avoided costs.
 POSTAL REGULATORY COMMISSION 99

U.S.C. § 3622(e)(2)(D) — operational efficiency. The 

Postal Service explains that it currently has excess mail 

processing capacity and can absorb extra workload 

in the incoming mail processing operations. United 

States Postal Service Notice of Market-Dominant Rate 

Adjustment, October 18, 2011 at 35. It contends 

that it can increase efficiency by concentrating as 

much volume as possible in those operations. Id.

Giving an added incentive to customers to move from 

the Mixed AADC worksharing tier into the AADC 

and 3-Digit worksharing tiers supports its strategy of 

increasing efficiency. Id.

The Commission accepts the justification for 

automation AADC letters. Nonetheless, the Postal 

Service should closely monitor the effect of the 

discount to ensure that its desired objectives are 

achieved. 

Pitney Bowes raises concerns regarding the 

calculation of cost avoidance for Automated 5-Digit 

letters. In Docket No. R2012-3, the Postal Service 

set the price for AADC Presorted letters equal to 

3-Digit Presorted letters. Pitney Bowes notes that the 

Postal Service effectively combined the rate for AADC 

and 3-Digit letters into one presort tier. Pitney Bowes 

Comments at 8-9. It further notes that the mailers’ 

choice now is between preparing AADC letters and 

5-Digit letters. Id. Thus, Pitney Bowes argues that the 

benchmark rate for Automated 5-Digit Letter Mail 

should be the AADC rate, not the 3-Digit rate. Id.

Pitney Bowes makes some persuasive arguments 

regarding the calculation of cost avoidance for 

Automated 5-Digit letters. As the Postal Service's 

operations and pricing incentives change, it may be 

necessary to modify the approach used to evaluate 

the affected discounts. Pitney Bowes may want 

to consider filing a petition with the Commission 

to initiate a proceeding to consider the proper 

calculation of the cost avoidance for Automated 

5-Digit Letter Mail.

In its comments, Pitney Bowes also notes that the 

delivery unit cost differential between AADC and 

5-Digit automation letters decreased as a result of a 

decreased DPS percentage. Id at 10-11. It comments 

that the use of automation to sort to DPS should 

increase, not decrease, over time. Id. Pitney Bowes 

asserts that the Commission should retain the use of 

Table VII-3—First-Class Mail Cards 

Workshare Discounts and Benchmarks

Type of Worksharing

(Benchmark)

FY 2011

Year-End 

Discount 

(cents)

Unit Cost 

Avoidance 

(cents)

Passthrough

First-Class Mail Automation Cards

Barcoding & Presorting

Automation Mixed AADC 

Cards

 (Nonautomation Presort 

Cards)

2.5 1.9 131.6%

Automation AADC Cards

 (Automation Mixed 

AADC Cards)

1.2 1.1 109.1%

Automation 3-Digit Cards

 (Automation AADC 

Cards)

0.1 0.2 50.0%

Automation 5-Digit Cards

 (Automation 3-Digit 

Cards)

1.4 1.2 116.7%

Qualified Business Reply Mail

Barcoding

QBRM [1]

 (Handwritten Reply 

Cards)

2.3 0.8 287.5%

1 The QBRM cost avoidance presented here is estimated using 

the USPS methodology. The Commission found in R2006-1 

that this underestimated avoided costs, but that the alternative 

on the record overestimated avoided costs.
100 2011 Annual compliance determination

the FY 2010 cost difference until the anomalous cost 

is evaluated.

The Commission appreciates Pitney Bowes’ concerns. 

On March 2, 2012, with its response to Question 2 

of Chairman's Information Request No. 1, the Postal 

Service filed revised Standard Mail letters and FirstClass Mail letters mail processing cost avoidance 

models that included revised DPS percentages. 

The Commission incorporated these updates in its 

cost avoidance calculations. For a more complete 

discussion of these revisions, see the Chapter VII 

Introduction.

Automation Cards

The Postal Service calculates the following 

passthroughs of avoided costs for automation cards: 

Mixed AADC Automation Cards, 131.6 percent, 

AADC Automation Cards, 109.1 percent and 5-Digit 

Automation Cards Mixed AADC, 116.7 percent. 

All of these passthroughs were below 100 percent 

in FY 2010. However, the cost avoidances have 

decreased. The Postal Service justifies these discounts 

by citing the exception granted in 39 U.S.C. 

3622(e)(2)(D). See revised response to Chairman’s 

Information Request No. 1, question 1. The Postal 

Service maintains that it is not efficient for the Postal 

Service to change prices again, just to compensate 

for the change in cost avoidance with the filing of a 

new ACR but it does not explain how its operations 

would be impeded if rates were to be adjusted to 

restore 100 percent passthroughs. Response to CHIR 

No. 4, question 1.

In Docket No. R2012-3, the Postal Service proposed, 

and the Commission approved, discounts for these 

three presort levels that resulted in passthroughs at or 

below 100 percent. Due to timing, these discounts 

were still based on FY 2010 avoided cost estimates. 

A decrease in avoided costs between FY 2010 and 

FY 2011 caused the passthroughs for Mixed AADC 

Automation Cards and 5-Digit Automation Cards to 

exceed 100 percent. 

Section 3622(e) requires that workshare discounts not 

exceed avoided costs, or that they qualify for at least 

one of the exceptions in that section. Therefore, the 

Commission finds that the discounts for Mixed AADC 

Automation Cards, AADC Automation Cards, and 

5-Digit Automation Cards are not justified by any of 

the exceptions. In the case of the discount for AADC 

Automation Cards, the Postal Service’s price change 

in Docket No. R2012-3 realigns the discount with 

avoided cost, therefore, no further action is required 

on this issue. With regard to the other two discounts, 

the appropriate action is for the Postal Service to align 

the discounts with avoided costs when it files its next 

general market dominant price adjustment. If, at that 

time, any of the discounts are subject to one of the 

exceptions in section 3622(e), the Postal Service may 

present arguments to that effect. 

Automation Flats

Pitney Bowes asks that the Commission adopt the 

Outgoing Primary downflow densities in the First-Class 

Mail flat model as proposed by the Postal Service. 

Pitney Bowes Comments at 14-15. It also requests 

that the Commission defer acceptance of the Postal 

Service’s proposal to incorporate FSS processing 

costs into the model until it is further refined. Id.

This issue is under consideration in Docket No. 

RM2012-2, Proposal Eighteen. Since the rulemaking 

is still in progress, the Commission continues to 

employ the accepted method to calculate cost 

avoidances in this proceeding.
 POSTAL REGULATORY COMMISSION 101

The First-Class Mail Automation Flats passthrough for 

ADC Automation Flats is 214.3 percent. The Postal 

Service justifies the passthrough for ADC Automation 

Flats by citing the exception granted in 39 U.S.C. 

3622(e)(2)(B). Revised response to Chairman’s 

Information Request No. 1, question 1. The Postal 

Service notes that this passthrough has been over 

100 percent since Docket No. R2009-2. Id. A 

change in the methodology for estimating the costs of 

Automation Flats resulted in greater than 100 percent 

passthroughs4. The Postal Service asserts that a large 

reduction in the discount for ADC Automation Flats to 

match the cost avoidance would not only impact the 

price of ADC Automation Flats, but also the prices 

for 3-Digit and 5-Digit Automation Flats. It asserts that 

setting this passthrough to 100 percent would cause 

rate shock, 39 U.S.C. 3622(e)(2)(B). 

The Commission finds the Postal Service’s reasoning 

convincing. In Docket No. R2012-3, the Commission 

found that the discount for ADC Automation Flats was 

justified even though it resulted in an over 100 percent 

passthrough. As such, no further action is required.

The First-Class Mail Automation Flats passthrough 

for 3-Digit Automation Flats is 126.1 percent. In 

Docket No. R2012-3, the approved rates resulted 

in a 100 percent passthrough of avoided cost for 

3-Digit Automation Flats. However, the avoided cost 

calculation relied on FY 2010 costs. Using the FY 

2011 cost avoidance filed in the FY 2011 ACR, the 

passthrough exceeds 100 percent. The Postal Service 

justifies this passthrough by the exception granted 

in 39 U.S.C. § 3622(e)(2)(D). It states that it is not 

conducive to efficient postal operations to adjust 

prices as soon as the cost avoidance changes with 

the filing of the latest ACR. Response to CHIR No. 4, 

4 See Docket No. RM2008-2, Proposal 8.

question 1. The Postal Service makes no claim as to 

how its operations would be impeded if rates would 

be adjusted to restore 100 percent passthroughs. As 

the Commission explained when it rejected use of this 

exemption in Docket No. R2008-1, the exception 

applies where there is a reasonable claim on 

“unusual operational circumstances” that would cause 

a reduction of the discount to impede the efficient 

operation of the Postal Service.

Section 3622(e) requires that workshare discounts not 

exceed avoided costs, or that they qualify for at least 

one of the exceptions in that section. The Commission 

finds that the discount is not justified by any of the 

exceptions and that the appropriate action is for the 

Postal Service to align the discount with avoided cost 

when it files its next general market dominant price 

adjustment. If, at that time, the discount is subject to 

one of the exceptions in section 3622(e), the Postal 

Service may present arguments to that effect.

Methodology

On behalf of Pitney Bowes, John C. Panzar asserts 

that discounts that pass through less than 100 percent 

of the costs avoided prevent efficient providers from 

entering the market for workshared mail. Comments 

of John C. Panzar on Behalf of Pitney Bowes Inc. at 

1. He asserts that worksharing discounts should be 

set equal to avoided costs to satisfy both the PAEA 

mandate and to prevent the exclusion of efficient 

providers from the market. Id. at 2. He presents 

analysis showing that the Postal Service has an 

incentive to reduce worksharing discounts during 

a period of declining volume. Id. at 11-13. When 

a discount is less than avoidable cost, the Postal 

Service recovers the same per-piece contribution as 

the full-price piece plus the difference between the 
102 2011 Annual compliance determination

discount and its avoidable cost. Panzar suggests 

that such rates are inconsistent with section 3622 (b)

(8)—“to establish and maintain a just and reasonable 

schedule for rates and classifications.” Id. at 15. 

Panzer asserts that an “ECP based access pricing 

ceiling (worksharing discount floor) should be a part 

of any modern system for regulating rates.” Id. at 17 

(emphasis in original).

DMA/NAPM/NPPC/PSA (Joint Commenters) agree 

that discounts less than avoided cost are exclusionary 

and inefficient. Joint Commenters at 1-2.

The Postal Service disagrees with Panzar’s assertions. 

Postal Service Reply Comments at 2-3. Additionally, it 

insists that consideration of a change in worksharing 

rules does not belong in the annual compliance 

review process. Id.

While the Commission appreciates Panzar’s analysis, 

it agrees with the Postal Service that the analysis is 

beyond the scope of this proceeding. The issue of 

whether the Commission’s rules governing workshare 

discounts should be modified may be pursued, if 

appropriate, in a rulemaking proceeding. 

Periodicals 

Introduction

The Periodicals class includes publications such as 

magazines, newspapers, journals, and newsletters. 

Eligibility criteria include a minimum amount of 

editorial (non-advertising) content.5 This requirement 

establishes the Periodicals class as one with 

educational, cultural, scientific, and informational 

(ECSI) value. Consequently, the Periodicals Mail class 

receives several statutory discounts as identified in 39 

5 See Domestic Mail Manual: 707.4.0, Basic Eligibility Standards; 

707.6.0, Qualification Categories; and 707.4.13, Advertising 

Standards.

U.S.C. Section 3626 such as a 5 percent discount 

for nonprofit and classroom publications.

The Periodicals class is comprised of two products: 

Within County and Outside County. This division 

parallels the structure of the class before enactment 

of the PAEA. The Within County product is typically 

used by smaller circulation weekly newspapers for 

distribution within the county of publication. Pricing 

mainly reflects the number of pieces in a mailing, 

presort level, and total weight. The Outside County 

product consists of publications with a wide variety 

of circulation sizes, distribution patterns, and 

frequencies. Pricing is based not only on number of 

pieces and weight, but also on other elements such as 

bundles, type of container, entry point, machinability, 

and automation capability.

The profiles of the two Periodicals products differ 

significantly in terms of volume and revenue. In 

FY 2011, approximately 662 million copies of 

Periodicals were mailed at Within County prices, and 

generated approximately $70 million in revenue for 

the Postal Service. In contrast, during the same year, 

6.42 billion copies of Periodicals were mailed at 

Outside County prices, and generated approximately 

$1.75 billion in revenue for the Postal Service. The 

Postal Service filed several methodological changes 

to the Periodicals mail processing worksharing cost 

model prior to filing its FY 2011 ACR. In Docket No. 

RM2012-2, filed November 30, 2011, the Postal 

Service proposed major changes to the Periodicals 

model, including the addition of FSS costs. This 

Rulemaking docket is still pending. 

The principal FY 2011 findings for Periodicals are:

 Within County attributable costs exceeded 

revenues by $19 million, producing a cost 
 POSTAL REGULATORY COMMISSION 103

coverage of 78.4 percent.

 Outside County attributable costs exceeded 

revenues by $590 million, producing a cost 

coverage of 74.8 percent.

 The Commission agrees with the Postal Service 

that current rates for Periodicals do not satisfy 39 

U.S.C. 3622(c)(2). The Commission recommends 

that the Postal Service pursue ongoing efforts to 

reduce the costs of handling flats.

 Ten workshare discounts exceeded avoidable cost, 

but need not be adjusted since they qualify for the 

ECSI exception under section 3622(e)(2)(C).

 Worksharing passthrough percentages (especially 

carrier route) and price-cost ratios for bundle and 

containers should be moved towards 100 percent 

to provide incentives for efficient mail preparation.

 Prices were in compliance with the preferred rate 

requirements identified in Section 3626 of title 39, 

United States Code.

Financial Analysis

Background

Table VII–4 provides relevant financial data for Within 

County, Outside County, and the Periodicals class as 

a whole. It shows volume, revenue, attributable costs, 

contribution to institutional costs, and cost coverage 

for each Periodical product in FY 2011.

Table VII–4 shows that Periodicals continue to make a 

negative contribution to institutional costs and continue 

to have cost coverage below 100 percent.

Commenters address three broad issues: (1) cost 

coverage, (2) costs, and (3) the authority of the 

Commission to find the Periodicals class out of 

compliance for FY 2011 and order above cap 

price increases or other remedies. Each of the issues 

is discussed below followed by the Commission’s 

analysis.

Comments on Cost Coverage

Time states that the FY 2011 cost coverage for 

Periodicals is a “disappointment.” Time Comments 

at 1. To improve cost coverage, the Postal Service 

implemented significant operational changes with 

respect to Periodicals in FY 2011, including the 

elimination of the “Hot2C” manual processing of 

Periodicals, establishing earlier Critical Entry Times 

(CET), and continued the deployment of the Flats 

Sequencing System (FSS). Time states that 

“[e]limination of Hot2C processing and earlier CETs 

have led to an adjustment in the Time production 

'closing schedule' and significant operational hurdles 

and problems for Time.” Id. at 5. Time hopes that 

the changes in Periodicals processing implemented 

Table VII–4—Periodicals Mail Volume, Revenue, and Cost by Product, FY 2011

Product

Volume Revenue Attributable 

Costs Contribution Revenue per Piece

Cost Per 

Piece

Unit 

Contribution

Cost 

Coverage

(Millions)

Within County 662 $70 $89 ($19) $0.11 $0.13 ($0.03) 78.39%

Outside County 6,415 $1,751 $2,341 ($590) $0.27 $0.36 ($0.09) 74.81%

Total 7,077 $1,821 $2,430 ($609) $0.26 $0.34 ($0.09) 74.94%

Source: USPS-FY11-1, FY11PublicCRA.xls
104 2011 Annual compliance determination

late in FY 2011 will have a positive impact on cost 

coverage in FY 2012.

Valpak shares Time’s hope that the Postal Service will 

be able to realize significant Periodicals cost savings 

in FY 2012, but states that Time’s comments are 

“prospective, not retrospective.” Valpak Reply at 28. 

MPA, ANM, and ABM “strongly support the Postal 

Service’s recent (and overdue) initiatives to rationalize 

its network and operations as warranted by recent 

and projected declines in mail volume and Postal 

Service workload. Allowing the Postal Service to cut 

costs by substantially degrading the quality of service, 

however, would sabotage the incentives for efficiency 

created by PAEA.” MPA, ANM, and ABM Reply at 9.

The Public Representative states that the Periodicals 

class “remains significantly underwater and does not 

satisfy section 3622(c) of title 39.” PR Comments at 

16. The Public Representative further states “it appears 

the Periodicals class will not cover its attributable 

costs anytime soon, if ever.” Id. at 17. The Public 

Representative, Time, and Valpak recommend the 

Postal Service improve worksharing passthroughs in 

Periodicals to improve the cost coverage. 

Valpak states that in FY 2011, the Periodicals Class 

continued a “15-year run of consistently losing massive 

amounts of money for the Postal Service.” Valpak 

Comments at 60. Valpak argues that the “Periodicals 

Study stated categorically that the Postal Service and 

the Commission are in agreement that price changes 

will be needed in order for the Periodicals class to 

cover costs.” Id. at 71.

Costs

ACMA offered a method of measuring cost increases 

compared with pricing increases for 5-Digit flat mail. 

Time stated that “the increases in Periodicals costs 

are even worse” than the ACMA analysis indicates. 

Time Reply at 2. MPA, ANM, and ABM state that the 

ACMA analysis underscores “the urgency of dealing 

with the real problem: the Postal Service’s failure to 

control its costs.” MPA, ANM, and ABM Reply at 10.

MPA, ANM, and ABM and Time are concerned 

about the impact of FSS deployment on Periodicals 

costs and service in FY 2011 and future years. Time 

finds that “in FY 11, the FSS added to Periodicals 

processing costs.” Time Initial at 10. MPA, ANM, 

and ABM are “increasingly concerned that the 

Flats Sequencing System (“FSS”) — long touted as 

the savior of flats — will only continue the Postal 

Service’s miserable record in controlling the costs of 

handling flat-shaped mail. So far, however, FSS has 

been a failure—driving up both Periodicals costs and 

customer complaints about service performance.” 

MPA, ANM, and ABM Reply at 11. Valpak states 

that flat costs have been “resistant to cost-cutting 

efforts, despite continuing deployment of the FSS.” 

Valpak Comments at 54.

Comments Regarding Commission Authority

Valpak urges the Commission to find that the two 

Periodicals products violate the factors and objectives 

of PAEA, as well as 39 U.S.C. 101(d), and use 

its authority to order “prices be adjusted above the 

cap” or “that the two Periodicals products as currently 

fashioned be discontinued and replaced with a 

discount.” Valpak Comments at 80. Valpak burnishes 

its argument by detailing, by factor and objective, 

that “most, if not all objectives and factors suggest 

that Periodicals should receive a higher than CPI rate 

increase.” Id. at 72 - 78. Both Valpak and the Public 

Representative argue that the Commission can order a 

price increase for loss-making products and alleviate 
 POSTAL REGULATORY COMMISSION 105

the need for Postal Service proposals that would 

decrease service quality, such as the closing of post 

offices and the elimination of the overnight service 

standard for First-Class and Periodicals. Id. at 79, PR 

Comments at 11.

Time and MPA, ANM, and ABM argue that the 

Commission has no authority to impose above-CPI 

price increases or discontinue the Periodicals class. 

MPA, ANM, and ABM state that “the CPI-based price 

cap of section 3622(d) outweighs all of the objectives 

and factors combined.” MPA, ANM, and ABM 

Reply at 4. MPA, ANM, and ABM also state that the 

Commission cannot discontinue the Periodicals class 

because the Commission’s remedial authority under 

section 3622(c) requires a finding of noncompliance, 

the burden for which has not been met by the FY 

2011 prices for Periodicals. MPA, ANM, and ABM 

further argue that “eliminating the individual product 

categories within Periodicals mail would not abrogate 

the price protection given by 39 U.S.C. § 3622(d) 

to the class.” MPA, ANM, and ABM Reply at 8. 

The Postal Service repeats its statements from Docket 

No. ACR2010 regarding Commission Authority and 

“encourages the Commission to determine whether it 

has the authority under the PAEA to raise rates beyond 

the price cap.” Postal Service Reply Comments at 7.

Commission Analysis

The three issues are somewhat interrelated. Time 

argues that cost increases have been worse for flats 

than even the ACMA cost analysis shows and that the 

Postal Service may not be able to control flat-shaped 

costs even with the full deployment of the FSS. Time 

and MPA, ANM, and ABM are concerned that 

Periodicals costs will continue to rise rapidly, making 

cost coverage worse.

Valpak’s concerns about cost coverage lead it to 

conclude that the Commission ought to order an 

above price cap increase or eliminate the Periodicals 

class and instead establish Periodicals discounts in 

other classes. Similarly, the Postal Service contends 

that the Commission should determine if it has the 

authority to order remedies of the kind that Valpak 

suggests and if so, then it urges the Commission to 

take corrective action. Postal Service Reply Comments 

at 7.

In support of its position, Valpak observes that in 

past ACDs the Commission has found that there was 

insufficient evidence that Periodicals’ prices were 

inconsistent with enough factors and objectives to 

outweigh the price cap limitation. It further states that 

the vast majority of the factors and objectives of the 

PAEA encourage the Commission to find that the rates 

for Periodicals in FY 2011 did not comply with 39 

U.S.C. 3622.

Despite the valid concerns raised by the parties, 

the Commission does not find the rates and fees for 

the Periodicals class to be out of compliance at this 

time. The Commission will give the Postal Service 

time to implement operational changes that may help 

Periodicals processing become more efficient.

In this regard, the Commission notes that in FY 

2011 the Postal Service took substantial steps to 

address the high costs of processing and delivering 

Periodicals, following some of the recommendations 

from the Joint Periodicals Mail Study. In FY 2011 

the Commission and the Postal Service released the 

Joint Periodicals Mail Study, as mandated by section 

708 of the PAEA. The principal findings of this 

report were that Periodicals costs were reasonably 

accurate for ratemaking purposes but that significant 
106 2011 Annual compliance determination

opportunities for improving processing efficiency and 

reducing costs exist. While the Commission and the 

Postal Service disagreed over the precise amount 

of potential cost savings, the focus on Periodicals 

brought about by the joint study has lead to several 

initiatives aimed at improving the Periodicals class 

cost coverage.

In FY 2011 the Postal Service took the following 

actions:

 Continued deployment of the FSS

 Eliminated the “Hot2C” manual processing of 

Periodicals

 Reconfigured and standardized Critical Entry Times

 Completed a Lean Six Sigma project involving 

bundle breakage

 Continued a “Value Stream Mapping” project to 

improve Periodicals processing efficiency

Furthermore, in FY 2012 in Docket No N2012-1, 

the Postal Service has proposed the elimination of the 

overnight service standard for Periodicals. 

The Commission agrees with the Postal Service that 

the Periodicals class did not meet the section 3622(c)

(2) factor which directs the Postal Service to consider 

the “requirement that each class of mail or type of 

mail service bear the direct and indirect postal costs 

attributable to each class or type of mail service.” 

However, the Commission recognizes that the Postal 

Service began to implement many operational changes 

with respect to Periodicals in FY 2011, and has 

proposed additional significant changes for FY 2012.

The Commission recommends that the Postal Service 

continue to pursue opportunities identified in FY 2011 

to reduce the costs of handling flats. The Commission 

expects that in the Postal Service’s FY 2012 ACR it 

will identify and report on actions taken to reduce 

the costs of handling flats, and the impact of those 

actions on the cost of handling flats and the service 

received by Periodicals.

Because the Commission has not made a finding 

of noncompliance in this docket, the Commission 

does not need to comment on the appropriateness 

of Valpak’s suggested remedies. The Commission 

will review the suitability of the PAEA modern rate 

regulations and classes in FY 2016 pursuant to 

section 3622(d)(3). 

Worksharing Discounts

No Within County passthroughs exceeded 100 

percent (See Table VII–5). Eleven Outside County 

passthroughs, identified in Table VII–6, exceeded 

100 percent. 

Discounts that exceed avoided costs are permissible 

if a statutory exception applies. See 39 U.S.C. 

3622(e). The Postal Service justifies the Periodicals 

discounts that exceeded 100 percent on the basis of 

section 3622(e)(2)(C), which authorizes workshare 

discounts greater than avoided cost if provided in 

connection with a subclass that consists exclusively of 

mail matter with ECSI value. USPS-ACR2011 at 58.

Comments on Worksharing Discounts

The Public Representative is concerned by the 

“alarming change” in some Periodicals cost 

avoidances in FY 2011. The Public Representative 

points to several Periodicals cost avoidances that 

decreased over 500 percent in FY 2011 (causing 

the worksharing passthroughs to increase by over 

500 percent). The Public Representative states “the 

magnitude of the shift in incentives for non-machinable 

Periodical mailers facing workshare discounts is 
 POSTAL REGULATORY COMMISSION 107

disconcerting and largely goes unmentioned by the 

Postal Service.” PR Comments at 23.

Time states that the deployment of the FSS and the 

cost modeling techniques proposed by the Postal 

Service “distorts” the true cost differential between 

5-Digit and Carrier Route mail. Time Comments at 

10. Time is also concerned that the size of the CRA 

adjustment factor suggests that the Periodicals cost 

model is not capturing the true cost of piece sorting. 

Time calculates that the Periodicals worksharing cost 

model estimates $297 million in piece handling costs 

in FY 2011, and the CRA attributes nearly $534 

million to piece handling activities. The Postal Service 

states “the Piece Handling cost pool also contains 

activities other than piece handling.”6

6 Docket No. RM2012-2 Reply Comments of the Postal Service 

Regarding Proposal Eighteen at 7.

Commission Analysis. 

The Periodicals class qualifies for ECSI consideration; 

therefore, the Commission finds that the Outside 

County discounts that exceed avoidable costs are 

consistent with section 3622(e)(2)(C). Nine categories 

that had passthroughs greater than 100 percent in 

Docket No. R2009-2 also have passthroughs greater 

than 100 percent using the prices recently approved 

in Docket No. R2012-3.7 See R2012-3, PRC-LR2. 

7 Tables displaying the full range of discounts, avoidable costs, and 

passthoughs for Within County and Outside County Periodicals, as 

well as prices, bottom-up costs, and price-cost ratios for bundles, 

sacks, and pallets, appear at the end of this section.

Table VII–6—Outside County 

Periodicals Workshare Discounts 

Exceeding Avoidable Cost in FY 2011

Type of Worksharing Discount

Avoidable 

Costs Passthrough

Pre-sorting (cents per piece)

Machinable 

Nonautomation 5D

Flats

9.8 9.0 108.9%

High Density 2.9 2.5 116.0%

Machinable Automation 

5D Flats 8.6 8.1 106.2%

Nonmachinable 

Nonauto ADC Flats 11.6 10.8 107.4%

Nonmachinable 

Nonauto 3D/SCF Flats 7.5 0.8 937.5%

Nonmachinable 

Automation 3D/SCF 

Flats

6.1 0.9 677.8%

ADC Automation Letter 4.0 1.6 250.0%

3-Digit Automation 

Letter 2.0 0.3 666.7%

5-Digit Automation 

Letter 6.1 1.9 321.1%

Pre-barcoding

Machinable Automation 

MADC Flats 3.2 2.7 118.5%

Nonmachinable 

Automation MADC 

Flats

4.5 0.6 750.0%

Source: ACR FY2011-PRC-LR4

Table VII–5—Within County 

Passthroughs FY 2011

Type of Worksharing Discount

Avoided 

Costs Passthrough

Pre-sorting (cents per piece)

3-Digit Presort 1.2 3.2 37.5%

5-Digit Presort 1.3 11.5 11.3%

CR Basic 4.6 15.7 29.3%

High Density 1.6 2.5 64.0%

Saturation 1.4 3.2 43.8%

3-Digit Automation 

Letter 1.0 1.1 90.9%

5-Digit Automation 

Letter 0.2 1.9 10.5%

Pre-barcoding

Basic Automation Flats 1.6 3.2 49.9%

3-Digit Automation Flats 1.2 4.2 28.8%

5-Digit Automation Flats 0.6 1.1 54.3%

Dropshipping 

DDU Dropship 0.8 2.9 27.6%

Source: ACRFY2011-PRC-LR4
108 2011 Annual compliance determination

The Commission is currently reviewing the Periodicals 

mail processing cost model for updates regarding 

FSS cost, outgoing primary downflows, and pallet 

bundle breakage. The Commission order in Docket 

No. RM2012-2 will further analyze Periodicals 

worksharing passthroughs. 

With regard to carrier route passthroughs, Table VII–7 

first shows that the Postal Service’s pricing decisions 

have led to an increase in the passthrough for 5-Digit 

Automation pieces and a decrease in the passthrough 

for Basic Carrier Route pieces since FY 2008.

The 9.8 cent differential between 5-Digit and Carrier 

Route has remained unchanged since FY 2008. The 

Joint Periodicals Mail Study found that Carrier Route 

presorted pieces were among “the rate elements 

that provide the most contribution per piece.”8 The 

passthroughs between Periodicals rate elements 

provide the Postal Service with pricing flexibility in 

the Periodicals class. Encouraging Carrier Route 

mail is one of the only options the Postal Service has 

to incentivize more profitable mail in Periodicals. 

The Postal Service has stated “the design is to help 

ensure efficient mail preparation consistent with 

the advent of the Flats Sequencing System (FSS) 

environment ...expanding this discount would tend 

to encourage customers to undertake work that may 

not be necessary in an FSS-environment.”9 However, 

available cost data do not indicate that ongoing 

deployment of the FSS is eroding the value of Carrier 

Route presorting. 

The Postal Service has stated “it has no plans to 

adjust its Periodicals price schedules to differentiate 

between FSS and non-FSS zones.”10 FSS zone 

8 Periodicals Mails Study at 26. 9 Docket No. ACR2010 Postal Service Reply Comments at 39. 10 Docket No. RM2012-2 Reply Comments of the Postal Service 

Regarding Proposal Eighteen at 6.

pricing would allow the Postal Service to efficiently 

incentivize Carrier Route mail where the FSS is not 

available, and prevent inefficient presorting of the 

mail where the FSS is available. The FSS requires 

very different mail preparation characteristics to 

maximize its operational potential, and the Postal 

Service should fully explore pricing avenues to this 

end. In a price cap environment, pricing efficiently 

in order to maximize net revenues gains importance. 

The Commission recommends the Postal Service 

improve the efficiency of Periodicals pricing options 

and worksharing passthroughs to incent more efficient 

mailer preparation.

Price-Cost Ratios for Bundles and Containers

Discrete pricing for Outside County bundles, sacks 

and pallets was introduced in Docket No. R2006-1. 

The prices, bottom-up costs, and ratios of price to 

bottom-up cost for each combination of item, presort 

level, and entry level, are shown in the tables at 

the end of this section. These price-cost ratios can 

be thought of similarly to worksharing discounts, 

in the sense that they reflect many incentives for 

cost-reducing mail preparation behavior, but unlike 

worksharing discounts they do not explicitly reflect the 

relation of discounts to the costs avoided by greater 

mailer preparation. Price-cost ratios are used to 

describe how much of a cost is recognized in a given 

Table VII-7—Carrier Route and 5-Digit 

Automation Passthroughs Over Time

Passthroughs

 2008 2009 2010 2011

CR Basic 88.15% 71.52% 71.05% 69.48%

5-Digit 

Automation 61.37% 96.63% 102.38% 106.17%

Sources: Docket Nos. ACR2007 – ACR2011, PRC-LR4
 POSTAL REGULATORY COMMISSION 109

price element. The price-cost ratios for bundles, sacks, 

and pallets are significantly below 100 percent. 

Price-cost ratios range from a low of 15.2 percent for 

a mixed ADC sack entered at the Origin Sectional 

Center Facility (OSCF), to a high of 51.4 percent 

for a 3-Digit pallet entered at the Origin Network 

Distribution Center (ONDC).

Comments

The Public Representative states that the Postal Service 

should improve the efficiency of Periodicals prices, 

specifically the pricing of sacks, pallets and bundles, 

because pricing efficiency improvements provide 

the greatest opportunity the Postal Service has at its 

disposal to improve Periodicals cost coverage without 

piercing the price cap. PR Comments at 25. 

Commission Analysis

In the most recent Market Dominant Price Adjustment, 

Docket No. R2012-3, the Postal Service used its 

pricing flexibility to increase the prices of pallets, on 

average, by 5.7 percent. However, the Postal Service 

only increased sacks, on average, by 2.6 percent. 

This means that the gap between sack price-cost ratios 

and pallet price-cost ratios will grow in FY 2012. 

The Postal Service stated this will help “further the 

goal of more efficient containerization, while being 

mindful of the impact on those publications that cannot 

easily change preparation. To encourage efficient 

preparation of containerize mail, the Postal Service 

recently added a Mixed ADC Pallet option for mailers 

in Docket No. R2012-3. The Commission commends 

the Postal Service for providing mailers the opportunity 

to improve the efficiency of mail preparation. 

Table VII–8—Outside County 

Passthroughs FY 2011

Type of Worksharing Discount

Avoided 

Costs Passthrough

Pre-sorting (cents per piece)

Machinable Nonautomation 

ADC Flats 3.5 3.9 89.7%

Machinable Nonautomation 

3D/SCF Flats 1.7 4.5 37.8%

Machinable Nonautomation 

5D Flats 9.8 9.0 108.9%

CR Basic 10.7 15.4 69.5%

High Density 2.9 2.5 116.0%

Saturation 1.9 3.2 59.4%

Machinable Automation 

ADC Flats 2.6 3.3 78.8%

Machinable Automation 

3D/SCF Flats 1.5 4.3 34.9%

Machinable Automation 

5D Flats 8.6 8.1 106.2%

Nonmachinable Nonauto 

ADC Flats 11.6 10.8 107.4%

Nonmachinable Nonauto 

3D/SCF Flats 7.5 0.8 937.5%

Nonmachinable Nonauto 

5D Flats 11.8 15 78.7%

Nonmachinable Automation 

ADC Flats 9.6 10.9 88.1%

Nonmachinable Automation 

3D/SCF Flats 6.1 0.9 677.8%

Nonmachinable Automation 

5D Flats 10.8 14.4 75.0%

ADC Automation Letter 4.0 1.6 250.0%

3-Digit Automation Letter 2.0 0.3 666.7%

5-Digit Automation Letter 6.1 1.9 321.1%

Pre-barcoding

Machinable Automation 

MADC Flats 3.2 2.7 118.5%

Nonmachinable Automation 

MADC Flats 4.5 0.6 750.0%

Source: ACRFY2011-PRC- LR4.
110 2011 Annual compliance determination

Further, in the Periodicals Mail Study, several of the 

pricing recommendations involved using pricing 

signals to improve the net revenue from containers 

and bundles. These included the following:

 Increase Unit and Container Density

 Lower Transportation Costs

 Align Prices with Processing

 Optimize Bundle Preparation

These goals can only be achieved by improving the 

price-cost ratios of bundles and containers. While 

the Commission is mindful of the impact of prices on 

mailers, progress with respect to improving pricing 

efficiency is necessary to maximize the realization of 

operational improvements into cost reductions.

The Commission recommends that the Postal Service 

improve the efficiency of the bundle and container 

pricing in Periodicals. 

Table VII–9—Outside County 

Bundle Price/Cost Ratios, FY 2011

Container 

Level Bundle Level

Price Cost Price as 

Percent of 

Cost

% (cents per piece)

Mixed 

ADC

MADC 7.8 20.5 38.1%

ADC 20.4 54.5 37.4%

3-D/SCF 27.1 71 38.2%

5-D 28.0 77.5 36.1%

Firm Bundle 18.2 102 17.8%

ADC

ADC 11.3 31.6 35.7%

3-D/SCF 18.6 50.3 37.0%

5-D 20.2 57.9 34.9%

CR 31.9 88.7 36.0%

Firm Bundle 15.1 87.1 17.3%

3-D/SCF 

3-D/SCF 12.7 31.5 40.4%

5-D 14.7 38.8 37.9%

CR 28.3 63.8 44.3%

Firm Bundle 13.9 63.8 21.8%

5-D/CR 

5-D 14.2 36.1 39.3%

CR 14.9 33.4 44.6%

Firm Bundle 7.8 34.5 22.6%

Source: ACRFY2011-PRC-LR4.

Table VII–10—Outside County Sack Price/Cost 

Ratios, FY 2011

Sack 

Level Entry Point

Price Cost Price as 

Percent of 

Cost

% ($ per piece)

Mixed ADC OSCF $0.43 $2.81 15.2%

OADC $0.43 $2.34 18.2%

ADC

OSCF $2.04 $6.67 30.6%

OADC $2.04 $6.50 31.4%

OBMC $2.04 $5.74 35.5%

DBMC $1.42 $4.28 33.2%

DADC $0.81 $2.34 34.8%

3-D/SCF

OSCF $2.13 $7.15 29.8%

OADC $2.13 $6.82 31.2%

OBMC $2.13 $5.96 35.7%

DBMC $1.52 $4.40 34.6%

DADC $1.22 $3.67 33.2%

DSCF $0.81 $2.34 34.6%

5-D/CR

OSCF $2.74 $9.34 29.3%

OADC $2.74 $8.63 31.7%

OBMC $2.74 $7.82 35.0%

DBMC $2.03 $6.31 32.1%

DADC $1.73 $5.46 31.6%

DSCF $1.32 $4.22 31.2%

DDU $0.91 $2.96 30.8%

Source: ACRFY2011-PRC-LR4.
 POSTAL REGULATORY COMMISSION 111

Standard Mail

Introduction

Standard Mail is a market-dominant class that consists 

of six products: Letters; Flats; Not-Flat Machinables 

(NFMs)/Parcels; Carrier Route; High Density and 

Saturation Letters; and High Density and Saturation 

Flats/Parcels. In FY 2011 Standard Mail volume was 

84.7 billion pieces, an increase of 2.2 billion pieces 

from the 82.5 billion pieces in FY 2010. Standard 

Mail accounted for 50.4 percent of total mail volume, 

and 23.3 percent of total contribution to institutional 

costs. Now that Standard Mail volume, has grown 

to more than 50 percent of total mail volume the 

Postal Service must find ways to increase Standard 

Mail’s contribution to institutional costs as part of an 

improved business model.

The principal FY 2011 findings for Standard Mail are:

 Standard Mail contributed $5.7 billion to 

institutional costs.

 Standard Mail Flats had a 79.5 percent cost 

coverage, resulting in a $643 million loss.

 The rates and fees for Standard Mail Flats remain 

out of compliance.

 Standard Mail NFMs and Parcels had an 85.4 

percent cost coverage, 7.5 percentage points 

higher than FY 2010, but resulting in a $112 

million loss.

 Fifteen workshare discounts exceeded avoided 

costs.

» Four discounts were properly justified under 

section 3622(e).

» Ten discounts were not properly justified under 

section 3622(e).

» The Commission was unable to evaluate 

whether one discount was consistent with the 

statute.

Financial Analysis

In FY 2011 the total revenue for Standard Mail was 

$17.8 billion, which covered its attributable costs 

of $12.1 billion, and resulted in a 147.6 percent 

cost coverage (see Table VII–11). Standard Mail 

contributed $5.7 billion to institutional costs, a 4.3 

percent increase from FY 2010.

The overall cost coverage for Standard Mail 

increased slightly to 147.6 percent from 146.6 

percent in FY 2010. Standard Mail volume increased 

2.6 percent, or slightly over two billion pieces. Unit 

revenue and unit cost both increased less than one 

cent from FY 2010. Increased volume, and minimal 

changes to unit revenues and unit costs resulted in 

Standard Mail contributing $236 million more to 

institutional costs compared to FY 2010. Figure VII–1 

demonstrates the increased contribution provided by 

Standard Mail in FY 2011.

0

5

10

15

20

25

2007 2008 2009 2010 2011

Billions

Fiscal Year

Revenue Attributable Cost Contribution

Figure VII–1—Standard Mail Trends

Source: 2007 ACD at 87, 2008 ACD at 59, 2010 ACD at 

102, and Table VII–11.
112 2011 Annual compliance determination

Standard Mail as a class contributed $5.7 billion 

to institutional costs, but not every product within 

the class contributed. Figure VII–2 shows the unit 

contribution of each Standard Mail product for FY 

2010 and FY 2011. Figure VII–2 also demonstrates 

the increased unit contribution from Letters, NFMs and 

Parcels, High Density and Saturation Letters compared 

to FY 2010 and the reduced contribution of the 

remaining products.

Standard Mail Letters

Standard Mail Letters had a cost coverage of 

184.9 percent, and contributed $4.5 billion to 

institutional costs. This was a $322 million increase 

in contribution compared to FY 2010. On a unit 

basis, the Letters product contributed 8.9 cents to the 

institutional costs of the Postal Service, a 3.0 percent 

increase from FY 2010. Letter revenue per piece 

Table VII–11—FY 2011 

Volume, Revenue, Cost, Contribution, and Cost Coverage by Product

Standard Mail

Volume 

(000)

Revenue 

($ 000)

Attributable 

Costs 

($ 000)

Contribution 

to 

Institutional 

Costs 

($ 000)

Rev./Pc. 

(Cents)

Cost/Pc. 

(Cents)

Contribution 

to 

Institutional 

Costs/Pc. 

(Cents)

Cost 

Coverage

High Density and 

Saturation Letters 5,653,875 772,149 349,010 423,139 13.66 6.17 7.48 221.2%

High Density and 

Saturation Flats and 

Parcels

 11,424,568 1,885,335 882,761 1,002,574 16.50 7.73 8.78 213.6%

Carrier Route 9,367,761 2,235,782 1,647,828 587,954 23.87 17.59 6.28 135.7%

Letters 50,719,613 9,777,603 5,288,553 4,489,049 19.28 10.43 8.85 184.9%

Flats 6,791,672 2,499,669 3,142,862 (643,193) 36.80 46.28 (9.47) 79.5%

Not FlatMachinables and 

Parcels

 733,770 655,613 767,298 (111,685) 89.35 104.57 (15.22) 85.4%

Inbound Int'l. 

Negotiated Serv. 

Agreement Mail1

 712 316 87 229 44.40 12.23 32.18 363.2%

Total Standard Mail 84,691,971 17,826,466 12,078,399 5,748,068 21.05 14.26 6.79 147.6%

Source: PRC-ACR2011-LR1

Source: 2010 ACD at 102, and Table VII–11.

Figure VII–2—Unit Contribution by 

Standard Mail Product FY2010 and FY 2011

-30

-25

-20

-15

-10

-5

0

5

10

15

Carrier

Route

High

Density

and

Saturation

Flats and

Parcels

High

Density

and

Saturation

Letters

NFMs

and

Parcels

Letters Flats

Cents

FY 2010

8.6 8.9

-8.2 -9.5

-25.3

-15.2

7.2 7.5

9.0 8.8

7.1 6.3

FY 2011
 POSTAL REGULATORY COMMISSION 113

increased by 0.6 percent, while attributable cost 

per piece decreased by 1.4 percent. Letter volume 

increased by 4.6 percent, or 2.2 billion pieces, 

compared with FY 2010. 

Standard Mail Flats

Standard Mail Flats cost coverage was 79.5 

percent in FY 2011, which was a decrease from 

its 81.8 percent cost coverage in FY 2010. The 

Flats cost coverage has decreased each fiscal year 

since the passage of the Postal Accountability and 

Enhancement Act (PAEA), as shown in Table-VII-12. 

Similar to FY 2010, neither the commercial nor the 

nonprofit portions of the Standard Mail Flats product 

had a cost coverage above 100 percent, as shown 

in Figure-VII–3. 

In the 2010 Annual Compliance Determination (ACD) 

the Commission found that the prices in effect in FY 

2010 did not comply with section 101(d) of title 39. 

Pursuant to 3653(c), the Commission directed the 

Postal Service to increase the cost coverage of the 

Standard Mail Flats product through a combination of 

cost reductions and above-average price adjustments, 

consistent with the price cap requirements, until such 

time that revenues exceed attributable costs. As is 

shown in Figure-VII–4, unit revenues for Standard Mail 

Flats increased by 0.1 cents in FY 2011, while unit 

attributable costs increased by 1.4 cents, resulting in 

contribution per piece decreasing by 1.3 cents. 

As Figure-VII–5 demonstrates, Letters contributed 18.4 

cents more per piece than Flats in FY 2011. Standard 

Carrier Route pieces contributed 15.8 cents more per 

piece than the Flats product. 

In the FY 2010 ACD the Commission also required 

that the Postal Service file the following information 

regarding Standard Mail Flats:

 A description of all operational changes designed

to reduce flat costs in the previous fiscal year and 

an estimate of the financial impact of such changes;

 A description of all costing methodology or 

measurement improvements made in the previous 

fiscal year and an estimate of the financial effects 

of such changes;

Source: PRC-ACR2011-LR3

Table VII–12—FY 2011

2008 2009 2010 2011

Standard 

Flats 94.4% 82.3% 81.8% 79.5%

Source: PRC-ACR2011-LR3

-25

-20

-15

-10

-5

0

Commercial Nonprot Overall

Unit Contribution (Cents)

0

10

20

30

40

50

60

70

80

90

100

Commercial Nonprot Overall

Cost Coverage

Figure VII–3—Contribution and Cost Coverage for Standard Mail Flats
114 2011 Annual compliance determination

 A statement summarizing the historical and current 

fiscal year subsidy of the Flats product; and, the 

estimated timeline for phasing out the subsidy. 

2010 ACD at 107.

The Postal Service appealed the Commission’s FY 

2010 ACD findings and directive. The matter is 

currently awaiting judicial decision in the Court of 

Appeals. 2011 ACR at 28-29. In the Postal Service’s 

2011 Annual Compliance Report it noted the status 

of the appeal and did not provide the information 

required by the FY 2010 ACD. Id. at 28. 

In its response to the Chairman’s Information Request 

asking for information in compliance with the FY 

2010 ACD, the Postal Service explains that the 

number of operational FSS machines has increased 

from 13 machines at 8 sites to 100 machines at 

47 sites. Response to CHIR No. 1, question 9. 

These 100 machines now serve 43,534 delivery 

routes. Id. In addition to FSS deployment, the Postal 

Service explains that it modified mail preparation 

requirements in FY 2011 to allow mailers the option 

to prepare FSS-schemed bundles and two levels of 

pure FSS pallets, and introduced the FSS label lists. 

Id. The Postal Service believes “these efforts are 

expected to improve efficiencies and productivities, 

and reduce overall flats costs.” Id.

The Postal Service also identifies Proposal Eighteen 

in Docket No. RM2012-2 as a cost measurement 

improvement related to Standard Mail Flats. 

Id. Proposal Eighteen reflects new equipment 

deployments, specifically the FSS, into the mail 

processing cost models for Standard Mail Flats, FirstClass Mail Flats, and Periodicals.11 Id.

Based on the slightly above average price increase 

for Standard Mail Flats in Docket No. R2012-3, the 

Postal Service anticipates that the cost coverage for 

Standard Mail Flats will increase to 84.0 percent 

in FY 2012, with an estimated contribution loss of 

$458 million.

11 Proposal Eighteen is awaiting final disposition by the Commission in 

Docket No. RM2012-2.

-20

-10

0

10

20

30

40

50

2010 2011

Cents

36.7

44.8

36.8

46.3

-8.2 -9.5

Fiscal Year

Unit Revenue Unit Attributable Cost Unit Contribution

Fiscal Year

Letters Carrier Route Flats

-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

2008 2009 2010 2011

Cents

9.0

7.7 8.1 7.1

-2.2

-7.9

8.6

7.1

-8.2

8.9

6.3

-9.5

Figure VII–4—Standard Mail Flats 

FY 2010 vs. FY 2011

Figure VII–5—Unit Contribution for Standard 

Mail Letters, Flats and Carrier Route

Source: 2010 ACD at 102, and Table VII–11. Source: PRC-ACR2011-LR3
 POSTAL REGULATORY COMMISSION 115

Comments

The Commission received comments from Valpak, 

L.L. Bean, Inc. (L.L. Bean), American Catalog Mailer 

Association (ACMA), and the Public Representative 

related to the Standard Mail Flats product. The 

comments cover three distinct areas, (1) cost 

coverage and compliance, (2) anomalous flats costs, 

and (3) measurement of the intra-class cross-subsidy. 

The remainder of this section will discuss each of 

these areas.

Cost Coverage and Compliance

Valpak notes that four years of CRA cost and revenue 

data are available for Standard Mail Flats and the 

total negative contribution from the product is now 

over $2 billion. Valpak Comments at 53. Valpak also 

observes that the contribution losses for the Standard 

Mail Flats product have consistently increased over 

the past four years, therefore cost cutting strategies 

have not worked, and the Postal Service should 

institute above-average price increases for Standard 

Mail Flats. Id. at 54. 

Valpak criticizes the Postal Service’s failure to comply 

with the Commission’s FY 2010 ACD directives. 

Id. at 60. Valpak suggests that if the appeal of 

the FY 2010 ACD results in a decision favorable 

to the Commission that “the Commission should 

move quickly to direct that a substantial increase be 

made in Standard Flats rates, moving them toward 

full coverage plus a reasonable contribution to 

institutional costs in no more than three years.” Id.

Valpak also reiterates that the Commission should 

make a determination of noncompliance for Standard 

Mail Flats. Valpak Reply Comments at 20. Valpak 

contends that if the Commission does not make an 

express finding of noncompliance, it would imply a 

rebuttable presumption of compliance pursuant to 39 

U.S.C. 3653(e). Id.

L.L. Bean also expresses concerns about the pricing of 

the below-cost Standard Mail Flats product. L.L. Bean 

Comments at 1. It questions the Postal Service’s price 

adjustments that have consistently given the Carrier 

Route product, which makes a positive contribution 

to institutional costs, higher increases than the Flats 

product, which does not cover its attributable costs or 

contribute to institutional costs. Id. at 2-3. L.L. Bean 

agrees with Valpak that the Commission should make 

a formal finding of noncompliance for the Standard 

Mail Flats product, to avoid the appearance that the 

Standard Mail Flats product is in compliance in FY 

2011. L.L. Bean Reply Comments at 3.

The Public Representative contends that the recent 

above average price increase for Standard Mail 

Flats demonstrates the Postal Service’s action 

towards ending the intra-class cross-subsidy. Public 

Representative Comments at 18-19. The Public 

Representative also notes that the Postal Service 

did not initially file the reports requested by the 

Commission in the FY 2010 ACD, and requests that 

the Commission request a plan from the Postal Service 

to bring Standard Mail Flats into compliance under 

the price cap constraint. Id.

Anomalous Flats Costs

ACMA states that costs for Standard Mail Flats have 

increased excessively and there is no plausible 

explanation for the increases. ACMA Comments at 

33. ACMA concludes, based on the cost increase, 

that the costs are not reliable, and suggests that the 

“costs are out of compliance” [emphasis omitted]. 

Id at 25. ACMA does not believe that the costs are 

“an adequate basis for evaluating rates or assessing 
116 2011 Annual compliance determination

compliance.” Id. In addition ACMA claims that a 

case cannot be made that the Standard Mail Flats 

product is being cross-subsidized. Id.

In support of its argument that the Postal Service’s 

costs are unreliable, ACMA creates cost indices for 

Standard Letters, Standard Flats, Standard Carrier 

Route and Periodicals. ACMA then compares these 

cost indices to factor prices.12 Compared to factor 

prices, ACMA finds, for Standard Mail products, 

that from FY 1998 to FY 2011 (1) Standard Mail 

Letters cost index was 17.0 percentage points less 

than factor prices; and (2) Standard Mail Flats cost 

index was 61.6 percentage points more than factor 

prices. Id. at 4-8. In addition, ACMA finds that from 

FY 2008 to FY 2011 the Carrier Route cost index 

approximately equaled the factor prices. Id. at 9. 

After reviewing overall cost index changes for the 

three Standard Mail products and Periodicals, ACMA 

considers the mail processing and delivery costs for 

Letters, Flats and Carrier Route.13

Valpak, L.L. Bean and the Public Representative 

respond to ACMA’s comments concerning 

anomalous Postal Service costs. Valpak states that the 

Commission should reject ACMA’s recommendation 

that the Commission find the CRA level costs out of 

compliance. Valpak Reply Comments at 9. Valpak 

contends that ACMA’s cost indices only demonstrate 

the fact that Standard Mail Flat costs have increased 

12 ACMA uses the measurement of total factor productivity (TFP) as its 

index of factor prices. 13 ACMA finds that (1) The unit mail processing costs for 5-Digit 

automation letters has increased 18.9 percent, while 5-Digit 

automation flats unit mail processing costs have increased 130.0 

percent, and the unit mail processing costs for Carrier Route have 

increased 84.5 percent and (2) the unit delivery costs for 5-Digit 

automation letters has increased 22.1 percent, while the unit delivery 

costs for 5-Digit automation flats has increased 155.0 percent, and 

the unit delivery costs for Carrier Route have increased 76.4 percent. 

Id. at 16-19. 

faster than other Standard Mail products and 

Standard Mail Flats price increases have failed to 

match cost increases. Id. at 3-4. L.L. Bean expresses 

that it, like ACMA, is concerned over the increasing 

cost trends for the Standard Mail Flats product. L.L. 

Bean Reply Comments at 1. However, L.L. Bean 

presumes that the Postal Service has been “diligently 

investigating these costs and the reliability of its 

costing systems.” Id. It notes that ACMA does not 

show that the anomalous costs overcome the shortfall 

in the Standard Mail Flats product cost coverage, 

and therefore concludes that the costs using the 

current methodology are “the best estimates of the true 

operational costs of Standard Flats.” Id.

The Public Representative believes that ACMA has 

provided an innovative approach in analyzing historic 

cost trends, but provides several critiques of ACMA’s 

rate and cost indices. Public Representative Reply 

Comments at 10. He notes a small error in ACMA’s 

measurement of the rate index, and recommends that 

the proper formula for a continuous rate index be 

used, which avoids calculating different percentage 

changes in rates depending on different base years. 

Id. Then he explains that additional data are needed 

to calculate cost indices that are not included in 

ACMA’s analysis. Id. at 11. For example, the Public 

Representative believes the Postal Service needs 

to identify cost centers and associated volumes by 

product along with the relevant per-unit attributable 

cost for each of the Postal Service’s process steps. 

Id. In light of the additional data needed, the Public 

Representative suggests that Commission, together 

with the Postal Service, determine the feasibility 

of acquiring the necessary data and potentially 

developing a cost index. Id. at 12. 
 POSTAL REGULATORY COMMISSION 117

Measurement of Intra-Class Cross-Subsidy

ACMA argues that cross-subsidy testing must 

evaluate all possible combinations of products before 

concluding that the Standard Mail Flats product is 

cross-subsidized. Id. at 31. ACMA states that crosssubsidy testing, in addition to an incremental cost test, 

must also include a burden test which analyzes the 

effects of withdrawing products that are complements 

or substitutes for one another.14 Id. ACMA finds that 

applying the burden test to the trio of Standard Mail 

Flats, commercial Carrier Route Flats, and commercial 

High-Density Flats demonstrates that “volume losses 

would occur for other products, resulting in significant 

contribution losses.” Id. at 32. ACMA concludes that 

“no finding of cross-subsidy can be supported” for 

the trio of Standard Mail Flats, commercial Carrier 

Route Flats, and commercial High-Density Flats and 

that Standard Mail Flats are a “key component in the 

array of products offered.” Id.

Valpak contends that incremental costs are higher 

than attributable costs, because incremental costs 

include other non-attributable costs that would be 

avoided if the product ceased to be offered. Valpak 

Reply Comments at 14. Valpak also disagrees with 

ACMA’s assertion that the Standard Mail Flats are fair 

and equitable because the duo of Standard Mail Flats 

and Carrier Route cover costs.

L.L. Bean argues the fact that the Standard Mail Flats 

product has below-cost rates results in other Standard 

Mail products being charged higher rates than are 

warranted. L.L. Bean Reply Comments at 2. L.L. Bean 

14 ACMA explains that the burden test first focuses on the financial effect 

of withdrawing Commercial Standard Flats, Commercial Carrier 

Route Flats, and Commercial High-Density Flats. Id. The next step 

in the burden test is to estimate the net financial effect of all further 

volume responses to the withdrawal of Commercial Standard Flats, 

Commercial Carrier Route Flats, and Commercial High-Density Flats. 

Id.

concludes that this constitutes an unfair cross-subsidy. 

Id.

The Public Representative does not agree with 

ACMA, and believes product cost coverage should 

continue to be used to evaluate potential crosssubsidization. Public Representative Reply Comments 

at 7. He states that “[i]f the revenue from a product 

does not recover its marginal costs, it is very likely 

being subsidized.” Id. at 9. He concludes that “the 

Commission is right to recommend remediation when 

the cost coverage of a product falls below 100 

percent.” Id.

Commission Analysis

Fiscal Year 2011 is the fourth consecutive year 

Standard Mail Flats revenue and cost data have been 

available, and this is the fourth year that the product 

has had substantial losses. As Table VII–13 shows, 

cumulatively, over the past four years the Standard 

Mail Flats product has lost over $2 billion. In the FY 

2010 ACD, when the cumulative loss was $1.4 

billion, the Commission found the Standard Mail 

Flat product out of compliance with section 101(d) 

of title 39. 2010 ACD at 106. This was after the 

Commission had encouraged the Postal Service to 

improve the cost coverage in the FY 2008 ACD and 

the FY 2009 ACD.

The unit contribution for the Standard Mail Flats 

product has now decreased to negative 9.5 cents 

per piece. Since FY 2008, the unit contribution 

has decreased by a total of 7.3 cents. The 

Postal Service responds that all pricing decision 

are made by the Board of Governors based on 

statutory and regulatory requirements as well as an 

evaluation of market dynamics and business strategy 

considerations. Response to CHIR No. 1, question 
118 2011 Annual compliance determination

9(c). The Postal Service explains that pricing decisions 

can only be made in the context of the circumstances 

that exist at the time a price change is approved. 

Id. In Docket No. R2012-3 the Postal Service gave 

Standard Mail Flats a 2.2 percent increase, slightly 

above the 2.1 percent price cap. Figure VII–6 

shows the cost coverage and price increase for each 

Standard Mail product in Docket No. R2012-3.

ACMA contends that a burden test15 should be 

conducted in addition to measuring cost coverage to 

determine if there is an intra-class cross-subsidy within 

Standard Mail. The Commission appreciates ACMA’s 

contention, but observes that, as noted by Valpak, L.L. 

Bean and the Public Representative, measuring cost 

coverage is a reasonable way to test for intra-class 

cross-subsidies.

The Postal Service estimates that the increase for 

Standard Mail Flats will reduce the Standard Mail 

Flats shortfall to $458 million in FY 2012, with 

an 84.0 percent cost coverage. See Response to 

CHIR No. 1 Question 9(d)-(e). As the Commission 

expressed in the FY 2010 ACD, price increases 

in conjunction with cost reductions are necessary 

15 The mechanics of the burden test are described in section 1.c of this 

chapter, “Measurement of Intra-Class Cross-Subsidy.”

to improve the cost coverage of the Standard Mail 

Flats product. The Postal Service did not, however, 

provide any cost savings estimates, despite requests 

for estimates. See 2010 ACD at 107; See also CHIR 

No. 1, question 9. 

In the FY 2010 ACD, the Commission highlighted 

the revenue shortfalls in Standard Mail Flats, and 

found that the Standard Mail Flats product was not 

in compliance with title 39. Standard Mail Flats has 

now continued on its downward trend, and losses 

now total $2 billion over the past four years. The 

Commission finds that Standard Mail prices continue 

to reflect an unfair an inequitable apportionment of 

the costs of postal operations to all Standard Mail 

users. While the Postal Service did give the Standard 

Mail Flats product a slightly above average price 

increase in the Docket No. R2012-3, the Postal 

Service calculates that the increase is not projected 

to significantly move the Standard Mail Flats product 

Table VII–13—Contribution of 

Standard Mail Flats FY 2008-FY 2011 

(S in Millions)

FY Contribution 

2008 $(217.83)

2009 $(615.57)

2010 $(576.99)

2011 $(643.19)

Total $(2,053.59)

Source: 2008 ACD at 59, 2009 ACD at 84, 2010 ACD at 

102, and Table VII–11.

Figure VII–6—FY 2011 Cost Coverage and 

R2012-3 Price Increase by Product

0%

50%

100%

150%

200%

250%

NFMs

and

Parcels

Carrier Letters Flats

Route

High

Density

and

Saturation

Flats and

Parcels

High

Density &

Saturation

Letters

FY 2011 Cost Coverage

R2012-3 Price Increase

Cost Coverage Price Increase

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

2.3

2.1

1.9

2.4

2.2

2.9

Source: Table VII–11 and PRC-R2012-3-LR3.
 POSTAL REGULATORY COMMISSION 119

toward cost coverage in FY 2012. See Response to 

CHIR No. 1 Question 9(e). The Postal Service has 

also not filed a plan with the Commission outlining 

when intra-class cross-subsidy would be eliminated. 

Because the intra-class cross-subsidy discussed in the 

FY 2010 ACD has worsened, the Commission finds 

that the prices in effect in FY 2011 for Standard Mail 

Flats remain out of compliance. However, given the 

pending litigation the Commission will not require 

remedial action at this time.

Several commenters have discussed potential 

anomalies in Standard Mail Flats unit attributable 

costs. Cost anomalies may indeed mean that costing 

for Standard Flats could be improved. However, 

the fact that some costs rise faster than others is not 

per se an indicator that cost estimates are incorrect 

or anomalous. CRA level costs are reasonably 

accurate for evaluating product costs and related 

prices.16 Persuasive evidence is required to discard 

and replace a litigated costing framework that has 

been developed and refined over 40 years. Parties 

alleging that the CRA costing methodology is not 

reliable must demonstrate flaws underlying the costing 

methodology or data collection in order to merit 

consideration. The anecdotal evidence of possible 

costing anomalies appearing in the results of the CRA 

cost models for specific types of costs, as presented in 

this docket, is not sufficient. 

It may be possible to improve the costing approach 

for Standard Mail Flats within the CRA framework 

to rectify possible anomalies. The Commission 

welcomes petitions from interested parties that not 

only investigate anomalies in the methodologies 

16 See Periodicals Mail Study, Joint Report of the United States Postal 

Service and Postal Regulatory Commission, September 2011 at 

57-60 (finding that CRA-developed costs are reasonably accurate for 

rate-setting purposes).

underlying the current cost models, but also present 

solutions. For example, a party could present an 

alternate methodology for distributing costs. The 

Commission encourages interested parties to continue 

to attempt to identify specific anomalies in conjunction 

with proposed solutions to correct methodologies that 

produce anomalous costs. 

Standard Mail NFMs and Parcels

The NFMs and Parcels product did not produce 

sufficient revenues to cover its attributable costs in FY 

2011. The NFMs and Parcels product had an 85.4 

percent cost coverage and had a net loss of $111.7 

million. This is a $60.8 million improvement over the 

FY 2010 loss of $172.5 million. Unit contribution 

increased from negative 25.3 cents in FY 2010 to 

negative 15.2 cents in FY 2011.17 Unit attributable 

costs decreased 8.5 percent, and unit revenues 

slightly increased, 0.3 percent. 

During FY 2011 the Commission approved the Postal 

Service’s proposal to transfer a portion of the NFMs 

and Parcels product to the competitive product list. 

See Order No. 689. This transfer was not completed 

until January 22, 2012 when the Postal Service gave 

the transferred pieces a sufficient price increase to 

satisfy the requirements of section 3633 of title 39. 

In Docket No. R2012-3, the Postal Service proposed 

and the Commission approved an above-average 

price increase of 2.864 percent for the portion of 

the NFMs and Parcels product that remained part 

of the market dominant product. This was the fourth 

consecutive above-average price increase for the 

NFMs and Parcels product.

In FY 2011, the revenue generated from NFMs and 

Parcels was not sufficient to recover the attributable 

17 In this case, the unit contribution is negative, which represents a loss.
120 2011 Annual compliance determination

cost of the product or make a contribution to 

institutional costs. In light of the restructuring of the 

NFMs and Parcels product and the Postal Service’s 

efforts to resolve the intra-class cross-subsidy, the 

Commission finds that the Postal Service’s approach 

to ending the intra-class cross-subsidy is appropriate 

and it should continue using its pricing flexibility to 

give the NFMs and Parcels product above-average 

price increases. The Commission also encourages the 

Postal Service to continue reducing Parcels and NFMs 

costs, as it did in FY 2011.

High Density and Saturation Letters

In FY 2011, the High Density and Saturation Letters 

product had a cost coverage of 221.2 percent, and 

contributed 7.5 cents per piece to institutional costs. 

The product contributed a total of $423.1 million to 

institutional costs, with commercial pieces contributing 

$414.6 million and nonprofit pieces contributing 

$8.6 million.

Valpak argues that no product should produce 

revenues that are greater than twice their attributable 

costs. Valpak Comments at 38. Valpak requests 

that the Commission “roll back the most recent price 

increases.” Id. In light of some products with cost 

coverages below 100 percent, Valpak suggests that 

price increases on products with high elasticities and 

cost coverages over 200 percent be suspended until 

those products’ cost coverages are no longer above 

200 percent. Id.

High Density and Saturation Letters received an 

above average price increase in the Docket No. 

R2012-3 price adjustment, but that fact alone does 

not warrant Commission action. In general, the Postal 

Service is accorded pricing flexibility under title 39 to 

allow these kinds of pricing decisions. 

High Density and Saturation Flats and Parcels

Revenues for the High Density and Saturation Flats/

Parcels product exceeded its attributable costs, which 

resulted in cost coverage of 213.6 percent in FY 

2011. The product as a whole contributed $1.0 

billion to the institutional cost of the Postal Service. 

Table VII–14 shows the volume and contribution 

distribution of High Density and Saturation Flats and 

High Density and Saturation Parcels.

This table shows that flats comprise more than 99 

percent of the product contributing slightly more 

than $1.0 billion. This represents the second highest 

contribution in Standard Mail with Letters ranking 

first. In contrast, the parcel portion shows a loss of 

$234,330.

In Docket No. R2012-3, the Postal Service proposed 

and the Commission approved a slightly above 

average price increases for High Density and 

Saturation Parcels. See PRC-R2012-3-LR3. 

Carrier Route

In FY 2011, revenues from the Standard Mail Carrier 

Route Product (which includes letters, flats, and 

parcels) exceeded the product’s attributable costs 

with a cost coverage of 135.7 percent. The Carrier 

Route product contributed $588 million toward the 

Postal Service’s institutional costs. In FY 2011 unit 

attributable costs increased by 6.3 percent, while 

unit revenues increased by 0.9 percent. The nonprofit 

component of the Carrier Route product failed to 

cover its attributable costs, which resulted in a 

negative contribution of $16.7 million. 

Comments

Valpak addresses two issues related to Carrier Route. 

First, Valpak comments that the Postal Service’s pricing 
 POSTAL REGULATORY COMMISSION 121

strategy is neither profit-maximizing or demand-based 

because the Postal Service gave a greater price 

increase to those products with high cost coverages. 

Valpak Comments at 33.

Second, Valpak comments that the unit delivery cost 

for a Carrier Route letter has increased 88 percent 

since FY 2010, and finds that the cost must be 

anomalous by comparing it to the unit delivery costs 

of other pieces. Valpak Comments at 100. Valpak 

concedes that Carrier Route Letters only constitute two 

percent of the volume within the product, which may 

create a sampling problem. Id. Valpak requests that 

Postal Service in its ACR explain any unit cost that 

fluctuates more than 50 percent from the prior year. 

Id. The Postal Service agrees that the unit delivery 

cost is anomalous due to ”the fact that Carrier Route 

letter volume is disappearing and a pricing structure 

that causes no financial penalty for mismarking the 

pieces.” Response to CHIR No. 4, question 4. The 

Postal Service notes that there has been a 91 percent 

decrease in the volume of Carrier Route letters since FY 

2009. Id. The Postal Service suggests that, due to the 

fact that Carrier Route Letter volume is disappearing, it 

may no longer compute separate unit delivery costs for 

Carrier Route letters because Carrier Route letters and 

Carrier Route flats pay the same rate. Id.

Commission Analysis

The Postal Service has given several reasons why the 

cost estimate is not reliable, including for example, 

mismarked pieces. Response to CHIR No. 4, question 

4. The Postal Service provides two scenarios that result 

in mismarked pieces: (1) mailers may pay the lower, 

less presorted, 5-Digit automation rate and retain the 

Carrier Route marking; or (2) letter pieces paying the 

flat rates, which are the same as the letter rates. Id.

The information provided by the Postal Service is 

helpful in understanding the reasons the estimate for 

the unit delivery cost for Carrier Route letters is not 

reliable and possible solutions to remedy the problem. 

The Commission understands that the Postal Service is 

encouraging the use of 5-Digit automation for letters 

and discouraging the use of Carrier Route letters.18

The Postal Service may elect to initiate a rulemaking 

with the Commission if it wishes to eliminate the 

Carrier Route letter rate category or aggregate Carrier 

Route letter cost data with Carrier Route flat data. 

Worksharing

In FY 2011, the worksharing passthroughs for 15 

Standard Mail discounts exceeded avoidable costs. 

Table VII–15 shows the passthroughs by shape for 

dropship Carrier Route, High Density, and Saturation 

categories. All of the passthroughs are less than 100 

percent.

Tables VII–16 and VII–17 show the passthroughs for 

the remaining products Letters, Flats, and NFMs/

Parcels. In its discussion of discounts that exceed 

avoidable costs, the Commission follows the order of 

18 See Docket No. R2011-2, United States Postal Service Notice of 

Market-Dominant Price Adjustment, January 13, 2011 at 18.

Table VII–14—FY 2010 High Density and Saturation Volume and Contribution by Shape

Flats Parcels Total

Volume 11,424,050,472 517,668 11,424,568,140 

Contribution $1,002,808,705 $(234,330) $1,002,574,375 

Source: PRC-ACR2011-LR3
122 2011 Annual compliance determination

Table VII–16 as closely as practicable. Accordingly, 

the Commission first discusses Letters, then Flats, and 

finally the NFMs and Parcels product. 

Letters

Four discounts for Standard Mail Letters exceeded 

avoidable cost in FY 2011: (1) non-automation 

AADC machineable letters, (2) non-automation ADC 

non-machinable letters, (3) non-automation 3-Digit 

non-machinable letters, and (4) non-automation 5-Digit 

non-machinable letters. The Postal Service has also 

made two modifications to its letter mail processing 

cost models that resolve previous anomalies, which 

are discussed first.

First, the Commission is unable to evaluate the presort 

discount for non-automation AADC machinable 

letters (see Table VII-16, note 1). In response to the 

Commission 2010 ACD the Postal Service filed 

Proposal Twelve19 to disaggregate the previously 

combined non-automation machinable AADC and 

mixed AADC categories. Proposal Twelve was not 

approved by the Commission until after the Postal 

Service filed its 2011 Annual Compliance Report. As 

a result, the avoidable costs for FY 2011 have not 

been modified to reflect the new methodology. For 

this reason, the discount is not evaluated in this ACD. 

However, the Commission appreciates the Postal 

Service’s compliance with the FY 2010 ACD request, 

and the relationship between the discount and its 

avoided cost will be evaluated in future ACDs.20

Second, in previous ACDs, the avoided cost estimate 

between automation and non-automation Mixed AADC 

machinable letters was negative.21 The Commission 

19 See Docket No. RM2012-1 20 In the Postal Service’s ACR it reports that this discount would have 

had a 69.6 percent passthrough in FY 2011. See USPS-FY11-3, 

FY11.3Alternate.Worksharing Discount Table_Final.xls. 21 See 2010 ACD at 110.

approved a modified version of Proposal Nine of 

Docket No. RM2011-5, which resulted in a positive 

estimate for this avoided cost. The estimated avoided 

cost for this discount is now positive at 1.7 cents, and 

the passthrough is under 100 percent. The Commission 

appreciates the Postal Service’s efforts to obtain a 

reasonable avoided cost estimate for the automation 

Mixed AADC machinable letters avoided cost.

The presort discounts for: (1) non-automation ADC 

non-machinable letters, 9.4 cents; (2) non-automation 

3-Digit non-machinable letters, 3.8 cents; and (3) 

non-automation 5-Digit non-machinable letters, 9.3 

cents, exceeded the estimated avoided cost in FY 

2011. In Docket No. R2011-2, the passthroughs 

for non-automation ADC non-machinable letters, 

and non-automation 5-Digit non-machinable letters 

were below 100 percent. In Docket No. R2012-3, 

the Postal Service proposed, and the Commission 

approved, discounts for these three presort levels that 

resulted in passthroughs below 100 percent. Due to 

timing, these discounts were still based on FY 2010 

avoided cost estimates. A decrease in avoided costs 

between FY 2010 and FY 2011 caused each of 

these passthroughs to exceed 100 percent. The Postal 

Service claims that each of these discounts is justified 

under section 3622(e)(2)(D). The Postal Service 

states,

It would be inefficient and unduly disruptive to 

our business and our customers’ businesses to 

immediately adjust prices to reflect new lower 

avoided costs. The inability of customers to 

rely on stability of prices between regularly 

scheduled price adjustments would significantly 

undermine the ability of the Postal Service to use 

prices to signal efficient behaviors.

Response to CHIR No.1, question 8. 
 POSTAL REGULATORY COMMISSION 123

However, the Postal Service does not explain how 

its operations would be impeded if rates would be 

adjusted to restore 100 percent passthroughs. As the 

Commission explained when it rejected use of this 

exemption in Docket No. R2008-1, the exception 

applies where there is a reasonable claim that 

“unusual operational circumstances” would cause 

a reduction of the discount to impede the efficient 

operation of the Postal Service.22

Section 3622(e) requires that workshare discounts not 

exceed avoided costs, or that they qualify for at least 

one of the exceptions in that section. The Commission 

finds that the discounts for non-automation ADC 

non-machinable letters, non-automation 3-Digit nonmachinable letters, and non-automation 5-Digit 

non-machinable letters are not justified by any of the 

22 Order No. 66, Docket No. R2008-1, Review of Postal Service 

Notice of Market Dominant Price Adjustments, March 17, 2008.

exceptions and that the appropriate action is for the 

Postal Service to align the discounts with avoided 

costs when it files its next general market dominant 

price adjustment. If, at that time, any of the discounts 

are subject to one of the exceptions in section 

3622(e), the Postal Service may present arguments to 

that effect.

Table VII–15—Standard Mail Carrier Route, High Density, and Saturation by Shape 

Workshare Discounts and Benchmarks

Type of Worksharing (Benchmark)

Year-end 

Discount 

(cents)

Unit Cost 

Avoidance 

(cents) Passthrough

Presorting (dollars/piece)

High Density Letters (Carrier Route Letters) 7.0 38.1 18.4%

High Density Flats (Carrier Route Flats) 4.5 5.8 77.6%

High Density Parcels (Carrier Route Parcels) 13.6 75.7 18.0%

DropShip (dollars/pound)

DNDC Letters (Origin Letters) 16.0 31.7 50.5%

DSCF Letters (Origin Letters) 20.8 37.7 55.2%

DNDC Flats (Origin Flats) 16.0 22.8 70.2%

DSCF Flats (Origin Flats) 20.8 26.4 78.8%

DDU Flats (Origin Flats) 25.0 30.4 82.2%

DNDC Parcels (Origin Parcels) 20.8 109.5 19.0%

DSCF Parcels (Origin Parcels) 44.5 134.4 33.1%

DDU Parcels (OriginParcels) 62.1 149.0 41.7%

Source: PRC-ACR2011-LR3
124 2011 Annual compliance determination

Table VII–16—Standard Mail Carrier Route, High Density, and Saturation by Shape 

Workshare Discounts and Benchmarks

Type of Worksharing (Benchmark)

Year-end 

Discount 

(cents)

Unit Cost 

Avoidance 

(cents) Passthrough

Standard Mail Letters

Standard Mail Automation Letters 

Presorting (dollars/piece)

Automation AADC Letters (Automation Mixed AADC Letters) 1.6 1.7 94.1%

Automation 3-Digit Letters (Automation AADC Letters) 0.2 0.3 66.7%

Automation 5-Digit Letters (Automation 3-Digit Letters) 1.8 1.9 94.7%

Pre-barcoding (dollars/piece)

Automation Mixed AADC Letters (Nonautomation Machinable Mixed ADC Letters) 0.3 1.8 16.7%

Standard Mail Nonautomation Letters 

Presorting (dollars/piece)

Nonautomation AADC Machinable Letters (Nonautomation Mixed AADC Machinable 

Letters) 1.7 - See Note1

Nonautomation ADC Nonmachinable Letters (Nonautomation Mixed ADC 

Nonmachinable Letters) 9.4 7.9 119.0%

Nonautomation 3-Digit Nonmachinable Letters (Nonautomation ADC Nonmachinable 

Letters) 3.8 2.5 152.0%

Nonautomation 5-Digit Nonmachinable Letters (Nonautomation 3-Digit Nonmachinable 

Letters) 9.3 7.6 122.4%

Standard Mail Flats

Standard Mail Automation Flats

Presorting (dollars/piece)

Automation ADC Flats (Automation Mixed ADC Flats) 1.0 1.0 100.0%

Automation 3-Digit Flats (Automation ADC Flats) 5.6 4.6 112.0%

Automation 5-Digit Flats (Automation 3-Digit Flats) 7.9 11.7 67.5%

Pre-barcoding (dollars/piece)

Automation Mixed ADC Flats 5.7 2.3 247.8%

(Nonautomation Mixed ADC Flats)

Standard Mail Flats--Nonautomation

Presorting (dollars/piece)

Nonautomation ADC Flats (Nonautomation Mixed ADC Flats) 3.3 5.0 66.0%

Nonautomation 3-Digit Flats (Nonautomation ADC Flats) 5.2 5.4 96.3%

Nonautomation 5-Digit Flats (Nonautomation 3-Digit Flats) 8.2 7.8 105.1%

1 Note: The Postal Service letters mail processing cost model only estimates costs for the combined non-automation machinable AADC 

and Mixed AADC categories.
 POSTAL REGULATORY COMMISSION 125

Table VII–17—Standard Mail Letters, Flats, and Parcels (Commercial and Nonprofit) 

Presorting/Pre-barcoding Workshare Discounts and Benchmarks

Type of Worksharing (Benchmark) Year-end Discount

(cents)

Unit Cost Avoidance 

(cents) Passthrough

Dropship

Standard Mail Letters

Drop Ship (dollars/pound)

DNDC Letters (Origin Letters) 16.0 31.7 50.5%

DSCF Letters (Origin Letters) 20.8 37.7 55.2%

Standard Mail Flats

Drop Ship (dollars/pound)

DNDC Flats (Origin Flats) 16.0 22.8 70.2%

DSCF Flats (Origin Flats) 20.8 26.4 78.8%

Standard Mail Machinable Parcels

Drop Ship (dollars/pound)

DNDC Machinable Parcels (Origin Machinable Parcels) 20.8 109.5 19.0%

DSCF Machinable Parcels (Origin Machinable Parcels) 44.5 134.4 33.1%

DDU Machinable Parcels (Origin Machinable Parcels) 62.1 149.0 41.7%

Standard Mail Irregular Parcels, NFMs

Drop Ship (dollars/pound)

DNDC Irregular Parcels, NFMs (Origin Irregular Parcels, NFMs) 20.8 109.5 19.0%

DSCF Irregular Parcels, NFMs (Origin Irregular Parcels, NFMs) 44.5 134.4 33.1%

DDU Irregular Parcels, NFMs (Origin Irregular Parcels, NFMs) 62.1 149.0 41.7%

Standard Mail Parcels

Presorting (dollars/piece)

NDC Machinable Parcels (Mixed NDC Machinable Parcels) 41.5 36.2 114.6%

5-Digit Machinable Parcels (NDC Machinable Parcels) 34.7 59.0 58.8%

NDC Irregular Parcels (Mixed NDC Irregular Parcels) 39.1 13.0 300.8%

SCF Irregular Parcels (NDC Irregular Parcels) 43.7 29.9 146.2%

5-Digit Irregular Parcels (SCF Irregular Parcels) 4.0 43.3 9.2%

Pre-barcoding (dollars/piece)2

Mixed NDC Machinable Barcoded Parcels3 

(Mixed NDC Machinable Nonbarcoded Parcels) 6.4 4.1 156.1%

Mixed NDC Irregular Barcoded Parcels3 

(Mixed NDC Irregular Nonbarcoded Parcels) 6.4 4.1 156.1%

Standard Mail NFMs

Presorting (dollars/piece)

NDC NFMs (Irregular Parcels) (Mixed NDC NFMs (Irregular Parcels)) 41.5 23.0 180.4%

SCF NFMs (Irregular Parcels) (NDC NFMs (Irregular Parcels)) 37.2 26.7 139.3%

5-Digit NFMs (Irregular Parcels) (SCF NFMs (Irregular Parcels)) 2.4 42.6 5.6%

Pre-barcoding (dollars/piece)2

Mixed NDC Barcoded NFMs3 (Mixed NDC Nonbarcoded NFMs) 6.4 4.1 156.1%

Source: PRC-ACR2011-LR3

2 The Postal Service charges a surcharge for nonbarcoded pieces. 3 The Postal Service Standard Mail NFM/Parcel mail processing cost model does not estimate costs separately for pre-barcoded and 

non-barcoded pieces. The Postal Service uses a pre-barcoding avoidable cost for BPM as a proxy. See Table VII–21 pre-barcoding 

workshare discounts.
126 2011 Annual compliance determination

Flats

Three discounts23 for Standard Mail Flats exceeded 

their avoided cost in FY 2011. Two presort discounts 

exceed avoided costs: automation 3-Digit flats, and 

5-Digit non-automation flats. In addition, the prebarcoding discount for automation mixed ADC flats 

exceeded its avoided costs.

In Docket No. R2011-2, both of the above presort 

discounts were set at or below their avoided cost. 

However, a decrease in avoided costs between FY 

2010 and FY 2011 caused these passthroughs to 

exceed 100 percent. In Docket No. R2012-3 the 

presort discounts were again set at or below their 

estimated FY 2010 avoided costs. The Postal Service 

claims that each of these discounts is justified under 

section 3622(e)(2)(D). The Postal Service asserts 

that immediately aligning discounts with avoided 

costs would be inefficient, both for the Postal Service 

and its customers, would reduce pricing stability for 

mailers, and would undermine the Postal Service’s 

ability to use efficient pricing signals. See Response to 

CHIR No.1, question 8. 

The Postal Service does not explain how its 

operations would be impeded if rates would be 

adjusted to restore 100 percent passthroughs. As the 

Commission explained when it rejected use of this 

exemption in Docket No. R2008-1, the exception 

applies where there is a reasonable claim on 

“unusual operational circumstances” that would cause 

23 In the Postal Service’s ACR it states that four discounts for Standard 

Mail Flats exceeded avoidable cost in FY 2011. However, the Postal 

Service included Proposal Eighteen, Modification 1 from Docket No. 

RM2012-2 in its Standard Mail Letters mail processing cost model. 

The Commission has not yet issued a Final Order regarding Docket 

No. RM2012-2. Therefore, the Commission has modified the Postal 

Service’s models to remove the impact of Proposal Eighteen. See PRCACR2011-LR8.

a reduction of the discount to impede the efficient 

operation of the Postal Service.24

Section 3622(e) requires that workshare discounts not 

exceed avoided costs, or that they qualify for at least 

one of the exceptions in that section. The Commission 

finds that the above-referenced presort discounts are 

not justified by any of the exceptions and that the 

appropriate action is for the Postal Service to align 

the discounts with avoided costs when it files its next 

general market dominant price adjustment. If, at that 

time, any of the discounts are subject to one of the 

exceptions in section 3622(e), the Postal Service may 

present arguments to that effect.

The Postal Service justifies the excessive prebarcoding discount for Automation Mixed ADC flats 

under section 3622(e)(2)(D). Postal Service Response 

to CHIR No. 1, question 8. The Postal Service states 

that the excessive discount is necessary to encourage 

pre-barcoding of flats as a way to support the 

implementation of the FSS program. However, the 

Postal Service notes its intention to phase this discount 

out over time. Id. The Commission finds this discount 

satisfies 39 U.S.C. 3622.

NFMs/Parcels

Eight worksharing discounts for Standard Mail 

NFMs/Parcels exceeded their avoided costs in FY 

2011. The following five presort discounts exceeded 

avoided costs: (1) NDC Machinable Parcels, 41.5 

cents, (2) NDC Irregular Parcels, 39.1 cents, (3) 

SCF Irregular Parcels, 43.7 cents, (4) NDC NFMs 

(Irregular Parcels), 41.5 cents, and (5) SCF NFMs 

(Irregular Parcels), 37.2 cents. In addition the 

following three pre-barcoding discounts exceeded 

their avoided costs: (1) Mixed NDC Machinable 

24 Order No. 66, Docket No. R2008-1, Review of Postal Service 

Notice of Market Dominant Price Adjustments, March 17, 2008.
 POSTAL REGULATORY COMMISSION 127

Barcoded Parcels, 6.4 cents, (2) Mixed NDC 

Irregular Barcoded Parcels, 6.4 cents, and (3) Mixed 

NDC Barcoded NFMs, 6.4 cents. 

In Docket No. R2011-2, the five excessive presort 

discounts and the three excessive pre-barcoding 

discounts all exceeded their estimated avoided 

costs. The Postal Service justified these excessive 

passthroughs based the need to phase in a pricing 

structure that aligns with the new avoided cost 

estimates.25 See Order No. 675 at 27. In Docket 

No. R2012-3 only NDC Machinable Parcels and 

SCF Irregular Parcels had passthroughs at or below 

100 percent. Due to a decrease in avoided cost 

estimates between FY 2010 and FY 2011, the 

passthroughs for NDC Machinable Parcels and SCF 

Irregular Parcels again exceeded their avoided costs.

The Postal Service justifies the five excessive presort 

discounts citing sections 3622(e)(2)(B) and 3622(e)

(2)(D). First, regarding the 3622(e)(2)(B) justification, 

the Postal Service explains that it will “attempt to 

reduce or eliminate these excess presort discounts in 

the next general price change, when it can do so 

without running the risk of rate shock.” See Response 

to CHIR No. 1, question 8. The Postal Service neither 

identifies the specific disounts it wishes to apply 

this justification to, nor quantifies the impact of any 

rate shock. See Response to CHIR No. 4, question 

3. Concerning the 3622(e)(2)(D) justification, the 

The Postal Service asserts that immediately aligning 

discounts with avoided costs would be inefficient, 

both for the Postal Service and its customers, would 

reduce pricing stability for mailers, and would 

undermine the Postal Service’s ability to use efficient 

25 In FY 2011, the Commission approved the use of a new cost model 

for Standard Mail Parcels and NFMs. See Order No. 658. The new 

model has changed the avoided cost estimates for NFMs and Parcels. 

ACR at 56. 

pricing signals. See Response to CHIR No.1, 

question 8. 

The Postal Service makes no claim to how its 

operations would be impeded if rates would be 

adjusted to restore 100 percent passthroughs. As the 

Commission explained when it rejected use of this 

exemption in Docket No. R2008-1, the exception 

applies where there is a reasonable claim on 

“unusual operational circumstances” that would cause 

a reduction of the discount to impede the efficient 

operation of the Postal Service.26

Section 3622(e) requires that workshare discounts not 

exceed avoided costs, or that they qualify for at least 

one of the exceptions in that section. The Commission 

finds that the above-referenced presort discounts are 

not justified by any of the exceptions and that the 

appropriate action is for the Postal Service to align 

the discounts with avoided costs when it files its next 

general market dominant price adjustment. If, at that 

time, any of the discounts are subject to one of the 

exceptions in section 3622(e), the Postal Service may 

present arguments to that effect.

The Postal Service applies a non-barcoded surcharge 

to all Standard Mail NFMs/Parcels that do not 

bear a correct routing barcode. The Postal Service 

Standard Mail NFMs/Parcel mail processing 

cost model now estimates costs separately for prebarcoded and non-barcoded pieces.27 The Postal 

Service reduced the Standard Mail Parcel nonbarcoded surcharge in Docket No. R2011-2 from 

7.0 cents to 6.4 cents. In Docket No. R2012-3 the 

Postal Service maintained the 6.4 cents discount. 

The Postal Service justified this discount in excess 

26 Order No. 66, Docket No. R2008-1, Review of Postal Service 

Notice of Market Dominant Price Adjustments, March 17, 2008. 27 See Docket No. RM2010-12, Proposal Seven.
128 2011 Annual compliance determination

of estimated avoided cost on the basis of efficient 

operations, citing section 3622(e)(2)(D). See

Response to CHIR No. 1, question 8. Specifically, 

the Postal Service cites its desire to “promote a totally 

pre-barcoded incoming parcel mailstream which 

would allow elimination of key stations at sorting 

facilities, and to facilitate implementation of electronic 

manifesting.” Id. The Commission finds that for FY 

2011, the pre-barcoding discounts for Standard Mail 

Parcels satisfy 39 U.S.C. 3622. 

Standard Nonprofit Mail

39 U.S.C. 3626(a)(6) requires nonprofit prices to 

be set in relation to their commercial counterparts 

regardless of nonprofits’ independent costs. In Docket 

No. R2011-2, Nonprofit prices were set to yield 

per-piece average revenues that were 60 percent of 

commercial per-piece average revenues at the class 

level. The Commission calculates that in FY 2011, 

the actual per-piece revenue from Standard Mail 

Nonprofit pieces was 56.38 percent of Standard 

Mail commercial per-piece revenue. 

The prices approved in Docket No. R2012-3 are 

expected to produce average per-piece revenue for 

Nonprofit mail equal to 60 percent of the average 

per-piece revenue for Commercial mail. No remedial 

action, therefore, is warranted. 

Standard Mail Incentive Programs

There were two Standard Mail Incentive programs 

in effect during FY 2011: (1) the Saturation Mail 

Incentive Program and (2) the Mobile Barcode 

Promotion Program. The Commission also received 

finalized data from the 2010 Standard Mail Volume 

Incentive Pricing Program in FY 2011. 

The Saturation Mail Incentive Program began on 

January 1, 2011 and ended on December 31, 

2011. The Postal Service has not yet provided 

finalized data for the incentive. 

The 2011 Mobile Barcode Promotion started on 

July 1, 2011 and ended on August 31, 2011. The 

intent of the promotion was to generate awareness of 

how mobile technology can be integrated into mail 

campaigns. The Postal Service gave a three percent 

discount to First-Class and Standard cards, letters, 

and flats that included a two-dimensional mobile 

barcode. The Postal Service gave $29 million in 

discounts for 4.5 billion Standard Mail pieces.

The 2010 Standard Mail Volume Incentive Program 

was designed to increase incremental Standard 

Mail volume and revenue during a typically low 

volume period. The 2010 Standard Mail Volume 

Incentive Program provided a 30 percent discount on 

incremental volume above a mailer specific volume 

threshold. In May 2011 the Postal Service filed the 

final portion of the 2010 Standard Mail Volume 

Incentive Program data.28 In Response to CHIR No. 

4, questions 15, 19 and 20 the Postal Service 

compiled the data filed with the Commission in its 

December 2010 and May 2011 data reports.29 The 

Postal Service’s data indicate that it gave $91 million 

in rebates for 4.3 billion Standard Mail pieces. The 

Postal Service’s data also indicates that there were 

$1.2 million in administrative costs associated with 

the 2010 Standard Mail Volume Incentive Program.

28 See Docket No. R2010-3 2010 Standard Mail Volume Incentive 

Program Final Data Collection Report, May 16, 2011. 29 See Responses of the United States Postal Service to Questions 15 

and 20 of Chairman’s Information Request No. 4, March 21, 2012. 

See also Responses of the United States Postal Service to Question 19 

of Chairman’s Information Request No. 4, March 16, 2012.
 POSTAL REGULATORY COMMISSION 129

It is the Commission’s intent to report on these 

incentive programs separately. The report (or reports 

as the case may be) will evaluate the initiatives 

to determine, among other things, their value and 

whether they fulfill their objectives.

Package Services

Introduction

The Package Services class consists of five products: 

(1) Single-Piece Parcel Post; (2) Bound Printed Matter 

(BPM) Flats; (3) Bound Printed Matter (BPM) Parcels; 

(4) Media Mail/Library Mail; and (5) Inbound 

Surface Parcel Post (at UPU rates).30 These products 

have common characteristics, such as: none are 

sealed against inspection; none receive preferential 

handling or transportation; and generally, each 

consists of parcels containing merchandise, although 

heavier catalogs and directories may also be mailed 

within the Package Services class. In FY 2011, 675 

million pieces were mailed as Package Services. This 

accounts for less than one-half of one percent of total 

domestic market dominant mail volume.

The principal FY 2011 findings for Package Services 

are:

 The attributable costs for the Package Services 

class, as a whole, exceeded revenues by $97.3 

million, resulting in a cost coverage of 94.3 

percent.

 Single-Piece Parcel Post revenues did not cover 

attributable costs by $88.2 million, resulting in a 

cost coverage of 89.3 percent.

 BPM Parcels revenues did not cover attributable 

costs by $3.9 million, resulting in a cost coverage 

30 The Inbound Surface Parcel Post (at UPU rates) product is discussed in 

the Market Dominant International Mail Section.

of 98.8 percent.

 Media Mail/Library Mail revenues did not cover 

attributable costs by $98.5 million, resulting in a 

cost coverage of 77.2 percent.

 Two worksharing discounts exceed avoidable 

costs, and thus did not satisfy 3622(e)(2).

 Media Mail/Library Mail prices complied with the 

preferred rate requirements identified in 3626(a)

(7).

Financial Analysis

Table VII–18 displays the FY 2011 financial 

performance for the Package Services class. Table 

VII–18 shows that the Package Services class had a 

cost coverage of 94.3 percent. Although the revenues 

for Package Services failed to cover attributable costs 

for the third consecutive year, the cost coverage for 

Package Services improved 5.0 percentage points 

over FY 2010. Figure VII–7 shows the continuation 

of unit contribution shifting from being slightly positive 

in FY 2007 and FY 2008, to slightly negative in FY 

2009, FY 2010, and FY 2011.

Figure VII–7—Package Services 

Financial Performance FY 2007– 2011

Cents

Fiscal Year

Unit Revenue Unit Cost Unit Contribution

-50

0

50

100

150

200

250

300

FY 2007 FY 2008 FY 2009 FY 2010 FY 2011
130 2011 Annual compliance determination

BPM Flats and Inbound Surface Parcel Post (at UPU 

rates) were the only Package Services products with 

revenues exceeding attributable costs in FY 2011. 

The remaining three products, Single-Piece Parcel Post, 

BPM Parcels, and Media Mail/Library Mail, had an 

overall negative contribution of $190.6 million.

Single-Piece Parcel Post 

The FY 2011 cost coverage for Single-Piece Parcel 

Post was 89.3 percent, a 7.1 percentage point 

increase from FY 2010. This is the fifth consecutive 

year that Single-Piece Parcel Post did not generate 

sufficient revenues to cover attributable costs. Unit 

attributable costs decreased by 50.1 cents and unit 

revenues increased by 41.9 cents, which led to an 

increase in the contribution per piece of 92.0 cents 

from FY 2010 to FY 2011. Despite this improvement, 

Single-Piece Parcel Post’s contribution remained 

negative. In FY 2011, Single-Piece Parcel Post’s 

contribution was negative $88.2 million. 

BPM Flats

For the third consecutive year, BPM Flats was the only 

domestic Package Services product that generated 

sufficient revenues to cover attributable costs. In FY 

2011, BPM Flats had a cost coverage of 163.6 

percent and contributed $79.7 million towards the 

Postal Service’s institutional cost. BPM Flat’s cost 

coverage improved 15.7 percentage points from FY 

2010.

BPM Parcels

In FY 2011, BPM Parcels had a net loss of $3.9 

million. The FY 2011 cost coverage for BPM 

Parcels was 98.8 percent, an increase of 6.4 

Table VII–18—FY 2011 

Volume, Revenue, Cost and Cost Coverage for Package Services

Package 

Services

Volume 

(000)

Total 

Revenue 

($000)

Attributable 

Cost 

($000)

Contribution 

to 

Institutional 

Cost 

($000)

Rev./Pc. 

(Cents)

Cost/Pc. 

(Cents)

Contribution 

to 

Institutional 

Cost/Pc. 

(Cents)

Cost 

Coverage

Single-Piece 

Parcel Post 70,217.810 732,901.429 821,118.831 (88,217.402) 1,043.754 1,169.388 (125.634) 89.3%

Inbound 

Surface Parcel 

Post (at UPU 

Rates)

1,017.314 24,250.499 10,725.437 13,525.062 2,383.777 1,054.290 1,329.487 226.1%

Bound Printed 

Matter Flats 251,831.376 205,155.956 125,416.932 79,739.024 81.466 49.802 31.664 163.6%

Bound Printed 

Matter Parcels 245,281.592 310,641.889 314,561.644 (3,919.755) 126.647 128.245 (1.598) 98.8%

Media and 

Library Mail 107,828.747 332,607.496 431,067.651 (98,460.155) 308.459 399.771 (91.312) 77.2%

Inbound NSA 

Mail Intl 13.695 29.827 1.674 28.153 

Total Package 

Services 675,173.220 1,605,587.096 1,702,892.170 (97,305.074) 237.804 252.216 (14.412) 94.3%

Source: PRC-ACR2011-NP-LR1
 POSTAL REGULATORY COMMISSION 131

percentage points compared with FY 2010. Despite 

the improvement in cost coverage, this is the third 

consecutive year that BPM Parcels did not generate 

sufficient revenues to cover attributable costs. 

Media Mail/Library Mail

In FY 2011, Media Mail/Library Mail are preferred 

categories and had a cost coverage of 77.2 percent, 

a 3.4 percentage point decrease from FY 2010. 

Media Mail/Library Mail had a net loss of $98.6 

million. This is the fifth consecutive year that Media 

Mail/Library Mail’s attributable costs exceeded its 

revenues. 

Media Mail/Library Mail’s volumes decreased by 

11.8 percent. In addition, its unit revenues decreased 

by 10.0 percent in FY 2011, and its unit attributable 

costs rose by 6.6 percent. As a result, Media Mail/

Library Mail incurred a larger loss, per piece, 

compared with FY 2010. As Figure VII–8 shows, 

the unit contribution for Media Mail/Library Mail 

continues to decline each fiscal year.

Comments

Comments were filed by the Public Representative. 

No other party filed comments concerning Package 

Services. The Public Representative states that recent 

price increases given to Package Services products 

in Docket Nos. R2011-2 and R2012-3 indicate 

that the Postal Service is working to alleviate low 

cost coverages in Package Services. The Public 

Representative suggests that the Postal Service should 

continue its efforts to bring Package Services to full 

cost coverage.

Commission Analysis

The Postal Service’s two most recent price adjustments 

indicate that the Postal Service is attempting to resolve 

the cost coverage issues for Single-Piece Parcel Post, 

BPM Parcels, and Media Mail/Library Mail within 

the constraints of the annual price cap limitation 

by proposing above average price increases.31

However, the Postal Service asserts that the price cap 

limitation strains its ability to improve Media Mail/

Library Mail cost coverage. Response to CHIR No. 

1, question 10. Nevertheless, the Postal Service 

contends that it will continue to increase Media Mail/

Library’s prices in order to help move the product 

towards full cost coverage.

In addition to proposing above average increases 

for loss-making Package Services products, the 

Postal Service implemented product actions that 

should help improve the cost coverage for BPM 

Parcels and Media Mail/Library Mail. Effective 

January 22, 2012, the Postal Service eliminated the 

31 See Docket No. R2011-2, Order Revising Postal Service Market 

Dominant Price Adjustments, February 16, 2011 (Order No. 675) 

and Docket No. R2012-3, Order on Price Adjustments for Market 

Dominant Products and Related Mail Classification Changes, 

November 22, 2011 (Order No. 987). The approved rate 

increases went into effect on April 17, 2011 and January 22, 2012, 

respectively.

Figure VII–8—Media Mail/Library Mail 

Financial Performance FY 2007 –2011

Cents

Fiscal Year

Unit Revenue Unit Cost Unit Contribution

-200

-100

0

100

200

300

400

500

FY 2007 FY 2008 FY 2009 FY 2010 FY 2011
132 2011 Annual compliance determination

three-cent barcoding discount for BPM Parcels and 

Media Mail/Library Mail. ld. The elimination of the 

barcoding discount should further increase revenues 

for BPM Parcels and Media Mail/Library Mail, 

improving each product’s cost coverages.

The Package Services class, as well as Single-Piece 

Parcel Post, BPM Parcels, and Media Mail/Library 

Mail, did not recover attributable costs or make a 

reasonable contribution to institutional costs. Although 

Package Services attributable costs continue to 

exceed revenues, the Commission finds that the cost 

coverages for each product, except for Media Mail/

Library Mail, improved over FY 2010. 

The Postal Service should continue to price SinglePiece Parcel Post, BPM Parcels, and Media Mail/

Library Mail in a way that moves each product to full 

cost coverage. In addition, for Media Mail/Library 

Mail, whose financial performance has not improved 

over the past five fiscal years, the Postal Service 

should explore opportunities to achieve efficiencies 

in handling this type of mail. The Commission directs 

the Postal Service to report on its efforts to improve 

Media Mail/Library Mail’s cost coverage in its FY 

2012 Annual Compliance Report.

Statutory Preferences

Section 3626(a)(7) requires Library Mail prices to 

be set at 95 percent of Media Mail prices. The 

Postal Service asserts that the current prices meet this 

requirement. ACR at 42. The Commission finds that 

for FY 2011, the prices for Media Mail/Library Mail 

complied with section 3626(a)(7).

Worksharing

Three Package Services products offered workshare 

discounts in FY 2011: Media Mail/Library Mail, 

BPM Flats, and BPM Parcels. 

Media Mail/Library Mail

There were six discounts offered for Media Mail/

Library Mail in FY 2011. All Media Mail/Library 

Mail workshare discounts were less than their 

respective avoided costs in FY 2011. Table VII–19 

shows the FY 2011 discounts, avoided costs, and 

passthroughs for Media Mail/Library Mail.32

32 While the basic presort discount did not exceed avoided costs in 

Table VII–19—Media/Library Mail 

Workshare Discounts and Benchmarks

Type of Worksharing 

(Benchmark)

FY 2011

YearEnd 

Discount 

(cents)

Unit Cost 

Avoidance 

(cents)

Passthrough1

Media Mail

Presorting (cents/piece)

Basic

(Single Piece) 39.00 47.00 83.0%

5-Digit

(Basic) 36.00 39.00 92.3%

Pre-barcoding (cents/piece)

Single Piece Barcoded 3.00 4.00 75.0%

Library Mail

Presorting (cents/piece)

Basic

 (Single Piece) 37.00 47.00 78.7%

5-Digit

 (Basic) 34.00 39.00 87.2%

Pre-barcoding (cents/piece)

Single Piece Barcoded 

(Single Piece Nonbarcoded)3.00 4.00 75.0%

Source: PRC-ACR2011-LR5

1 The calculated passthroughs are based on rounded unit 

avoidable costs.
 POSTAL REGULATORY COMMISSION 133

This is the first compliance review where the 5-Digit 

presort discount for Media Mail and Library Mail did 

not exceed avoided costs. Figure VII–9 shows the 

past disparity between the 5-Digit discount and the 

unit avoided cost for Media Mail/Library Mail. In its 

past four ACDs, the Commission recommended that 

the Postal Service continue moving towards alignment 

of the 5-Digit presort discounts with their avoided 

costs. The Commission commends the Postal Service’s 

efforts to ensure that the 5-Digit presort discounts did 

not exceed their avoided costs in FY 2011.

BPM Flats and BPM Parcels

In FY 2011, there were 15 discounts offered for BPM 

Flats and 15 discounts for BPM Parcels. Table VII–20 

and Table VII–21 show the FY 2011 discounts, 

avoided costs, and passthroughs for BPM Flats and 

BPM Parcels, respectively.

Only the Destination Network Delivery Center 

(DNDC) dropship discount for both BPM Flats and 

Parcels exceed avoidable costs.33 In Docket No. 

R2011-2, the Commission approved the Postal 

Service’s DNDC dropship discounts for both BPM 

Flats and BPM Parcels which reflected a 100 percent 

passthrough of avoidable costs. Since then, the unit 

FY 2011, the Commission notes this could change in the future. The 

Commission recently approved modifications to the Postal Service’s 

Media Mail/Library Mail mail processing cost model for FY 2012. 

See RM2012-1, Order Concerning Analytical Principles for Periodic 

Reporting (Proposals Nine Through Fifteen), Proposal 13, January 

20, 2012, (Order No. 1153). In its ACR filing, the Postal Service 

provided FY 2011 avoided cost estimates based on the updated 

mail processing cost model. On this basis, the avoided costs for basic 

presorting are less than the current basic presort discount approved 

in Docket No. R2012-3. See Library Reference USPS-FY11-3, Excel 

file ‘FY11.3Alternate.Worksharing Discount Table_Final.xls.’ The 

Commission encourages the Postal Service to adjust the basic presort 

discount as applicable to maintain compliance. 33 The Postal Service’s ACR reported three discounts exceeded avoided 

costs. However, the Commission determined that the passthrough 

for Destination Delivery Unit (DDU) dropshipped BPM Parcels was 

incorrectly calculated, and that the passthrough complied with 

3622(e). See Table VII–21.

avoidable costs for DNDC dropship BPM Flats and 

BPM Parcels decreased, resulting in the passthroughs 

increasing to 102.4 percent. The Postal Service plans 

to realign the discount in its next price adjustment. FY 

2011 ACR at 60.

In response to CHIR No. 1, question 12, the 

Postal Service explains that both discounts exceed 

100 percent of avoided cost because setting the 

discounts below 100 percent would impede the 

efficient operations of the Postal Service. Response to 

CHIR No. 1, question 12. Thus, the Postal Service 

claims the statutory exception in section 3622(e)(2)

(D) applies here. It further explains that during the 

previous two price adjustments, it attempted to reduce 

the passthroughs, but its efforts had to be balanced 

with competing interests, including “efforts to improve 

cost coverage and encourage dropshipping, the 

price cap size limitation, and the desire to keep the 

Figure VII–9—Media and Library Mail 

5-Digit Presort Avoided Cost and Discount

Cents

Fiscal Year

Media Mail Year-End Discount

Media and Library Mail 5-digit Avoided Cost

Library Mail Year-End Discount

10

15

20

25

30

35

40

45

50

55

2007 2008 2009 2010 2011
134 2011 Annual compliance determination

price adjustments uniform across all weights and 

zones.” ld. 

Commission Analysis

Section 3622(e)(2) requires the Commission to 

ensure workshare discounts do not exceed estimated 

avoided costs unless otherwise allowed by a statutory 

exception. To determine if workshare discounts 

comply with section 3622(e)(2), the Commission 

analyzes the passthroughs for each workshare 

discount. For FY 2011, Media Mail/Library Mail 

passthroughs complied with section 3622(e)(2). In 

addition, with the exception of the DNDC dropship 

discounts, the passthroughs for BPM Flats and BPM 

Parcels complied with section 3633(e)(2). 

With respect to the DNDC dropship discounts for 

BPM Flats and BPM Parcels, the Commission does 

Table VII–20—Bound Printed Matter Flats Workshare Discounts and Benchmarks

Type of Worksharing

(Benchmark)

FY 2011

Year-End 

Discount 

(cents)

Unit Cost 

Avoidance 

(cents)

Passthrough3

BPM Flats

Presorting (cents/piece)1

Basic Flats (Single Piece Flats) 32.6 See Note 1

Carrier Route Flats (Basic Flats) 9.8 15.3 64.1%

Presorting (cents/pound)1

Basic, Carrier Route Flats (Single Piece Flats) 3.0 4.0 75.0%

Zones 1 & 2 7.3 See Note1

Zone 3 8.7 See Note1

Zone4 8.5 See Note1

Zone 5 9.2 See Note1

Zone 6 9.4 See Note1

Zone 7 9.4 See Note1

Zone 8 10.5 See Note1

Pre-barcoding (cents/piece)2

Single Piece Automatable Flats (Single Piece Nonautomatable Flats) 3.0 See Note2

Basic, Automatable Flats Basic Nonautomatable Flats 3.0 See Note2

Carrier Route Automatable Flats (Carrier Route Nonautomatable Flats) 3.0 See Note2

Drop Ship (cents/piece)

Basic, Carrier Route DNDC Flats/IPPs Basic, Origin Flats) 17.4 17.0 102.4%

Basic, Carrier Route DNDC Flats (Basic, Origin Flats) 61.5 65.5 93.9%

Basic, Carrier Route DDU Flats (Basic, Origin Flats) 76.2 78.9 96.6%

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

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

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

Docket No R2006-1, USPS-T-38, p. 8. 2 Separate estimates of pre-barcoding cost savings are not available for BPM Flats. Based on the cost savings for BPM Parcels, the 

pre-barcoding discount for BPM Flats implies a passthrough of 73.2%.

3 The calculated passthroughs are based on rounded unit avoidable costs.
 POSTAL REGULATORY COMMISSION 135

not accept the Postal Service’s justification for the 

discounts’ excessive passthroughs. The Postal Service 

does not cite specific operations that would be 

impeded if the discounts were aligned with avoided 

costs. Thus, the Postal Service provides no plausible 

rationale justifying an exception under section 

3622(e)(2)(D). The Commission directs the Postal 

Service to align the DNDC dropship discounts with 

their avoided costs for BPM Flats and BPM Parcels at 

the Postal Service’s next price adjustment.

Table VII–21—Bound Printed Matter Parcels Workshare Discounts and Benchmarks

Type of Worksharing

(Benchmark)

FY 2011

Year-End 

Discount 

(cents)

Unit Cost 

Avoidance 

(cents)

Passthrough2

BPM Parcels/IPPs

Presorting(cents/piece)[1]

Basic Parcels(?? missing text) (Single Piece Parcels/IPPs) 56.9 See Note1

Carrier Route Parcels/IPPs (Single Piece Parcels/IPPs) 9.8 15.3 64.1%

Presorting(cents/pound)[1]

Basic, Carrier Route Parcels/IPPs (Single Piece Parcels/IPPs)

Zones 1 & 2 4.5 See Note1

Zone 3 4.4 See Note1

Zone 4 4.3 See Note1

Zone 5 3.7 See Note1

Zone 6 3.6 See Note1

Zone 7 2.2 See Note1

Zone 8 1.2 See Note1

Pre-barcoding(cents/piece)

Single Piece Barcoded Parcels/IPPs (Single Piece Nonbarcoded Parcels/IPPs) 3.0 4.1 73.2%

Basic Barcoded Parcels/IPPs (Single Piece Nonbarcoded Parcels/IPPs) 3.0 4.1 73.2%

Carrier Route Barcoded Parcels/IPPs (Single Piece Nonbarcoded Parcels/IPPs) 3.0 4.1 73.2%

Drop Ship(cents/piece)

Basic, Carrier Route DNDC Parcels/IPPs (Basic, Origin Parcels/IPPs) 17.4 17.0 102.4%

Basic, Carrier Route DSCF Parcels/IPPs (Basic, Origin Parcels/IPPs) 61.6 65.5 94.0%

Basic, Carrier Route DDU Parcels/IPPs (Basic, Origin Parcels/IPPs) 76.2 78.9 96.6%

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

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

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

Docket No R2006-1, USPS-T-38, p. 8. 2 The calculated passthroughs are based on rounded unit avoidable costs.
136 2011 Annual compliance determination

Special Services

Introduction

The Special Services class consists of 12 products. 

These products can be categorized as Ancillary 

Services, “stand-alone” Special Services, and 

International Special Services. Though it is comprised 

of several services, Ancillary Services is classified as 

a single product. The stand-alone Special Services 

are comprised of eight products. International Special 

Services consists of three products.

The principal FY 2011 findings for Special Services 

are:

 Special Services contributed $658.7 million 

toward institutional costs, the third highest 

contribution among all market dominant mail 

classes; and

 The attributable costs for Stamp Fulfillment Services 

exceed revenues.

Financial Analysis

In FY 2011, the Special Services class, including 

International mail services, earned $2.8 billion in 

revenue and incurred $2.1 billion in attributable 

cost.34 The Special Services class had an aggregate 

cost coverage of 130.8 percent. Table VII–22 

provides the financial information for each of the 

Special Services products. 

Ancillary Services

The Ancillary Services product is comprised of 22 

services that may only be used in conjunction with 

other mail services.35 In FY 2011, the Ancillary 

34 For a discussion of International Special Services, see the Market 

Dominant International section. 35 The domestic Ancillary Services product includes the following 

services: (1) Address Correction Service; (2) Applications and Mailing 

Permits; (3) Business Reply Mail; (4) Bulk Parcel Return Service; (5)

Certified Mail; (6) Certificate of Mailing; (7) Collect on Delivery; 

Services product earned $1.7 billion in revenue and 

incurred $1.3 billion in attributable cost. Ancillary 

Services contributed $324.2 million towards the 

institutional costs of the Postal Service and had a 

cost coverage of 124.2 percent. The Postal Service 

attributes revenue for some Ancillary Services to their 

host mail class as fee revenue. For those Ancillary 

Services, the revenue is not included in the calculation 

of the cost coverage for Ancillary Services.36

In FY 2011, Collect on Delivery (COD) revenues 

were $6.7 million and attributable costs were 

$4.4 million, resulting in COD contributing $2.3 

million towards institutional costs.37 The FY 2011 

cost coverage, of 152.7 percent, was a substantial 

increase of 73.6 percentage points above the FY 

2010 cost coverage. In FY 2011, the unit cost 

for COD declined 46.0 percent from the unit cost 

reported in FY 2010.38 Volumes declined 1.8 

percent, from 834,483 in FY 2010 to 819,400 in 

FY 2011. Figure VII–10 shows the declining volume 

trend for COD from FY 2001 to FY 2011.

In Docket No. R2011-2, the Commission approved 

the Postal Service’s request to raise COD average 

prices by 4.2 percent. Although COD volumes 

continued to decline in FY 2011, the rate increase 

enabled unit revenues to increase as unit costs 

(8) Delivery Confirmation; (9) Insurance; (10) Merchandise Return 

Service; (11) Parcel Airlift; (12) Registered Mail; (13) Return Receipt; 

(14) Return Receipt for Merchandise; (15) Restricted Delivery; (16) 

Shipper-Paid Forwarding; (17) Signature Confirmation; (18) Special 

Handling; (19) Stamped Envelopes; (20) Stamped Cards; (21) 

Premium Stamped Stationery; and (22) Premium Stamped Cards. 36 The services, for which the Postal Service attributes revenue to the 

underlying mail class as fee revenue, are: (1) Address Correction 

Services; (2) Applications and Mailing Permits; (3) Business Reply 

Mail; (4) Bulk Parcel Return Service; (5) Certificate of Mailing; (6) 

Merchandise Return Service; (7) Parcel Airlift; (8) Return Receipt 

for Merchandise; (9) Shipper Paid Forwarding; and (10) Special 

Handling. 37 2011 ACR at 42-43. 38 Id. at 42; 2010 ACD at 124.
 POSTAL REGULATORY COMMISSION 137

Table VII–22—Market Dominant Special Services 

Fiscal Year 2011 Volume, Cost, Revenue, and Cost Coverage by Product

Market 

Dominant 

Special 

Services

Units 

(000)

Total 

Revenue 

($000)

Attributable 

Cost 

($000)

Contribution 

to 

Institutional 

Cost 

($000)

Unit 

Revenue 

(Cents)

Unit Cost 

(Cents)

Contribution

to 

Institutional 

Unit Cost 

(Cents)

Cost 

Coverage

Domestic Special Services

Ancillary Services Product

Certified Mail 251,222.212 708,755.088 599,327.569 109,427.519 282.123 238.565 43.558 118.3%

Collect On 

Delivery 819.400 6,677.514 4,373.217 2,304.297 814.927 533.710 281.218 152.7%

Insurance 34,573.190 116,651.990 103,411.365 13,240.625 337.406 299.109 38.297 112.8%

Registered Mail 2,687.960 45,236.486 42,809.327 2,427.159 1,682.930 1,592.633 90.297 105.7%

Stamped Cards2 53,696.000 1,610.880 819.854 791.026 3.000 1.527 1.473 196.5%

Stamped 

Envelopes - 10,649.631 6,885.551 3,764.080 - - - 154.7%

Other Ancillary 

Services1 1,698,367.845 771,745.803 579,484.663 192,261.140 45.440 34.120 11.320 133.2%

Total Ancillary 

Services 2,041,366.607 1,661,327.392 1,337,111.546 324,215.846 83.582 67.270 16.311 124.2%

Stand-Alone Products

Address 

Management 

Services

 2,707.223 16,440.630 10,120.686 6,319.944 607.288 373.840 233.447 162.4%

Caller Service2 182.638 92,162.055 27,785.207 64,376.848 50,461.530 15,213.247 35,248.283 331.7%

Change of 

Address Credit 

Card Auth.3

 12,060.836 12,059.412 1,174.245 10,885.167 99.988 9.736 90.252 1027.0%

Confirm Service - 3,014.225 1,090.449 1,923.776 - - - 276.4%

Customized 

Postage - 900.000 50.000 850.000 - - - 1800.0%

Money Orders 115,510.031 172,696.294 123,438.493 49,257.802 149.508 106.864 42.644 139.9%

Post Office Box 

Service2 13,897.301 801,898.619 592,763.214 209,135.405 5,770.175 4,265.312 1,504.863 135.3%

Stamp Fulfillment 

Services4 2,711.459 3,126.445 5,238.523 (2,112.078) 115.305 193.199 (77.895) 59.7%

Total StandAlone Services 147,069.489 1,102,297.680 761,660.817 340,636.864 749.508 517.892 231.616 144.7%

Total Domestic 

Special Services 2,188,436.096 2,763,625.072 2,098,772.363 664,852.710 126.283 95.903 30.380 131.7%

International 

Special Services5 1,845.294 32,707.099 38,810.880 (6,103.781) 1,772.460 2,103.236 (330.776) 84.3%

Total Special 

Services 2,190,281.390 2,796,332.171 2,137,583.243 658,748.928 127.670 97.594 30.076 130.8%

1 The Postal Service includes USPS volumes for Return Receipts in its RPW volumes. Those volumes should not be included, in order 

to correctly report unit revenues, costs and contribution to institutional costs. The 2011 ACR did not isolate costs for Other Ancillary 

Services.

2 Volume from REV USPS-FY11-4, filename - FY 2011 PO Boxes.xls. 3 Id., filename — FY 2011 Special Services.xls. 4 Volume from Postal Service response to CHIR No. 1, question 17, filename — CHIR1.Q17.xls. 5 International Special Services are found in the International Mail section.
138 2011 Annual compliance determination

declined. As Figure VII–11 shows, the cost coverage 

for COD remains volatile. The COD unit revenue 

increased 245.4 cents (or 43.1 percent) between FY 

2001 and FY 2011.39

Due to the variability of COD cost estimates as well 

as the declining volume, in the FY 2010 ACD, the 

Commission recommended that the Postal Service 

consider using a moving average to calculate COD’s 

39 2011 ACR at 42; See also 2010 ACD at 125.

attributable costs, or investigate sampling alternatives. 

2010 ACD at 125. The Postal Service continued to 

calculate COD attributable costs as it has in the past. 

Stand-Alone Special Services

The eight products that comprise the stand-alone 

Special Services are Address Management Services, 

Caller Service and Reserve Number, Change of 

Address Credit Card Authorization, Confirm Service, 

Customized Postage, Money Orders, Post Office Box 

Figure VII–10—Collect On Delivery Volume and Trend FY 2001–2011

Thousands

0

500

1000

1500

2000

2500

3000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Fiscal Year

Volume Trend

Cents

0

200

400

600

800

1000

1200

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

Fiscal Year

Unit Revenue Unit Cost Cost Coverage

Figure VII–11 

Collect On Delivery Unit Revenue, Unit Cost, and Cost Coverage Comparison FY 2001–2011
 POSTAL REGULATORY COMMISSION 139

Service and Stamp Fulfillment Services. Only one 

product, Stamp Fulfillment Services, did not generate 

enough revenue to cover its attributable costs. Each of 

the other seven stand-alone Special Services products 

satisfied the applicable provisions of chapter 36 of 

title 39.

Address Management Services

The AMS consists of 34 services that enable bulk 

business mailers to better manage the quality of their 

mailing lists. The Commission added AMS to the 

market dominant product list in 2010.40 Accordingly, 

this is the second year that the Postal Service has 

identified the costs for the AMS product. In FY 

2011, AMS generated $16.4 million in revenue, 

a decline of 9.3 percent from FY 2010 revenue.41

AMS incurred $10.1 million in attributable costs in 

FY 2011, a decline of 53.2 percent from FY 2010 

costs. As a result, product cost coverage for FY 2011 

was 162.4 percent, 78.6 percentage points higher 

than the FY 2010 cost coverage. The Postal Service 

reports that it subsequently discovered that some of 

the cost elements submitted in the 2010 ACR were 

erroneously included.42 The Postal Service reported 

that approximately 63 percent of the revenue 

decline from FY 2010 to FY 2011 is attributable to 

exceptional non-recurring revenue received as a result 

of billing changes made to one of the addressing 

service vendors in FY 2010 as well as a nonrecurring settlement collection for a revenue assurance 

issue. The remaining revenue decrease was due to 

FY 2011 sales declines. The Postal Service reports 

40 Docket No. MC2009-19, Order No. 391, Order Approving 

Addition of Postal Services to the Mail Classification Schedule Product 

Lists, January 13, 2010. 41 In February 2011, the Commission approved an AMS product 

price increase of 1.69 percent. See Docket No. R2011-2, Order 

No. 675, Order Revising Postal Service Market Dominant Price 

Adjustments, February 16, 2011 at 53. 42 Postal Service Response to CHIR No. 1, question 20.

that it expects some improvement in revenues for its 

addressing products when the economy improves, 

however, the Postal Service does not expect a repeat 

of the exceptional revenue received in FY 2010.43

Caller Service

The Caller Service product is a premium service 

available to customers who require more than free 

carrier service or who receive mail in volumes greater 

than what can be delivered to the largest installed 

post office box at a postal facility. Customers who 

use this service pick up their mail at a post office call 

window or loading dock.

In FY 2011, Caller Service earned $92.2 million in 

revenue and incurred $27.8 million in attributable 

costs. The product contributed $64.4 million toward 

institutional costs and had a cost coverage of 331.7 

percent. 

Change-of-Address Credit Card Authentication

The Change-of-Address Credit Card Authentication 

product allows customers to file change-of-address 

requests online and over the telephone. The Postal 

Service charges a $1 fee to verify the customer’s 

identity and has an agreement with a credit card 

vendor to manage the Change-of-Address program. 

This is the third year that the CRA has isolated 

cost data for the Change of Address Credit Card 

Authentication product.

In FY 2011, the Postal Service processed 12.1 

million Internet and telephone Change-of-Address 

applications, collectively, generating $12.1 million 

in revenue and incurring $1.2 million in attributable 

costs.44 However, the Postal Service earned only 

a portion of this revenue as some revenue was 

43 Id. 44 Postal Service library reference USPS-FY11-1. See also, 2011 ACR at 

43.
140 2011 Annual compliance determination

retained by the credit card vendor.45 As a result, the 

Postal Service indicates that the cost coverage for 

the Change-of-Address Credit Card Authentication 

product does not equal the revenue divided by the 

attributable cost figure. Rather than provide revenue 

data, the Postal Service supplemented its filing by 

providing a non-public library reference that showed 

the actual revenue earned by the product (once the 

portion of the revenue paid to the third party vendor 

is removed) and the costs it incurred in FY 2011.46

Based on a review of the non-public library reference, 

the Commission finds that the revenues for Changeof-Address Credit Card Authentication covered its 

attributable costs in FY 2011. 

Change-of-Address Credit Card Authorization 

revenues and volumes are reported in the Public CRA 

and Billing Determinants. However, the revenues 

and volumes are not reported in the Postal Service’s 

Revenue, Pieces and Weight report (RPW).47 The 

Commission recommends that the Postal Service 

update the RPW to include the revenues and volumes 

for the Change of Address Authorization product.

Confirm

Confirm consists of four subscription tiers that allow 

business mailers to receive scan (tracking) data about 

mailpieces.48

In FY 2011, Confirm earned $3.0 million in revenue 

and incurred $1.1 million in costs. The product 

contributed $1.9 million towards institutional costs 

and had a cost coverage of 276.4 percent. From 

45 2011 ACR at 45. 46 See Library Reference USPS-FY11-NP26, Excel file, 

“COACreditCard2011.xls.” 47 2011 ACR at 8, Docket No. ACR2011, library reserve, USPSLR-11-4 and USPS-LR-11-1. 48 Mailers can subscribe to the Bronze, Gold, Silver and Platinum tiers 

and may purchase additional IDs which allow mailers to receive scan 

data for their clients.

FY 2010 to FY 2011, the cost coverage of Confirm 

service increased by 35.9 percentage points. In 

Docket No. R2012-3, the Postal Service reported 

that it intends to discontinue Confirm service once the 

subscriptions of existing customers expire.49 A similar 

service will become a feature of the mail classes that 

use an IMb containing a Mailer Identification (MID) 

code registered to receive scan data.50

Customized Postage

For a fee, the Customized Postage product authorizes 

vendors to produce stamps bearing customer-provided 

images or logos.51

In FY 2011, Customized Postage earned $900,000 

in revenue and incurred costs of $50,000. The 

product contributed $850,000 towards institutional 

costs and had a cost coverage of 1,800.0 percent. 

The revenues, attributable costs, and cost coverage 

for Customized Postage reported in the FY 2011 

ACR are identical to those reported in the FY 2010 

ACD.

52

Money Orders

The Money Order product enables customers to 

purchase an instrument for the payment of a specified 

sum of money. A customer may purchase a domestic 

postal Money Order up to a maximum value of 

$1,000.

In FY 2011, Money Orders generated $172.7 

million in revenue and incurred attributable costs 

of $123.4 million. Money Orders contributed 

$49.3 million towards institutional costs and had a 

cost coverage of 139.9 percent, a drop of a 5.1 

49 Docket No. R2012-3, United States Postal Service Notice of MarketDominant Price Adjustment, October 18, 2011, at 27. 50 Id. 51 2011 ACR at 46. 52 See 2010 ACD at 124; library reference PRC-ACR 2011-NP-LR1.
 POSTAL REGULATORY COMMISSION 141

percentage points from FY 2010.53 In FY 2011, 

Money Orders unit revenue increased by 0.7 

percent, however, the unit attributable cost for Money 

Orders increased 4.4 percent.

Post Office Boxes

The Post Office Box (P.O. Box) product enables 

customers to rent a locked receptacle and to receive 

mail during specified hours of access. P.O. Boxes are 

available in five different sizes and are assigned to 

one of eight Fee Groups (1-7 and E), seven of which 

are priced according to the market value of the postal 

facilities.54 The Fee Groups determine the price that 

a customer must pay to rent a P.O. Box. The most 

expensive P.O. Boxes are in Fee Group 1 and the 

least expensive P.O. Boxes are in Fee Group 7.

On July 29, 2011, the Commission approved the 

Postal Service’s request to transfer P.O. Box Service 

at approximately 6,800 locations from the market 

dominant product list to the competitive product list.55

The 6,800 P.O. Box locations were transferred to 

the competitive product list in January 2012, with 

new rates taking effect on January 22, 2012.56 In 

addition, the Postal Service added, to its competitive 

P.O. Box Service, rates for three-month P.O. Box 

rentals for each of the seven fee groups and for each 

of the five box sizes. 

53 2010 ACD at 124. See also library reference PRC-ACR2011-LR1. 54 Fee Group E is offered free-of-charge to customers where the Postal 

Service does not provide carrier delivery. 55 Docket No. MC2011-25, Order No. 780, Order Approving 

Request to Transfer Additional Post Office Box Service Locations to 

the Competitive Product List, July 29, 2011, at 1,14. Request of the 

United States Postal Service to Transfer Post Office Box Service in 

Selected Locations to the Competitive Product List at 1; and Postal 

Bulletin 22328 (1-12-12) 13. 56 Docket No. CP2012-2, Order No. 1062, Order Approving 

Changes in Rates of General Applicability for Competitive Products, 

December 21, 2011, at 1. Letter to the Hon. Shoshana M. Grove, 

December 29, 2011. The Postal Service did not request that any 

Group E boxes be transferred.

On June 9, 2011, the Commission approved the 

Postal Service’s request to treat the attributable costs 

for Group E P.O. Boxes as institutional rather than 

attributable to P.O. Box Service.57 The Postal Service 

indicates that the institutionalization of the costs of 

the Group E P.O. Boxes, plus a decline in facility 

related expenses such as depreciation, caused market 

dominant P.O. Box costs to decline from $674.9 

million in FY 2010 to $592.8 million in FY 2011.58

In FY 2011, P.O. Boxes generated $801.9 million 

in revenue and incurred $592.8 million in costs. 

The P.O. Boxes product contributed $209.1 million 

towards institutional costs and had a cost coverage of 

135.3 percent. 

Stamp Fulfillment Services

The Stamp Fulfillment Services product provides 

shipping and handling for all orders placed by 

mail, phone, fax, or online by customers to Stamp 

Fulfillment Services in Kansas City, Missouri.59 Orders 

mailed to domestic destinations are charged a 

$1.00 handling fee, plus an additional $2.00 for 

customized orders.60 Orders mailed to non-domestic 

destinations are charged a $6.00 handling fee, 

plus an additional $2.00 for customized orders. On 

January 22, 2012, Stamp Fulfillment Service rates 

increased. For orders mailed to domestic destinations, 

the handling fee increased to $1.25 for orders 

up to $50.00 and to $1.75 for orders greater 

than $50.00. For orders mailed to non-domestic 

destinations, the handling fee increased to $6.25 for 

57 Docket No. RM2011-9, Order Concerning Analytical Principles Used 

in Periodic Reporting (Proposal One), June 9, 2011 (Order No. 744) 

at 4. 58 ACR 2011 at 46. 59 The Stamp Fulfillment Services center handles orders for stamps and 

two nonpostal services: Philatelic sales and Officially Licensed Retail 

Products. 60 A custom order is a stamp order in a configuration other than those 

listed in the USPS Philatelic catalog.
142 2011 Annual compliance determination

orders up to $50.00 and to $6.75 for orders greater 

than $50.00. 61

In FY 2011, Stamp Fulfillment Services generated 

$3.1 million in revenue and incurred $5.2 million 

in attributable costs. Stamp Fulfillment contributed a 

negative $2.1 million toward the institutional costs 

of the Postal Service and had a cost coverage of 

59.7 percent, which is 6.6 percentage points higher 

than the FY 2010 cost coverage. However, the 

Postal Service indicated that by implementing large 

price increases (42.1 percent) for Stamp Fulfillment 

Services, on January 22, 2012, it expects significant 

improvements to the product’s cost coverage.62

As noted above, the CRA includes nonpostal 

philatelic sales revenue and costs with Stamp 

Fulfillment Services revenues and costs. The Postal 

Service indicated that its best estimate is that 

revenue from combined orders could be allocated 

90 percent to stamps, 5 percent to philatelic sales 

and 5 percent to combined orders while costs from 

combined orders could be allocated 80 percent to 

stamps,15 percent to philatelic sales and 5 percent 

to combined orders that include both Stamps and 

Philatelic items.63 Based on this estimate, FY 2011 

revenue for Stamp Fulfillment Services and Philatelic 

Sales products are $2,954,491 and $171,954 

respectively, and costs for Stamp Fulfillment Services 

and Philatelic Sales products are $4,400,360 

and $838,164, respectively.”64 Therefore, the 

Commission finds that Stamp Fulfillment Services 

failed to cover its attributable costs in FY 2011. 

However, given the relatively large rate increase that 

61 Docket No. R2012-3, library reference PRC-R2012-3-LR5. 62 Docket No. R2012-3, Order No. 987, Order on Price Adjustments 

for Market Dominant Products and Related mail Classification 

Changes, November 22, 2011, at 45. 63 Postal Service Response to CHIR 2, question 3. 64 Id.

the Postal Service implemented in January 2012, 

the Commission concludes that no further action is 

required.

In order for the RPW report to correctly identify all 

postal product revenue and volumes, the Commission 

recommends the Postal Service report revenues and 

volumes for Stamp Fulfillment Services in the FY 2012 

RPW. In addition, as the Commission’s FY 2010 

ACD noted, the revenue and costs associated with 

Philatelic sales should not be included with Stamp 

Fulfillment Services in the CRA.65 The Commission 

recommends the Postal Service report the revenues 

and costs for Stamp Fulfillment Services and Philatelic 

sales in the CRA.

Market Dominant 

International Products

Introduction

Market dominant international mail consists of six 

products: Outbound Single-Piece First-Class Mail 

International, Inbound Single-Piece First-Class Mail 

International (at UPU rates), Inbound Surface Parcel 

Post (at UPU rates), International Ancillary Services, 

International Reply Coupon Service, and International 

Business Reply Mail Service. 

The Postal Service establishes rates and fees of 

general applicability for Outbound Single-Piece FirstClass Mail International, outbound services within the 

International Ancillary Services product, International 

Reply Coupon Service, and International Business 

Reply Mail Service pursuant to the provisions of 

39 U.S.C. 3622.66 For Inbound Single-Piece First65 2010 ACD at 152. 66 Rates and fees of general applicability in effect during FY 2011 for 

market dominant international mail products were announced by 

the Postal Service in United States Postal Service Notice of Market 

Dominant Price Adjustment, Docket No. R2009-2, February 10, 
 POSTAL REGULATORY COMMISSION 143

Class Mail International, Inbound Surface Parcel 

Post (at UPU rates), and inbound services within the 

International Ancillary Services product, rates are 

determined by international agreement through the 

Universal Postal Union (UPU).67 The Postal Service also 

establishes rates and fees for inbound international 

mail through Negotiated Service Agreements with 

foreign postal operators. 

The principal findings for FY 2011 for market 

dominant international mail are:68

 Revenues exceeded attributable costs for market 

dominant international products, including 

Negotiated Service Agreements, by $184.3 

million—a decrease of 34.8 percent compared to 

FY 2010;

 Revenues exceeded attributable costs for 

the Outbound Single-Piece First-Class Mail 

International and Inbound Surface Parcel Post (at 

UPU rates) products by $209.6 million and $13.5 

million, respectively; 

 Revenues for Inbound Single-Piece First-Class Mail 

International did not cover attributable costs by 

$33.0 million; 

2009 (implemented May 11, 2009), and United States Postal 

Service Notice of Market Dominant Price Adjustment, Docket No. 

R2011-2, January 13, 2011 (implemented April 17, 2011. 67 The Universal Postal Union is a United Nations technical agency 

through which international treaties governing the exchange of 

international mail, including the rates, are negotiated among its 192 

members. The United States is a member of the UPU. 68 Unless stated otherwise, this section analyzes revenues and expenses 

for international mail products developed according to the “booked” 

accounting method. The use of booked revenues and expenses 

ensures that the Commission’s financial analyses are consistent with 

the Postal Service’s audited financial statements. The Postal Service 

also uses “imputed” revenues, reported in the FY 2011 ICRA, for 

purposes of analyzing inbound international mail. Imputed revenues 

differ from booked revenues reported in the Postal Service’s financial 

statements and the Revenue, Pieces and Weight (RPW) report, During 

FY 2010, the Postal Service implemented the Foreign Post Settlement 

(FPS) system, a new method for estimating revenue, pieces and 

weights for inbound international mail presented in the RPW and 

ICRA. The FPS system will replace both the booked and imputed 

methods.

 Revenues for International Ancillary Services did 

not exceed attributable costs by $6.1 million 

because Inbound Registered Mail service failed to 

cover attributable costs by $13.9 million.

 Revenues for inbound international products 

consisting of Negotiated Service Agreements 

exceeded attributable costs by $3.4 million.

The section below presents a financial analysis 

of market dominant international mail products 

featuring rates and fees of general applicability. It is 

followed by a discussion of the Quality of Service 

Link to Terminal Dues system and market dominant 

international products consisting of Negotiated 

Service Agreements.

Market Dominant International Products with 

Rates of General Applicability

Outbound Single-Piece First-Class Mail International 

(FCMI) and International Ancillary Services showed 

a decrease in contribution over FY 2010. Only 

Inbound Surface Parcel Post (at UPU rates) increased 

its contribution compared to FY 2010. For Inbound 

Single-Piece First-Class Mail (at UPU rates), revenues 

remained below attributable costs, although the loss 

in contribution was less than in FY 2010. Each of 

these products is discussed below. 

Outbound Single-Piece First-Class Mail International

Outbound Single-Piece First-Class Mail International 

is the largest source of market dominant international 

mail contribution, amounting to $209.6 million in 

FY 2011. The cost coverage was 147.8 percent. 

Compared to FY 2010, the contribution for Outbound 

Single-Piece First-Class Mail International decreased 

by 36.0 percent and the cost coverage decreased 

42.4 percentage points.
144 2011 Annual compliance determination

The decrease in Outbound Single-Piece First-Class 

Mail International contribution is largely caused by a 

decrease in contribution from Outbound Single-Piece 

FCMI to Canada. For the first time since enactment 

of the PAEA, outbound FCMI to Canada reported 

a loss in contribution during FY 2011. The Postal 

Service explains that decreases in transportation and 

non-transportation costs were offset by settlement 

costs which increased between FY 2010 and FY 

2011 under the booked methodology. Response 

to CHIR No. 1, question 37. This increase reflects 

“adjustments for overpayments of prior years’ 

provisional [settlement] payments” in FY 2010. Id. 

According to the Postal Service, these accounting 

adjustments resulted in a “lower FY 2010 base” 

and, by comparison, higher settlement costs in FY 

2011. Id. In contrast to the booked method, “there 

are no adjustments [for overpayments of provisional 

settlement payments] for prior years’ in the Imputed 

version of the ICRA.” Response to CHIR No. 3, 

question 6(e). 

Nevertheless, outbound FCMI to Canada under the 

imputed method also reported a loss in contribution 

during FY 2011. In response to an inquiry, the 

Postal Service states that under the imputed method 

Outbound Single-Piece First-Class Mail International 

as a whole provided positive contribution to the Postal 

Service of which the loss from outbound FCMI to 

Canada was a small portion.69 The Postal Service 

also states that prices for outbound FCMI to Canada 

were increased in FY 2011 and were designed to 

be compensatory over a full fiscal year. Id. However, 

FY 2011 prices were not in effect for the entire 

fiscal year. Id. Given the Postal Service’s flexibility to 

set rates for Outbound Single-Piece First-Class Mail 

69 Response to CHIR No. 4, question 8 (non-public).

International to Canada, the Commission finds the 

loss in contribution for such mail to be problematic. 

Inbound Single-Piece First-Class Mail International

Inbound Single-Piece First-Class Mail International 

consists of inbound “letterpost” sent from foreign 

postal operators for delivery in the U.S.70 Foreign 

postal operators remunerate the Postal Service for the 

delivery of inbound letterpost at UPU terminal dues 

rates or negotiated rates established in bilateral or 

multilateral agreements.

The Postal Service presents financial results for 

four products under the heading Inbound SinglePiece First-Class Mail International. One product is 

Inbound Single-Piece First-Class Mail International 

(at UPU rates), which consists of inbound letterpost 

subject to UPU terminal dues rates. The other three 

products consist of one or more Negotiated Service 

Agreements with foreign postal operators.71 These 

products feature negotiated rates for inbound 

letterpost from Canada and a number of other 

countries.

For FY 2011, attributable costs exceeded revenues 

for Inbound Single-Piece First-Class Mail International 

as a whole by $33.0 million.72 The resulting 

70 The term “letterpost” is the name given to international mail that is not 

classified as Parcel Post or Express Mail (EMS). Also known as LC/

AO mail (i.e., letters and cards, and all other, including flats and 

small packets), letterpost consists of mail similar to domestic First-Class 

Mail, Periodicals, Standard Mail, Bound Printed Matter, and Media/

Library Mail, weighing up to 4.4 pounds (2.0 kilograms). 71 The three products are 1) Canada Post United States Postal Service 

Contractual Bilateral Agreement for Inbound Market Dominant 

Services, 2) the Inbound Market Dominant Multi-Service Agreements 

with Foreign Postal Operators 1, and 3) Global Direct Entry with 

Foreign Postal Administrations. Although not listed on the market 

dominant product list, Global Direct Entry with Foreign Postal 

Administrations is treated as a product for purposes of this analysis. 72 The Commission relies on revenues presented in the RPW report, 

which are consistent with the Postal Service’s audited financial 

statements. In the RPW, the Postal Service reported revenues for 

Inbound Single-Piece First-Class Mail International that include 

revenues from the Inbound Single-Piece First-Class Mail International 

(at UPU rates) product and the other three products consisting of 
 POSTAL REGULATORY COMMISSION 145

cost coverage is 86.8 percent, an increase from 

79.4 percent in FY 2010. An analysis of Inbound 

Single-Piece First-Class Mail International (at UPU 

rates) follows. In the section titled Market Dominant 

International Products Consisting of Negotiated 

Service Agreements (below), a discussion of the other 

three products is presented.

The reported loss for Inbound Single-Piece First-Class 

Mail (at UPU rates) was $36.1 million for FY 2011.73

This represents a smaller negative contribution 

compared to FY 2010. The cost coverage also 

improved to 79.0 percent in FY 2011 from 77.3 

percent in FY 2010.

Despite the improvement in cost coverage, the 

Postal Service states that the “UPU per item and per 

kilogram terminal dues rates were . . . not based 

upon USPS costs” and, therefore, did not generate 

sufficient revenues to cover costs in FY 2011. FY 

2011 ACR at 18. In addition, terminal dues rates are 

set according to a formula that is renegotiated in the 

UPU once every four years. Thus, the Postal Service 

does not “independently determine [the] prices [paid 

by foreign postal operators] for delivering foreign 

origin mail” in the U.S. Id.

The Commission recognizes that the current 

formula used to derive terminal dues rates is noncompensatory for inbound letterpost entering the U.S. 

Moreover, the current UPU terminal dues rates will 

NSAs. By contrast, the costs reported for Inbound Single-Piece 

First-Class Mail International included only the costs of the Inbound 

Single-Piece First-Class Mail International (at UPU) product. In its 

financial analysis, the Commission adjusts the costs of Inbound SinglePiece First-Class Mail International in order to match costs with the 

revenues of the three inbound NSA products. See Library Reference 

PRC-ACR2011-NP-LR1 - FY 2011 Postal Service's Product Finances 

(Non-public), Excel file 11 Summary_NPLR1.xls. 73 Public Cost and Revenue Analysis, Fiscal Year 2011, Library 

Reference USPS-LR-FY11-1, Excel file FY11PublicCRA.xls, worksheet 

tab Cost1.

remain in effect through 2013, with modest annual 

increases. As a result, the current terminal dues 

rates will continue to adversely affect the financial 

performance of Inbound Single-Piece First-Class Mail 

International (at non-UPU rates) in the immediate 

future. 

During the past several years the United States has 

played an active role in the UPU seeking ways to 

develop a more compensatory terminal dues formula 

for inbound letterpost to be implemented in 2014. In 

this regard, the Commission has provided its views 

and technical expertise to assist the Department of 

State in assessing the financial impact of terminal 

dues proposals considered by the UPU. 

The Commission recommends that the Postal Service, 

in coordination with the Department of State, which 

has lead responsibility for formulating international 

postal policy, continue efforts to negotiate more 

compensatory terminal dues rates in the UPU 

Terminal Dues Group and pursue adoption of the 

most compensatory rates possible at the 2012 UPU 

Congress.

Pursuant to the UPU Convention, the Postal Service 

(or any postal administration) may negotiate bilateral 

(or multilateral) rate agreements with other postal 

operators as an alternative to the UPU terminal dues 

rates for some or all of its inbound letterpost. In this 

regard, the Postal Service negotiated terminal dues 

rates applicable to inbound letterpost in bilateral 

agreements concluded with Canada Post, Post NL 

(Netherlands), the China Post Group, and Hong Kong 

Post that were effective in FY 2011.74 In addition to 

74 See PRC Order No. 375, Order Concerning Bilateral Agreement 

with Canada Post for Inbound Market Dominant Services, Docket 

Nos. MC2010-12 and R2010-2, December 30, 2009; PRC Order 

No. 549, Order Adding Inbound Market Dominant Multi-Service 

Agreements with Foreign Postal Operators 1 to the Market Dominant 
146 2011 Annual compliance determination

these agreements, the Postal Service more recently 

concluded bilateral agreements with Singapore Post 

and Australia Post.75 These agreements, approved by 

the Commission, will be effective in FY 2012. 

The Commission commends the Postal Service for 

its successful negotiation of these two additional 

bilateral agreements. It also notes with favor the 

Postal Service’s “strategy for improving the total 

inbound cost coverage via bilateral agreements with 

some of its larger exchange partners in the upcoming 

calendar year.” 2011 ACR at 18. The Commission 

recommends that the Postal Service continue efforts 

to negotiate additional compensatory bilateral (or 

multilateral) agreements with foreign postal operators 

in the upcoming fiscal year, particularly with its largest 

exchange partners.

Inbound Surface Parcel Post (at UPU Rates)

During FY 2011, revenues from Inbound Surface 

Parcel Post (at UPU rates) exceeded attributable costs 

by $13.5 million, resulting in a cost coverage of 

226.1 percent. Both contribution and cost coverage 

for Inbound Surface Parcel Post (at UPU rates) 

increased compared to FY 2010. 

International Ancillary Services

For FY 2011, attributable costs exceeded revenues 

from International Ancillary Services by $6.1 

million, resulting in cost coverage of 84.3 percent.76

Product List and Approving Included Agreements, Docket Nos. 

MC2010-35, R2010-5 and R 2010-6, September 30, 2010; and, 

PRC Order No. 1058, Order Approving Request to Include Hong 

Kong Post Group Bilateral Agreement Within an Existing Market 

Dominant Product, Docket No. R2012-4, December 20, 2011. 75 See Notice of United States Postal Service of Type 2 Rate Adjustment, 

and Notice of Filing Functionally Equivalent Agreement, Docket No. 

R2012-1, October 14, 2011 (Singapore Post); see also Notice of 

United States Postal Service of Type 2 Rate Adjustment, and Notice 

of Filing Functionally Equivalent Agreement, Docket No. R2012-2, 

October 14, 2011 (Australia Post). 76 The International Ancillary Services product consists of the following 

special services: Certificate of Mailing, Registered Mail, Inbound 

This stands in marked contrast to FY 2010 when 

International Ancillary Services produced $1.5 million 

in contribution and cost coverage of 105.5 percent. 

The Postal Service states that the negative contribution 

for the International Ancillary Services product is “fully 

attributable to inbound registered mail.” 2011 ACR 

at 44. For FY 2011, Inbound Registered Mail costs 

exceeded revenues by $13.9 million—a significant 

increase compared to the loss of $6.2 million 

reported in FY 2010.

The increase in negative contribution of Inbound 

Registered Mail resulted from cost increases in 

customer service “finance numbers.” Response to 

CHIR No. 3, question 4(b). The Postal Service also 

cites changes in operating procedures and, as a 

result, the need to review “IOCS encirclement rules” 

used to assign operating costs to Inbound Registered 

Mail. Response to CHIR No. 1, question 35(b). The 

Postal Service cautions that such rules “should be 

updated before concluding that inbound Registered 

[Mail] does not cover costs.” Response to CHIR No. 

3, question 4(b). The Postal Service contemplates 

requesting “a rulemaking if a revision to the 

encirclement rules is deemed appropriate.” Response 

to CHIR No. 1, question 35(b). 

The Commission understands that revenues received 

by the Postal Service for handling Inbound Registered 

Mail are constrained by fixed rates of reimbursement 

established pursuant to the UPU Convention. These 

rates are renegotiated by UPU-member countries once 

every four years. In this regard, the Commission notes 

that the UPU is working to improve reimbursement 

rates for handling Inbound Registered Mail and that 

Registered Mail, Return Receipt, Inbound Return Receipt, Restricted 

Delivery, Inbound Restricted Delivery, and Customs Clearance and 

Delivery Fee (Inbound).
 POSTAL REGULATORY COMMISSION 147

a minimal increase was implemented by the UPU in 

2011. The Commission therefore recommends that 

the Postal Service work within the UPU to ensure a 

more compensatory increase in rates for Inbound 

Registered Mail during the 2012 UPU Congress.

International Reply Coupon Service and International 

Business Reply Mail Service

International Reply Coupon Service permits a mailer 

of outbound letterpost to prepay the postage for a 

reply by purchasing reply coupons from the Postal 

Service that are exchangeable for postage stamps by 

foreign postal operators located in member countries 

of the UPU. International Business Reply Mail Service 

allows a business mailer to include within its outbound 

mail envelops and cards that are deposited with and 

returned by foreign postal operators through the Postal 

Service to the business mailer in the U.S. without the 

prepayment of postage. Instead, postage and fees for 

these inbound envelops and cards (i.e., letterpost) are 

collected at delivery from the business mailer. 

For FY 2011, International Reply Coupon Service 

and International Business Reply Mail Service each 

generated $0.2 million in revenue. 2011 ACR at 45. 

However, the Postal Service states that the ICRA does 

not report costs for either service. Id. at 45-46. In the 

case of International Reply Coupon Service, cost data 

are not separately collected for this service. Response 

to CHIR No. 2, question 6(a). Rather, such cost data 

are included in the costs reported for Inbound SinglePiece First-Class Mail International, i.e., Inbound Air 

LC/AO. Id. Similarly, costs for International Business 

Reply Mail Service “are reported as part of the parent 

product, Inbound Air LC/AO.” Response to CHIR 

No. 2, question 6(b).

The Postal Service also observes that “costs 

associated with two IOCS tallies for [International 

Business Reply Mail Service] were incorrectly 

encircled to domestic Ancillary Other Services.” Id. 

Although the “impact is minimal,” the Postal Service 

“will propose a change to the [IOCS] encirclement 

methodology to correct this.” Id.

The Commission requests that the Postal Service report 

on the feasibility of providing separately reported 

costs for International Reply Coupon Service and 

International Business Reply Mail Service.

Quality of Service Link to Terminal Dues 

Revenues for the delivery inbound letterpost are 

derived from terminal dues payments. Under the 

UPU’s Quality Link Measurement System (QLMS), 

such payments are adjusted for the quality of service 

provided in the country of destination for inbound 

letterpost coming from other countries participating 

in the system. The UNEX system, managed by 

the International Post Corporation, measures the 

service performance of letterpost in the country of 

destination.77

As an incentive for participating in the system, the 

Postal Service receives an automatic 2.5 percent 

increase in its terminal dues payments from other 

participating postal operators. The Postal Service 

is also eligible for an additional 2.5 percent bonus 

payment if service performance achieves the UPUestablished annual performance target. For the 

Postal Service, the FY 2011 target was 88 percent 

for inbound letterpost delivered within the domestic 

77 Located in Brussels, Belgium, the International Post Corporation works 

on behalf of postal administrations to improve service quality, promote 

cooperation and interoperability, and provide intelligence about 

postal and related markets. For more information, see www.ipc.be.
148 2011 Annual compliance determination

overnight, two-day, and three-day service standards 

for First-Class Mail. 

As discussed above, terminal dues payments from 

UPU-member countries to the Postal Service for 

delivering inbound letterpost did not cover attributable 

costs during FY 2011. The Postal Service met the 

UPU quality of service target for calendar year 

2010,78 receiving a 2.5 percent bonus payment, 

and thereby generating a small amount of additional 

revenue for the first quarter (October-December 2010) 

of FY 2011.

Preliminary service performance scores for January 

through November 2011, however, generally show a 

notable decrease in the monthly on-time performance 

scores compared to the same monthly scores reported 

in FY 2010. This suggests that the Postal Service 

may not exceed the UPU quality of service target for 

calendar year 2011.

The Postal Service attributes this possible outcome 

to several factors. First, weather-related events in 

January, February and August 2011 adversely 

affected transportation and service performance. 

Response to CHIR No. 3, question 2. In its request 

to exclude test pieces used to measure service 

performance during these months due to force 

majeure,

79 the Postal Service reports that the UPU 

rejected all but a portion of the February 2011 

test pieces. Id. The Postal Service also cites the 

effect of a Canada Post labor strike during June 

2011 that caused Canada Post to enter, when 

operations resumed, “much larger volumes of mail” 

78 Response to CHIR No. 1, question 29(a)-(b) (non-public). 79 Force majeure, literally “greater force,” is often the name given to 

clauses in a contract or other agreement that excuse a party from 

performing its obligations under the contract as a result of some 

unforeseen event beyond the control of that party, such as war, natural 

disasters or other “Acts of God.”

with the Postal Service for processing and delivery 

“in a shorter period of time.” Id. In addition, the 

Postal Service relocated processing operations for 

inbound FCMI letters and flats from the New York JFK 

International Service Center to the Morgan Processing 

and Distribution Center in Manhattan, New York. 

Id. The Postal Service states such relocations, which 

involve changes in facility operation plans and 

employee reassignments and training, “often disrupt 

usual service performance for some period of time 

until the new conditions become routine.” Id. Finally, 

the Postal Service observes there are “some largevolume countries” that do not participate in the 

Quality Link Measurement System whose inbound 

volumes are nevertheless included in the service 

measurement results. According to the Postal Service, 

“these countries do not adhere to the mail preparation 

standards necessary to support achieving the targets 

for the quality link to terminal dues.” Id. 

Given the effect on service performance and terminal 

dues revenues, the Commission encourages the Postal 

Service to ensure that all inbound letterpost volumes 

meet the preparation requirements of, or otherwise 

seek means for excluding such volumes from inclusion 

in, the Quality Link Measurement System.

Market Dominant International Products 

Consisting of Negotiated Service Agreements

The Postal Service reports financial results for two 

Inbound International products that are comprised 

of Negotiated Service Agreements. The Canada 

Post United States Postal Service Contractual 

Bilateral Agreement for Inbound Market Dominant 

Services and the Inbound Market Dominant MultiService Agreements with Foreign Postal Operators 

1 products are included on the market dominant 
 POSTAL REGULATORY COMMISSION 149

product list. In addition, the Postal Service reports 

financial results for Global Direct Entry with Foreign 

Postal Administrations. Both Inbound International 

products and Global Direct Entry with Foreign Postal 

Administrations contain rates for inbound letterpost 

that are established through negotiated agreements 

with foreign postal operators as an alternative to UPU 

terminal dues rates. 

For FY 2011, collective revenues exceeded 

attributable costs of the Inbound International 

products and Global Direct Entry with Foreign 

Postal Administrations by $3.4 million and therefore 

provided contribution to the institutional costs of the 

Postal Service.80 Each is discussed below.

Canada Post United States Postal Service Contractual 

Bilateral Agreement for Inbound Market Dominant 

Services. Revenues from terminal dues rates 

negotiated through the bilateral agreement with 

Canada Post covered attributable costs during 

FY 2011. These financial results represent an 

improvement compared to FY 2010, when inbound 

letterpost from Canada did not cover attributable 

costs. Moreover, FY 2011 is the first year since 

enactment of the PAEA that revenues for inbound 

letterpost from Canada exceeded attributable costs. 

Inbound Market Dominant Multi-Service Agreements 

with Foreign Postal Operators 1. This Inbound 

International product is comprised of Negotiated 

Service Agreements with three foreign postal 

operators: China Post Group, Post NL (Netherlands), 

and Hong Kong Post. For FY 2011, revenues from 

terminal dues rates negotiated pursuant to these 

agreements collectively covered attributable costs. 

80 Public Cost and Revenue Analysis, Fiscal Year 2011, Library 

Reference USPS-LR-FY11-1, Excel file FY11PublicCRA.xls, worksheet 

tab Cost1.

However, revenues for inbound letterpost entered by 

Post NL did not cover attributable costs. Moreover, if 

inbound letterpost from Post NL had been entered at 

the UPU Target System terminal dues rates, the cost 

coverage would have been higher—albeit less than 

100 percent. 

In its request seeking Commission approval of the 

Post NL agreement, the Postal Service maintained 

that the negotiated rates established pursuant to 

this agreement would result in an improvement over 

the “default” UPU Target System rates that would 

otherwise be applicable to inbound letterpost from 

Post NL. The Postal Service explains that the cost 

coverage for the Post NL agreement did not exceed 

the cost coverage for inbound letterpost entered 

at UPU Target System rates because of an initial 

misestimate in the percentage of certain inbound 

letterpost items to be entered by Post NL.81 The 

Postal Service states that it has already taken steps 

to improve the cost coverage of inbound letterpost 

entered pursuant to the Post NL agreement. Id. 

Global Direct Entry with Foreign Postal 

Administrations. Global Direct Entry with Foreign 

Postal Administrations consists of “arrangements” with 

eight foreign postal operators. These arrangements 

permit the foreign postal operators to enter inbound 

letterpost bearing the indicia of the respective 

domestic mail classes directly with the Postal Service 

for delivery in the U.S. Such inbound letterpost 

is entered at negotiated rates. During FY 2011, 

inbound letterpost items entered pursuant to these 

arrangements were received from the postal operators 

of five countries: Belgium, France, Germany, 

Singapore, and Switzerland. Response to CHIR No. 

2, question 12.

81 Response to CHIR No. 4, question 5 (non-public).
150 2011 Annual compliance determination

The Postal Service notes that these largely “informal” 

arrangements predate Commission regulation of 

market dominant products pursuant to the PAEA.82

As a result, these arrangements are not included on 

the market dominant product list. The Postal Service 

also states that during FY 2011, efforts were made 

to update the arrangements, and consideration was 

given to “including some of the arrangements in 

broader bilateral agreements.” Response to CHIR 

No. 3, question 12. The Postal Service adds that 

it “plans to continue its efforts to formalize these 

arrangements in the coming fiscal year and request 

to add the resulting bilateral agreements to the Mail 

Classification Schedule.” Id. 

Based upon the FY 2011 financial results provided 

for the five foreign postal operators, revenues 

exceeded attributable costs for Global Direct Entry 

Contracts with Foreign Postal Administrations as a 

whole, thereby contributing to the institutional costs of 

the Postal Service. The Commission recommends that 

the Postal Service act promptly to add these bilateral 

agreements to the market dominant product list as 

part of the Mail Classification Schedule.

Market Tests

Three market dominant market tests were in effect 

during FY 2011: Alternate Postage Payment 

Method for Greeting Cards, Every Door Direct Mail 

(EDDM), and Mail Works Guarantee. Section 3641 

authorizes the Postal Service to conduct market tests of 

experimental products. A product may not be tested, 

however, unless it satisfies each of the following 

conditions:

82 Response to CHIR No. 3, question 12. The Postal Service states that, 

“Except for Deutsche Post DHL and Swiss Post, these arrangements 

were entered into informally.” Id.

1. the product is significantly different from all 

products offered by the Postal Service within 

the two-year period preceding the start of the 

test (section 3641(b)(1));

2. the product will not result in undue market 

disruption, especially for small business 

concerns (section 3641(b)(2)); and

3. the product is correctly characterized as 

either market dominant or competitive (section 

3641(b)(3)).

In addition, market tests of experimental products may 

not exceed 24 months (section 3641(d)), or annually 

exceed $10 million in revenue (section 3641(e)). The 

Commission may exempt a market test from the $10 

million revenue limitation for certain market tests up to 

a $50 million annual revenue limit (section 3641(e)

(2)).

None of the market dominant market tests in effect 

during FY 2011 exceeded 24 months in duration or 

exceeded the applicable statutory revenue limits.

Alternate Postage Payment Method for Greeting 

Cards. In Docket No. MT2011-1, the Commission 

authorized the Postal Service’s request to conduct a 

24-month market test for Alternate Postage Payment 

Method for Greeting Cards. This product enables 

individuals to mail greeting cards without affixing 

postage. The Commission also granted the Postal 

Service an exemption from the $10 million revenue 

limitation for this experimental market test.83

The Alternate Postage Payment Method for Greeting 

Cards market test began on or about January 1, 

2011. For FY 2011, the Postal Service reports a 

volume of 2,978,783 Greeting Cards sold using the 

83 Docket No. MT2011-1, Order No. 617, Order Approving Market 

Test of Alternate Postage Payment Method for Greeting Cards, 

December 21, 2010. There is a $50 million annual limitation.
 POSTAL REGULATORY COMMISSION 151

Alternate Postage Payment Method. The total revenue 

for Alternate Postage Payment Method in FY 2011 

was $1,420,358. For FY 2011, the Postal Service 

reported $773,297 in information technology cost. 

Every Door Direct Mail (EDDM). In Docket No. 

MT2011-3, the Commission approved the EDDM 

market test on March 1, 2011.84 EDDM is restricted 

to locally-entered and locally-paid mail and must be 

delivered to every household on a delivery route. 

Participants are limited to sending 5,000 pieces 

per post office, per day. In order to make mail 

more accessible to small and medium businesses, 

the market test does not require a mailer to acquire 

a permit or pay mailing fees. The market test also 

institutes simplified qualification and preparations 

requirements. Pieces are priced using the Standard 

Mail Commercial Saturation Flats pricing schedules.

In FY 2011, the Postal Service reports that the 

revenue for the market test was $5.0 million and the 

attributable cost was $2.3 million, resulting in $2.7 

million in contribution to institutional costs. The Postal 

Service also reports that 35 million pieces were sent 

under the EDDM market test. In Order No. 1164, the 

Commission granted the Postal Service an exception 

for the $10 million limitation. There is a $50 million 

annual limitation.

Mail Works Guarantee. In Docket No. MT2011-

4, the Commission authorized the Mail Works 

Guarantee market test on May 15, 201185. 

For this market test, the Postal Service and each 

participant jointly develop a unique set of metrics 

to measure the effectiveness of a particular direct 

mail campaign. The Postal Service plans to provide 

assistance to the mailer in developing its direct mail 

84 See Order No. 675. 85 See Order No. 730.

and in benchmarking and measuring the test metric. 

To safeguard participants, the Postal Service offers 

a postage back guarantee up to $250,000 per 

participant if a campaign fails to achieve the preestablished metric, as verified by the Postal Service. 

The market test began on June 14, 2011. In FY 

2011, no customers committed to using the mail 

in a way that would qualify for the Mail Works 

Guarantee. The Postal Service states that it is actively 

working with potential customers, and expects that 

some customers will begin participating in the market 

test soon. 

Market Dominant Negotiated 

Service Agreements

In FY 2011, the Postal Service had three market 

dominant negotiated service agreements (NSAs) 

in effect. These agreements offer specific mailers 

discounts (rebates) designed to encourage higher 

mail volumes. The NSAs with Bradford Group (Docket 

No. MC2007-4) and Lifeline (Docket No. MC2007-

5) were in the final year of 3-year agreements. 

The Postal Service implemented an agreement with 

Discover (Docket No. R2011-2) during FY 2011. 

The Commission reviews market dominant NSAs on 

contract years, so next year’s ACD will mark the first 

review for the Discover NSA.

The Postal Service did not provide any discounts to 

Lifeline pursuant to its NSA in FY 2011 because its 

volume did not exceed the discount threshold.

The Bradford Group mailed 179 million pieces in 

contract year 3, roughly 15 million fewer pieces 

than the before-rates volume of 194 million pieces 

as forecasted by the Postal Service in Docket No. 

MC2007-4. However, the Bradford Group mailed 
152 2011 Annual compliance determination

65.7 million Standard Mail Flats, nearly 9 million 

pieces above the discount threshold for Flats. The 

Bradford group received discounts of $114,000 in 

contract year 3 on nearly 9 million pieces above the 

discount threshold. 

To assess performance under an agreement, the 

Commission uses the accepted methodology which 

incorporates contract year after-rates volume, the 

marginal discount earned, and the Standard Regular 

and ECR own-price elasticities.86 In the second year 

of its 3-year agreement, the Bradford Group received 

$114,000 in rebates on over 9 million pieces. The 

Commission’s analysis shows that roughly 3.5 million 

incremental pieces can be attributed to the rebates.87

This implies rebates were paid on 5.2 million pieces 

that would have been sent without the incentive. In 

contract year three, the rebated mail pieces sent by 

the Bradford Group were a mix of Standard Mail 

Flats and Carrier Route Flats. The Standard Mail 

Flats sent by Bradford had an average contribution 

of negative 11.4 cents per piece, while the Carrier 

Route Flats had an average contribution of 6.3 cents 

per piece. Due to the negative per piece contribution 

from Standard Mail Flats, the mail mix of incentivized 

pieces had an average contribution of 2.2 cents per 

piece, before the discount. With the discount, the 

average contribution was 0.9 cents per piece. Due 

to the low contribution per piece of Standard Mail 

Flats, the net benefit to the Postal Service of the NSA 

86 The Postal Service’s estimates reflect subclasses, rather than products, 

that were used prior to the PAEA. Standard Regular includes the 

following commercial Standard Mail products: Letters. Flats, and 

NFMs/Parcels. ECR refers to Enhanced Carrier Route. It includes 

the following commercial products: Carrier Route, High Density and 

Saturation Letters, and High Density and Saturation Flats and Parcels. 87 The accepted methodology was developed in Docket No. MC2004-

3. The 2011 Standard Mail Regular elasticity is -0.355 and the 

Carrier Route elasticity is -0.782, as provided in the attachment to the 

January 20, 2012 letter from Andrew German.

with Bradford Group in contract year 3 was negative 

$37,389.

Table VII–23 contains a summary of the net effect on 

the contribution to institutional costs from these two 

agreements.

Section 3622(c)(10) of title 39 encourages special 

classifications that improve the net financial position 

of the Postal Service or improve operational 

performance, while not causing competitive harm. 

The Bradford Group NSA is estimated to have had a 

minor negative effect on the net financial position of 

the Postal Service in FY 2011. The 3-year agreement 

with the Bradford Group, as a whole, also had a 

minor negative effect on the finances of the Postal 

Service.

The Commission finds the Bradford Group market 

dominant NSA was not consistent with 39 

U.S.C.3622(c)(10) in FY 2011. However, as the 

agreement has concluded, there is no need for 

remedial action.

Table VII–23—FY 2011 Summary of NSA Net 

Effect on Contribution 

($ in Thousands) 

FY 2009 FY 2010 FY 2011 Total

Lifeline 25 104 0 129

Bradford 93 -72 -37 -16

Total 118 32 -37 113
 POSTAL REGULATORY COMMISSION 153

Chapter VIII

Competitive Products

Introduction

In this chapter, the Commission reviews competitive mail products, including competitive negotiated service 

agreements, to determine whether any rates or fees in effect during FY 2011 were not in compliance with 

applicable provisions of chapter 36 of title 39. The Commission’s review is guided by section 3633(a) of title 

39, which sets forth the legal standards applicable to rates for competitive products. Section 3633(a) directs 

the Commission to promulgate regulations to:

 Prohibit subsidization of competitive by market dominant products — section 3633(a)(1);

 Ensure that each competitive product covers its attributable costs — section 3633(a)(2); and

 Ensure that, collectively, competitive products cover an appropriate share of the Postal Service’s institutional 

costs — section 3633(a)(3).

The Commission also includes an analysis of Competitive Market Tests and the Competitive Products Fund at 

the end of this Chapter.

The principal FY 2011 findings for competitive products are:

 Revenues for competitive products, as a whole, exceeded the incremental costs of competitive products. 

Thus, market dominant products did not subsidize competitive products during FY 2011, satisfying section 

3633(a)(1).

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

section 3633(a)(2): Global Plus 2A contracts, Inbound International Expedited Services and International 

Money Transfer Services-Inbound. The Commission orders the Postal Service to take corrective action.
154 2011 Annual compliance determination

 Competitive products, collectively, contributed 7.8 

percent towards the Postal Service’s institutional 

costs, which exceeded the 5.5 percent regulatory 

requirement. As a result, competitive products 

complied with section 3633(a)(3) during FY 

2011.

The list of competitive products for FY 2011 is shown 

in Table VIII–1.

Table VIII–2 contains FY 2011 revenue, cost, and 

volume for several groupings of competitive products. 

Table VIII–2 shows the Commission’s audited FY 2011 

figures.

Although volume for competitive products, as a 

whole, grew by 3.8 percent in FY 2011, revenue 

and contribution shrunk, with aggregate contribution 

decreasing from $2.4 billion in FY 2010 to 

$2.3 billion in FY 2011. Similarly, cost coverage 

decreased from 138.7 percent in FY 2010 to 134.6 

percent in FY 2011.

Figure VII–1 shows contribution for the last five years 

for selected groupings of competitive products. 

Priority Mail continues to be the contribution leader 

for competitive products, generating almost $1.2 

billion in contribution. Across all products, market 

dominant and competitive, Priority Mail ranks fourth 

in contribution behind First-Class Single-Piece Letters, 

First-Class Presort Letters, and Standard Mail Letters.

Competitive international mail continues to do well. 

Although volumes for competitive international mail 

decreased by 9.2 million pieces in FY 2011, or 3.5 

percent, contribution increased from $513 million to 

$569 million. The increase in contribution is due to 

the success of NSAs. Within competitive products, 

international mail’s contribution ranks second. This is 

the third year in a row that contribution has increased. 

Cross-Subsidy Provision: 

3633(a)(1)

The incremental costs of the competitive products are 

used to test whether revenues from market dominant 

products cross-subsidize competitive products. In 

Order No. 399, the Commission approved the Postal 

Service’s hybrid incremental cost methodology. Under 

this methodology, the Postal Service aggregates 

the following three cost categories: (1) incremental 

Table VIII–1—FY 2011 Competitive Domestic 

and International Products

Domestic

Express Mail

Priority Mail

Parcel Select 

Parcel Return Service

Address Enhancement Service

Competitive Ancillary Services

Greeting Cards and Stationery

Premium Forwarding Service

Post Office Box Service

Shipping and Mailing Supplies

Domestic Competitive NSA Products1

International

Outbound International Expedited Services

Outbound Priority Mail International

Inbound Air Parcel Post (at UPU rates)

International Priority Airlift (IPA)

International Surface Airlift (ISAL)

International Direct Sacks M-Bags

International Ancillary Services

International Money Transfer Service - Inbound

International Money Transfer Service - Outbound

International Competitive NSA Products2

1 See Library Reference, USPS-FY2011-NP27 for a complete list of FY 

2011 Domestic Competitive NSAs.

2 See Library Reference, USPS-FY2011-NP2 for a complete list of FY 

2011 International Competitive NSAs.
 POSTAL REGULATORY COMMISSION 155

Figure VIII–1—Competitive Products 

Five Year Contribution by Selected Product Groupings

$ Millions

Fiscal Year

0

200

400

600

800

1000

1200

1400

1600

FY 2007 FY 2008 FY 2009 FY 2010 FY 2011

Express Mail

Parcel Select and Parcel Return Service

Competitive Services

Competitive International Mail

Priority Mail

Table VIII–2—Fiscal Year 2011 Volume, Revenue, Cost and Cost Coverage 

Selected Competitive Products and Competitive Product Groupings

Competitive 

Products

Volume 

(000)

Revenue 

($000)

Attributable 

Cost 

($000)

Contribution 

to Institutional 

Cost ($000)

Rev./Pc-. 

(Cents)

Cost/Pc. 

(Cents)

Contribution 

to 

Institutional 

Cost/Pc. 

(Cents)

Cost 

Coverage

Express Mail 40,491.995 799,500.058 479,432.267 320,067.791 1,974.464 1,184.017 790.447 166.8%

Priority Mail 790,633.182 5,638,962.796 4,469,853.934 1,169,108.862 713.221 565.351 147.870 126.2%

Parcel 

Select and 

Parcel Return 

Service

380,834.112 718,401.893 516,545.208 201,856.685 188.639 135.635 53.004 139.1%

Competitive 

International 

Mail

261,536.498 1,674,743.437 1,105,964.592 568,778.845 640.348 422.872 217.476 151.4%

Competitive 

Domestic 

Services1

83,437.960 146,646.327 101,732.142 44,914.185 175.755 121.925 53.829 144.1%

Competitive 

International 

Services2

2,021.239 11,687.784 6,476.146 5,211.638 578.248 320.405 257.844 180.5%

Total 

Competitive 

Mail and 

Services

1,473,495.787 8,989,942.295 6,680,004.289 2,309,938.006 610.110 453.344 156.766 134.6%

1 Competitive Domestic Services include the following six products: Address Enhancement Service; Competitive Ancillary Services; Greeting Cards 

and Stationery; Post Office Box Service; Premium Forwarding Service; and Shipping and Mailing Supplies. 2 Competitive International Services include the following three products: International Ancillary Services; International Money Transfer Service - 

Inbound; and International Money Transfer Service-Outbound. 
156 2011 Annual compliance determination

costs for domestic competitive mail; (2) attributable 

costs for international competitive products;1 and (3) 

competitive group-specific costs. 

For FY 2011, the hybrid incremental cost 

methodology produced an incremental cost for 

competitive products of $6.8 billion. The total 

revenues for competitive products in FY 2011 were 

$9.0 billion. See Table VIII–2. Accordingly, revenues 

from competitive products exceed the FY 2011 hybrid 

incremental costs. Consequently, the Commission 

finds that revenues from market dominant products did 

not subsidize competitive products, satisfying section 

3633(a)(1).

Product Cost Coverage 

Provision: 3633(a)(2)

Section 3633(a)(2) requires the revenues for each 

competitive product to cover attributable costs. 

Below, the Commission separately discusses the 

FY 2011 financial performance for the following: 

domestic competitive products; domestic competitive 

Negotiated Services Agreements; international 

competitive products; and international competitive 

Negotiated Services Agreements.

Domestic Competitive Products 

In FY 2011, there were 10 domestic products 

featuring rates and fees of general applicability. Those 

products are: (1) Express Mail; (2) Priority Mail; (3) 

Parcel Select; (4) Parcel Return Service; (5) Address 

Enhancement Service; (6) Competitive Ancillary 

Service;2 (7) Greeting Cards and Stationery; (8) 

1 See Order Accepting Analytical Principles Used in Periodic Reporting 

(Proposals Twenty-Two through Twenty-Five), January 27, 2010, 

Proposal Twenty-Two (Order No. 399). Order No. 399 established 

that in lieu of incremental costs, international competitive mail would 

use attributable costs because incremental costs are not available for 

international products. 2 Competitive Ancillary Services was the only new competitive product 

offered in FY 2011. See Docket Nos. MC2011-23 and CP2011-

62, Order Approving Request to Add New Product to the Competitive 

Product List, March 28, 2011 (Order No. 703).

Premium Forwarding Service; (9) Post Office Box 

Service; and (10) Shipping and Mailing Supplies.

In FY 2011, each domestic competitive product 

generated sufficient revenue to cover attributable costs. 

Collectively, domestic competitive products generated 

$7.3 billion in revenue, and incurred $5.6 billion in 

cost. Thus, domestic competitive products contributed 

$1.7 billion towards the Postal Service’s institutional 

costs. The Commission finds that all domestic 

competitive products complied with 3633(a)(2).

Domestic Competitive Negotiated Service 

Agreements

For FY 2011, the Postal Service provided total 

volume, revenue and cost data on each Domestic 

Competitive Negotiated Service Agreement (NSA) 

that was in effect during the fiscal year. Commission 

rule 3050.21(g)(2) requires the Postal Service to file 

data with the Commission to evaluate each NSA 

for compliance with section 3633. See 39 CFR 

3050.21(g)(2). FY 2011 marks the first year that the 

Postal Service provided NSA data sufficient to allow 

the Commission to evaluate each agreement.3

Pursuant to section 3633(a)(2), each NSA product 

must cover its attributable costs. There were 45 

domestic competitive NSA products in effect and 

active during FY 2011. The Commission has 

determined that each NSA covered its attributable 

costs and complied with the statutory requirements of 

section 3633(a)(2).

3 The Commission commends the Postal Service for collecting and 

providing agreement-specific volume information for FY 2011. 

However, due to pricing changes throughout the year, the agreementspecific revenue data can be improved in future years by collecting 

volume data for each pricing period.
 POSTAL REGULATORY COMMISSION 157

International Competitive Products 

Competitive International mail consists of nine 

products featuring rates and fees of general 

applicability.4 These products are: Outbound 

International Expedited Services, Outbound Priority 

Mail International, Inbound Air Parcel Post (at UPU 

rates), International Priority Airmail (IPA), International 

Surface Airlift (ISAL), International Direct SacksM-Bags, International Money Transfer Service — 

Outbound, International Money Transfer Service — 

Inbound, and International Ancillary Services

For FY 2011, revenues for competitive International 

mail products with rates of general applicability 

collectively covered their attributable costs and 

provided a contribution to the institutional costs of 

the Postal Service.5 Eight competitive International 

mail products provided contribution to institutional 

costs. They include Outbound International Expedited 

Services, Outbound Priority Mail International, 

4 Rates and fees of general applicability in effect during FY 2011 for 

competitive International mail products were announced by the Postal 

Service in Docket No. CP2009-23, Notice of the United States Postal 

Service of Changes in Rates of General Applicability for Competitive 

Products Established in Governors’ Decision No. 09-01, February 10, 

2009 (implemented May 11, 2009); Docket No. CP2010-8, Notice 

of the United States Postal Service of Changes in Rates of General 

Applicability for Competitive Products Established in Governors’ 

Decision No. 09-13, November 4, 2009 (implemented January 4, 

2010); and, Docket No. CP2011-26, Notice of the United States 

Postal Service of Changes in Rates of General Applicability for 

Competitive Products Established in Governors’ Decision No. 10-4, 

November 2, 2010 (implemented January 11, 2011). 5 Unless stated otherwise, this section analyzes revenues and expenses 

for International mail products developed according to the “booked” 

accounting method. The use of booked revenues and expenses 

ensures that the Commission’s financial analyses are consistent with 

the Postal Service’s audited financial statements. The Postal Service 

also uses “imputed” revenues, reported in the 2011 ICRA, for 

purposes of analyzing inbound international mail. Imputed revenues 

differ from booked revenues reported in the Postal Service’s financial 

statements and the Revenue, Pieces and Weight (RPW) report. During 

FY 2010, the Postal Service implemented the Foreign Post Settlement 

(FPS) system, a new method for estimating revenue, pieces and 

weights for inbound international mail presented in the RPW and 

ICRA. The FPS system will replace both the booked and imputed 

methods.

Inbound Air Parcel Post (at UPU rates), International 

Priority Airmail (IPA), International Surface Airlift (ISAL), 

International Direct Sacks-M-Bags, International 

Ancillary Services and International Money Transfer 

Service — Outbound (IMTS-Outbound).6

The Commission concludes that for FY 2011, each 

of the above-referenced competitive international 

mail products featuring rates of general applicability 

satisfy section 3633(a)(2). However, revenues did not 

cover the attributable costs of the International Money 

Transfer Service — Inbound (IMTS-Inbound) product. 

International Money Transfer Service-Inbound. FY 

2011 represents the first year in which the Postal 

Service separately reports the financial results for 

the IMTS-Outbound and IMTS-Inbound products in 

the International Cost and Revenue Analysis (ICRA) 

report.7 The Postal Service observes that IMTS, 

considering both outbound and inbound products 

together, “provided a positive net contribution to the 

Postal Service in FY 2011.”8 Nevertheless, revenues 

did not cover the attributable costs of the IMTSInbound product. 2011 ACR at 63. 

Revenues for IMTS-Inbound are derived from 

commissions and per-item fees received from 

foreign postal administrations. These commissions 

and fees were negotiated with 10 foreign postal 

administrations and formalized in agreements that 

6 The competitive International Ancillary Services product consists of 

the following services: Certificate of Mailing, Registered Mail, Return 

Receipt, Restricted Delivery, Insurance, and Customs Clearance and 

Delivery Fee (Inbound). 7 USPS-FY11-NP2, Excel file Reports (Booked).xls, worksheet tab A 

Pages (c), at page A-2. The ICRA report presents revenues, costs, 

and volumes for each of the Postal Service’s outbound and inbound 

international mail products. 8 2011 ACR at 63-64. The IMTS-Outbound product features prices 

of general applicability for postal money orders sold by the Postal 

Service and cashed (or electronic transfers accessed) in foreign 

countries. The IMTS-Inbound product provides for Postal Service 

payment of foreign money orders presented at post offices in the U.S. 

There is no charge to the recipient for receiving payment.
158 2011 Annual compliance determination

pre-date the PAEA. According to the Postal Service, 

the Department of State has determined that these 

agreements are “international law agreements” and 

therefore “cannot be terminated or renegotiated 

without delegated authority.” Id. The Postal Service 

“continues to pursue the authority to terminate or 

renegotiate these agreements.” Id. Until that time, 

however, the Postal Service states “it must continue to 

honor the agreements.” Id.

The Commission recognizes that these circumstances 

make it more difficult to improve the financial 

performance of the IMTS-Inbound product. For FY 

2011, however, the Commission concludes that the 

IMTS-Inbound product did not comply with section 

3633(a)(2). The Commission orders the Postal Service 

to take corrective action.

Although separately reported, the financial results for 

the IMTS-Inbound product do not include transaction 

volume. The Postal Service states that “volume 

data for the overall Inbound IMTS product is not 

available.” Response to CHIR No. 3, question 5. 

More specifically, the Postal Service states that it 

“has no method for retrieving inbound IMTS product 

information from the non-POS-enabled offices. . . . For 

this reason, the Postal Service currently has no plans 

to use the POS [Point-of-Sale] System to determine 

volume data for the IMTS-Inbound product.” Id.

The absence of transaction volume for the IMTSInbound product is problematic. Such transaction 

volume is used to calculate unit revenues and costs, 

which permit the Commission to evaluate and compare 

the year-to-year financial performance of a product.

In Docket No. RM2011-5, the Postal Service 

proposed to provide IMTS-Inbound transaction volume 

when it presented Proposal Eleven, which described 

the methodology to establish separate reporting of 

IMTS-Outbound and IMTS-Inbound financial results.9

In Proposal Eleven, the Postal Service explained 

that the “Point of Sale System (POS) volume can 

be retrieved via back-end queries and, as a result, 

[the] POS volume figure will be used as IMTSInbound volume.”10 Moreover, Commission Order 

No. 724 approved Proposal Eleven with the clear 

understanding that transaction volume would be 

provided for the IMTS-Inbound product.11 The Postal 

Service’s announcement that it has “no plans” to use 

the POS System to provide IMTS-Inbound transaction 

volume is contrary to its statements in Docket No. 

RM2011-5 relied upon by the Commission. 

Proposal Eleven represents the established 

methodology for reporting of IMTS-Outbound 

and IMTS-Inbound financial results—including the 

provision of IMTS-Inbound transaction volume. 

Consistent with that methodology, the Commission 

directs the Postal Service to provide IMTS-Inbound 

transaction volumes based upon the POS system as 

presented in Proposal Eleven, or otherwise estimate 

IMTS-Inbound transaction volumes, for reporting in 

the Postal Service’s 2012 ACR. If the Postal Service 

no longer believes that Proposal Eleven is feasible, it 

should propose a modification by following accepted 

procedures, i.e., initiating a rulemaking proceeding. 

9 Docket No. RM2011-5, Petition of the United States Postal Service 

Requesting Initiation of a Proceeding to Consider Proposed Changes 

in Analytic Principles (Proposals Nine – Twelve), December 20, 

2010, Proposal Eleven. 10 Id., Proposal Eleven at 2; see also Docket No. RM2011-5, Response 

of the United States Postal Service to CHIR No. 1, question 1. 11 Docket No. RM2011-5, Order Concerning Analytical Principles for 

Periodic Reporting (Proposals Ten Through Twelve), at 6 (Order No. 

724).
 POSTAL REGULATORY COMMISSION 159

International Competitive Negotiated Service 

Agreements

Competitive International mail also consists of 

a number of products whose rates and fees are 

established pursuant to one or more NSAs—

negotiated contracts between the Postal Service and 

a qualifying mailer or foreign postal operators that 

govern outbound or inbound international mail. Such 

contractual 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. 

In general, each International NSA or contract 

is classified as a separate competitive product 

on the competitive product list.12 Accordingly, 

the Commission must evaluate each international 

contract classified as a separate competitive product 

for its consistency with section 3633(a)(2), which 

requires that each product cover its attributable costs. 

However, international contracts that exhibit similar 

cost or market characteristics are generally grouped 

together into a single product under one product 

heading. Such international contracts as a group are 

classified as the product and collectively evaluated for 

consistency with section 3633(a)(2).

The Postal Service reports volume, revenue and cost 

data on each international NSA or contract. For 

FY 2011, the Postal Service provides such data on 

299 international NSAs, of which 282 apply to 

outbound mail and 17 apply to inbound mail. The 

financial results for competitive Outbound International 

and Inbound International products that consist of 

international contracts are separately discussed below.

12 Docket No. RM2007-1, Order No. 43, Order Establishing 

Ratemaking Regulations for Market Dominant and Competitive 

Products, October 29, 2007, sections 2177, 3001. 

Competitive Outbound International Products 

Consisting of Negotiated Service Agreements

Competitive Outbound International products 

featuring negotiated rates are classified on the 

competitive product list under the following product 

headings: Direct Entry Parcels Contracts, Global 

Direct Contracts, Global Expedited Package Services 

(GEPS) Contracts, Global Expedited Package Service 

Non-published Rates 2 (GEPS—NPR 2), Global Plus 

Contracts and Global Reseller Expedited Package 

Services 1 (GREPS 1). Table VIII–3 below shows the 

competitive Outbound International product headings 

and the products. In some cases, the product heading 

is the name of the product; in others, separate 

products are established under a product heading.

For FY 2011, the Postal Service reports financial results 

for outbound contracts under the product headings 

Table VIII–3—FY 2011 

Competitive Outbound International Products 

Grouped by Product Heading

Product Heading Product

Direct Entry Parcels Contracts Direct Entry Parcels 1

Global Expedited Package 

Services Contracts (Same)

Global Direct Contracts

GEPS 1

GEPS 2

GEPS 3

Global Expedited Package 

Service Non-published Rates 2 (Same)

Global Plus Contracts

Global Plus 1A

Global Plus 1B

Global Plus 2A

Global Plus 2B

Global Reseller Expedited 

Package Services 1 (Same)
160 2011 Annual compliance determination

Global Direct Contracts, GEPS Contracts, GEPS — 

NPR 2, Global Plus Contracts and GREPS 1. Based

upon the data provided, 279 of the 282 outbound 

international contracts generated sufficient revenues to 

cover their attributable costs. Three contracts did not 

generate sufficient revenue to cover their attributable 

costs. Of those contracts, two are included in the 

Global Plus 2A product and caused revenues for that 

product not to exceed attributable costs. The third, a 

Global Plus 2B contract, did not cause a negative 

contribution for the Global Plus 2B product as a 

whole.13 For FY 2011, the Commission concludes that 

with the exception of the Global Plus 2A product, all 

competitive Outbound International products consisting 

of NSAs provided contribution to the institutional costs 

of the Postal Service and therefore comply with section 

3633(a)(2). 

Global Plus 2A. Global Plus 2A contracts provide 

price incentives to Postal Qualified Wholesalers 

(PQW) and other large businesses that offer mailing 

services to their customers and other end users that 

ship mail using Global Direct (GD) and/or Global 

Bulk Economy (GBE). The GD service offers customers 

a price for mail acceptance within the United States 

and transportation to a foreign country. The GBE 

service permits customers to send outbound letter post 

items that are entered in bulk quantities via surface 

transportation to foreign countries.

The Postal Service states that during FY 2011, 

attributable costs exceeded revenues of the GBE 

service within the Global Plus 2A product. Response 

to CHIR No. 3, question 7. The Postal Service 

13 This contract is one among others within the Global Plus 2B product 

and therefore is not subject to Commission review for compliance with 

section 3633. However, because market dominant products must not 

subsidize competitive products, the Postal Service should not continue 

any competitive contract that results in a negative contribution to 

institutional costs.

observes that compared to its financial models, 

actual “[c]osts exceeded the projected costs because 

international transportation and settlement expenses 

were greater than expected.” Id. The Postal Service 

also states that prices for the GBE service have been 

increased for CY 2012. Moreover, the financial 

model supporting the CY 2012 prices show that 

revenues should be sufficient to cover the attributable 

costs of each Global Plus 2C contract—the 

successors to the Global Plus 2B contracts.14

For FY 2011, the Commission concludes that the 

Global Plus 2A product did not comply with section 

3633(a)(2). However, the Commission notes that 

this is the first year in which revenues for Global 

Plus contracts did not cover their attributable costs. 

Given the Postal Service’s ability to negotiate rates 

for Global Plus contracts and, if necessary, reject 

contracts that are not compensatory to the Postal 

Service, the Commission finds the loss in contribution 

for the Global Plus 2A product to be problematic. 

The Commission recommends that the Postal 

Service modify its financial models by increasing 

the contingency factor to accommodate unexpected 

changes in costs to ensure that proposed prices can 

generate sufficient revenues to exceed attributable 

costs. The Commission orders the Postal Service to 

take corrective action.

Competitive Inbound International Products 

Consisting of Negotiated Service Agreements

Like competitive Outbound International products, 

competitive Inbound International products featuring 

14 Id.; see also Docket Nos. MC2012-5, CP2012-10 and CP2012-

11, Request of the United States Postal Service to Add Global 

Plus 2C to the Competitive Products List and Notice of Filing Two 

Functionally Equivalent Global Plus 2C Contracts Negotiated Service 

Agreements and Application for Non-Public Treatment of Materials 

Filed Under Seal, December 30, 2011.
 POSTAL REGULATORY COMMISSION 161

negotiated rates are classified on the competitive 

product list under product headings: Inbound 

International Expedited Services, Inbound Air Parcel 

Post (at non-UPU rates), Inbound Surface Parcel Post 

(at non-UPU rates), Inbound Competitive Multi-Service 

Agreements with Foreign Postal Operators 1, Inbound 

Direct Entry with Foreign Postal Administrations, and 

International Business Reply Service Competitive 

Contract 1, 2 and 3. Table VIII–4 shows the 

competitive Inbound International product headings 

and the products. As with competitive Outbound 

International products, sometimes the product 

heading is also the name of the competitive Inbound 

International product. 

For FY 2011, the Postal Service reports financial 

results for 17 inbound contracts under the following 

product headings: Inbound International Expedited 

Services, Inbound Air Parcel Post (at non-UPU rates), 

Inbound Surface Parcel Post (at non-UPU rates), 

Inbound Competitive Multi-Service Agreements with 

Foreign Postal Operators 1, Inbound Direct Entry 

with Foreign Postal Administrations, and International 

Business Reply Service. With one exception, all 

inbound contracts generated sufficient revenues to 

cover attributable costs.15 The lone exception is the 

Inbound International Expedited Services 2 product.

Inbound International Expedited Services. The Postal 

Service has bilateral agreements with more than 180 

foreign postal administrations that were concluded 

under the auspices of the Express Mail Service (EMS) 

15 The Inbound Competitive Multi-Service Agreements with Foreign Postal 

Operators 1 and Inbound International Expedited Services 3 products 

covered costs under the booked method but not under the imputed 

method. The Postal Service relies on imputed costs in the financial 

models to justify entering into these contracts. The Postal Service 

should modify its financial models by increasing the contingency 

factor to ensure that proposed prices generate sufficient revenues to 

cover costs under both the booked and imputed methods.

Cooperative of the Universal Postal Union (UPU). 

Such agreements govern the exchange and delivery 

of expedited inbound international mail, commonly 

referred to as Inbound EMS. Inbound EMS volumes 

that enter the U.S. pursuant to these agreements 

comprise the Inbound International Expedited Services 

2 product. Rates for the Inbound International 

Expedited Services 2 product are established by the 

Postal Service through notice to, and publication by, 

the UPU. 

Table VIII–4—FY 2011Competitive Inbound 

International Products 

Grouped by Product Heading

Product Heading Product

Inbound International 

Expedited Services

Inbound International Expedited 

Services 2

Inbound International Expedited 

Services 3

Inbound International Expedited 

Services 4

Inbound Air Parcel Post (at 

non-UPU rates)

Royal Mail Group Inbound Air 

Parcel Post Agreement

Inbound Surface Parcel 

Post (at non-UPU rates)

Canada Post-United States Postal 

Service Contractual Bilateral 

Agreement for Inbound Competitive 

Services

Inbound Competitive 

Multi-Service Agreements 

with Foreign Postal 

Operators 1

(Same)

Inbound Direct Entry 

Contracts with Foreign 

Postal Operators

Inbound Direct Entry Contracts with 

Foreign Postal Operators 1

International Business 

Reply Service Competitive 

Contract 1

(Same)

International Business 

Reply Service Competitive 

Contract 2

(Same)

International Business 

Reply Service Competitive 

Contract 3

(Same)
162 2011 Annual compliance determination

In addition, the Postal Service has separate bilateral 

agreements with the China Post Group and Canada 

Post.16 The negotiated bilateral rates applicable to 

inbound EMS from China and Canada each constitute 

a separate product on the competitive product list. 

Each of these products generated sufficient revenues to 

cover attributable costs in FY 2011. 

By contrast, in FY 2011, revenues for inbound EMS 

entering the United States at rates set by the Postal 

Service for the Inbound International Expedited 

Services 2 product did not cover attributable costs 

using either the booked or imputed accounting 

methods. The Postal Service states that price increases 

for Inbound EMS were implemented in January 

2011, and that those higher prices applicable 

to CY 2011 were not reflected in the first quarter 

results of FY 2011 (October to December 2010). 

2011 ACR at 64. Nevertheless, the Postal Service 

observes that under the booked method, the “FY 

2011 improvement [in cost coverage] compared to 

FY 2010 is the result of a[n] [ ] increase in revenue.” 

Response to CHIR No. 1, question 33(a). This 

increase in revenue was offset somewhat by increases 

in mail processing and domestic transportation unit 

costs. Id. Under the imputed method, however, 

financial results did not improve as both revenue and 

16 See Docket Nos. MC2010-13 and CP 2010-12, Request to Add 

Inbound Expedited Services 1 to the Competitive Product List, and 

Notice of United States Postal Service of Filing China Post Group—

United States Postal Service Contractual Bilateral Agreement (Under 

Seal), November 20, 2009. In approving the Postal Service’s 

request, the Commission designated the new product Inbound 

International Expedited Services 3. Docket Nos. MC2010-13 and 

CP 2010-12, Order No. 365, Order Adding Inbound International 

Expedited Services 3 to the Competitive Product List, December 22, 

2009, at 1.; see also Docket Nos. MC2010-37 and CP2010-126, 

Request to Add Inbound International Expedited Services 4 to the 

Competitive Product List, and Notice of United States Postal Service of 

Filing Canada Post – United States Postal Service Contractual Bilateral 

Agreement (Under Seal), September 30, 2010.

contribution decreased between FY 2010 and FY 

2011.17

The Postal Service defends its CY 2011 price 

increase by noting that the revenue and cost estimates 

presented in the financial model used to support the 

January 2011 prices showed that sufficient revenues 

would be generated to cover costs and thereby satisfy 

the statutory pricing criteria for competitive products. 

2011 ACR at 64. Responding to an inquiry seeking 

an explanation as to the difference between the 

FY 2011 actual results and the projected financial 

performance presented in its financial models 

supporting both the CY 2010 and CY 2011 prices 

that were in effect during FY 2011, the Postal Service 

confirms that the financial models were “based upon 

‘imputed’ revenues and expenses.” Response to CHIR 

No. 1, question 34. However, it discusses only the 

financial model underlying the CY 2011 prices, 

which “were only in place for the last three quarters of 

FY 2011.” Id.

The Postal Service notes that the financial model 

“used the FY09 ICRA as the basis for projecting costs 

into the CY 2011 time period.” Id. After updating 

the original financial model with FY 2011 data from 

the ICRA for the first three quarters of CY 2011 and 

projecting the last quarter of CY 2011 using the latest 

inflation factors plus a contingency factor, the Postal 

Service observes: “Although higher than anticipated 

costs exacerbated the [difference between projected 

and actual performance,] lower than projected 

volume, weight and resulting revenue were the major 

causes of the difference . . .” Id.

17 Compare USPS-FY11-NP2, Excel file Reports.xls, worksheet tabs 

A-Pages (c) and Pivot3, and Library Reference PRC-ACR2010-NPLR3 (Nonpublic), Excel file PRC-ACR2010-NP-LR3_Imputed ICRA.xls, 

worksheet tab China IB EMS.
 POSTAL REGULATORY COMMISSION 163

The Postal Service asserts that it is addressing the 

financial performance of Inbound EMS by “again 

raising Inbound International Expedited Services 2 

rates.” 2011 ACR at 64. These new rates became 

effective in January 2012, “and are expected to 

contribute to an improved cost coverage for this 

product in FY 2012.” Response to CHIR No. 1, 

question 33(a). Moreover, “[i]n the future, the Postal 

Service will consider additional price increases and 

will attempt to make improvements to cost coverage 

through bilateral agreements with foreign postal 

operators.” Id.

The Postal Service is responsible for setting inbound 

EMS rates annually, which are then implemented on a 

calendar year basis rather than on a fiscal year basis. 

FY 2011 represents the second fiscal year in which 

revenues for the Inbound International Expedited 

Services 2 product did not cover attributable costs 

using either the booked or imputed methods. The 

Postal Service asserts that new prices for CY 2012 

will have the effect of improving the cost coverage 

of this inbound EMS product. It made a similar 

claim for the CY 2011 prices. While the CY 2012 

price increases may improve cost coverage, the 

Commission is less optimistic that revenue generated 

from such prices will exceed attributable costs for FY 

2012. The Postal Service’s financial models showing 

that the calendar year prices in effect during the past 

two fiscal years will cover attributable costs are not 

reflected in the actual financial performance.

For FY 2011, the Commission concludes that the 

Inbound International Expedited Services 2 product 

did not comply with section 3633(a)(2). The Postal 

Service needs to ensure that Inbound EMS rates 

cover attributable costs for the entire fiscal year. The 

Postal Service could negotiate separate bilateral 

agreements with foreign postal operators that will 

generate a positive cost coverage for Inbound EMS. 

In the alternative, the Commission recommends that 

in future financial models the Postal Service increase 

the cost contingency factor used for setting Inbound 

International Expedited Services 2 rates, or set such 

rates so that the cost coverage on Inbound EMS from 

each country covers costs. The Commission orders the 

Postal Service to take corrective action.

Appropriate Contribution 

Provision: 3633(a)(3)

Section 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. 

In implementing section 3633(a)(3), the Commission 

established regulations stating that if competitive 

products contributed at least 5.5 percent towards the 

Postal Service’s institutional costs, then competitive 

products, as a whole, would recover an appropriate 

share of the Postal Service’s total institutional costs. 

See 39 CFR 3015.7(c).

In FY 2011, the Postal Service reported total 

institutional costs for all products to be $29.6 billion. 

Therefore, in order to comply with 3633(a)(3) for FY 

2011, competitive products must contribute at least 

$1.6 billion towards the Postal Service’s institutional 

costs. As Table VIII–2 shows, in FY 2011, the total 

competitive products contribution, as a whole, 

towards institutional costs was $2.3 billion – 7.8 

percent of the Postal Service’s total institutional 

costs. Therefore, the Commission finds that in FY 

2011, competitive products satisfied 3633(a)(3) 

by recovering an appropriate share of the Postal 

Service’s institutional costs.
164 2011 Annual compliance determination

Section 3633(b) requires the Commission to review 

the minimum contribution requirement 5 years after the 

date of enactment of the PAEA, and every subsequent 

5 years, to determine whether the contribution 

requirement should be retained in its current form, 

modified, or eliminated. In Docket No. RM2012-

3, the Commission initiated its first 5-year review of 

the minimum contribution that competitive products 

should be required to make towards the Postal 

Service’s institutional costs.18 Figure VIII–2 displays the 

competitive products contribution as a percentage of 

the Postal Service’s institutional costs for FY 2007 – 

FY 2011.

18 See Docket No. RM 2012-3, Notice of Proposed Rulemaking to 

Evaluate the Institutional Cost Contribution Requirement for Competitive 

Products, January 6, 2012 (Order No. 1108).

Competitive Market Tests

Section 3641 authorizes the Postal Service to 

“conduct market tests of experimental products in 

accordance with this section.” A product may not 

be tested, however, unless it satisfies each of the 

following conditions:

 The product is significantly different from all 

products offered by the Postal Service within 

the 2-year period preceding the start of the test 

(section 3641(b)(1));

 The product will not result in undue market 

disruption, especially for small business concerns 

(section 3641(b)(2)); and

 The product is correctly characterized as either 

market dominant or competitive (section 3641(b)

(3)).

In addition, market tests of experimental products may 

not exceed 24 months (section 3641(d)), or exceed 

$10 million in annual revenue (section 3641(e)).

There were two competitive market tests in effect 

during FY 2011: Collaborative Logistics and Gift 

Cards. Each market test is discussed below.

Collaborative Logistics. In Docket No. MT2009-1, 

the Commission authorized the Collaborative Logistics 

market test, which was the first market test under the 

PAEA19 Under the Collaborative Logistics market test, 

the Postal Service sold available space within its 

transportation network. The Postal Service defined the 

experiment as “transportation of an article or multiple 

articles on a pallet or other unit load, on a spaceavailable basis, in postal transportation.” ld. at 3. 

The Postal Service recently informed the Commission 

19 Docket No. MT2009-1, Order Concerning Collaborative Logistics 

Market Test, May 7, 2009 (Order No. 211).

Figure VIII–2 

Competitive Products 

Contribution to Institutional Cost

Fiscal Year

0%

2%

4%

6%

8%

10%

2007 2008 2009 2010 2011

5.7%

5.5%

6.8%

7.1%

7.8%

Actual 3633(a)(3) Requirement
 POSTAL REGULATORY COMMISSION 165

that the Collaborative Logistics market test ended on 

September 19, 2011.20

In FY 2011, the Collaborative Logistics market test 

earned $2,278,674 in revenue. 2011 ACR at 66. 

The Postal Service provided a total cost figure under 

seal for Collaborative Logistics in USPS-FY10-NP27. 

The audited revenue figure presented by the Postal 

Service is greater than the cost figure presented 

under seal, demonstrating that Collaborative Logistics 

provided a contribution to institutional costs in FY 

2011.

Gift Cards. In Docket No. MT2011-2, the 

Commission authorized the Postal Service’s request 

to conduct a 24-month market test for a new 

competitive product, Gift Cards.21 Under the market 

test, customers may purchase two types of gift cards: 

fixed and variable. Fixed gift cards are available 

in amounts of $25 or $50. Variable gift cards are 

available in amounts ranging between $25 and 

$100. The market test was launched in June 2011 

at 2,000 retail locations that currently sell greeting 

cards. In its request, the Postal Service stated that it 

intended to expand the market test to up to a total of 

3,000 locations, including locations without greeting 

cards, by October 2011.22

In FY 2011, the Gift Cards market test earned 

$96,012 in revenue and incurred $20,489 in 

total costs. FY 2011 ACR at 66. Thus, the Gift 

Cards provided a contribution to institutional costs of 

$75,523 in FY 2011.

20 See Docket No. MT 2009-1,Notice of The United States Postal 

Service of Termination of Market Test, August 19, 2011. 21 Docket No. MT2011-2, Order Authorizing Gift Card Market Test, 

April 28, 2011 (Order No. 721). 22 See id. at 4. See also Postal Bulletin No. 22324, November 17, 

2011, at 7, which shows that the Postal Service carried out its 

intention to expand its gift cards market test. Gift Cards are now 

available at approximately 5,000 locations. ld.

Commission analysis. The costs associated with both 

market test have been added to the group specific 

cost category to ensure competitive products as a 

whole are in compliance with section 3633(a)(1). 

The Commission finds that the Collaborative Logistics 

and Gift Cards market tests made contributions to 

institutional costs in FY 2011.

Competitive Products Fund

The Competitive Products Fund was created by 39 

U.S.C. 2011 to deposit receipts from competitive 

products revenues, returns on investments and other 

amounts directly associated with the competitive 

products enterprise. It is a revolving fund and can be 

used for withdrawals within mandated limits for the 

payment of costs attributable to competitive products. 

The Postal Service has filed all of the competitive 

products financial statements as required under 

Commission rules 3060.20 and 3060.30 as Library 

Reference USPS-FY11-39.

The fund balance in the Postal Service Competitive 

Products Fund after September 30, 2011 stands at 

$1.1 billion. Table VIII–5 shows the income and fund 

balance data for the competitive products.

Table VIII–5—FY 2011 Competitive Products 

Income and Fund Balance

Fiscal Year

Investment 

Income 

($000)

Pre Tax 

Income

($000)

Income 

Tax

($000)

Balance in 

Competitive 

Products 

Fund1

($000)

2008 0 14,386 4,935 9,451

2009 2 368,228 128,880 248,801

2010 198 549,407 192,292 606,114

2011 290 691,131 240,896 1,055,639

1 The balance of the Competitive Products Fund held within the U.S. 

Treasury and listed in Table III-Detail of Treasury Securities Outstanding, 

January 31, 2012 of the Monthly Statement of Public Debt.
166 2011 Annual compliance determination

The FY 2011 competitive products income statement 

shows total net income from competitive products 

before tax was $691.1 million, an increase of 

$141.7 million over FY 2010. The assumed Federal 

Income Tax on these earnings was $241.9 million. 

This amount was transferred to the Postal Service Fund 

on January 15, 2012 as required by 39 U.S.C. 

3634(b).
 POSTAL REGULATORY COMMISSION 167

Chapter IX

Nonpostal Services

Introduction

In Docket No. MC2008-1, the Commission authorized 14 nonpostal services to continue.1 Of these, 2 were 

designated as market dominant and 12 were designated as competitive. ld. The two market dominant services 

are: (1) MoverSource; and (2) Philatelic Sales. ld. The12 competitive services are: (1) Affiliates for Website; 

(2) Affiliates–Other (Linking Only); (3) Electronic Postmark; (4) FedEx Drop Boxes; (5) Licensing Programs Other 

than Officially Licensed Retail Products; (6) Metered Manufacturers Marketing Program; (7) Non-Sale Lease 

Agreements (Non-Government); (8) Officially Licensed Retail Products (OLRP); (9) Passport Photo Service; (10) 

Photocopying Service; (11) Training Facilities (in part); and (12) Warranty Repair Program. ld.

FY 2011 Financial Analysis

Commission rule 3050.21(i) requires the Postal Service to report revenues, volumes, and expenses for 

nonpostal services. In its 2011 ACR, the Postal Service reported financial data for the two market dominant 

nonpostal services in the public portion of its report. 2011 ACR at 67. The Postal Service reported financial 

data for10 of the12 competitive nonpostal services in a non-public annex.2 In the non-public annex, the Postal 

Service explained why there is no FY 2011 financial data for two competitive nonpostal services, Metered 

Manufacturers Marketing Program and Warranty Repair.3

1 See Docket No. MC2008-1, Review of Nonpostal Services Under the Postal Accountability and Enhancement Act, December 19, 2008 (Order 

No. 154). See also Docket No. MC2008-1, Errata Notice, January 9, 2009. 2 See Library Reference USPS-FY11-NP27, 2011 Competitive NSA and Nonpostal Materials. 3 See the non-public annex for more information concerning why the Postal Service did not provide financial data on Metered Manufacturers 

Marketing Program and Warranty Repair.
168 2011 Annual compliance determination

As Table IX–1 shows, in FY 2011, nonpostal services 

generated $172.7 million in revenue and incurred 

$31.7 million in expenses, which resulted in a 

net income of $141.0 million. Market dominant 

nonpostal services produced $51.2 million in net 

income and competitive nonpostal services produced 

$89.8 million in net income. 

The non-public financial data show that two services, 

Philatelic Sales and Electronic Postmark, failed to 

generate sufficient revenues to cover expenses. 

See 2011 ACR at 67-68; Library Reference USPSFY11-NP27. With respect to Philatelic Sales, the 

Postal Service explains that the revenue and expense 

estimates reflect fulfillment orders only. Response to 

CHIR No. 2, question 9. The Postal Service asserts 

the added revenues and expenses for the actual 

sales of philatelic items would show that there is no 

shortfall. ld. In addition, the Postal Service notes that 

on January 22, 2012, it substantially increased fees 

for fulfilling philatelic orders. ld. With respect to the 

Electronic Postmark service, the Postal Service states 

that the service did not generate sales in FY 2011. 

ld. However, the Postal Service explains that even 

when no sales occur, there are costs associated with 

maintaining the Electronic Postmark service. ld. The 

Postal Service further states that it expects to have 

new Electronic Postmark sales in the future that would 

help cover costs. ld.

Similar to last year’s ACD observations, the 

Commission noticed instances where nonpostal 

services were included with Special Services. In the 

2011 CRA, the revenues, volumes, and costs for 

Philatelic Sales were included with the Stamp Fulfillment 

Services (SFS) product. Also, the non-public RPW 

and the Competitive billing determinants identified 

Officially Licensed Retail Product as a Competitive 

Special Service. In subsequent ACR filings, the Postal 

Service’s CRA, RPW, and billing determinants should 

not include nonpostal services with postal services. 

Including the financial data for nonpostal services with 

postal products distorts the financial performance of the 

postal products. For example, when reviewing SFS’s 

financial data in the FY 2011 CRA, it appears that 

the revenue and attributable cost are $3.1 million and 

$5.2 million, respectively. However, the actual SFS 

revenue and attributable costs are $3.0 million and 

$4.4 million, respectively.

Table IX–1—FY 2011 Volumes, Revenue, Expenses, and Net Income 

Nonpostal Services

Market Dominant Nonpostal Services Volume Revenue Expenses Net Income 

(Loss)

MoverSource NA $53,664,715 $1,790,445 $51,874,270

Philatelic Sales 173,144 $171,954 $838,164 ($666,210)

Total Market Dominant Nonpostal Services 173,144 $53,836,669 $2,628,609 $51,208,060

Total Competitive Nonpostal Services1 28,857,214 $118,872,899 $29,086,619 $89,786,280

Total Nonpostal Services 29,030,358 $172,709,568 $31,715,228 $140,994,340

1 Does not include financial data for Metered Manufacturers Marketing Program and Warranty Repair Program.
 POSTAL REGULATORY COMMISSION 169

Appendix A

Financial Results Under Previous 

Classification 

This appendix presents Postal Service financial results for FY 2011 using the mail classification system in 

place prior to the passage of the PAEA. Prior to the PAEA, mail classes were subdivided into subclasses, 

and the financial reports reflected that organization. The PAEA uses the term product, defined as “a postal 

service with a distinct cost or market characteristic for which a rate or rates are, or may reasonably be 

applied.” 39 U.S.C. 102(6). Within classes, the Postal Service reports data by product, not by subclass. To 

facilitate historical comparisons, Table A–1 presents volumes, revenues, attributable costs, and contribution to 

institutional cost using the former classification scheme of subclasses.
170 2011 Annual compliance determination Table A–1—Fiscal Year 2011 Volume , Revenue, Cost and Cost Coverage by Class Previous Classification (Subclasses) Volume (000) Revenue ($000) Attributable Cost ($000) Contribution to Institutional Cost ($000) Rev./Pc. (Cents) Cost/Pc. (Cents) Contribution to Institutional Cost/Pc. (Cents) Cost Coverage Competitive Mail Express Mail 40,492 799,500 479,432 320,068 1,974.464 1,184.017 790.447 166.8% Priority Mail 790,633 5,638,963 4,469,854 1,169,109 713.221 565.351 147.870 126.2% Parcel Select and Parcel Return Service (PRS) 380,834 718,402 516,545 201,857 188.639 135.635 53.004 139.1% Competitive International Mail 261,531 1,674,743 1,105,965 568,779 640.362 422.881 217.481 151.4% Competitive Domestic Services 83,407 146,646 101,732 44,914 175.820 121.971 53.849 144.1% Competitive International Services 2,021 11,688 6,476 5,212 578.248 320.405 257.844 180.5%

Total Competitive Mail and Services 1,473,490 8,989,942 6,680,004 2,309,938 610.112 453.346 156.766 134.6%

Market Dominant MailFirst-Class Mail

Letters, Flats & Parcels 69,160,461 30,329,597 14,926,941 15,402,656 43.854 21.583 22.271 203.2%

Cards 4,049,704 983,926 556,666 427,260 24.296 13.746 10.550 176.8%Standard MailRegular 47,001,679 11,358,500 7,403,012 3,955,488 24.166 15.751 8.416 153.4%Nonprofit 11,243,376 1,574,384 1,795,701 (221,317) 14.003 15.971 (1.968) 87.7%Regular and Nonprofit 58,245,055 12,932,884 9,198,713 3,734,171 22.204 15.793 6.411 140.6%

Enhanced Carrier Route (ECR) 24,298,722 4,655,881 2,638,793 2,017,088 19.161 10.860 8.301 176.4%

Nonprofit ECR 2,147,482 237,385 240,805 (3,420) 11.054 11.213 (0.159) 98.6%

ECR and NECR 26,446,204 4,893,266 2,879,598 2,013,668 18.503 10.889 7.614 169.9%PeriodicalsWithin County 661,561 69,966 89,250 (19,283) 10.576 13.491 (2.915) 78.4%

Outside County 6,415,178 1,751,169 2,340,774 (589,605) 27.297 36.488 (9.191) 74.8%
 POSTAL REGULATORY COMMISSION 171

Table A–1—Fiscal Year 2011 Volume , Revenue, Cost and Cost Coverage by Class 

Previous Classification (Subclasses)—Continued

Volume

(000)

Revenue

($000)

Attributable

Cost

($000)

Contribution to

Institutional

Cost

($000)

Rev./Pc.

(Cents)

Cost/Pc.

(Cents)

Contribution 

to

Institutional

Cost/Pc.

(Cents)

Cost

Coverage

Package ServicesSingle-Piece Parcel Post 70,218 732,901 821,119 (88,217) 1,043.754 1,169.388 (125.634) 89.3%

Bound Printed Matter 497,113 515,798 439,979 75,819 103.759 88.507 15.252 117.2%

Media Mail 100,565 311,743 309.990 

Market Dominant International Mail 7,263 20,865 287.259 Total Market Dominant Mail 107,829 332,607 431,068 (98,460) 308.459 399.771 (91.312) 77.2%

Market Dominant Services 434,596 Certified Mail 61,854 51,111 (51,111) 82.631 

COD 311,104 889,433 698,999 190,435 285.896 224.683 61.213 127.2%

Insurance 166,460,877 53,431,549 32,434,216 20,997,333 32.099 19.485 12.614 164.7%Registered Mail

Stamped Envelopes 251,222 708,755 599,328 109,428 282.123 238.565 43.558 118.3%

Stamped Cards 819 6,678 4,373 2,304 814.927 533.710 281.218 152.7%

Money Orders 34,573 116,652 103,411 13,241 337.406 299.109 38.297 112.8%Post Office Box Service 2,688 45,236 42,809 2,427 1,682.930 1,592.633 90.297 105.7%

Caller Service 10,650 6,886 3,764 154.7%

Other Special Services 1,611 820 791 196.5%

International Services 115,510 172,696 123,438 49,258 149.508 106.864 42.644 139.9%Other Income 801,899 592,763 209,135 135.3%

International Services 1,845 32,707 38,811 (6,104) 84.3%Other Income 397,737 397,737 Total Mail and Services 167,934,367 65,615,560 41,251,803 24,363,757 39.072 24.564 14.508 159.1%

Institutional Costs 29,553,781 Appropriations: Revenue Forgone 95,285 Investment Income 28,167 

Total Revenues 65,739,012 Total Costs 70,805,584 Net Income (Loss) (5,066,572)

Source: Library Reference PRC-ACR2011-LR1
172 2011 Annual compliance determination
 POSTAL REGULATORY COMMISSION 173

Appendix B

Methodology Changes

In FY 2011, the Postal Service filed six petitions to change analytical principles relating to its periodic reports. 

A summary of the proposed changes and the Commission’s analysis and findings are provided below. The 

Postal Service also filed a petition to change analytical principles early in FY 2012 containing two proposals 

which it used in constructing the ACR. The Commission approved those proposals on January 20, 2012 (See

Order No. 1153). For this reason, these two proposals are also discussed in this appendix.

RM2011-5: Proposal 9

The Postal Service proposed seven changes to the First-Class Mail presort letters and Standard Mail presort 

letters mail processing cost models. The changes related to the following items: (1) automation density 

table; (2) manual density table; (3) post office box destination percentage; (4) plant carrier route finalization 

percentage; (5) manual incoming secondary and post office box walling productivities; (6) remote barcode 

system leakage rate; and (7) bundle sorting cost methodology.

Automation density table. The Postal Service proposed to modify the automation density table by incorporating 

the assumption that no presort letters flow from outgoing sorting operations to the incoming secondary 

operation. These tables show the percentage of mail that flows from one operation to another.

The Postal Service explained that it can usually identify the class of letter mail that it has processed to a 

particular sort level (e.g., First-Class Mail), but cannot identify the specific product within that class (e.g., 

single-piece or presort). Instead of directly measuring what proportion of letter mail that it has processed to 

a particular sort level was entered as single-piece or presort, the Postal Service proposed to incorporate the 

assumption that the presort letter volume finalized to the 5-Digit level in all outgoing operations is zero into the 

First-Class Mail presort letters and Standard Mail presort letters automation density tables.
174 2011 Annual compliance determination

The Postal Service further explained that regulations 

limit a presort First-Class Mail mailing to one overflow 

tray, that 90 percent of outgoing First-Class Mail letter 

volume is single-piece, and that a large portion of 

single-piece mail is turnaround mail that goes straight 

to an incoming secondary sort. For this reason, it 

concluded that little First-Class Mail letter mail flowing 

from outgoing operations directly into incoming 

secondary operations is presorted mail.

The Commission agreed with the Postal Service that 

this change is likely to improve the accuracy of the 

letter cost avoidance models and approved it.

Manual density table. The Postal Service proposed 

to replace the density values for the manual outgoing 

primary operation (MODS operation number 

030) and for the manual outgoing secondary and 

manual incoming managed mail program (MMP) 

operations (MODS operation numbers 040 and 043, 

respectively).

As with the Automation Density Table, the Postal 

Service proposed to incorporate an assumption that 

the percentage of presorted letter mail flowing from 

the outgoing primary operation to the secondary 

5-Digit level is zero.

The Postal Service conducted two special studies of 

the density of manual letter mail flows, one in 2008 

and one in 2010. According to the Postal Service, 

for both studies the density figures provided by the 

plants were distorted by the presence of substantial 

quantities of single-piece mail.

For the manual outgoing secondary and incoming 

MMP operations, the Postal Service was unable to 

obtain robust data. Thus, instead it used destinating 

Origin Destination Information System (ODIS) data 

for First-Class Mail presort letters and Standard Mail 

presort letters to estimate the density values for the 

manual outgoing secondary operation.

The Postal Service explained that the letter cases 

in the manual outgoing secondary operation will 

typically distribute mail to the plant level only. 

Consequently, the next operation for this mail is 

either an incoming MMP operation or an incoming 

sectional center facility (SCF)/primary operation. 

The Postal Service reviewed the August 2010 

webMODS reports for each plant and assembled a 

list of plants that maintained both a manual incoming 

MMP operation and a manual incoming SCF primary 

operation. When calculating the manual outgoing 

primary density values, the Postal Service assumed 

the next operation for a given plant would be the 

incoming MMP operation if that plant maintained a 

manual MMP operation and served multiple plants, or 

if that plant was not an area distribution center (ADC) 

but was served by an ADC plant that maintained a 

manual MMP operation. For the remaining plants, the 

Postal Service assumed the next operation would be 

the incoming SCF/primary operation.

The Postal Service also developed new manual 

incoming MMP density estimates using destinating 

ODIS data. Given the lack of direct data available 

from the plants, these estimates were developed using 

system wide plant-specific ODIS data combined with 

information about which plants were on the MMP list.

The Commission found that these results were an 

improvement to previous densities which relied on 

the less representative 1999 study. Accordingly, 

the Commission accepted the proposed changes to 

manual densities.

Post office box destination percentage. The Postal 

Service proposed to update the estimate of letter 
 POSTAL REGULATORY COMMISSION 175

volume that is delivered to post office boxes. 

However, the ODIS data on which the former 

estimates were based are no longer available; so the 

Postal Service used Carrier Piece Count (CPC) data 

instead. The Postal Service estimated the percentage 

of post office box mail by dividing the CPC post 

office box volume by the total Revenue, Pieces and 

Weight System (RPW) letter volume excluding FirstClass Mail and Standard Mail non-machinable letters, 

Standard Mail saturation letters, and Standard Mail 

high-density letters. Proposal Nine at 6-7.

The Public Representative found it reasonable to use 

CPC data for this purpose; but he questioned the 

reasonableness of using data from a different data 

system (RPW machine volume) as the denominator. 

PR Comments at 3. In consideration of this issue, 

the Postal Service provided an estimate of the post 

office box percentage using total CPC volume in the 

denominator.

The Commission found that ratio developed using 

CPC volume in the denominator was preferable to 

using data from different data systems. Consequently, 

the Commission approved the proposed methodology 

change with a modification—using CPC volume data 

in place of RPW volume data.

Plant carrier route finalization percentage. The Postal 

Service proposed to reduce the plant carrier route 

finalization percentage to zero. It explained that 

manual incoming secondary distribution has been 

decentralized from the plants and moved to the 

delivery units for all shapes of mail. Consequently, 

it concluded that only plants that essentially house 

delivery units have manual incoming secondary 

operations. While this change resulted in a significant 

reduction of the plant carrier route finalization 

percentage in the presort letters mail processing cost 

models, the Postal Service contended that this reflects 

current operations.

The Commission found that the proposed reduction of 

the plant carrier route finalization percentage to zero 

improves the accuracy of the cost models. While the 

assumption that it is zero may understate the actual 

percentage of letters manually finalized at plants, the 

understatement is likely less than 1 percent. Thus, the 

Commission accepted the use of a zero assumption.

Manual incoming secondary and post office box 

walling productivities. The Postal Service conducted 

a field study during the summer and fall of FY 2010 

to update the following productivity values: the 

manual incoming secondary productivity performed 

at delivery units, the post office box Delivery Point 

Sequence (DPS) "walling"1 productivity, and the post 

office box non-DPS "walling" productivity.

The Commission found that the data contained a 

wide range of observed productivities, which when 

combined with a relatively small sample size, raised 

serious concerns about the representativeness of the 

study’s results. Since there were no changes in the 

equipment or methods used for these operations since 

the 1995 study that formed the basis of the accepted 

methodology, there were no compelling reasons 

incorporate these uncertain results. For these reasons, 

the Commission denied the proposed modification.

Remote barcode system leakage rate. “Leakage rate” 

refers to the percentage of mail not retrieved from 

the Remote Encoding process. This occurs when the 

computer system is down or the processing window is 

closed. This results in mailpiece being sorted manually.

1 "Walling" is a term that refers to the placement of mailpieces 

into post office boxes.
176 2011 Annual compliance determination

The Postal Service proposed to use the Operations 

leakage target of 5 percent in the presort letter mail 

processing cost models. The Postal Service claimed 

that measuring leakage has become difficult due 

to changes in the Postal Service's data collection 

systems. The Postal Service had used this method 

previously in Docket No. R2000-1.

The Commission found that the Postal Service had not 

provided adequate support for its proposal. Historical 

leakage rates provided by the Postal Service showed, 

with the exception of a single accounting period in 

1999 that the leakage rate remained in excess of 5 

percent. Thus, the Commission denied the use of the 

5 percent Operations leakage target.

Bundle sorting cost methodology. The Postal Service 

proposed a new bundle sorting methodology to be 

used in the mail processing cost models to reflect the 

operational changes that have occurred since the 

last time letter bundle costs were modeled. The Postal 

Service explained that only a small percentage of 

letters is now entered as bundles and, consequently, 

bundle sorting operations that are used exclusively 

to process letter bundles are rare. The Postal Service 

maintained that letter bundles are typically either 

processed with flats bundles or are processed in 

manual piece distribution operations.

The proposed methodology incorporates revised 

figures for the number of bundle handlings, bundle 

sorting cost estimates based on piece distribution 

models, and an updated productivity for manually 

sorting bundles. Because the modification reflects 

the significant operational changes in bundle sorting 

described by the Postal Service, the Commission 

accepted the proposal.

RM2011-5: Proposal Ten 

The Postal Service proposed to modify the assignment 

of clerk and mailhandler labor costs of Inbound 

International mail to the three country groups (i.e.,

Canada, Industrialized Countries, and Developing 

Countries) within the In-Office Cost System (IOCS) so 

that normal downstream Cost and Revenue Analysis 

(CRA) and International Cost and Revenue Analysis 

(ICRA) processes can automatically distribute costs 

to those country groups using a methodology that 

is consistent with other mail products. This proposal 

extends proposal six in Docket No. RM2010-12 to 

incorporate the methodology change of using results 

of the mail processing model within the ICRA.

Prior to the FY 2010, the assignment of such costs 

to country groups was implemented using only direct 

mailpiece tally data from the IOCS data system. 

This approach ignored the impact of downstream 

computer processing steps that distribute mixed mail 

and allied costs back to products based on factors 

such as cost pools, container types and shape.

In approving Proposal Ten, the Commission 

concluded that this proposed change represented an 

improvement in the assignment of mail processing 

costs for Inbound International Mail. The Proposal 

Ten methodology was incorporated into the ICRA 

beginning with FY 2010. See Order No. 724.

RM2011–5: Proposal Eleven

The Postal Service proposed a methodology to report 

volumes, revenues, and attributable costs separately 

for International Money Transfer Service (IMTS)-

Inbound and IMTS-Outbound products in the ICRA 

report. The Postal Service noted that its proposal 

responded to the Commission’s 2010 Annual 

Compliance Determination recommendation that the 
 POSTAL REGULATORY COMMISSION 177

Postal Service develop a way to report separate 

results for the two products.

The Commission approved the Postal Service’s 

proposal, noting that it was a reasonable method for 

identifying revenues and volumes for IMTS-Inbound 

and IMTS-Outbound products, as well as distributing 

total IMTS attributable costs between both products. 

However, because the attributable costs are based, 

in part, on only a few IOCS tallies, the Commission 

expressed concerns about the reliability of the resulting 

unit cost estimates for the two products. Accordingly, 

the Commission recommended that the Postal Service 

investigate a way to provide reliable attributable cost 

estimates for the IMTS-Inbound and IMTS-Outbound 

products. The methodology was incorporated into the 

2011 ACR. See Order No. 724.

RM2011-5: Proposal Twelve

The Postal Service proposed to develop alternative 

data inputs to the Media Mail/Library Mail mail 

processing cost model, the Bound Printed Matter 

(BPM) transportation cost model and the Bulk Parcel 

Return Service (BPRS) cost model. Alternative data 

were necessary because the intra-NDC and interNDC data from single-piece Parcel Post were no 

longer available after the single-piece Parcel Post rate 

structure was redesigned in Docket No. R2009-2.

The Media/Library Mail mail processing cost 

model relied on intra-NDC and inter-NDC volume 

distributions. The Postal Service suggested replacing 

the former proxy with the assumption that volume in 

zones 1, 2, and 3 of single-piece Parcel Post was a 

good approximation of intra-NDC volume, and the 

remaining volume was inter-NDC volume.

The BPM transportation cost model used singlepiece Parcel Post zone related percentages. As an 

alternative, the Postal Service suggested using the 

zone-related percentages found in cost segment 14.3.

The BPRS cost model used transportation leg and 

cost data from the previous Parcel Post model. As an 

alternative, the Postal Service suggested using similar 

data from the Standard Mail destination entry cost 

model (USPS-FY09-13).

The Commission approved Proposal Twelve and 

found that the Postal Service’s proposed data input 

replacements were reasonable and had a minimal 

impact on the effected cost models. In addition, 

the Commission modified the cost pool allocation 

methodology for Media/Library Mail consistent with 

the general approach used in Docket No. R2006-

1 (with respect to letter mail processing), and was 

applied to parcels in Docket No. RM2012-12 

(Proposal Seven) and RM2011-6 (Proposal Thirteen). 

See Order No. 724.

RM2011-6: Proposal Thirteen

The Postal Service proposed to develop a new Parcel 

Select/Parcel Return Service (PRS) mail processing 

cost model. The proposed model reflected the current 

Parcel Select and PRS products, as well as updated 

productivity estimates developed in Docket No. 

RM2011-5, Proposal Seven. The proposed model 

also reflected an assumption that all mailer-entered 

parcels are submitted in containers and are no longer 

bedloaded. The Commission approved Proposal 

Thirteen, but modified the cost pool allocation 

methodology to be consistent with the general 

approach used in Docket No. R2006-1 (with respect 

to letter mail processing), and was applied to parcels 

in Docket No. RM2012-12 (Proposal Seven). See

Order No. 719.
178 2011 Annual compliance determination

RM2011-6: Proposal Fourteen

The Postal Service proposed five modifications to the 

Parcel Select/PRS transportation cost model: (1) the 

transportation cost estimates should only be presented 

for the current price categories; (2) the transportation 

legs for the non-dropship price categories should 

be estimated using 2010 PostalOne! data; (3) the 

official RPW volumes should be incorporated into the 

analysis; (4) the PRS transportation costs should be 

distributed using the same method that is relied upon 

to distribute the Parcel Select transportation costs; and 

(5) a new methodology should be used to estimate 

the return network distribution center (RNDC) cubic 

foot miles by zone.

The Commission found that the proposed model was 

an improvement over the previous model because 

it better reflected the current Parcel Select and PRS 

products. The Commission approved Proposal 

Fourteen. See Order No. 719.

RM2011-9: Proposal One

The Postal Service proposed to treat the costs 

associated with Fee Group E Post Office Box service 

(Group E) as institutional rather than as part of the 

attributable costs of the Post Office Box service 

product. The Postal Service explained that Group E 

service offers one post office box at no charge to any 

customer ineligible for carrier delivery. In addition, the 

Postal Service explained that it views Group E service 

as a universal service obligation. For this reason, it 

argued that the attributable cost of these boxes should 

be borne by all mailers rather than P.O. Box users only.

The Commission approved the Postal Service’s 

proposal and it was implemented in the 2011 ACR. 

See Order No. 744. In approving the proposal, 

the Commission noted that the proposed change in 

analytical methods corrects the inequity of Group E 

attributable costs being borne solely by other post 

office box holders.

RM2011-10: Proposal Two

The Postal Service sought approval of four changes 

to competitive Negotiate Service Agreements (NSAs) 

cost models. First, the Postal Service proposed to 

modify the Priority Mail NSA cost model to exclude 

mail processing costs associated with handling retail 

Priority Mail pieces. The Postal Service explained that 

Priority Mail NSA pieces are entered in bulk at Postal 

Service plants, and thus, bypass mail processing 

operations at retail post offices. Second, the Postal 

Service proposed to modify the Priority Mail and 

Parcel Select – PRS NSA models to incorporate 

applicable CRA D-Report adjustments for Priority Mail, 

Parcel Select, and PRS.2 Third, the Postal Service 

proposed to modify the Priority Mail NSA cost 

model to align the model’s Alaska Air transportation 

component with its applicable C-Report adjustment.3

Fourth, the Postal Service proposed to modify the 

Parcel Select – PRS NSA model to distribute the 

“Other” costs category on a per-piece basis, rather 

than proportional to mail processing, transportation, 

and delivery costs.

The Commission accepted the four modifications and 

they were implemented in the 2011 ACR. See Order 

No. 751. In approving the proposal, the Commission 

concluded that the modifications would improve the 

cost models by reflecting current business and costing 

practices.

2 There are six reports, labeled A through I, used to develop the 

final CRA Report. The Postal Service uses the reports to make 

necessary adjustments to the cost estimates. 3 Air transportation is used in Alaska to transport all Postal 

Service products to remote locations that cannot be reached 

by road or water.
 POSTAL REGULATORY COMMISSION 179

RM2011-11: Proposal Three

The Postal Service proposed to change its 

methodology for distributing Postage in the Hands of 

the Public (PIHOP) to products and its methodology 

for reconciling revenues from the RPW system with 

the trial balance. PIHOP is the difference between 

postage purchased and postage used. The Postal 

Service also refers to this difference as the PIHOP 

liability or the PIHOP adjustment.

At the time of the petition, the Postal Service distributed 

the PIHOP adjustment to products using a distribution 

of revenue by product. This latter distribution reflected 

revenues from the ODIS-RPW. The Postal Service 

explained that using the ODIS-RPW distribution key 

leads to inaccurate results. As an example, the Postal 

Service noted that the distribution key distributes too 

much of the stamp PIHOP liability to Priority Mail 

when this mail hardly uses any stamps. For this 

reason, the Postal Service proposed using a separate 

distribution key for stamp PIHOP based on the ODISRPW distribution of stamp revenue and a separate 

distribution key for meter PIHOP using the ODIS-RPW 

distribution of meter revenue. Other PIHOP liability 

would continue to be distributed to product using the 

FY 2010 key, except updated from year to year.

The Postal Service further explained that it collects 

revenues by product from two systems. One system is 

the Bulk Revenue, Pieces and Weight (BRPW) system, 

which is a census system for bilk mail. The other 

system is the ODIS-RPW used for single-piece mail. 

The revenues from each system, when summed to a 

grand total, should match the total revenue in the trial 

balance, which is used as the control total. When the 

totals do not match, the Postal Service assumes the 

BRPW revenues are correct because they come from 

a census system, and therefore adjusts the sampled 

revenues so that the all the revenues collected by 

product when totaled match the control total. The Postal 

Service refers to this as the book revenue adjustment.

The difference between the trial balance total revenue 

and the total revenue from the BRPW and sampling 

system is referred to as the residual. Because the 

Postal Service proposed to distribute the PIHOP 

liability separately for stamps and meters, and 

because other PIHOP liability would continue to use 

the FY 2010-type distribution key, the Postal Service 

explained that stamp and meter PIHOP liability would 

be double counted. It therefore proposed to remove 

stamp and meter PIHOP liability from the residual.

The Commission agreed with the Postal Service’s 

conclusions and approved the proposal. The FY 

2010-type methodology was inaccurate because it 

did not properly reflect the actual relative proportions 

of stamp and metered revenue, the most glaring 

example being the distribution of stamp revenue to 

Priority Mail. Further, the Commission also agreed that 

the procedure for the book revenue adjustment had 

to be revised to avoid double counting of stamp and 

meter PIHOP liability. By removing stamp and meter 

PIHOP liability from the residual, which would be 

distributed to product as described above, only other 

PIHOP would remain in the residual. Thus, double 

counting would be avoided.

RM2011-12: Proposal Four 

The Postal Service proposed to change the current 

method for estimating revenue, pieces and weight 

for Inbound International Mail products presented in 

the RPW report and rely instead on a new method 

based on the Foreign Postal Settlement (FPS) system. 

The FPS system would also replace the current accrual 
180 2011 Annual compliance determination

settlement payment system used in the ICRA report. As 

a result, revenue, pieces and weight presented in the 

RPW and ICRA would be consistent with the audited 

financial statements of the Postal Service. 

The FPS system, implemented in January 2010, is an 

accounting accrual system for settlement payments 

between foreign postal administrations and the Postal 

Service related to the exchange of International 

mail. Under the FPS system, piece and weight data 

would be used to calculate revenue on the number 

of inbound pieces processed in a month, as well as 

an accrual of revenue reflecting an estimate of the 

number of pieces received but not yet processed. At 

the time of final settlement, generally months after the 

close of a calendar year, the difference between the 

accrued revenue and the final settlement revenue is 

posted. The piece and weight data would also be 

reported in the RPW.

In addition, the proposal would change the reporting 

of prior-year settlement revenues and currency gains 

and losses on foreign exchange. The FPS system 

isolates prior-year from current-year settlement 

revenues, which are recorded separately for market 

dominant and competitive inbound international 

products. However, the FPS system only records 

the total amount of currency gains and losses. Id.

Such currency gains and losses would be distributed 

to market dominant and competitive inbound 

international products and reported in Other Mailing 

Services Revenue (market dominant) and Other 

Shipping Services Revenue (competitive) along with 

prior-year settlement revenues.

The proposal would also revise the inbound mail 

categories presented in the RPW report to align 

more closely with the proposed Mail Classification 

Schedule (MCS).

The Commission concurred with the Postal Service 

view that the proposal would substantially improve 

the reporting on inbound international products in the 

RPW. Using the FPS system, more timely data would 

be available for estimating inbound revenues, and 

reporting revenue, piece and weight information at a 

greater level of detail than currently, including currentyear piece and weight information for the first time 

for some inbound products. In addition, the separate 

reporting of current-year settlement revenues from 

prior-year settlement revenues and currency gains and 

losses would improve accuracy of reported revenues. 

For these reasons, the Commission approved this 

proposal and it was implemented during FY 2011. 

See Order No. 920.

RM2011-12, Proposal Five

The Postal Service proposed introducing a cost pool 

within CRA cost segment 3.1 for Flats Sequencing 

System (FSS) operations. As anticipated, the scale 

of FSS operations had increased rapidly since FY 

2010. FSS costs had been previously assigned to the 

AFSM 100 cost pool. The proposed new FSS cost 

pool would consist of MODS operations 530 (Stand 

Alone Mail Prep) and 538 (FSS DPS Mode). There 

would also be an FSS cost pool in the NDC group. 

The Postal Service also reasoned the FSS may have 

a distinct mail mix (e.g., non-saturation carrier route 

presort flats), further justifying a separate cost pool.

The Commission accepted the rationale set forth by 

the Postal Service and approved the proposal. The 

addition of a new cost pool to reflect significant 

changes in postal operations due to new equipment 

deployment is consistent with past practices. The 

Commission believes that a differing FSS mail-mix (from 

AFSM 100) suggests that the distribution of attributable 

cost by product will differ. Thus, separate recognition 
 POSTAL REGULATORY COMMISSION 181

via separate cost pools would ensure a more accurate 

distribution of cost to product.

RM2011-12: Proposal Six

Proposal Six sought to modify the non-Management 

Operating Data System (MODS) mail processing 

cost pool by introducing five additional cost pools 

for certain special service activities. The proposal 

establishes separate cost pools for the following 

activities: (1) sorting mail into post office boxes; 

(2) bulk mail acceptance activities; (3) computer 

forwarding system activities; (4) business reply mail 

activities; and (5) activities related to accountable 

items, such as carriers’ keys scanners and mail with 

certain special services. The Postal Service argued 

that the changes will improve the alignment between 

MODS and non-MODS mail processing cost pools 

for post offices.

The Commission found that this proposed change 

would improve product costing for non-MODS facilities, 

and more closely align MODS and non-MODS cost 

pools in post offices. Therefore, the Commission 

approved this proposal and the changes were 

incorporated in the 2011 ACR. See Order No. 920.

RM2011-12: Proposal Seven

The Postal Service proposed to change the distribution 

key methodology for MODS allied labor cost pools. 

Currently, MODS allied labor costs are distributed to 

products using tallies from all MODS cost pools. The 

proposal sought to use only IOCS tallies from MODS 

cost pools associated with non-International Service 

Center (ISC) plant operations. The distribution keys 

will be established based on IOCS direct tallies from 

all MODS function 1 (mail processing plant) cost 

pools. The proposal excludes direct tallies of MODS 

function 4 (post offices) and ISC cost pools. The Postal 

Service claimed that the change will reduce potential 

bias in MODS allied labor mixed-mail distributions 

by excluding MODS post office tallies, which include 

tallies of products bypassing plants. The proposal also 

should avoid the disproportionate allocation of costs to 

certain international products by excluding ISC direct 

tallies from the calculation of mixed-mail distribution 

keys for MODS allied labor costs.

The Commission agreed that the proposed change 

should reduce potential bias in MODS allied labor 

mixed-mail distributions. The Commission noted that 

the distribution keys will be calculated using fewer 

IOCS tallies. However, the effect of removing those 

tallies on the statistical reliability of the estimates 

should be minimal. The Commission found that the 

benefits from using the proposed approach outweigh 

the loss of statistical reliability from removing those 

tallies from the calculation of the distribution key. The 

Commission maintained that the proposed change 

improves the distribution of MODS allied mixed-mail 

labor costs to products. The Commission approved 

the proposal and it was implemented in the 2011 

ACR. See Order No. 920.

RM2011-12: Proposal Eight

The Postal Service proposed to modify the manner 

in which delivery scanning costs are attributed to the 

delivery of Express Mail where the sender waives the 

signature requirement. The Postal Service explained 

that Express Mail with a Signature Waiver should 

not be classified as accountable mail. Accordingly, 

the Postal Service proposed to modify its attribution 

procedure to reflect the change in postal operations.

Because it better reflected current postal operations, 

the Commission approved Proposal Eight. See Order 

No. 744.
182 2011 Annual compliance determination

RM2012-1: Proposal Ten

The Postal Service proposed to change the treatment 

of costs for undeliverable-as-addressed (UAA) Parcel 

Select pieces. In its Petition, the Postal Service stated 

that for most of FY 2011, it charged Parcel Post 

prices for UAA Parcel Select pieces, and assigned the 

related IOCS tallies for those pieces to the Parcel Post 

product. The Postal Service further explained that on 

June 24, 2011, it began charging UAA Parcel Select 

pieces the equivalent of the Parcel Select non-presort 

price plus an additional $3.00 fee. Consistent with 

this change, the Postal Service stated that it began 

allocating the revenue for UAA Parcel Select pieces 

to the Parcel Select product. ld. With Proposal Ten, 

the Postal Service proposed to assign the related UAA 

Parcel Select IOCS tallies to the Parcel Select product. 

The Commission approved the proposal. See

Order No. 1153. In approving the proposal, the 

Commission concluded that since the revenues for 

UAA Parcel Select pieces were assigned to Parcel 

Select, the related costs should also be assigned to 

ParcelSelect. The changes were incorporated into the 

2011 ACR.4

4 The Commission accepted Proposals Ten and Eleven after the 

Postal Service submitted its 2011 ACR. See Proposal Eleven 

infra. The Commission’s rules require the Postal Service’s ACR 

to use the established methodology at the time of filing. For 

proposals that were still pending before the Commission, the 

Postal Service’s 2011 ACR provided two versions of its ACR 

cost models, the established methodology and the recently 

proposed methodology. However, for Proposals Ten and 

Eleven, the Postal Service explained that it was unable to 

provided two versions and it incorporated the methodologies 

into its ACR filings. See 2011 ACR at 6. The Commission 

will allow this approach this time because the proposals were 

minor. However, the Commission expects the Postal Service to 

file future proposals to change analytical principles in sufficient 

time so that the proposals are approved before the Postal 

Service files its upcoming ACR.

RM2012-1: Proposal Eleven

The Postal Service proposed changes to the Express 

Mail NSAs delivery cost savings workpapers to be 

consistent with the Commission’s recent approval 

of a related proposal. In Docket No. RM2011-12, 

the Commission approved Proposal Eight, which 

modified the Express Mail delivery cost savings 

workpapers to reflect a change in postal operations 

where carriers no longer attempt to obtain signatures 

for Express Mail pieces that contain signature 

waivers.5 In addition, Proposal Eight updated the 

Express Mail workpapers with new Carrier Cost 

Systems (CCS) data. The Postal Service stated that the 

Commission’s approval of Proposal Eight necessitated 

corresponding changes to the workpapers related to 

Express Mail NSAs delivery cost savings. 

The Commission accepted the proposed changes. 

See Order No. 1153. In approving the changes, the 

Commission noted that the Postal Service’s proposal 

aligned the Express Mail NSA models with the 

Express Mail models to reflect new postal operations 

and CCS data. The changes were incorporated into 

the 2011 ACR. 

5 See Docket No. RM2011-12, Order Concerning Analytical 

Principles for Periodic Reporting (Proposals Four through Eight), 

October 21, 2011 (Order No. 920). 
 POSTAL REGULATORY COMMISSION 183

Appendix C

Abbreviations and Acronyms

Long Version Abbreviation/Acronym

Address Management Services AMS

Alliance of Nonprofit Mailers ANM

American Business Media ABM

American Catalog Mailer Association ACMA

Annual Compliance Determination ACD

Annual Compliance Report ACR

FY 2011 Annual Performance Plan 2011 Plan

2012 Annual Performance Plan 2012 Plan

FY 2010 Annual Performance Report 2010 Report

Postal Service’s 2011 Annual Performance Report 2011 Report 

Area Distribution Center ADC

Automated Area Distribution Center AADC

Automated Postal Center APC

Base Realignment and Closure BRAC

Bound Printed Matter BPM

Bulk Metered Mail BMM

Carrier Sequence Bar Code Sorter CSBCS

Chairman’s Information Request CHIR

Collect on Delivery COD

Collection Point Management System CPMS

Commission on Postal Reorganization CPR

2010 Comprehensive Statement on Postal Operations 2010 Comprehensive Statement

Consumer Price Index CPI

Consumer Price Index for all urban consumers CPI-U
184 2011 Annual compliance determination

Long Version Abbreviation/Acronym

Community Post Offices CPOs

Cost and Revenue Analysis CRA

Critical Entry Times CET

Customer Experience Measurement CEM

Customer Supplier Agreements CSAs

Deliveries per Work Hour DPWH

Delivery Bar Code Sorter DBCS

Delivery Point Sequence DPS

Destination Sectional Center Facilities DSCF

Destination Area Distribution Center DADC

Destination Delivery Unit DDU

Destination Bulk Mail Center DBMC

Destination Network Delivery Center DNDC

Direct Marketing Association, Inc. DMA

Educational, cultural, scientific or informational [value] ECSI

Every Door Direct Mail EDDM

Express Mail Service EMS

External First-Class Measurement System EXFC

Federal Employee Retirement System FERS

First-Class Mail International FCMI

Flats Sequencing System FSS

Foreign Post Settlement FPS

Global Bulk Economy GBE

Global Direct GD

Global Expedited Package Services GEPS

Global Expedited Package Service Non-published Rates 2 GEPS—NPR 2

Global Reseller Expedited Package Services 1 GREPS 1

Gross Domestic Product GDP

Integrated Financial Plan IFP

Intelligent Mail Barcode IMb

Intelligent Mail Accuracy and Performance System iMAPS

International Cost and Revenue Analysis ICRA

International Mail Measurement System IMMS

International Money Transfer Service – Outbound IMTS-Outbound

International Priority Airmail IPA

International Service Center ISC

International Surface Airlift ISAL

In-Office Cost System IOCS

Mailer Identification MID

Mixed Area Distribution Center MADC

National Association of Presort Mailers NAPM

National Postal Policy Council NPPC
 POSTAL REGULATORY COMMISSION 185

Long Version Abbreviation/Acronym

Negotiated Service Agreement NSA

Network Distribution Center NDC

Not-Flat Machinables NFMs

Office of Personnel Management OPM

Officially Licensed Retail Products OLRP

Occupational Safety and Health Administration OSHA

Origin Area Distribution Center OADC

Origin Bulk Mail Center OBMC

Origin Network Distribution Center ONDC

Origin Sectional Center Facility OSCF

Parcel Shippers Association PSA

Point of Service POS

Post Office Box PO Box

Postal Accountability and Enhancement Act PAEA

Postal Qualified Wholesalers PQW

Product Tracking System PTS

Qualified Business Reply Mail QBRM

Quality Link Measurement System QLMS

Postal Service Retirement Health Benefits Fund RHBF

Retail Access Optimization Initiative RAOI

Revenue, Pieces, and Weights RPW

Sectional Center Facility SCF

Securities and Exchange Commission SEC

Stamp Fulfillment Services SFS

The Postal Service Financial Responsibility and Management 

Assistance Authority

The Authority

Total Factor Productivity TFP

Universal Postal Union UPU

Village Post Offices VPO

Voice of the Employee VOE
186 2011 Annual compliance determination
 POSTAL REGULATORY COMMISSION 187

Appendix D

Commenters—2011 Annual Compliance 

Determination

Commenter Comment Citation Citation Short Form

American Catalog Mailers Association Comments of the American Catalog Mailers 

Association (ACMA)

ACMA Comments

February 3, 2012

American Catalog Mailers Association Reply Comments of the American Catalog Mailers 

Association (ACMA)

ACMA Reply Comments

February 17, 2012

American Postal Workers Union, AFL-CIO Reply Comments of American Postal Workers Union, 

AFL-CIO

APWU Reply Comments

February 23, 2012

Direct Marketing Association, Inc., National 

Association of Presort Mailers, and Parcel 

Shippers Association

Comments of the Direct Marketing Association, Inc., 

the National Association of Presort Mailers, and the 

Parcel Shippers Association

DMA/NAPM/PSA

February 3, 2012

Direct Marketing Association, Inc., Major 

Mailers Association, National Association of 

Presort Mailers, National Postal Policy Council, 

and Parcel Shippers Association

Joint Comments of the Direct Marketing Association, 

Inc., the Major Mailers Association, the National 

Association of Presort Mailers, the National Postal 

Policy Council, and the Parcel Shippers Association

DMA et al. Joint Comments

February 3, 2012

L.L.Bean, Inc. Comments of L.L.Bean, Inc. L.L.Bean Comments

February 3, 2012

L.L.Bean, Inc. Reply Comments of L.L.Bean, Inc. L.L.Bean Reply Comments

February 17, 2012

Magazine Publishers of America, Inc., Alliance 

of Nonprofit Mailers, American Business Media

Reply Comments of Magazine Publishers of America, 

Inc., Alliance of Nonprofit Mailers and American 

Business Media

MPA/ANM/ABM Reply 

Comments

February 17, 2012
188 2011 Annual compliance determination

Commenter Comment Citation Citation Short Form

National Postal Policy Council Comments of the National Postal Policy Council NPPC Comments

February 3, 2012

National Postal Policy Council Reply Comments of the National Postal Policy Council NPPC Reply Comments

February 17, 2012

Pitney Bowes, Inc Comments of Pitney Bowes Inc. PB Comments

February 3, 2012

Pitney Bowes, Inc. Supplemental Comments of Pitney Bowes Inc. PB Supplemental 

Comments

March 12, 2012

Pitney Bowes, Inc. Comments of John C. Panzar on Behalf of Pitney 

Bowes Inc.

Panzar Comments

February 3, 2012

Public Representative Public Representative Comments PR Comments

February 2, 2012

Public Representative Public Representative Reply Comments in ?? PR Reply Comments

February 17, 2012

Time Inc. Initial Comments of Time Inc. on USPS FY 2011 

Annual Compliance Report

Time Comments

February 3, 2012

Time Inc. Reply Comments of Time Inc. on USPS FY 2011 

Annual Compliance Report

Time Reply Comments

February 17, 2012

United States Postal Service Reply Comments of the United States Postal Service Postal Service Reply 

Comments

February 17, 2012

Valpak Direct Marketing Systems, Inc. and 

Valpak Dealers’ Association, Inc.

Valpak Direct Marketing Systems, Inc. and Valpak 

Dealers’ Association, Inc. Initial Comments on 

the United States Postal Service FY 2011 Annual 

Compliance Report

Valpak Comments

February 3, 2012

Valpak Direct Marketing Systems, Inc. and 

Valpak Dealers’ Association, Inc.

Valpak Direct Marketing Systems, Inc. and Valpak 

Dealers’ Association, Inc. Reply Comments on 

the United States Postal Service FY 2011 Annual 

Compliance Report

Valpak Reply Comments

February 17, 2012
901 New York Avenue NW, Suite 200

Washington, DC 20268 - 0001