POSTAL REGULATORY COMMISSION

Annual Compliance 

Determination Report

Fiscal Year 2014

March 27, 2015

Postal Regulatory Commission

Submitted 3/27/2015 2:16:36 PM

Filing ID: 91873

Accepted 3/27/2015
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TABLE OF CONTENTS

Page

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

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

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

C. Principal Findings: Competitive Products Rate and Fee Compliance..................2

D. Principal Findings: Market Dominant Products Service Performance................3

E. Principal Findings: Customer Access and Satisfaction ..............................................3

CHAPTER 1: INTRODUCTION...........................................................................................................................4

A. Statutory Context......................................................................................................................4

B. Timeline and Review of Report...........................................................................................5

C. Focus of the ACR .......................................................................................................................5

D. Other Reports.............................................................................................................................5

E. Commission Responsibilities...............................................................................................5

F. Procedural History...................................................................................................................6

G. Methodology Changes.............................................................................................................6

H. Product Analysis .......................................................................................................................7

I. Service Performance ...............................................................................................................7

J. Confidentiality ...........................................................................................................................7

K. Request for Additional Information..................................................................................7

CHAPTER 2: MARKET DOMINANT PRODUCTS: PRICING REQUIREMENTS .................................8

A. Introduction................................................................................................................................8

B. The Class-Level Price Cap......................................................................................................8

C. Workshare Discounts..............................................................................................................8

1. First-Class Mail............................................................................................................... 10

2. Periodicals........................................................................................................................ 12

3. Standard Mail.................................................................................................................. 17

4. Package Services............................................................................................................ 26

D. Preferred Rate Requirements........................................................................................... 32

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

ISSUES .................................................................................................................................................................... 33

A. Introduction............................................................................................................................. 33

B. Noncompensatory Products.............................................................................................. 33

1. Periodicals........................................................................................................................ 33

2. Standard Mail Flats ....................................................................................................... 41

3. Standard Mail Parcels .................................................................................................. 48

4. Media Mail........................................................................................................................ 50
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5. Stamp Fulfillment Services ........................................................................................ 51

6. Inbound Letter Post...................................................................................................... 52

7. Other Issues ..................................................................................................................... 57

C. Domestic Market Dominant NSAs................................................................................... 58

1. Current Accepted Analytical Principle.................................................................. 59

2. PHI NSA............................................................................................................................. 60

3. Valassis NSA .................................................................................................................... 61

4. Discover Financial Services NSA ............................................................................. 62

D. Nonpostal Services................................................................................................................ 67

E. Other Issues ............................................................................................................................. 68

1. Metered Letter Prices .................................................................................................. 68

2. First-Class Mail Product Cost Coverage Disparity ............................................ 68

3. Discount for Automation 5-Digit Letters.............................................................. 69

4. Cost Reduction Issues .................................................................................................. 69

5. Standard Mail Automation Letters ......................................................................... 70

CHAPTER 4: COMPETITIVE PRODUCTS ................................................................................................... 71

A. Introduction............................................................................................................................. 71

B. Cross-Subsidy Provision: 39 U.S.C. § 3633(a)(1)...................................................... 71

C. Product Cost Coverage Provision: 39 U.S.C. § 3633(a)(2)..................................... 72

1. Competitive Domestic Products with Rates of General Applicability....... 72

2. Competitive Domestic Products Consisting of Negotiated Service 

Agreements.............................................................................................................................. 72

3. Competitive International Products with Rates of General Applicability74

4. Competitive International Products Consisting of NSAs................................ 76

5. Competitive Nonpostal Services.............................................................................. 82

D. Appropriate Contribution Provision: 39 U.S.C. § 3633(a)(3)............................... 82

E. Issues Raised by Commenters.......................................................................................... 83

1. The Attribution of Costs to Competitive Products............................................ 83

2. Appropriate Share of Institutional Costs.............................................................. 85

CHAPTER 5: SERVICE PERFORMANCE ..................................................................................................... 87

A. Service Performance Results by Class........................................................................... 87

1. Introduction..................................................................................................................... 87

2. Participant Comments and Concerns on Service Performance................... 88

3. Measurement Systems................................................................................................. 90

4. Service Performance Results by Class................................................................... 95

B. Customer Access ..................................................................................................................115

1. Introduction...................................................................................................................115

2. Retail Facilities .............................................................................................................116
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3. POStPlan..........................................................................................................................117

4. Post Office Suspensions ............................................................................................119

5. Delivery Points .............................................................................................................121

6. Collection Points ..........................................................................................................122

7. Alternative Access.......................................................................................................123

C. Customer Satisfaction........................................................................................................125

1. Wait Time in Line ........................................................................................................125

2. Customer Insights .......................................................................................................126

3. Point of Sale Survey....................................................................................................127

4. Business Service Network Survey ........................................................................128

5. Delivery (Residential/Small & Medium Business) Survey..........................128

6. Customer Care Center Survey.................................................................................129

Appendix A—Commission-Directed Undertakings that May Result in Future Analytical 

Principle Changes

Appendix B—Commenters 2014 Annual Compliance Determination

Appendix C—Acronyms and Abbreviations
EXECUTIVE SUMMARY

This report reviews the Postal Service’s performance in Fiscal Year (FY) 2014, fulfilling the 

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

service mandated by Title 39, section 3653, of the United States Code. It is based on 

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

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

findings and directives are identified in italics in each chapter.

Consistent with the approach adopted last year, the Annual Compliance Determination

focuses on compliance issues as defined in 39 U.S.C. §§ 3653(b)(1) and (b)(2). These 

statutory subsections require the Commission to make determinations on whether any 

rates and fees in effect during FY 2014 were not in compliance with chapter 36 of Title 

39 of the United States Code and whether any service standards in effect during FY 2014 

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

approved in Docket No. R2013-11 for Market Dominant products.

The financial analysis that had been incorporated in past ACDs will be expanded and issued 

as a separate report. The Commission will also issue a separate report on the Postal 

Service’s 2014 Annual Performance Report and 2015 Performance Plan to fulfill its statutory 

responsibilities under 39 U.S.C. § 3653(d).

A. Principal Findings: Market Dominant Rate 

and Fee Compliance

In Chapter 2, the Commission identifies compliance issues related to 48 workshare 

discounts, finding that 26 of the discounts did not comply with section 3622(e). Workshare 

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

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

costly basis.

 For 18 of the 26 workshare discounts that were not in compliance with section 

3622(e), the Postal Service either aligned those discounts more closely with costs or 

provided a sufficient rationale justifying a statutory exception in its most recent 

Market Dominant product price adjustment in Docket No. R2015-4.

 For the eight workshare discounts remaining out of compliance with section 

3622(e), the Postal Service must either align workshare discounts with avoided 

costs in the next Market Dominant price adjustment or specify an applicable 

statutory exception.
Docket No. ACR2014 - 2 -

B. Principal Findings: Market Dominant 

Noncompensatory Products

In Chapter 3, the Commission identifies seven noncompensatory Market Dominant 

products: Periodicals In-County, Periodicals Outside County, Standard Flats, Standard 

Parcels, Media Mail/Library Mail, Inbound Letter Post, and Stamp Fulfillment Services.

For Periodicals, in the FY 2015 ACR, the Postal Service must provide a detailed analysis of 

the progress made in improving cost coverage. This analysis shall include:

 The impact of leveraging the Postal Service’s pricing flexibility to improve the 

efficiency of Periodicals pricing

 A detailed analysis of the cost and contribution impact of the worksharing 

incentives offered for 5-Digit and Carrier Route presortation

 The progress in developing metrics to assess the cost savings impact of 

operational strategies

 The cost savings from the implementation of operational strategies outlined in 

Chapter 7 of the Periodicals Mail Study and the Flats Strategy

 The progress in implementing pricing strategies outlined in Chapter 7 of the 

Periodicals Mail Study

With respect to Standard Mail Flats, the Commission finds that progress is being made 

toward addressing the cost coverage shortfall despite the increase in negative contribution. 

As a result, no further remedial action is required at this time.

For Inbound Letter Post, the Commission recommends that the Postal Service continue to 

negotiate more compensatory bilateral (or multilateral) agreements with foreign postal 

operators in the upcoming fiscal year.

For the remaining noncompensatory products, the Commission finds that the Postal 

Service is taking appropriate steps to improve cost coverage.

C. Principal Findings: Competitive Products 

Rate and Fee Compliance

In Chapter 4, the Commission finds that revenues for the following two products did not 

cover attributable costs and thus did not comply with section 3633(a)(2): International 

Money Transfer Service – Outbound, and International Money Transfer Service – Inbound.

The Commission orders the Postal Service to take corrective action.
Docket No. ACR2014 - 3 -

D. Principal Findings: Market Dominant 

Products Service Performance

In Chapter 5, the Commission finds that some products met service performance targets, 

while others still fail to meet their applicable targets.

• The Postal Service met its service performance targets for Presorted First-Class 

Letters/Postcards (Overnight and 2-Day), High Density and Saturation Letters, 

Bound Printed Matter Parcels, Media Mail/Library Mail, and most Special 

Services products.

• Service performance results for Periodicals, most products in Standard Mail, and 

Package Services continue to fall short of targets despite Postal Service 

initiatives to increase performance.

E. Principal Findings: Customer Access and 

Satisfaction

• The Commission has previously recommended that the Postal Service proceed 

expeditiously in either discontinuing offices under suspension or reopening 

them. It reiterates that recommendation in this proceeding.

• The Postal Service replaced its Customer Experience Measurement Survey with 

the Customer Insights methodology. Changing measurement methodology 

makes it difficult to make year-over-year comparisons of the surveys’ results.
Docket No. ACR2014 - 4 -

CHAPTER 1: INTRODUCTION

A. Statutory Context

Two sections of Title 39 of the United States Code (U.S.C.), as amended by the Postal 

Accountability and Enhancement Act (PAEA),1 require the Postal Regulatory Commission 

to conduct ongoing, systematic reports and assessments of the financial and operational 

performance of the Postal Service. The first provision, 39 U.S.C. § 3652, requires the Postal 

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

Report (ACR). See 39 U.S.C. § 3652(a). The second provision, 39 U.S.C. § 3653, requires the 

Commission to review the Postal Service’s annual reports and issue an Annual Compliance 

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

provisions of Title 39 and whether any service standards were not met. 39 U.S.C. § 3653(b). 

Together, these provisions establish the ACR and the ACD as integrated mechanisms for 

providing ongoing accountability, transparency, and oversight of the Postal Service.

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

financial condition and its performance plans and program performance.2 It plans to issue 

its financial analysis during April 2015, and anticipates issuing its analysis of the 

performance plans and program performance, required by 39 U.S.C. § 3653(d), during May 

2015. This ACD focuses on the requirements of §§ 3653(b)(1) and (b)(2).3

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

between Market Dominant and Competitive products. For Market Dominant products, 

§§ 3622 and 3626 of Title 39 are relevant for rates and fees; § 3633 is relevant for 

Competitive products.

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

in Chapters 2, 3, and 4. In Chapter 2, the Commission evaluates the workshare discounts for 

Market Dominant products to determine compliance with 39 U.S.C. § 3622(e). Chapter 2 

also includes a discussion about the preferred rate requirements and the price cap. Chapter 

3 focuses on other compliance issues related to Market Dominant products’ rates and fees. 

Chapter 4 covers compliance issues related to the rates and fees of Competitive products. 

In Chapter 5, the Commission discusses service performance and measurement.

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

 

1

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

2

See Notice Regarding the Postal Service’s FY 2014 Performance Report and FY 2015 Performance Plan, February 3, 2015 (Order No. 2342).

3

In this ACD, the Commission addresses only rates and fees that have been challenged as not in compliance.
Docket No. ACR2014 - 5 -

Appendix B contains a list of Commenters and the comments they filed. Appendix C 

contains an index of acronyms and abbreviations.

B. 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 (i.e., 90 days after September 30). The Commission is required to complete the 

ACD within 90 days of receiving the ACR. The Postal Service filed the FY 2014 ACR on 

December 29, 2014; thus, the Commission must issue this ACD no later than March 29, 

2015. However, because March 29 is a Sunday, the Commission may issue the ACD on 

March 30. See 39 C.F.R. § 3001.15.

C. Focus of the ACR

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

rates, and quality of service sufficient to demonstrate that during the reporting year all 

products complied with all applicable requirements of Title 39. Additionally, for Market 

Dominant products, the Postal Service must include product information, mail volumes, 

and measures of quality of service, including the speed of delivery, reliability, and the levels 

of customer satisfaction. For Market Dominant products with workshare discounts, the 

Postal Service must report the per-item cost it avoided through the worksharing activity 

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

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

§ 3652(b).

D. Other Reports

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

Comprehensive Statement on Postal Operations, its Performance Plan, and program 

Performance Reports. 39 U.S.C. § 3652(g).

E. Commission Responsibilities

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

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

making a written determination as to whether any rates or fees were not in compliance 

with applicable provisions of chapter 36 of Title 39 or related regulations, and whether any 

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

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

appropriate. 39 U.S.C. § 3653(c).
Docket No. ACR2014 - 6 -

F. Procedural History

On December 29, 2014, the Postal Service filed its FY 2014 ACR, covering the period from 

October 1, 2013, through September 30, 2014.4 The ACR included an extensive narrative 

and a substantial amount of detailed public and non-public information contained in 

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

International Cost and Revenue Analysis (ICRA), cost models supporting workshare 

discounts, and volume information presented in billing determinants. Library Reference 

USPS-FY14-9, December 29, 2014, summarizes the other materials included in the ACR, 

and contains a list of special studies and a discussion of obsolescence5 in response to § 

3050.12 of Title 39 of the Code of Federal Regulations (C.F.R.).

The Postal Service concurrently filed its 2014 Annual Report and Comprehensive Statement 

on Postal Operations as part of Library Reference USPS-FY14-17, December 29, 2014, to the 

FY 2014 ACR.6 It also filed its Annual Report to the secretary of the U.S. Department of the 

Treasury regarding the Competitive Products Fund, as required by 39 U.S.C. 2011(i), as 

part of Library Reference USPS-FY14-39, December 29, 2014.

On December 31, 2014, the Commission issued an order providing notice of the Postal 

Service’s filing of the ACR, establishing Docket No. ACR2014 to consider the ACR, 

appointing a Public Representative to represent the interests of the general public, 

establishing a deadline for the Postal Service’s filing of additional information that had 

been omitted from the ACR, and establishing February 2, 2015, as the deadline for 

comments and February 13, 2015, as the deadline for reply comments.7

G. Methodology Changes

The FY 2014 ACR generally employs the methodologies used most recently by the 

Commission.8 In this ACR proceeding, the Postal Service relies upon 15 approved changes 

and one pending change to methodologies.9

 

4

United States Postal Service FY 2014 ACR, December 29, 2014 (FY 2014 ACR).

5

Here, obsolescence refers to studies that may be outdated (e.g., a study may not reflect current operating conditions and procedures).

6

2014 Annual Report and Comprehensive Statement on Postal Operations, December 29, 2014. Included as parts of Library Reference USPSFY14-17 are the Postal Service’s 2014 Performance Report and its 2015 Performance Plan.

7

Notice of Postal Service’s Filing of Annual Compliance Report and Request for Public Comments, December 31, 2014 (Order No. 2313); see 

also 80 FR 906-908 (January 7, 2015). On February 3, 2015, the Commission established separate comment dates for the Postal Service’s FY 

2014 Performance Report and FY 2015 Performance Plan. See Order No. 2342, Notice Regarding the Postal Service’s FY 2014 Performance 

Report and FY 2015 Performance Plan, February 3, 2015. On February 9, 2015, the Commission designated a substitute Public Representative. 

See Order No. 2351, Notice and Order Designating Substitute Public Representative, February 9, 2015.

8

See FY 2014 ACR at 3-4.

9

Id. at 4-5. Five of the methodologies were approved after the Postal Service submitted its FY 2013 ACR (FY 2013 ACR) and eight methodologies 

were approved prior to the filing of the FY 2014 ACR. Id. Two methodologies were approved after the filing of the FY 2014 ACR. Id. at 5 

(Proposals Ten and Eleven); Docket No. RM2015-3, Order on Analytical Principles Used in Periodic Reporting (Proposal Ten), January 6, 2015 

(Order No. 2315); and Docket No. RM2015-4, Order on Analytical Principles Used in Periodic Reporting (Proposal Eleven), February 9, 2015.
Docket No. ACR2014 - 7 -

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

its website.10 Those models were used in its preparation of the FY 2014 ACD.

H. Product Analysis

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

services, and domestic and international negotiated service agreements (NSAs) entered 

into during FY 2014. This analysis includes a discussion of workshare discounts and 

passthroughs for Market Dominant products, required by 39 U.S.C. § 3652(b). The Postal 

Service also provides data for Competitive products and discusses the data with reference 

to standards under 39 U.S.C. § 3633 and 39 C.F.R. § 3015.7. Last, the Postal Service 

discusses the one Market Dominant market test and three Competitive market tests 

conducted in FY 2014, as well as two Market Dominant and nine Competitive non-postal 

products.

I. Service Performance

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

and consumer access, as required under 39 U.S.C. § 3652(a)(2) and 39 C.F.R. part 3055.

J. Confidentiality

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

Commission, to simultaneously file an application for non-public treatment. 39 C.F.R. 

3007.20. The application for non-public treatment must clearly identify all non-public 

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

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

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

ACR included such an application with respect to certain Competitive products.

K. Request for Additional Information

Eleven Chairman’s Information Requests (CHIRs) were issued with respect to the ACR from 

January 9, 2015, to March 2, 2015. The Postal Service responded to the CHIRs, often filing 

supplemental information in support of the responses.11 The Commission appreciates the 

Postal Service’s responsiveness to these requests.

 

10 See directory of Commission workshare cost avoidance models at 

http://www.prc.gov/sites/default/files/FY%202013%20Workshare%20Cost%20Model%20Directory%2009%2010%202014%20%282%29.pdf.

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

Postal Service for Late Acceptance of the Filing of Supplemental Information in Response to Order No. 2313, January 15, 2015. Each of the 

Postal Service’s motions for late acceptance is granted.
Docket No. ACR2014 - 8 -

CHAPTER 2: MARKET DOMINANT 

PRODUCTS: PRICING REQUIREMENTS

A. Introduction

The PAEA introduced three pricing requirements for Market Dominant products: a classlevel price cap based upon changes in the consumer price index for all urban consumers 

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

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

B. The Class-Level Price Cap

The Commission approved two price increases that went into effect during FY 2014.12 At 

the time they were implemented, these price changes complied with the price cap 

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

When applied to actual mail volumes, price increases may produce results that differ from 

the application of the same price increases to the historical billing determinants used by 

the Commission during its pre-implementation review of the proposed increases. In past 

ACDs, the Commission has analyzed the price changes by comparing the percentage change 

in rates for each class weighted according to two different sets of billing determinants—the 

historical, pre-implementation billing determinants and the post-implementation billing 

determinants from the first full year that the rates had been in effect.13

Because the rates in effect during the last three quarters of FY 2014 included an exigent 

price increase,14 it is not possible to analyze only the effect of the CPI-U price change. For 

this reason, this ACD does not contain an empirical analysis of the price cap.

C. Workshare Discounts

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

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

based on the estimated costs avoided as a result of the mailer performing the activity. 

39 U.S.C. § 3622(e)(2) directs the Commission to ensure that workshare discounts do not 

exceed the costs the Postal Service avoids as a result of the worksharing activity. The 

statute provides four exceptions to this requirement. See 39 U.S.C. §§ 3622(e)(2)(A) 

through (D).

 

12 Docket No. R2013-10, Order on Price Adjustments for Market Dominant Products and Related Mail Classification Changes, November 21, 

2013 (Order No. 1890); Docket No. R2013-11, Order Granting Exigent Price Increase, December 24, 2013 (Order No. 1926).

13 See, e.g., Docket No. ACR2012, Annual Compliance Determination, May 7, 2013, Appendix A (Empirical Review of Price Cap Application).

14 See supra, Order No. 1926 at 4 n.1.
Docket No. ACR2014 - 9 -

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

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

its determinations on rates and fees “in effect” during FY 2014. The prices in effect in 

FY 2014 are the prices approved in Docket No. R2013-11 and include a temporary exigent 

surcharge of 4.3 percent. Order No. 1926. Discounts evaluated for compliance are based on 

these prices. Worksharing discounts that are not greater than their avoided costs are in 

compliance for FY 2014 and require no further discussion.15

In this proceeding, the compliance of workshare discounts with 39 U.S.C. § 3622(e)(2) is 

also affected by a timing issue. Workshare discounts that are the subject of the FY 2014 

ACD were established by the notices of price adjustment filed by the Postal Service in 

Docket Nos. R2013-10 and R2013-11 during September 2013.16 Those discounts and the 

rates to which they relate went into effect on January 26, 2014, and remained in effect 

during the remainder of FY 2014 (i.e., through September 30, 2014). The workshare 

discounts developed by the Postal Service in those two dockets used cost data from 

FY 2012, the most recent fiscal year cost data available at the time.

As part of its compliance determination, the Commission compares the discounts in effect 

during a fiscal year with the cost avoidances for that fiscal year. The 2-year lag between the 

data the Postal Service used to set the discounts that were in effect during most of FY 2014 

and the data the Commission uses in the FY 2014 ACD to evaluate those same discounts 

result in an increase in the number of discounts that pass through more than 100 percent 

of avoided costs.

The Postal Service observes that the passthroughs that are above 100 percent result from 

the lag between estimation of new cost avoidances and pre-existing discounts. FY 2014 

ACR at 6, 9-13, 21-25, 34-35. It recognizes that there is no statutory exception that 

addresses this timing issue. Consequently, the Postal Service does not rely on statutory 

worksharing exceptions to justify certain worksharing discounts that pass through more 

than 100 percent of their avoided costs.

The Postal Service acknowledges that the ideal would be “for [its] price adjustment filings 

to have the benefit of a recently issued ACD.” FY 2014 ACR at 6 n.4. The Postal Service 

asserts that it “will continue to review the timing of its annual price adjustments in order to 

balance USPS, customer, and regulatory timing needs.” Id.

 

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

indicate discounts that are greater than avoided costs. Passthroughs below 100 percent indicate discounts that are below avoided costs.

16 The Postal Service proposed, in general, an across-the-board price increase of 4.3 percent for all classes of mail. See Order No. 1926 at 159-

61. The Postal Service, however, deviated from the across-the-board price increase to avoid adverse passthrough changes. Id. The Postal 

Service viewed the passthroughs that resulted from the rates proposed in Docket No. R2013-10 and approved in Order No. 1890 as the original 

(or baseline) passthroughs. Id. 
Docket No. ACR2014 - 10 -

For FY 2015, the Postal Service adjusted its schedule of planned price changes and filed its 

notice of price adjustment in Docket No. R2015-4 on January 15, 2015.17 It aligned its 

discounts with avoided costs based on FY 2014 cost data. The Commission anticipates 

fewer passthroughs above 100 percent in the FY 2015 ACR.

The sections below are organized by class of mail and review worksharing discounts that 

are greater than the avoided costs associated with the discount.

1. First-Class Mail

Eight First-Class Mail worksharing discounts exceeded the costs avoided by the 

corresponding mailer workshare activity (see Table II-1):

 Qualified Business Reply Mail (QBRM) Letters

 Automation automated area distribution center (AADC) Letters

 Automation Mixed AADC Cards

 Automation AADC Cards

 Automation 5-Digit Cards

 Automation area distribution center (ADC) Flats

 Automation 3-Digit Flats

 Automation 5-Digit Flats

The calculations that form the basis of these avoided cost passthroughs employ the 

accepted cost methodology. Below, the Commission discusses passthroughs that were 

above 100 percent in the order listed above.

The discount for QBRM Letters is 106.3 percent of avoided costs. The Postal Service asserts 

that the excessive passthrough results from a lag between estimation of new cost 

avoidances and the setting of discounts. FY 2014 ACR at 9-10. The Postal Service has not 

provided a statutory reason to justify the excessive passthroughs. See 39 U.S.C. § 3622(e). 

The Commission finds that the discount for QBRM Letters is out of compliance for FY 2014. 

The Commission recognizes that the Postal Service’s reduction of the discount in Docket 

No. R2015-4 realigns the discount with avoided cost; therefore, no further action is 

required.

The discounts for Automation AADC Letters reflect a passthrough of 145.0 percent of 

avoided cost. The Postal Service asserts that the excessive passthrough results from a lag 

between estimation of new cost avoidances and the setting of discounts. FY 2014 ACR at 

10. The Postal Service has not provided a statutory reason to justify the excessive 

passthroughs. See 39 U.S.C. § 3622(e). The Commission finds that the discount is out of 

compliance for FY 2014. However, the Postal Service’s price change in Docket No. R2015-4 

 

17 The Postal Service intends to implement the new prices on April 26, 2015. Docket No. R2015-4, United States Postal Service Notice of MarketDominant Price Adjustment, January 15, 2015, at 1.
Docket No. ACR2014 - 11 -

aligns the Automation AADC Letters discount with avoided cost; therefore, no further 

action is required.

Automation Mixed AADC Cards, Automation AADC Cards, and Automation 5-Digit Cards, 

respectively, reflect passthroughs of 136.4 percent, 144.4 percent, and 107.7 percent of 

avoided costs. The Postal Service asserts that the excessive passthroughs result from a lag 

between estimation of new cost avoidances and the setting of discounts. FY 2014 ACR at 

10-12. The Postal Service has not provided a statutory reason to justify the excessive 

passthroughs. See 39 U.S.C. § 3622(e). The Commission finds that the Automation Cards 

discounts are out of compliance for FY 2014. However, the Postal Service’s price change in 

Docket No. R2015-4 aligns the discounts for Automation Mixed AADC Cards, Automation 

AADC Cards, and Automation 5-Digit Cards with avoided costs: therefore, no further action 

is required.

The Postal Service calculates the following passthroughs of avoided costs for Automation 

Flats: Automation ADC Flats, 113.8 percent; Automation 3-Digit Flats, 142.5 percent; and 

Automation 5-Digit Flats, 120.4 percent. The Postal Service asserts that the excessive 

passthroughs for Automation ADC Flats and Automation 3-Digit Flats result from a lag 

between estimation of new cost avoidances and the setting of discounts. FY 2014 ACR at 

13-14. It has not provided a statutory reason to justify these excessive passthroughs. See 

39 U.S.C. § 3622(e).

For Automation 5-Digit Flats, the Postal Service contends that the passthrough is necessary 

to mitigate rate shock. It asserts that reducing the discount to match avoided cost would 

result in a price increase of 14 percent for this rate category. However, it provides no 

explanation as to the adverse effects the increase would have on users of Automation 5-

Digit Flats. FY 2014 ACR at 13-14.

The Commission finds that the discounts for Automation ADC Flats and Automation 3-Digit 

Flats are out of compliance for FY 2014. However, the Postal Service’s price changes in Docket 

No. R2015-4 align the discounts with avoided costs; therefore, no corrective action is required.

The Commission also finds that the Postal Service’s use of the “rate shock” exception for the 

Automation 5-Digit Flats discount is not sufficiently supported. However, in Docket No. 

R2015-4, the Commission found that an “unusual set of circumstances” justified the discount 

proposed in that docket.18 Consequently, no corrective action is required at this time. The 

Commission expects the Postal Service to align the discount for Automation 5-Digit Flats with 

avoided costs in the next Market Dominant price adjustment or to provide support for an 

applicable statutory exception.

 

18 Docket No. R2015-4, Order on Price Adjustments for First-Class Products and Related Mail Classification Changes, February 24, 2015, at 9 

(Order No. 2365). 
Docket No. ACR2014 - 12 -

Table II-1

First-Class Mail

Workshare Discounts and Benchmarks

Type of Worksharing

(Benchmark)

FY 2014

Year-End 

Discount

(Cents)

Unit Cost 

Avoidance

(Cents)

Passthrough

First-Class Mail Automation Letters: Barcoding & Presorting

Automation Mixed AADC Letters (Metered Letters) 4.5 4.6 97.8%

Automation AADC Letters (Automation Mixed AADC Letters) 2.9 2.0 145.0%

Automation 3-Digit Letters (Automation AADC Letters) 0.0 0.5 0.0%

Automation 5-Digit Letters (Hybrid Automation AADC/3-Digit Letters) 2.5 3.1 80.6%

First-Class Mail Non-automation Letters: Barcoding

Non-automation Presort Letters (Metered Letters) 2.0 5.8 34.5%

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

QBRM (Handwritten Reply Mail) 1.7 1.6 106.3%

First-Class Mail Automation Cards: Barcoding & Presorting

Automation Mixed AADC Cards (Non-automation Presort Cards) 1.5 1.1 136.4%

Automation AADC Cards (Automation Mixed AADC Cards) 1.3 0.9 144.4%

Automation 3-Digit Cards (Automation AADC Cards) 0.0 0.2 0.0%

Automation 5-Digit Cards (Hybrid Automation AADC/3-Digit Cards) 1.4 1.3 107.7%

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

QBRM (Handwritten Reply Cards) 1.4 1.6 87.5%

First-Class Mail Automation Flats: Barcoding & Presorting

Automation ADC Flats (Automation Mixed ADC Flats) 9.1 8.0 113.8%

Automation 3-Digit Flats (Automation ADC Flats) 5.7 4.0 142.5%

Automation 5-Digit Flats (Automation 3-Digit Flats) 18.3 15.2 120.4%

Source: Library Reference PRC–LR–ACR2014/3.

2. Periodicals

In FY 2014, one In-County Periodicals passthrough and 13 Outside County Periodicals 

passthroughs exceeded 100 percent. Table II-2 identifies these passthroughs.
Docket No. ACR2014 - 13 -

Table II-2

Periodicals Workshare Discounts Exceeding Avoided Cost

Type of Worksharing

Year End 

Discount 

(Cents)

Unit Cost 

Avoidance 

(Cents)

Passthrough

Outside County

Presorting 

1. Machinable Non-automation 5-Digit Flats 10.4 8.4 123.8%

2. High Density 3.3 2.5 132.0%

3. Machinable Automation 5-Digit Flats 9.3 7.5 124.0%

4. Non-machinable Non-automation ADC Flats 12.2 8.6 141.9%

5. Non-machinable Non-automation 3-Digit Flats 7.9 3.1 254.8%

6. Non-machinable Non-automation 5-Digit Flats 13.8 8.9 155.1%

7. Non-machinable Automation ADC Flats 10.4 9.1 114.3%

8. Non-machinable Automation 3-Digit Flats 6.5 2.8 232.1%

9. Non-machinable Automation 5-Digit Flats 12.1 9.3 130.1%

Barcoding 

10. Non-machinable Automation Mixed ADC Flats 5.0 – N/A

Presorting Automation Letters 

11. Automation ADC Letter 4.0 1.5 262.7%

12. Automation 3-Digit Letter 2.2 0.4 595.8%

13. Automation 5-Digit Letter 6.5 2.1 304.6%

In-County

Presorting

14. Automation 3-Digit Letter 1.2 1.0 120.0%

Source: Library Reference PRC–LR–ACR2014/5.

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

U.S.C. § 3622(d). The Postal Service justified Periodicals discounts that exceeded 100 

percent on the basis of 39 U.S.C. § 3622(e)(2)(C), which authorizes workshare discounts 

greater than avoided cost if provided in connection with a subclass that consists exclusively 

of mail matter with educational, cultural, scientific, or informational (ECSI) value. FY 2014 

ACR at 32.

No commenter discussed Periodicals worksharing passthroughs, container cost/price 

ratios, or bundle cost/price ratios in Docket No. ACR 2014.19

 

19 In Docket No. R2015-4, MPA—The Association of Magazine Media (MPA) commented on the pallet-handling productivities the Postal Service 

used in its calculation of pallet costs. Docket No. R2015-4, Comments of MPA-The Association of Magazine Media, February 19, 2015, at 3 

(MPA Comments).
Docket No. ACR2014 - 14 -

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

the Periodicals discounts that exceed avoided costs are consistent with 39 U.S.C. § 

3622(e).20 The Postal Service justified these Periodicals workshare discounts based on 

section 3622 (e)(2)(C), but other statutory requirements and objectives highlight the 

importance of sending more efficient pricing signals to mailers. Although the Postal Service 

introduced Flats Sequencing System (FSS) pricing for pallets in FY 2014, it did not change 

the pricing relationships between workshare categories established in FY 2009. More 

closely aligning Periodicals workshare discounts with avoided costs would “maximize 

incentives to reduce costs and increase efficiency” as required by 39 U.S.C. § 3622(b)(1). 

Reducing the chronic disparity between Periodicals costs and prices also would help the 

Postal Service, “under best practices of honest, efficient, and economical management, to 

maintain and continue the development of postal services of the kind and quality adapted 

to the needs of the United States” as required by 39 U.S.C. § 404(b).

In the FY 2013 ACD, the Commission directed the Postal Service to report on the progress it 

has made in improving Periodicals cost coverage. FY 2013 ACD at 45. The Commission 

specifically directed the Postal Service to provide a detailed analysis of the “impact of 

leveraging its pricing flexibility to improve the efficiency of Periodicals pricing.” Id. In the 

FY 2014 ACR, the Postal Service did not provide any analysis of the impact, potential or 

realized, of leveraging its pricing flexibility to improve the efficiency of Periodicals pricing. 

The Postal Service discussed Periodicals pricing in a Supplemental Flats Information filing. 

However, this discussion focused on future Periodicals pricing initiatives.21

In FY 2014, the Postal Service implemented the Docket No. R2013-10 and R2013-11 price 

changes for Periodicals, noting that both price increases were “across the board,” raising all 

Periodicals prices equally. Supplemental Flats Information at 12. The Periodicals price 

increases implemented in FY 2014 did not make any progress in improving the efficiency of 

Periodicals price signals, as prices were increased equally across the class.

The Postal Service noted that the planned Market Dominant price adjustment in Docket 

No. R2015-4 contains “further measures to provide efficient pricing signals to the mailers.” 

Supplemental Flats Information at 13. In Docket No. R2015-4, the Postal Service, with some 

exceptions, plans to base prices for most bundles and pallets on the estimated costs of 

handling them. Docket No. R2015-4 Notice at 27. In order to create the price cap room 

needed to increase bundle and pallet prices for Periodicals, the Postal Service plans to 

leverage its pricing flexibility by lowering pound prices. Id.

With one exception, the Postal Service does not plan to change the piece-related 

worksharing incentives for Periodicals. Id. at 51. In the FY 2013 ACD, the Commission 

detailed the long-running issue with the Non-machinable Automation Mixed Area 

 

20 Tables displaying the full range of discounts, avoided costs, and passthroughs for In-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.

21 Notice of the United States Postal Service of Filing Partial Supplemental Information in Response to Order No. 2313, January 15, 2015, at 12-

15 (Supplemental Flats Information).
Docket No. ACR2014 - 15 -

Distribution Center (Mixed ADC) Flats pre-barcoding discount. FY 2013 ACD at 21-22. In FY 

2014, the Postal Service offered mailers a 5-cent discount for pre-barcoded flats that could 

not be processed on the Automated Flats Sorting Machine (AFSM) but could be processed 

on the Upgraded Flats Sorting Machine (UFSM). However, this pre-barcoding did not 

reduce the Postal Service’s costs in FY 2014. Therefore, in accordance with the 

Commission’s recommendation in the FY 2013 ACD, the Postal Service will discontinue the 

discount for the pre-barcoding of Mixed ADC Flats. Docket No. R2015-4 Notice at 51.

The majority—88.5 percent in FY 2014—of Outside County Periodicals volume is 

presorted to 5-Digit or Carrier Route. The difference in passthroughs for these two 

categories has widened considerably since FY 2008. Table II-3 details changes for Carrier 

Route Basic and 5-Digit piece presorting from FY 2008 to FY 2014.

Table II-3

Carrier Route and Automation 5-Digit Passthroughs

FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014

Carrier Route Basic 88.15% 71.52% 71.05% 69.48% 71.33% 77.70% 65.54%

Automation 5-Digit Flats 61.37% 96.63% 102.38% 106.17% 104.82% 121.62% 124.00%

Source: Docket Nos. ACR2009 – ACR2014, Postal Regulatory Commission Library References.

In FY 2014, the price difference between Machinable Automation 5-Digit and Carrier Route 

increased from 9.8 cents to 10.3 cents, pursuant to the price increase in Docket No. R2013-

11.22 However, the passthrough for Carrier Route decreased to 65.54 percent due to an 

increase in the Postal Service cost avoided by mailer presortation to Carrier Route. The 

Postal Service does not address this issue with its planned Docket No. R2015-4 prices.23

As the Postal Service has implemented FSS processing, the Commission has encouraged it 

to leverage its pricing flexibility in the pursuit of efficiency.24 FY 2013 ACD at 21. In 

FY 2014, the Postal Service implemented worksharing incentives for Destination Flats 

Sequencing System (DFSS) dropshipped pounds and DFSS Scheme presorted bundles. 

During the same period, roughly 20 percent of Periodicals were processed on the FSS, 

while only 5.6 percent were entered at DFSS facilities, the most efficient FSS entry location. 

FSS Scheme bundle preparation minimizes the bundle processing the Postal Service has to 

 

22 The difference in Docket No. R2013-10 CPI-U price increase continues to be 9.8 cents, unchanged from FY 2008. The increase in the discount 

was due to the equal percent increase calculation for the exigent surcharge.

23 The prices outlined in Docket No. R2015-4 set discounts well in excess of the cost avoidance for Machinable Automation 5-Digit presortation, 

but well below the cost avoidance for Carrier Route Basic.

24 Docket No. R2013-10, Order on Price Adjustments for Market Dominant Products and Related Mail Classification Changes, November 21, 

2013, at 88 (Order No. 1890).
Docket No. ACR2014 - 16 -

perform before sortation on the FSS, and only 4.8 percent of bundles in FY 2014 were 

presorted to FSS Schemes.25

In the FY 2013 ACD, the Commission directed the Postal Service to address the issue of 

inefficient Periodicals pricing. FY 2013 ACD at 23. The Docket No. R2015-4 planned price 

adjustment is the first meaningful step the Postal Service has taken to increase pricing 

efficiency for Periodicals since FY 2009. The planned adjustment will implement a 

structural change in FSS pricing incentives. Docket No. R2015-4 Notice at 28-29. The Postal 

Service will require that all Periodicals mail destined for ZIP Codes where Flats are 

processed via FSS machines pay FSS presort prices.26 The FSS presortation discount is an 

average of 3-Digit, 5-Digit, and Carrier Route Basic prices based on the volume of each in 

FSS zones in FY 2014. This change is part of the Postal Service’s overall strategy to process 

mail on the FSS more efficiently. Pricing bundles and pallets based on the costs of handling 

them encourages mailers to prepare more efficient mailings, decreasing costs and 

increasing contribution. By introducing FSS piece prices in Docket No. R2015-4, the Postal 

Service will take a rational step to increase FSS processing efficiency. However, additional 

steps are needed to improve Periodicals pricing efficiency.27

The Postal Service did not meaningfully respond to the Commission’s directive in the FY 

2013 ACD to analyze the profitability of increasing Periodicals pricing efficiency. For 

example, it did not provide worksharing cost avoidance information for the new FSS prices, 

stating that it “did not consider that establishing a price structure to reflect FSS preparation 

would also create multiple workshare discount rates.”28 To increase pricing efficiency, it is 

critical for the Postal Service to fully assess the value and impact of each price signal. 

For several years, and again in this docket, the Commission has highlighted the growing 

disparity between the pricing signals the Postal Service sends mailers that encourage 5-

Digit presortation and discourage Carrier Route presortation.29

In the FY 2015 ACR, the Postal Service shall provide a detailed analysis of the cost and 

contribution impact of the worksharing incentives offered for 5-Digit and Carrier Route 

presortation.

 

25 In Docket No. R2015-4, the Postal Service plans to change the structure of FSS prices. The Postal Service will require that all presorted mail 

destined for FSS zones pay an FSS price. This change is part of the Postal Service’s overall strategy to process mail on the FSS more efficiently. 

Docket No. R2015-4 Notice at 27.

26 In other words, mail “destined to” FSS zones.

27 FSS processing efficiency has steadily decreased since the introduction of the machine. Responses of the United States Postal Service to 

Questions 1-6, 8, 10, 12-13 and 15-22 of Chairman’s Information Request No. 2, January 23, 2015, question 8 (January 23, 2015, Response to 

CHIR No. 2).

28 Docket No. R2015-4, Response of the United State Postal Service to Question 2 of Chairman’s Information Request No. 6, February 18, 2015, 

question 2.

29 With the implementation of FSS prices for FSS zones, the Postal Service has additional incentive to encourage Carrier Route mail in non-FSS 

zones.
Docket No. ACR2014 - 17 -

In the FY 2015 ACR, the Postal Service shall provide a report on its progress in improving 

Periodicals pricing efficiency.

3. Standard Mail

Seventeen Standard Mail worksharing discounts exceeded the costs avoided by those 

discounts. Those 17 worksharing discounts were for Letters, Flats, and Parcels.

a. Letters

The following six worksharing discounts for Letters exceeded avoided costs in FY 2014:

 Automation Mixed AADC Letters

 Automation AADC Letters

 Non-automation AADC machinable Letters

 Non-automation ADC Non-machinable Letters

 Non-automation 3-Digit Non-machinable Letters

 Non-automation 5-Digit Non-machinable Letters

Each is discussed below. All remaining Letters discounts were less than avoided costs and 

were thus consistent with 39 U.S.C. § 3622(e) in FY 2014. Table II-4 shows the discounts 

for the Letters product for FY 2014.
Docket No. ACR2014 - 18 -

Table II-4

Standard Mail Letters (Commercial and Nonprofit)

Workshare Discounts and Benchmarks

Type of Worksharing 

(Benchmark)

FY 2014

Year-End 

Discount

(Cents)

Unit Cost 

Avoidance

(Cents)

Passthrough

Standard Mail Automation Letters: Presorting (Cents/Piece)

Automation AADC Letters (Automation Mixed AADC Letters) 2.2 1.6 137.5%

Automation 3-Digit Letters (Automation AADC Letters) 0.0 0.4 0.0%

Automation 5-Digit Letters (Automation 3-Digit Letters) 1.8 2.2 81.8%

Standard Mail Automation Letters: Barcoding (Cents/Piece)

Automation Mixed AADC Letters

(Non-automation Machinable Mixed ADC Letters) 0.8 0.1 800.0%

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

Non-automation AADC Machinable Letters 

(Non-automation Mixed AADC Machinable Letters) 1.8 1.6 112.5%

Non-automation ADC Non-machinable Letters 

(Non-automation Mixed ADC Non-machinable Letters) 8.8 7.4 118.9%

Non-automation 3-Digit Non-machinable Letters 

(Non-automation ADC Non-machinable Letters) 3.1 2.6 119.2%

Non-automation 5-Digit Non-machinable Letters 

(Non-automation 3-Digit Non-machinable Letters) 9.3 6.5 143.1%

Standard Mail Letters: Dropship (Cents/Pound)

DNDC Letters (Origin Letters) 16.6 32.1 51.7%

DSCF Letters (Origin Letters) 21.6 37.6 57.4%

Source: Library Reference PRC–LR–ACR2014/4.

(1) Automation Mixed AADC Letters

The passthrough for Automation Mixed AADC Letters was 800 percent in FY 2014. The 

Postal Service justifies this excessive passthrough pursuant to 39 U.S.C. § 3622(e)(2)(D), 

asserting that the barcoding discount encourages mailers to provide an Intelligent Mail 

barcode (IMb) on their mailpieces, thereby improving operational efficiency. FY 2014 ACR 

at 21. Moreover, the Postal Service states that it intends to eliminate the portion of this 

discount above avoided costs as soon as practicable. ld.

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

justified pursuant to 39 U.S.C. § 3622(e)(2)(D) for FY 2014 because encouraging mailers to 

use IMbs on mailpieces should improve operational efficiency.
Docket No. ACR2014 - 19 -

(2) Automation AADC Letters, Non-automation AADC 

Machinable Letters, Non-automation ADC Nonmachinable Letters, and Non-automation 3-Digit Nonmachinable Letters.

Respectively in FY 2014, Automation AADC Letters, Non-automation AADC machinable 

Letters, Non-automation ADC Non-machinable Letters, and Non-automation 3-Digit Nonmachinable Letters had passthroughs of 137.5 percent, 112.5 percent, 118.9 percent, and 

119.2 percent. The Postal Service stated that no statutory exception applied to justify why 

these passthroughs exceeded 100 percent. FY 2014 ACR at 21-23. The Postal Service also 

stated that it intended to eliminate the portion of these discounts that exceeded avoided 

costs in future Market Dominant price adjustments. Id.

The Commission finds that these four discounts are not in compliance in FY 2014 because they 

are not adequately justified pursuant to the requirements of 39 U.S.C. § 3622(e). The Postal 

Service must either align these discounts with avoided costs during the next general market 

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

In Docket No. R2015-4, the Postal Service proposed to set the Non-automation ADC Nonmachinable Letters and Non-automation 3-Digit Non-machinable Letters discounts equal to 

their avoided costs.30 However, for the Automation AADC Letters and Non-automation 

AADC machinable Letters discounts, the Postal Service did not take corrective action to 

align the discounts with their avoided costs. Instead, it proposed to increase the discounts 

without sufficient justification. The Commission found that the Postal Service’s rationale 

for increasing the discounts was unsupported by the record.31 The Commission remanded 

the Standard Mail price adjustments to allow the Postal Service to submit amended prices 

that achieve compliance with title 39.32

The Commission finds that no corrective action is required for the Non-automation ADC Nonmachinable Letters and Non-automation 3-Digit Non-machinable Letters discounts since the 

Postal Service plans to align the discounts with their avoided costs in Docket No. R2015-4. 

However, for the Automation AADC Letters and Non-automation AADC machinable Letters 

discounts, the Commission directs the Postal Service to fully align these discounts with their 

avoided costs in its next Market Dominant price adjustment, or, alternatively, provide support 

for an applicable statutory exception.

 

30 See Docket No. R2015-4, Response of the United States Postal Service to CHIR No. 12, February 20, 2015, Excel file “Revised AttachmentB 

CHIR12.xls.” (Docket No. R2015-4 Postal Service Response to CHIR No. 12). See also Response of the United States Postal Service to Order No. 

2378, March 12, 2015, Excel file “AttachmentB-Remand.xlsx.” (Response to Order No. 2378, Attachment B).

31 See Docket No. R2015-4, Order on Price Adjustment for Standard Mail, Periodicals, and Package Services Products, March 6, 2015, at 12-13

(Order No. 2378).

32 The Commission’s review of the Standard Mail price adjustments proposed in Docket No. R2015-4 is pending. See id., Order on Amended 

Price Adjustments for Standard Mail, Periodicals, and Package Services Products, March 18, 2015, at 12 (Order No. 2398).
Docket No. ACR2014 - 20 -

(3) Non-automation 5-Digit Non-machinable Letters

Non-automation 5-Digit Non-machinable Letters had a passthrough of 143.1 percent in 

FY 2014. The Postal Service justified this excessive passthrough pursuant to 39 U.S.C. 

§ 3622(e)(2)(B). It stated that aligning this discount with its avoided costs would result in a 

price increase as large as 20.3 percent, which could cause rate shock to mailers. FY 2014 

ACR at 23. The Postal Service intends to eliminate the portion of this discount above 

avoided costs as soon as practicable. ld.

The Public Representative contends that in order for a discount to qualify for the rate shock 

exception, the Postal Service must show that even a modest price increase would not avoid 

rate shock. PR Comments at 43-44. She agrees with the Postal Service that the Nonautomation 5-Digit Non-machinable Letters discount can be justified pursuant to the rate 

shock exception. ld. at 43. She states that even a potential reduction of approximately 7 

percent of the FY 2014 discount would cause rate shock. ld.

The Commission agrees with the Public Representative and concludes that a substantial 

reduction in the passthrough percentage would likely adversely affect users. Thus, the 

Commission finds that this discount is adequately justified pursuant to 39 U.S.C. 

§ 3622(e)(2)(B) for FY 2014.

b. Flats

Six worksharing discounts for Flats exceeded avoided costs in FY 2014 (see Table II-5):

 Automation Mixed ADC Flats

 Automation 3-Digit Flats

 Automation 5-Digit Flats

 Non-automation ADC Flats

 Non-automation 3-Digit Flats

 Non-automation 5-Digit Flats.

Each is discussed below. All remaining Flats discounts were less than avoided costs and 

thus were consistent with 39 U.S.C. § 3622(e).
Docket No. ACR2014 - 21 -

Table II-5

Standard Mail Flats (Commercial and Nonprofit)

Workshare Discounts and Benchmarks

Type of Worksharing

(Benchmark)

FY 2014

Year-End 

Discount

(Cents)

Unit Cost 

Avoidance

(Cents)

Passthrough

Standard Mail Automation Flats: Presorting (Cents/Piece)

Automation ADC Flats (Automation Mixed ADC Flats) 2.9 4.0 72.5%

Automation 3-Digit Flats (Automation ADC Flats) 5.2 4.2 123.8%

Automation 5-Digit Flats (Automation 3-Digit Flats) 8.6 8.5 101.2%

Standard Mail Automation Flats: Barcoding (Cents/Piece)

Automation Mixed ADC Flats (Non-automation Mixed AADC Flats) 4.9 2.1 233.3%

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

Non-automation ADC Flats (Non-automation Mixed ADC Flats) 5.1 4.6 110.9%

Non-automation 3-Digit Flats (Non-automation ADC Flats) 5.4 4.7 114.9%

Non-automation 5-Digit Flats (Non-automation 3-Digit Flats) 6.8 5.1 133.3%

Standard Mail Flats: Dropship (Cents/Pound)

DNDC Flats (Origin Flats) 16.1 24.4 66.0%

DSCF Flats (Origin Flats) 21.6 27.7 78.0%

Standard Mail Flats: Dropship (Cents/Piece)

DFSS Flats (Origin Flats) 4.5 5.8 77.6%

Source: Library Reference PRC–LR–ACR2014/4.

(1) Automation Mixed ADC Flats

The passthrough for Automation Mixed ADC Flats was 233.3 percent in FY 2014. The Postal 

Service justified this excessive passthrough pursuant to 39 U.S.C. § 3622(e)(2)(D). It stated 

that this barcoding discount encouraged mailers to continue preparing their flats for FSS 

processing. FY 2014 ACR at 26. Additionally, the Postal Service intends to further reduce 

this discount over time. ld.

The Public Representative states that she would expect successful barcoding discounts to 

be reduced each year. PR Comments at 43. She remains unconvinced that a further 

reduction of the discount would impede the efficient operation of the Postal Service. ld.

The Commission finds that the Automation Mixed ADC Letters discount is adequately justified 

pursuant to 39 U.S.C. § 3622(e)(2)(D), as the barcoding discount encourages mailers to 

prepare their flats for FSS processing.
Docket No. ACR2014 - 22 -

(2) Automation 3-Digit Flats, Automation 5-Digit Flats, Nonautomation ADC Flats, and Non-automation 3-Digit 

Flats

Respectively in FY 2014, Automation 3-Digit Flats, Automation 5-Digit Flats, Nonautomation ADC Flats, and Non-automation 3-Digit Flats had passthroughs of 123.8 

percent, 101.2 percent, 110.9 percent, and 114.9 percent. The Postal Service stated that no 

statutory exception applied to justify why these passthroughs exceeded 100 percent. FY 

2014 ACR at 24-26. The Postal Service intends to eliminate the portion of these discounts 

that exceed their avoided costs in future Market Dominant price adjustments. Id.

The Commission finds that these four discounts are not in compliance in FY 2014 because they 

are not adequately justified pursuant to the requirements of 39 U.S.C. § 3622(e). The Postal 

Service must either align these discounts with avoided costs during the next general market 

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

In Docket No. R2015-4, the Postal Service plans to set the Non-automation ADC Flats 

discount less than its avoided costs, thus satisfying 39 U.S.C. § 3622(e).33 However, for the 

Automation 3-Digit Flats, Automation 5-Digit Flats, and Non-automation 3-Digit Flats 

discounts, the Postal Service did not take corrective action, stating that it was unable to 

align the discounts with their avoided costs because of its proposed new FSS pricing 

structure.34 The Postal Service explained that aligning these discounts with their avoided 

costs would cause it to have to set higher prices for its new FSS price categories, thereby 

reducing the incentive for flats mailers to prepare their mail for FSS processing.

The Postal Service asserted that its proposed Docket No. R2015-4 discounts for 

Automation 3-Digit Flats, Automation 5-Digit Flats, and Non-automation 3-Digit Flats 

qualified for the operational efficiency statutory exception in 39 U.S.C. § 3622(e)(2)(D) for 

discounts that exceed avoided costs.

The Commission concludes that there is no corrective action necessary for the Nonautomation ADC Flats discount because the Postal Service plans to remedy the passthrough in 

Docket No. R2015-4. However, corrective action is necessary for the Automation 3-Digit Flats, 

Automation 5-Digit Flats, and Non-automation 3-Digit Flats discounts because the Postal 

Service is not able to align these discounts with their avoided costs in Docket No. R2015-4. The 

Commission directs the Postal Service to fully align these discounts with their avoided costs in 

its next Market Dominant price adjustment, or, alternatively, provide support for an 

applicable statutory exception.

 

33 Docket No. R2015-4 Postal Service Response to CHIR No. 12 and Response to Order No. 2378, Attachment B.

34 In Docket No. R2015-4, the Postal Service established separate FSS prices for Standard Mail Flats. See Docket No. R2015-4, United States 

Postal Service Notice of Market-Dominant Price Adjustment, January 15, 2015, at 22. The Postal Service also eliminated the FSS price categories 

for the Carrier Route Flats, High Density Flats, High Density Plus Flats price categories. ld. Carrier Route Flats destined to an FSS zone will be 

required to be sent under the new FSS price structure for Standard Mail Flats. ld., Response to CHIR No. 1, question 2. However, the 

requirement is optional for High Density Flats and High Density Plus Flats. ld.
Docket No. ACR2014 - 23 -

(3) Non-automation 5-Digit Flats

Non-automation 5-Digit Flats had a passthrough of 133.3 percent in FY 2014. The Postal 

Service justifies this excessive passthrough pursuant to 39 U.S.C. § 3622(e)(2)(B), stating 

that aligning this discount with its avoided costs would result in a price increase as large as 

7.3 percent, which could cause rate shock. FY 2014 ACR at 26. The Postal Service stated 

that it intended to eliminate the portion of this discount above avoided costs as soon as 

practicable. ld.

The Public Representative does not believe that the Postal Service has met the burden of 

proof required to use the rate shock exception for the Non-automation 5-Digit Flats 

discount. PR Comments at 43-44.

The Commission concludes that the Postal Service’s use of the rate shock exception is not 

sufficiently supported, as it does not explain how the price increase necessary to reduce the 

Non-automation 5-Digit Flats passthrough to 100 percent would adversely affect users of 

Non-automation 5-Digit Flats. The Commission finds that the Non-automation 5-Digit Flats 

discount is not adequately justified pursuant to 39 U.S.C. § 3622(e)(2)(B) for FY 2014.

In Docket No. R2015-4, the Postal Service did not align the Non-automation 5-Digit Flats 

discount with its avoided costs.35 Similar to its explanation for the other presort Flats 

discounts that exceeded avoided costs in Docket No. R2015-4, the Postal Service stated that 

aligning the Non-automation 5-Digit Flats discount with its avoided costs would cause it to 

have to set higher prices for its new FSS price categories, thereby reducing the incentive for 

Flats mailers to prepare their mail for FSS processing. Id., United States Postal Service 

Notice of Market-Dominant Price Adjustment, January 15, 2015, at 49. It stated that the 

proposed discount qualified for the operational efficiency statutory exception for discounts 

that exceed avoided costs [39 U.S.C. § 3622(e)(2)(D)].

The Commission directs the Postal Service to align the Non-automation 5-Digit Flats discount 

with its avoided costs in its next Market Dominant price adjustment or, alternatively, provide 

support for an applicable statutory exception.

c. Parcels

Five worksharing discounts for Parcels exceeded avoided costs in FY 2014 (see Table II-6 

and Table II-7):

 Network distribution center (NDC) Irregular Parcels

 NDC Marketing Parcels

 Mixed NDC Machinable Barcoded Parcels

 Mixed NDC Irregular Barcoded Parcels

 Mixed NDC Barcoded Marketing Parcels

 

35 See Docket No. R2015-4 Postal Service Response to CHIR No. 12 and Response to Order No. 2378, Attachment B.
Docket No. ACR2014 - 24 -

Each is discussed below. All remaining Parcels discounts were less than avoided costs and 

thus were consistent with 39 U.S.C. § 3622(e).

Table II-6

Standard Mail Parcels (Commercial and Nonprofit)

Presort and Barcode Workshare Discounts and Benchmarks

Type of Worksharing

(Benchmark)

FY 2014

Year-End 

Discount

(Cents)

Unit Cost 

Avoidance

(Cents)

Passthrough

Nonprofit Standard Mail Parcels: Presorting (Cents/Piece)

NDC Machinable Parcels (Mixed NDC Machinable Parcels) 37.5 51.4 73.0%

5-Digit Machinable Parcels (NDC Machinable Parcels) 26.9 64.8 41.5%

NDC Irregular Parcels (Mixed NDC Irregular Parcels) 32.4 23.2 139.7%

SCF Irregular Parcels (NDC Irregular Parcels) 34.6 50.9 68.0%

5-Digit Irregular Parcels (SCF Irregular Parcels) 10.8 59.1 18.3%

Nonprofit Standard Mail Parcels: Barcoding (Cents/Piece)

Mixed NDC Machinable Barcoded Parcels

(Mixed NDC Machinable Non-barcoded Parcels) 6.7 3.7 181.1%

Mixed NDC Irregular Barcoded Parcels

(Mixed NDC Irregular Non-barcoded Parcels) 6.7 3.7 181.1%

Standard Marketing Parcels: Presorting (Cents/Piece)

NDC Marketing Parcels (Mixed NDC Marketing Parcels) 39.2 31.4 124.8%

SCF Marketing Parcels (NDC Marketing Parcels) 29.8 41.0 72.7%

5-Digit Marketing Parcels (SCF Marketing Parcels) 12.3 66.0 18.6%

Standard Marketing Parcels: Barcoding (Cents/Piece)a

Mixed NDC Barcoded Marketing Parcels

(Mixed NDC Non-barcoded Marketing Parcels) 6.7 3.7 181.1%

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

Source: Library Reference PRC–LR–ACR2014/4.
Docket No. ACR2014 - 25 -

Table II-7

Standard Mail Parcels (Commercial and Nonprofit)

Dropship Workshare Discounts and Benchmarks

Type of Worksharing

(Benchmark)

FY 2014

Year-End 

Discount

(Cents)

Unit Cost 

Avoidance

(Cents)

Passthrough

Nonprofit Standard Mail Machinable Parcels: Dropship (Cents/Pound)

DNDC Machinable Parcels (Origin Machinable Parcels) 23.1 61.3 37.7%

DSCF Machinable Parcels (Origin Machinable Parcels) 47.9 79.5 60.3%

DDU Machinable Parcels (Origin Machinable Parcels) 66.4 97.3 68.2%

Standard Mail Marketing Parcels: Dropship (Cents/Pound)

DNDC Marketing Parcels (Origin Marketing Parcels) 23.1 61.3 37.7%

DSCF Marketing Parcels (Origin Marketing Parcels) 47.9 79.5 60.3%

DDU Marketing Parcels (Origin Marketing Parcels) 66.4 97.3 68.2%

Nonprofit Standard Mail Irregular Parcels: Dropship (Cents/Pound)

DNDC Irregular Parcels (Origin Irregular Parcels) 23.1 61.3 37.7%

DSCF Irregular Parcels (Origin Irregular Parcels) 47.9 79.5 60.3%

DDU Irregular Parcels (Origin Irregular Parcels) 66.4 97.3 68.2%

Source: Library Reference PRC–LR–ACR2014/4.

(1) NDC Irregular Parcels and NDC Marketing Parcels

In FY 2014, NDC Irregular Parcels and NDC Marketing Parcels had passthroughs of 139.7 

percent and 124.8 percent, respectively. The Postal Service justified these excessive 

passthroughs pursuant to 39 U.S.C. § 3622(e)(2)(B). It stated that immediately aligning the 

discounts with their avoided costs would require a 7.78 percent price increase for NDC 

Irregular Parcels and a 7.62 percent increase for NDC Marketing Parcels. FY 2014 ACR at 

27-28. Additionally, the Postal Service intends to continue reducing the discount in future 

market dominant price adjustments. ld.

The Public Representative does not believe that the Postal Service has met the burden of 

proof required to use the rate shock exception for these discounts. PR Comments at 43-44.

The Commission concludes that the Postal Service’s use of the rate shock exception is not 

sufficiently supported, as it does not explain how the price increases necessary to reduce both 

passthroughs to 100 percent would adversely affect users. The Commission finds that the

discounts are not adequately justified pursuant to 39 U.S.C. § 3622(e)(2)(B) for FY 2014. 
Docket No. ACR2014 - 26 -

In Docket No. R2015-4, the Postal Service did not propose corrective action to align the 

NDC Irregular Parcels and NDC Marketing Parcels discounts with their avoided costs. 

Instead, it proposed to increase the discounts without sufficient justification. See Docket 

No. R2015-4 Postal Service Response to CHIR No. 12. The Commission found that the Postal 

Service’s rationale for increasing the discounts was unsupported by the record. Order No. 

2378 at 14. The Commission remanded the Standard Mail price adjustments to allow the 

Postal Service to submit amended prices that achieve compliance with title 39. Id. at 32.

The Commission directs the Postal Service to fully align these discounts with their avoided 

costs in its next Market Dominant price adjustment or provide support for an applicable 

statutory exception.

(2) Nonprofit Mixed NDC Machinable Barcoded Parcels, 

Nonprofit Mixed NDC Irregular Barcoded Parcels, and 

Mixed NDC Barcoded Marketing Parcels

Nonprofit Mixed NDC Machinable Barcoded Parcels, Nonprofit Mixed NDC Irregular 

Barcoded Parcels, and Mixed NDC Barcoded Marketing Parcels each had passthroughs of 

181.1 percent in FY 2014. The Postal Service justified these excessive passthroughs 

pursuant to 39 U.S.C. § 3622(e)(2)(D), stating that it has been sending a strong signal to 

mailers through the non-barcoded surcharge to develop a fully barcoded parcels 

mailstream. FY 2014 ACR at 28. It further stated that it had plans to soon require barcodes 

on all ground parcels and that a fully barcoded mailstream would permit the elimination of 

keying stations on parcel sorters, thereby increasing the efficiency of postal operations. ld. 

The Commission finds that these three discounts were adequately justified pursuant to 39 

U.S.C. § 3622(e)(2)(B) because having a fully barcoded mailstream would increase 

operational efficiency.

4. Package Services

Three Package Services products offered workshare discounts in FY 2014: Media 

Mail/Library Mail, Bound Printed Matter (BPM) Flats, and BPM Parcels.

a. Media Mail/Library Mail

Four discounts were offered for Media Mail/Library Mail in FY 2014. Table II-8 shows the 

FY 2014 discounts, avoided costs, and passthroughs for this product.
Docket No. ACR2014 - 27 -

Table II-8

Media Mail/Library Mail

Workshare Discounts and Benchmarks

Type of Worksharing

(Benchmark)

FY 2014

Year-End 

Discount

(cents)

Unit Cost 

Avoidance

(cents)

Passthrougha

Media Mail: Presorting (Cents/Piece)

Basic (Single-Piece) 49 28 175.0%

5-Digit (Basic) 39 64 60.9%

Library Mail: Presorting (Cents/Piece)

Basic (Single-Piece) 47 28 167.9%

5-Digit (Basic) 37 64 57.8%

a

The calculated passthroughs are based on rounded unit avoided costs.

Source: Library Reference PRC–LR–ACR2014/6.

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

costs in FY 2014. The passthroughs were 175.0 percent and 167.9 percent, respectively. 

The Postal Service justified the FY 2014 passthroughs pursuant to section 3622(e)(2)(C) 

because Media Mail/Library Mail consists of mail matter with ECSI value. The Postal 

Service explained that it planned to move the discounts toward their unit avoided costs 

over time, while avoiding any drastic changes that could cause rate shock. FY 2014 ACR 

at 33-34.

With respect to Media Mail/Library Mail, the Commission concludes that the Basic presort 

discounts are justified pursuant to 39 U.S.C. § 3622(e)(2)(C) because the product qualifies for 

the ECSI exemption.

b. BPM Flats and BPM Parcels

In FY 2014, 13 discounts were offered for BPM Flats and 12 for BPM Parcels. Table II-9 and 

Table II-10 show the FY 2014 discounts, avoided costs, and passthroughs for these 

products.
Docket No. ACR2014 - 28 -

Table II-9

Bound Printed Matter Flats

Workshare Discounts and Benchmarks

Type of Worksharing

(Benchmark)

FY 2014

Year-End 

Discount

(cents)

Unit Cost 

Avoidance

(cents)

Passthrougha

Presorting (Cents/Piece)b

Basic Flats (Single-Piece Flats) 34.4 See Note b N/A

Carrier Route Flats (Basic Flats) 9.9 14.9 66.4%

Presorting (Cents/Piece)b: Basic, Carrier Route Flats (Single-Piece Flats)

Zones 1 & 2 4.6 See Note b N/A

Zone 3 6.1 See Note b N/A

Zone 4 5.7 See Note b N/A

Zone 5 6.2 See Note b N/A

Zone 6 7.1 See Note b N/A

Zone 7 6.9 See Note b N/A

Zone 8 7.2 See Note b N/A

Barcoding (Cents/Piece)c

Single-Piece Automation Flats

(Single-Piece Non-automation Flats) 0.0 See Note c N/A

Basic Automation Flats (Basic Non-automation Flats) 0.0 See Note c N/A

Carrier Route Automation Flats

(Carrier Route Non-automation Flats) 0.0 See Note c N/A

Dropship (Cents/Piece)

Basic, Carrier Route DNDC Flats (Basic Origin Flats) 14.1 11.6 121.6%

Basic, Carrier Route DSCF Flats (Basic Origin Flats) 64.0 58.3 109.8%

Basic, DFSS Flats (Basic Origin Flats) 64.0 58.3 109.8%

Basic, Carrier Route DDU Flats (Basic Origin Flats) 79.1 75.1 105.3%

a

The calculated passthroughs are based on rounded unit avoided costs.

b 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.

c These barcode discounts were eliminated in Docket No. R2013-10.

Source: Library Reference PRC–LR–ACR2014/6.
Docket No. ACR2014 - 29 -

Table II-10

Bound Printed Matter Parcels

Workshare Discounts and Benchmarks

Type of Worksharing

(Benchmark)

FY 2014

Year-End 

Discount

(Cents)

Unit Cost 

Avoidance

(Cents)

Passthrougha

Presorting (Cents/Piece)b

Basic Parcels (Single-Piece Parcels) 66.6 See Note b N/A

Carrier Route Parcels (Basic Parcels) 9.9 14.9 66.4%

Presorting (Cents/Pound)b: Basic, Carrier Route Parcels (Single-Piece Parcels)

Zones 1 & 2 6.1 See Note b N/A

Zone 3 6.6 See Note b N/A

Zone 4 6.1 See Note b N/A

Zone 5 6.2 See Note b N/A

Zone 6 6.6 See Note b N/A

Zone 7 4.4 See Note b N/A

Zone 8 4.7 See Note b N/A

Dropship (Cents/Piece)

Basic, Carrier Route DNDC Parcels (Basic Origin Parcels) 14.1 11.6 121.6%

Basic, Carrier Route DSCF Parcels (Basic Origin Parcels) 64.2 58.3 110.1%

Basic, Carrier Route DDU Parcels (Basic Origin Parcels) 79.1 75.1 105.3%

a

The calculated passthroughs are based on rounded unit avoided costs.

b 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.

Source: Library Reference PRC–LR–ACR2014/6.

The destination network distribution center (DNDC) dropship discount for BPM Flats and 

BPM Parcels exceeded unit avoided costs in FY 2014. Both products had a passthrough of 

121.6 percent. In Docket No. R2013-11, the Postal Service set the DNDC dropship discounts 

for BPM Flats and BPM Parcels equal to their respective unit avoided costs.36 However, 

those discounts were set using FY 2012 unit avoided costs data. Since the Docket No. 

R2013-11 proceeding, the unit avoided costs have decreased, resulting in passthroughs 

greater than 100 percent for FY 2014.

 

36 See Docket No. R2013-11, Price Adjustment Calculations for Package Services, Library Reference PRC-LR-R2013-11/6, December 24, 2013; 

Excel file “R2013-11 Package Services Worksharing.xls,” which shows that the DNDC dropship discount and unit avoided costs were 14.1 cents 

for both BPM Flats and BPM Parcels.
Docket No. ACR2014 - 30 -

The Postal Service stated its intent to align the discounts with their unit avoided costs in its 

next Market Dominant price adjustment. FY 2014 ACR at 34. In Docket No. R2015-4, the 

Postal Service set these discounts equal to their unit avoided costs. Docket No. R2015-4 

Notice at 52.

The destination sectional center facility (DSCF) dropship discount for BPM Flats and BPM 

Parcels exceeded unit avoided costs in FY 2014. The passthroughs for BPM Flats and BPM 

Parcels were 109.8 percent and 110.1 percent, respectively. In Docket No. R2013-11, the 

Postal Service set the DSCF dropship discounts for these products below their respective 

unit avoided costs.37 However, those discounts were set using FY 2012 unit avoided costs 

data. Since the Docket No. R2013-11 proceeding, the unit avoided costs decreased, 

resulting in passthroughs greater than 100 percent for FY 2014. 

The Postal Service stated its intent to align the discounts with their unit avoided costs in its 

next Market Dominant price adjustment. FY 2014 ACR at 35. In Docket No. R2015-4, it set 

these discounts at 100 percent38 for BPM Flats and 103.9 percent39 for BPM Parcels. The 

Postal Service asserted that the BPM Parcels passthrough exceeding 100 percent was 

justified pursuant to 39 U.S.C. §§ 3622(e)(2)(B) and 3622(e)(2)(D) and explained that 

aligning the discount with unit avoided cost would have decreased rates for nonworkshared mail in an irrational manner and would likely have caused rate shock. Id. It 

stated that it intends to align this workshare discount with unit avoided cost as soon as 

practicable. Id.

The DFSS dropship discount for BPM Flats exceeded unit avoided cost in FY 2014, its 

passthrough was 109.8 percent. In Docket No. R2013-11, the DFSS and DSCF dropship 

discounts were equivalent, and the DSCF unit avoided cost was used as a proxy for the 

DFSS unit avoided cost.40 In the same docket, the Postal Service set the DSCF dropship 

discount for BPM Flats below the unit avoided cost. However, that discount was set using 

FY 2012 unit avoided cost data. Since the Docket No. R2013-11 proceeding, the unit 

avoided cost of DSCF dropship discount for BPM Flats decreased, resulting in passthroughs 

greater than 100 percent for DSCF and DFSS in FY 2014.

The Postal Service stated its intent to align the discount with the unit avoided cost in its 

next Market Dominant price adjustment. In Docket No. R2015-4, it set this discount at 

101.7 percent, asserting this was necessary to maintain a consistent relationship between 

the price cells so mailers in non-FSS zones would not experience a further rate increase 

 

37 See Docket No. R2013-11, Price Adjustment Calculations for Package Services, Library Reference PRC-LR-R2013-11/6, December 24, 2013; 

Excel file “R2013-11 Package Services Worksharing.xls,” which shows that the DSCF dropship discounts for BPM Flats and BPM Parcels were 

64.0 cents and 64.2 cents, respectively. Unit avoided costs were 64.8 cents for each product.

38 Docket No. R2015-4 Notice at 52.

39 Docket No. R2015-4, Response of the United States Postal Service to Questions 1-5 of Chairman’s Information Request No. 1, January 30, 

2015, question 5 (Docket No. R2015-4, January 30 Response to CHIR No. 1).

40 Revised Response to the United States Postal Service to Question 15 of Chairman’s Information Request No. 7 – Errata, February 23, 2015, 

question 15 (Revised Response to CHIR No. 7).
Docket No. ACR2014 - 31 -

while still incentivizing mailers to “enter scheme containers of mail at the DFSS (which is of 

economic benefit to the Postal Service).”41

The destination delivery unit (DDU) dropship discount for BPM Flats and BPM Parcels 

exceeded unit avoided costs in FY 2014, each with passthroughs of 105.3 percent. In 

Docket No. R2013-11, the Postal Service set the DDU dropship discounts for both products 

equal to their respective unit avoided costs.42 However, those discounts were set using FY 

2012 unit avoided costs data. Since the Docket No. R2013-11 proceeding, the unit avoided 

costs decreased, resulting in FY 2014 passthroughs that exceeded 100 percent. 

The Postal Service stated its intent to align the discounts with their unit avoided costs in its 

next Market Dominant price adjustment. FY 2014 ACR at 35-36. In Docket No. R2015-4, it 

set the BPM Flats discount at 100 percent43 and the BPM Parcels discount at 104.3 

percent.44 It asserted that the passthrough for BPM Parcels was justified pursuant to 

39 U.S.C. §§ 3622(e)(2)(B) and 3622(e)(2)(D), explaining that to align the discount with 

unit avoided cost would have decreased rates for non-workshared mail in an irrational 

manner and would likely have caused rate shock. Id. It stated that it intends to align this 

workshare discount with unit avoided cost as soon as practicable. Id.

The Public Representative recognizes that the Postal Service does not offer a statutory 

exemption to justify the BPM products with passthroughs greater than 100 percent. PR 

Comments at 44.

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

estimated unit avoided costs unless justified by a statutory exception. For FY 2014, the 

Commission concludes that nine Package Services workshare discounts exceeded unit avoided 

costs: Media Mail Basic presort, Library Mail Basic presort, BPM Flats DNDC dropship, BPM 

Flats DSCF dropship, BPM Flats DFSS dropship, BPM Flats DDU dropship, BPM Parcels DNDC 

dropship, BPM Parcels DSCF dropship, and BPM Parcels DDU dropship. Workshare discounts 

for the other Package Services did not exceed their respective unit avoided costs, and thus 

complied with 39 U.S.C. § 3622(e) in FY 2014.

With respect to the DNDC, DSCF, DFSS, and DDU dropship discounts for BPM Flats and the 

DNDC, DSCF, and DDU dropship discounts for BPM Parcels, the Commission finds that the 

discounts are not in compliance with section 3622(e).

The Commission finds that no corrective action is required for the DNDC, DSCF, and DDU 

dropship discounts for BPM Flats and the DNDC dropship discount for BPM Parcels because 

 

41 Docket No. R2015-4, January 30 Response to CHIR No. 1, question 5.

42 See Docket No. R2013-11, Price Adjustment Calculations for Package Services, Library Reference PRC-LR-R2013-11/6, December 24, 2013; 

Excel file “R2013-11 Package Services Worksharing.xls,” which shows that the DDU dropship discount and unit avoided costs were 79.1 cents 

for both BPM Flats and BPM Parcels.

43 Docket No. R2015-4 Notice at 52.

44 Docket No. R2015-4, January 30 Response to CHIR No. 1, question 5.
Docket No. ACR2014 - 32 -

the Postal Service plans to align the discounts with their avoided costs in Docket No. R2015-4. 

The Postal Service plans to set the DFSS dropship discount for BPM Flats higher than the unit 

avoided cost pursuant to 39 U.S.C. § 3622(e)(3)(B) in Docket No. R2015-4. The Postal Service 

plans to set the DSCF and DDU dropship discounts for BPM Parcels higher than their avoided 

costs pursuant to 39 U.S.C. §§ 3622(e)(2)(D) and 3622(e)(2)(B) in Docket No. R2015-4. 

Accordingly, the Commission finds that no corrective action is required.

D. Preferred Rate Requirements

Section 3626 of Title 39 of the U.S.C. identifies preferred rate requirements applicable to 

Periodicals, Standard Mail, and Package Services prices.

Periodicals is a preferred class of mail and receives several statutory discounts in section 

3626, such as a 5 percent discount for nonprofit and classroom publications. In Docket No. 

R2013-11, prices for Periodicals were set to be consistent with statutory preferences for 

mail in that class.45

Section 3626(a)(6) of Title 39 requires nonprofit prices in Standard Mail to be set in 

relation to their commercial counterparts regardless of nonprofits’ independent costs. In 

Docket No. R2013-11, nonprofit prices were set to yield average per-piece revenues of 60.1 

percent of commercial per-piece revenues at the class level.46 The Commission calculates 

that the actual per-piece revenue from Standard Mail nonprofit pieces was 57.9 percent in 

FY 2014. Changes in the mix of mail after price changes make it difficult to precisely attain 

the 60 percent relationship required by law.

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

Services: Section 3626(a)(7) of Title 39 requires Library Mail prices to be set at 95 percent 

of Media Mail prices. Docket No. R2013-11 set these prices accordingly.47

The Commission finds that prices in FY 2014 were in compliance with all the preferred rate 

requirements identified in 39 U.S.C. § 3626.

 

45 See Docket No. R2013-11, Library Reference PRC-LR-R2013-11/5, Excel file “PRC-CAPCALC-PER-R2013-11-5.xls.”

46 See id., Library Reference PRC-LR-R2013-11/4, Excel file “PRC-CAPCALC-SM-R2013-11-4.xls,” tab “Price Change Summary.”

47 See id., Library Reference PRC-LR-R2013-11/6, Excel file “R2013-11 Package Services Price Adjustment Calculations.xls.”
Docket No. ACR2014 - 33 -

CHAPTER 3: MARKET DOMINANT 

PRODUCTS: OTHER RATE AND FEE 

COMPLIANCE ISSUES

A. Introduction

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

objectives and factors established by 39 U.S.C. § 3633 and to the policies of Title 39 of the 

U.S.C. These issues include noncompensatory products, negotiated service agreements 

(NSAs)48, and pricing issues related to perceived cost coverage disparities.

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

also includes a discussion of Standard Mail Flats, an area of concern for several 

commenters, issues relating to NSAs, and other pricing issues.

B. Noncompensatory Products

1. Periodicals

a. FY 2014 Financial Results

The cost coverage for Periodicals in FY 2014 was 76.2 percent, virtually unchanged from 

the 76.1 percent cost coverage in FY 2013. FY 2014 ACR at 32. In FY 2013, the cost 

coverage for Periodicals increased for the first time since FY 2008. FY 2013 ACD at 42. The 

Postal Service states that it is on track to improve cost coverage for the Periodicals class 

because the FY 2014 cost coverage was an improvement over FY 2012 (72.1 percent). 

FY 2014 ACR at 31. The Commission notes, however, that since the enactment of the PAEA, 

the cost coverage for Periodicals has declined from 83 percent to approximately 76.1 

percent, as Table III-1 illustrates.

 

48 NSAs are written contracts between a mailer and the Postal Service, effective for a defined period of time, that provide for mailer-specific 

rates, fees, or terms of service according to the contract. 39 C.F.R. § 3001.5(r). The mailer often receives discounts (rebates) designed to 

encourage higher mail volumes and contributions.
- 34 -

Table III-1

Periodicals Cost Coverage, FY 2007–FY 2014 ($ Millions)

Fiscal Year Volume Revenue Cost Cost Coverage Contribution

2007 8,795 $2,188 $2,636 83.01% -$448

2008 8,605 $2,295 $2,732 84.00% -$437

2009 7,953 $2,038 $2,680 76.04% -$642

2010 7,269 $1,879 $2,490 75.46% -$611

2011 7,077 $1,821 $2,430 74.94% -$609

2012 6,741 $1,732 $2,402 72.10% -$670

2013 6,359 $1,658 $2,179 76.10% -$521

2014 6,045 $1,625 $2,134 76.16% -$509

-$4,447

Source: Library Reference PRC–LR–ACR2014/5.

Revenue per piece for the Periodicals class as a whole increased from 26.1 cents in FY 2013 

to 26.9 cents in FY 2014. FY 2014 ACR at 31-32. However, cost per piece also increased, 

from 34.3 cents to 35.3 cents in the same period. Id. at 32. As a result, contribution per 

piece declined in FY 2014. Table III-2 details the unit cost, revenue, and contribution for 

Periodicals during the PAEA era.

Table III-2

Periodicals Unit Cost, Revenue, and Contribution, FY 2007–FY 2014

Fiscal Year Cost/Piece Revenue/Piece Contribution/Piece

2007 $0.2997 $0.2488 -$0.0509

2008 $0.3175 $0.2667 -$0.0508

2009 $0.3370 $0.2563 -$0.0807

2010 $0.3425 $0.2585 -$0.0841

2011 $0.3434 $0.2573 -$0.0860

2012 $0.3562 $0.2568 -$0.0994

2013 $0.3427 $0.2608 -$0.0819

2014 $0.3531 $0.2689 -$0.0842

Source: Library Reference PRC–LR–ACR2014/5.

In past ACRs, the Postal Service has discussed the difficulty of improving the financial 

performance of the Periodicals class while limited to CPI-U price increases. FY 2013 ACR at 

32-33. In FY 2014, the Postal Service implemented both a CPI-U price increase and an 
- 35 -

exigent surcharge; after implementation of both Docket Nos. R2013-10 and R2013-11 in FY 

2014, Periodicals prices increased 5.9 percent. As Table III-1 and Table III-2 demonstrate, 

however, the financial performance of Periodicals did not improve, even with prices above 

the CPI-U.

As part of Docket No. R2013-11, the Postal Service projected that with the exigent 

surcharge, Outside County Periodicals cost coverage would increase to 80.7 percent in 

FY 2014. January 23, 2015, Response to CHIR No. 2, question 6. Instead, “actual unit costs 

exceeded projected unit costs (37.5 cents versus 35.9 cents), but actual unit revenues fell 

short of projected (28.4 cents versus 29.0 cents).” Id. Because the price increases failed to 

increase revenues as much as projected and costs increased more than projected, the cost 

coverage for Periodicals fell well short of the Postal Service’s estimate.

It is important to examine the underlying reasons why the Periodicals class failed to meet 

the Postal Service’s financial projections. The difference between expected revenue and 

actual revenue is examined below. The difference between expected unit cost and actual 

unit cost is discussed in Section C below.

The total price of a Periodicals mailing is a combination of five price elements: pounds, 

pieces, bundles, sacks, and pallets. The pricing structure of the Periodicals class is designed 

to provide mailers incentives to lower Postal Service processing costs. For the piece 

element, the impact of mailer worksharing is measured by comparing the presorting 

discounts with the avoided mail processing and delivery costs. For bundles, sacks, and 

pallets, the impact of mailer worksharing is measured by price-cost ratios.49

Ideally, the presort discounts for pieces and the price-cost ratios of bundles, sacks, and 

pallets should be designed to encourage mailers to engage in mail preparation behavior 

that reduces Postal Service costs to the maximum extent possible.50 When a mailer 

increases the level of a mailing’s worksharing, it receives a discount and the revenue to the 

Postal Service from that mailing decreases. Periodicals are highly presorted, and mailers 

respond to the price incentives the Postal Service offers. For example, the Carrier Route 

discount increased from 9.8 cents to 10.3 cents in FY 2014 and the percentage of Outside 

County Periodicals presorted to Carrier Route increased from 63.8 percent in FY 2013 to 

65.2 percent in FY 2014.51

The increase in Carrier Route presorted volume amounted to 73 million additional pieces. 

In FY 2014, the discount for presorting to Carrier Route was 11.6 cents, and the avoided 

cost was 17.7 cents. Thus, the additional Carrier Route presorted volume reduced Postal 

 

49 The ratios of prices to mail processing costs for bundles, sacks, and pallets, by presort and entry level are set forth in Library Reference PRC–

LR–ACR2014/5. The ratios compare the price of the bundle, sack, or pallet with the amount of processing cost incurred by the Postal Service.

50 Unlike workshare discounts, price-cost ratios are not discounts that directly relate the difference in price to the costs avoided by improved 

mailer preparation. However, the ratios do reflect to some degree how a mailer’s choice of container and presort bundle level affect the Postal 

Service’s handling costs.

51 See Docket No. R2010-4R, Renewed Exigent Request of the United States Postal Service in Response to Commission Order No. 1059, 

September 26, 2013, Attachment A at 40-41. The Postal Service’s filing in Docket No. R2010-4R was subsequently re-docketed in Docket No. 

R2013-11. Docket No. R2013-11, Notice and Order Concerning Exigent Request, September 30, 2013.
- 36 -

Service revenues by $8.5 million—but it should have also reduced Postal Service costs by 

$13 million. In FY 2014, 78 percent of Periodicals pounds were dropshipped,52 an increase 

from 77.3 percent in FY 2013.53 If worksharing incentives are aligned with Postal Service 

cost savings, the decrease in revenue per piece for the Postal Service should be offset by a 

lower cost per piece.

The average weight and advertising content of the mailings also affect Periodicals revenue. 

Average weight decreased from 6.24 ounces per piece in FY 2013 to 6.16 ounces in FY 

2014. Furthermore, advertising pounds, which pay higher prices, decreased from 39.6 

percent of total Outside County Periodicals pounds in FY 2013 to 39.3 percent in FY 2014. 

The decline in FY 2014 per-piece Periodicals revenue was primarily caused by two factors: 

an increase in mailer presortation and a decrease in the average weight. The decrease in 

average weight and advertising content reduced Periodicals revenue by $7.2 million in FY 

2014. January 23, 2015, Response to CHIR No. 2, question 6.54 If the Postal Service had 

realized this additional revenue, the cost coverage of Periodicals would have been 76.49 

percent instead of the actual 76.19 percent. Also, average per-piece revenue for Outside 

County Periodicals would have been 28.5 cents instead of 28.4 cents. Thus, only a small 

amount of the deviation from the Postal Service projected revenue per piece of 29 cents 

with the exigent surcharge was due to the change in weight per piece.

b. Comments

Commenters Utah Hispanic Chamber of Commerce (UHCC), the National Taxpayers Union 

(NTU), Valpak Direct Marketing Systems, Inc. and Valpak Dealers’ Association, Inc. 

(Valpak), and the Public Representative urge the Commission to take steps to address the 

chronically low cost coverage of the Periodicals class.

55 Although the Public Representative 

notes that in FY 2014 the financial results for Periodicals were mostly stable, “[t]aking into 

account the consistent failure of Periodicals to cover attributable costs, the Public 

Representative strongly advises the Postal Service [to] expend greater efforts to more 

actively implement cost savings and productivity improvement measures.” PR Comments 

at 36. Her comments reflect concern over the Postal Service’s admission that it “has not 

taken steps to date to change the Periodicals classification” as recommended by the 2011 

Periodicals Mail Study56 and by the Commission in the FY 2013 ACD, but instead has 

 

52 To the destination delivery unit, destination sectional center facility, Destination Flats Sequencing System, or destination area distribution 

center.

53 If Periodicals pounds were entered with the FY 2013 dropship distribution in FY 2014, Periodicals revenue would have increased by roughly 

$900,000. For example, 39.4 percent of Periodicals pounds were entered at destination sectional center facility prices in FY 2013 and 41.6 

percent of Periodicals pounds were entered at destination sectional center facility/Destination Flats Sequencing System prices in FY 2014. The 

shift to deeper dropship entry reduces revenue from pounds. See Library Reference PRC–LR–ACR2014/5.

54 An increase of average weight from 6.16 ounces to 6.24 ounces would have led to 32.2 million additional pounds, or $6.8 million in revenue,

at the average price of $0.213 per pound. An increase in advertising content from 39.3 percent to 39.6 percent would have led to an additional 

6.4 million advertising pounds, which paid an average price of $0.055 more per pound than editorial pounds, for additional revenue of $0.4 

million. See Library Reference PRC–LR–ACR2014/5.

55 See UHCC Comments at 1, NTU Comments at 1, Valpak Initial Comments at V-1-2, and PR Comments at 36.

56 Periodicals Mail Study, Joint Report of the United States Postal Service and Postal Regulatory Commission, September 2011 (Periodicals Mail 

Study).
- 37 -

continued its strategy of increasing Periodicals rate elements “across the board.” Id. at 36; 

Supplemental Information Attachment A at 12.57

The Magazine Publishers of America, Inc., and Alliance of Nonprofit Mailers reject the idea 

that inefficient pricing strategy is at the root of Periodicals’ chronically low cost coverage. 

MPA & ANM Reply Comments at 2. Instead, they contend that the Postal Service’s failure to 

control Periodicals cost—despite large investments in automation equipment and 

increased worksharing by mailers—is the primary reason Periodicals continually fail to 

cover costs. Id.

The Postal Service’s Reply Comments did not address Periodicals.

c. Postal Service Response to FY 2013 ACD Direction

In the FY 2013 ACD, the Commission directed the Postal Service to include the following 

information in the FY 2014 ACR (FY 2013 ACD at 45):

 The impact of leveraging its pricing flexibility to improve the efficiency of 

Periodicals pricing

 The impact of the implementation of operational strategies outlined in Chapter 7 of 

the Periodicals Mail Study

 The progress in implementing pricing strategies, also outlined in Chapter 7 of the 

Periodicals Mail Study

The Postal Service did not provide information in response to the Commission’s FY 2013 

directives as part of its initial ACR filing. See FY 2014 ACR at 32 n.14. On January 15, 2015, 

the Postal Service filed Supplemental Information in its response to Order No. 2313 

(Supplemental Information), which contained its response to the Periodicals directives 

from the FY 2013 ACD. Several CHIRs were filed in an attempt to gather further 

information regarding the implementation of Flats operational strategies and realized cost 

savings.58

The first and third FY 2013 ACD Periodicals directives involved pricing. As discussed in 

Chapter 2 Section C. 2., the Postal Service did respond to the first directive and leverage its 

flexibility to improve the pricing efficiency of Periodicals in FY 2014. The Postal Service 

notes that it will take “further measures to provide efficient pricing signal to the mailers” in 

Docket No. R2015-4. Supplemental Information Attachment A at 13.

 

57 Notice of the United States Postal Service of Filing Partial Supplement Information in Response to Order No. 2313, January 15, 2015 

(Supplemental Information).

58 See February 19, 2015, Response to CHIR No. 4, questions 5-7 and 10-12; January 23, 2015, Response to CHIR No. 2, questions 1-6, 8, 10, 12-

13, and 15-22; January 29, 2015, Response to CHIR No. 2, questions 7, 9, 11, and 14; January 30, 2015, Response to CHIR No. 3, questions 1-2, 5-

11, and 13-14; February 5, 2015, Response to CHIR No. 3, questions 3-4; February 6, 2015, Response to CHIR No. 4, questions 1-4, 8-9, and 13-

17.
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Regarding the third directive, the Postal Service states that it “has not taken steps to date to 

change the Periodicals classification to align with First-Class Mail and Standard Mail as 

recommended in Chapter 7 of the Periodicals Mail Study.” Id. at 12.

The second FY 2013 ACD Periodicals directive required the Postal Service to report on the 

impact of its Flats operational strategies. In the Supplemental Information, the Postal 

Service qualitatively detailed 11 operational strategies but did not provide a quantitative 

analysis of their impact, stating, “[n]o analysis has been performed to isolate the cost 

savings resulting from the above initiatives, assuming such an analysis [was] even possible 

with available data.” Id. at 4.

In its February 19, 2015, Response to CHIR No. 4, questions 10-12, the Postal Service 

detailed its progress in implementing the Flats operational strategies it provided in Docket 

No. R2010-4, Library Reference USPS-R2010-4/9, Operations Plans for Flats; it has 

implemented 22 of the 28 operational strategies it also discussed in Docket No. R2010-4. 

The Postal Service was unable to provide a cost savings estimate for the implemented 

strategies, stating, “For the vast majority of programs the Postal Service has no system in 

place today to accurately measure the isolated cost impact of a single program [or 

initiative], due to the number of factors impacting costs in a given operation.” February 19, 

2015, Response to CHIR No. 4, question 11.

As detailed above, the unit cost of Periodicals in FY 2014 was significantly higher than the 

Postal Service projected in Docket No. R2013-11. The Periodicals Outside County unit cost 

in FY 2014 was 37.5 cents per piece, 4.5 percent higher than the Postal Service projection 

of 35.9 cents. January 23, 2015, Response to CHIR No. 2, question 6. The Postal Service did 

not isolate specific reasons why unit costs exceed projections. Id., question 7. Generally, 

unit costs for the major cost categories of Mail Processing, Delivery, and Transportation 

increased in FY 2014. As part of its projections, the Postal Service estimated that 

Periodicals Outside County unit costs would decrease from FY 2013 to FY 2014. The 

following table details the change in Periodicals Outside County unit costs from FY 2013 to 

FY 2014.

Table III-3

Change in Periodicals Outside County Unit Costs, FY 2013–FY 2014

Activity FY 2013 FY 2014

Mail Processing 11.69 12.25

Delivery 9.38 9.63

Transportation 3.89 3.83

36.35 37.53

Source: Library Reference PRC–LR–ACR2014/5.
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As Table III-3 shows, unit costs increased by 1.18 cents and most of the increase occurred 

in Mail Processing and Delivery. The cause of the Delivery cost increase is related to the 

amount of delivered volume, as a higher percentage of Periodicals were delivered on rural 

routes in FY 2014 than in FY 2013. The Mail Processing cost increase was caused by 

declining processing productivity. The productivity of selected operations for the 

Automated Flats Sorting Machine 100, Small Parcel Bundle Sorter/Automated Parcel 

Bundle Sorter, Automated Package Processing System, and FSS, which are the automation 

equipment used to sort Periodicals, declined in FY 2014. In fact, the productivity of all but 

FSS has declined since FY 2007. January 23, 2015, Response to CHIR No. 2, question 8. See 

Table III-4.

Table III-4

Change in Productivity for Selected Flats Processing Operations, FY 2007–FY 2014

Operation Productivity

Change

Automated Flats Sorting Machine 100 Incoming Secondary -13%

Small Parcel Bundle Sorter/Automated Parcel Bundle Sorter Incoming -17%

Automated Package Processing System Incoming -49%

Source: Library Reference PRC–LR–ACR2014/5.

Additionally, the productivity of the FSS has declined by 8 percent since its introduction in 

FY 2011. January 23, 2015, Response to CHIR No. 2, question 8. The gap in unit cost 

between the Postal Service’s projections and the actual FY 2014 results is directly tied to 

the efficiency with which the Postal Service processes Periodicals. The Postal Service points 

to the decline in Flats volume to explain the decreased productivity. In the January 23, 

2015, Response to CHIR No. 2, question 8, it stated: 

“The cited [Automated Flats Sorting Machine 100, Small Parcel Bundle 

Sorter/Automated Parcel Bundle Sorter, and Automated Package 

Processing System] operations have all seen significant declines in 

workload over the FY2007-FY2014 period, reflecting the declining 

volume trends for flat-shape mail. The process of reducing workhours 

in the face of declining volumes may involve lags, to whatever extent 

it may be reasonable to expect workhours and workloads to adjust 

proportionally over the long run.”

The Postal Service has continually projected improved Flats processing performance, 

notably in Docket Nos. R2010-4, R2010-4R, and N2012-1.59 However, it has yet to achieve 

any of the projected increase in productivity.

 

59 In Docket No. R2010-4, the Postal Service projected a FY 2011 Periodicals unit cost of 32.5 cents compared with the actual unit cost of 34.4 

cents. See Docket No. R2010-4, Rate Adjustment Due to Extraordinary or Exceptional Circumstances, Statement of Stephen J. Masse on Behalf 

of the United States Postal Service, July 6, 2010, at Attachment 11. In Docket No. N2012-1, the Postal Service projected Flats productivity 
- 40 -

d. Commission Analysis

In its Supplemental Information, the Postal Service notes that, while it will continue to 

pursue available enhancements in efficiency, it is “extremely doubtful,” given the 

limitations imposed by the CPI-U price cap, that the Periodicals class can achieve 

100 percent cost coverage. Supplemental Information Attachment A at 15.

It is troubling that the Postal Service was unable to improve cost coverage for Periodicals, 

even when the limitation imposed by the CPI-U price cap was not in effect in FY 2014. As 

detailed above, the Postal Service has implemented dozens of operational strategies 

designed to improve the efficiency of Flats processing operations, yet it has not developed 

cost savings figures associated with any of the strategies. 

In Chapter 7 of the Periodicals Mail Study, the Postal Service provided savings estimates for 

three operational strategies: Implementing the FSS, Moving Flats up the Automation 

Ladder, and Implementation of the Automation Parcel and Bundle Sorter. All three of these 

strategies have been implemented since the release of that report. For the Automation 

Parcel and Bundle Sorter, the Postal Service states that it projected savings of $1.8 billion 

over 10 years, yet it “has no system in place today to accurately measure the isolated cost 

impact” of the program. February 19, 2015, Response to CHIR No. 4, question 11. Moreover, 

the financial results show continued failure to realize operational improvements, 

regardless of the success or failure of any one initiative. Thus, in FY 2015 the Postal Service 

should use available data to develop metrics to meaningfully analyze the impact of its 

operational strategies related to Periodicals.

The Postal Service states that it does not have the information it needs to assess the impact 

of its operational strategies for improving the financial performance of its Flats operations. 

Given the persistent nature of the Periodicals cost coverage issue, the Commission urges 

the Postal Service and postal stakeholders to redouble their efforts to improve cost 

coverage.

To that end, in the FY 2015 ACR, the Postal Service must provide a detailed analysis of the 

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

 The impact of leveraging the Postal Service’s pricing flexibility to improve the 

efficiency of Periodicals pricing

 The progress in developing metrics to assess the cost savings impact of operational 

strategies

 The cost savings from the implementation of operational strategies outlined in 

Chapter 7 of the Periodicals Mail Study and in the Postal Service’s Flats Operational 

and Pricing Strategies in Docket No. R2010-460

 

increases of up to 25 percent. See Docket No. N2012-1, Direct Testimony of Frank Neri on Behalf of the United States Postal Service (USPS–T–4), 

December 15, 2011, at 29-30.

60 See Docket No. R2010-4, Library Reference USPS–R2010–4/9, July 6, 2010.
- 41 -

 The progress in implementing pricing strategies, also outlined in Chapter 7 of the 

Periodicals Mail Study

2. Standard Mail Flats

a. Introduction

In FY 2014, Standard Mail Flats had a cost coverage of 83.2 percent, a 1.9 percentage point 

decrease compared with FY 2013.61 As shown in Table III-5, prior to FY 2012, the cost 

coverage for Standard Mail Flats decreased every fiscal year since 2008. In FY 2012 and FY 

2013, its cost coverage improved, rising from 79.5 percent in FY 2011 to 80.9 percent in FY 

2012, and from 80.9 percent in FY 2012 to 85.1 percent in FY 2013. The cost coverage 

reversed direction in FY 2014, but remains higher than Standard Mail Flats cost coverage 

between FY 2009 and FY 2012.

Table III-5

Standard Mail Flats Cost Coverage and Contribution, FY 2008–FY 2014

Fiscal Year Cost Coverage Contribution

(millions)

FY 2008 94.4% -$217.8

FY 2009 82.1% -$615.6

FY 2010 81.8% -$577.0

FY 2011 79.5% -$643.2

FY 2012 80.9% -$527.9

FY 2013 85.1% -$375.9

FY 2014 83.2% -$411.0

Source: Library Reference PRC–LR–ACR2014/4.

In its review of the financial performance of Standard Mail Flats for FY 2014, the 

Commission must consider the Postal Service’s compliance with its FY 2010 ACD directive 

regarding Standard Mail Flats. Below, the Commission discusses this directive, the Postal 

Service’s FY 2014 ACR response to it, and commenters’ concerns regarding the financial 

performance of Standard Mail Flats for FY 2014. The Commission also makes a finding on 

whether further remedial action is needed regarding Standard Mail Flats.

b. FY 2010 ACD Directive for Standard Mail Flats

In the FY 2010 ACD, the Commission determined that Standard Mail Flats prices in effect in 

FY 2010 did not comply with 39 U.S.C. § 101(d) and directed the Postal Service to increase 

the product’s cost coverage through a combination of cost reductions and above-average 

price adjustments, consistent with the price cap requirements, until such time that 

 

61 The Commission’s calculated cost coverage includes fees in the revenues for each product; the Postal Service’s calculation does not. This is 

why the figures differ.
- 42 -

revenues exceed attributable costs. FY 2010 ACD at 106. In addition, the Commission 

directed the Postal Service to provide the following information in each of its subsequent 

ACRs:

 A description of operational changes designed to reduce Flats costs in the previous 

fiscal year and an estimation of the financial effect of such changes

 A description of all costing methodology or measurement improvements made in 

the previous fiscal year and the estimated financial effects of such changes

 A statement summarizing the historical and current fiscal year subsidy of the Flats 

product, and the estimated timeline for phasing out this subsidy (Id. at 107)

The Postal Service appealed the Commission’s FY 2010 ACD findings and directive to the 

United States Court of Appeals for the District of Columbia Circuit. In USPS v. Postal 

Regulatory Comm’n, 676 F.3d 1105 (D.C. Cir. 2012), issued April 17, 2012, the court 

rejected the Postal Service’s contention that the Commission acted outside of the scope of 

its statutory authority by considering the general standards of 39 U.S.C. § 101(d) in an ACD 

“at least in extreme circumstances.” Id. at 1108. The court remanded the case to the 

Commission “for a definition of the circumstances that trigger [section] 101(d)’s failsafe 

protection, and for an explanation of why the particular remedy imposed here is 

appropriate to ameliorate that extremity ... ” Id. at 1109. In response, the Commission 

issued Order No. 1427, clarifying that its analysis of the circumstances that would trigger 

39 U.S.C. § 101(d) depended on the totality of circumstances.62

The Commission identified the following specific factors which, in the case of Standard Mail 

Flats, may trigger 39 U.S.C. § 101(d)’s protections: a significant and growing cost coverage 

shortfall; the duration of the shortfall over a significant period; evidence that the shortfall is 

likely to increase further and have a significant adverse impact on users of other products; 

failure of the Postal Service to address the shortfall; and the failure of the Postal Service to 

take remedial steps. Order No. 1427 at 9. The Commission affirmed that the factors 

presented in the FY 2010 ACR constituted “extreme circumstances.” Id. Additionally, in 

discussing the appropriateness of the remedy it ordered in its FY 2010 ACD, the 

Commission stated that it “does not interpret section 101(d) to require ‘only 100% cost 

coverage, and nothing short of 100%,’ to satisfy the fair and equitable cost apportionment 

standard, provided an adequate explanation for a failure to improve cost coverages is 

offered.” Id. at 14.

While the court case was pending, the Commission found in its FY 2011 ACD that the rates 

and fees for Standard Mail Flats remained out of compliance and that Standard Mail prices 

continued to reflect an unfair and inequitable apportionment of the costs of postal 

operations to all Standard Mail users. FY 2011 ACD at 118-19. However, because litigation 

regarding the FY 2010 ACD was still pending, the Commission held action in this area in 

abeyance pending receipt of the court’s decision, and did not require further remedial 

action. Id. at 16, 119.

 

62 Docket No. ACR2010-R, Order on Remand, August 9, 2012, at 4 (Order No. 1427).
- 43 -

On September 21, 2012, the Commission issued an order confirming termination of the 

stay it had granted pending resolution of the Postal Service’s appeal.63 The Commission 

directed that, as part of its FY 2012 ACR, the Postal Service should respond to the specific 

remedy adopted by the FY 2010 ACD. Id. at 3. 

In its FY 2012 and FY 2013 ACDs, the Commission found that the Postal Service made 

progress toward addressing the issues raised in the FY 2010 ACD, and concluded that no 

further remedial action was required at the time. See FY 2012 ACD at 116; FY 2013 ACD 

at 54.

c. Response to FY 2010 ACD Directive

In its FY 2014 ACR, the Postal Service provides a 2-year schedule of above-consumer price 

index (CPI) price increases for the Standard Mail Flats product. FY 2014 ACR at 20. The 

Postal Service plans to increase Standard Mail Flats prices by CPI multiplied by 1.05 in 

2015 and 2016. It reiterates its position stated in Docket Nos. R2013-10 and ACR2013 that 

a 2-year outlook for scheduling above-average price increases for Standard Mail Flats is 

appropriate because the Commission’s review of the system for regulating rates and 

classes for Market Dominant products is slated to begin at the end of 2016 pursuant to 

39 U.S.C. § 3622(d)(3).64 ld.

The Postal Service provides some of the information required by the Commission’s FY 2010 

ACD directive: a description of operational changes designed to reduce Standard Mail Flats 

costs, a description of all costing methodology changes made in FY 2014 that affect 

Standard Mail Flats costs, and the historical and current fiscal year subsidy of the Standard 

Mail Flats product. Supplemental Information Attachment A at 1-11. Each is discussed 

below.

The Postal Service describes 11 operational initiatives that it took during FY 2014 to make 

processing Standard Mail Flats more efficient: FSS Scorecard; Move Mail Up the Ladder; 

Bundle Operation; Service Performance Diagnostics Tool; High Speed Flats Feeder; FSS Biweekly Meetings; Flat Recognition Improvement Program – Software Upgrade; Lean Mail 

Processing; FSS Training; FSS Mail Preparation; and Reduce Bundle Breakage. ld. at 4-11. It 

maintains that these initiatives are expected to improve efficiencies and productivities, as 

well as reduce overall Standard Mail Flats costs. ld. at 4.

Although the FY 2010 ACD directive requires the Postal Service to provide an estimation of 

the financial effect of the operational initiatives it undertook to reduce Standard Mail Flats 

costs, the Postal Service did not do so. Instead, it states that “[n]o analysis has been 

performed to isolate the cost savings resulting from these initiatives, assuming that such an 

analysis were even possible with available data.” ld. at 4.

 

63 Docket No. ACR2010-R, Notice and Order Confirming Termination of Stay, September 21, 2012.

64 See Docket No. R2013-10, Response of the United States Postal Service to Chairman’s Information Request No. 3, Questions 1-2 and 6-7, 

October 24, 2013, question 6. See also FY 2013 ACR at 19-20.
- 44 -

The Postal Service identifies three costing methodology changes that affected Standard 

Mail Flats costs in FY 2014: Docket No. RM2014-4, Proposal Two (Transportation Cost 

System Air Subsystem change for the Fed Ex Night Turn air carrier); Docket No. RM2014-6, 

Proposal Six (updating the highway transportation variabilities); and Docket No. RM2015-

4, Proposal Eleven (change in the attribution of debit and credit card fees). ld. at 2. It 

asserts that these methodology changes accounted for 0.11 percent of the unit attributable 

costs for Standard Mail Flats in FY 2014. ld.

The Postal Service provides the historical and current fiscal year subsidy of the Standard 

Mail Flats product. ld. at 3. However, it neglects to provide a timeline for phasing out the 

subsidy, asserting that it is difficult to predict when the shortfall for the product will be 

phased out. ld. It also states that it is unlikely that the shortfall will be eliminated by the end 

of 2016, when the Commission commences its review of the rate system, and that “[t]he 

prospects for eliminating the shortfall thereafter will depend not only on pricing and cost 

saving initiatives, but also on any changes made to applicable regulations by the 

Commission.” Id. The Postal Service notes that the FY 2014 Standard Mail Flats shortfall is 

less than what it was when the shortfall peaked in FY 2011. Id.

d. Comments on Standard Mail Flats

The Commission received comments from the American Catalog Mailer Association 

(ACMA), American Postal Workers Union, AFL-CIO (APWU), Valpak, Association for Postal 

Commerce (PostCom), and the Public Representative relating to the financial performance 

of Standard Mail Flats in FY 2014. The comments generally address Standard Mail Flats 

costs, Standard Mail pricing, and compliance with the Commission’s Standard Mail Flats FY 

2010 ACD directive.

(1) Standard Mail Flats Costs

ACMA claims that precipitous increases in Standard Mail Flats’ costs raise serious 

questions about their validity. ACMA Comments at 5. It posits that several factors could 

have caused these anomalous costs. Id. at 9. First, volume declines could have led to excess 

capacity. Id. Second, costing systems could be generating costs that do not relate to the 

behavior of operations, meaning the costs are above marginal. Id. Third, some scale 

economies may have been lost. Id. It asserts that its review of the behavior of mail 

processing costs, city carrier street costs, and city carrier in-office costs also indicate that 

Standard Mail Flats costs are unreliable. ld. at 10-20. Under these circumstances, ACMA 

suggests that the actual cost coverages for Standard Mail Flats may be considerably higher 

than those being reported in the Postal Service’s ACRs. Id. at 22. It suggests that substantial 

price increases for Standard Mail Flats would hinder the Postal Service’s efforts to develop 

its new FSS price structure and force additional mail volume out of the mail system. Id.

In response to ACMA’s claims regarding unreliable Standard Mail Flats costs, Valpak states 

that the Commission and the Postal Service “have spent years developing a costing 

methodology which they have determined is as accurate as possible, and must be employed 

in an even-handed way.” Valpak Reply Comments at 16. Valpak also states that the Postal 

Service’s Response to CHIR No. 2, question 8. e., strongly suggests that the increase in unit 

costs for Standard Mail Flats reflects lower productivity resulting from the decline in Flats 
- 45 -

volume. Id. at 16-18. Finally, Valpak contends that ACMA’s assertions about the variability 

of mail processing costs and excess capacities as a reason for increasing Standard Mail Flats 

costs are unsupported. Id. at 19.

The Postal Service also filed comments in response to ACMA’s, maintaining that its claims 

about unreliable costs for Standard Mail Flats are baseless. Postal Service Reply Comments 

at 23. It states that ACMA is mistaken about the increasing city carrier costs and asserts 

that there is no reason to believe that ACMA’s other arguments on the increasing Standard 

Mail Flats costs are not equally flawed. ld.

(2) Standard Mail Pricing

The Public Representative states that the decline in Standard Mail Flats’ cost coverage 

“breaks the hope for improvement ... inspired by the two-year modest increase in cost 

coverage.” PR Comments at 31. She urges the Postal Service to continue providing aboveCPI price increases to Standard Mail Flats, but points out that the lack of elasticity estimates 

creates additional problems in setting prices for the product. Id. at 32. She reiterates the 

Public Representative’s recommendation in Docket No. ACR2013 for the Postal Service to 

“employ a demand-based pricing policy when setting prices for Standard Mail products,” 

asserting that such a policy would “ensure a greater product contribution to institutional 

costs, and result in a positive effect ... on the general public and other mail users in 

accordance with 39 U.S.C. § 3622(c)(3).” Id. at 34.

Valpak asserts that Standard Mail pricing violates 39 U.S.C. § 101(d), which requires postal 

rates “apportion the costs of all postal operations to all users of the mail on a fair and 

equitable basis.” It highlights the 156.4 percent cost coverage disparity between High 

Density and Saturation Letters and Standard Mail Flats as “the very definition of unfair and 

inequitable.” Valpak Initial Comments at IV-1, IV-3. It also points to the unit contribution 

gap between Standard Mail Flats and all other profitable Standard Mail products to support 

its recommendation that the Commission declare Standard Mail Flats out of compliance 

with the PAEA. ld. at IV-4, IV-5.

Valpak also urges the Commission to reconsider evaluating Postal Service pricing based on 

the model it initially proposed in Docket No. ACR2013. ld. at IV-8. It asserts that individual 

product elasticity estimates are not required for underwater products because the 

appropriate price adjustments for such products require pricing above costs whether the 

elasticity is high or low. Id. at IV-15.

(3) Compliance with the Commission’s Standard Mail Flats 

FY 2010 ACD Directive

Valpak maintains that the Postal Service’s compliance with the Commission’s FY 2010 ACD 

directive has been ineffective. It observes that with four ACD dockets since the FY 2010 

ACD directive, the cost coverage for Standard Mail Flats is unchanged and the unit loss has 

increased.65 Valpak elaborates that although aggregate losses have decreased, they have 

 

65 Valpak’s Initial Comments were filed prior to the Postal Service’s revised costs data for Standard Mail Flats. See Library Reference USPS–

FY14–45, Supplemental Material Relating to IOCS Tally Analysis Provided in Response to Order No. 2313, February 3, 2015. In its supplemental 

filing, the Postal Service concludes that because of the new FSS preparation requirements, some FSS-marked pieces were attributed to 
- 46 -

only done so because the volume of Standard Mail Flats decreased by approximately 2 

billion pieces. Id. at II-6, II-7.

Valpak further states that the Postal Service has interpreted the Commission’s FY 2010 

ACD directive as requiring increases for Standard Mail Flats that are only minimally greater 

than CPI. It points out that, meanwhile, costs of Standard Mail Flats have increased by CPI 

or more, and do not appear to be decreasing. Id. at II-8. It urges the Commission to “issue a 

further remedial order requiring the Postal Service to rapidly and substantially increase 

prices for Standard Flats, offset by reductions in price to products with the highest 

coverages, led by High Density [and] Saturation Letters ...” Id. at II-11.

ACMA asserts that Valpak’s position that cost coverage for Standard Mail Flats must be 

immediately improved to 100 percent may be above the level that the Commission found 

necessary to satisfy 39 U.S.C. § 101(d). ACMA Reply Comments at 2. ACMA asserts that 

costs for Standard Mail Flats are too unreliable to support Valpak’s prescription to improve 

the cost coverage. ACMA Reply at 4-5. 

In response to Valpak’s comments, the Postal Service states that it offered a variety of 

explanations in its February 5, 2015, Response to CHIR No. 3, question 3, including 

transitional complications associated with the implementation of FSS Scheme preparation, 

that mitigate against using the FY 2014 cost increases as an indictment of the Postal 

Service’s remedial efforts to reduce Standard Mail Flats costs. Postal Service Reply 

Comments at 22. The Postal Service also states that Valpak’s arguments ignore the 3.6 

percentage point increase in Standard Mail Flats cost coverage since the FY 2011 ACD. ld. 

The Postal Service asserts that it is in full compliance with the Commission’s orders and 

directives, as evidenced by: the implementation of two above-average price increases in 

Docket Nos. R2013-1 and R2013-10; the proposal for a third above-average price increase 

in Docket No. R2015-4; the proposal in Docket No. R2015-4 of a new FSS price structure

designed to encourage more Flats mail being prepared for FSS processing; the 

improvement of Standard Mail Flats’ cost coverage since FY 2011; the ongoing operational 

efforts to reduce Flats costs; and its commitment to continue implementing the schedule of 

above-average price increases. ld. at 22-23. It concludes that while it shares Valpak’s goal of 

achieving 100 percent cost coverage for all underwater products, Valpak’s preferred 

remedy does not provide a superior alternative to the Commission’s current approach. ld. 

at 23. The Postal Service, therefore, proposes that the Commission not implement any 

additional remedial orders for Standard Mail Flats. ld.

 

Standard Mail Flats when they should have been attributed to Carrier Route Flats and High Density and Saturation Flats. ld. at 8. It further 

concludes that Standard Mail Flats costs were overstated by 1.8 percent in its original FY 2014 ACR filing. ld.
- 47 -

e. Commission Analysis

The cost coverage for Standard Mail Flats was 83.2 percent in FY 2014.66 Although a 

significant cost coverage shortfall still exists in FY 2014, as shown in Table III-5 the 

shortfall is lower than it was between FY 2009 and FY 2012. Additionally, as shown in 

Table III-6, the unit contribution for Standard Mail Flats decreased from negative 6.8 cents 

in FY 2013 to negative 8.1 cents in FY 2014. Still, the unit contribution of Standard Mail 

Flats in FY 2014 is greater than what it was between FY 2010 and FY 2012.

Table III-6

Standard Mail Flats Unit Contribution, FY 2008–FY 2014

Fiscal Year Unit 

Contribution

FY 2008 -2.2

FY 2009 -7.9

FY 2010 -8.2

FY 2011 -9.5

FY 2012 -8.9

FY 2013 -6.8

FY 2014 -8.1

Source: Library Reference PRC–LR–ACR2014/4.

The Commission observes that the Postal Service has taken steps to address the cost 

coverage shortfall, including proposing above-CPI price increases in recent Market 

Dominant price adjustment proceedings and undertaking operational initiatives to reduce 

costs. Further, in Docket No. R2015-4, the Postal Service proposed a 2.686 percent price 

increase for Standard Mail Flats,67 0.622 percentage points higher than the minimum of CPI 

x 1.05 (2.064 percent for Docket No. R2015-4) that the Postal Service proposed in response 

to the FY 2010 ACD directive. Additionally, in Docket No. R2015-4, the Postal Service 

proposed a new FSS price structure for Standard Mail Flats to encourage the preparation of 

more Flats mail for FSS processing, thereby reducing mail processing costs.68

The Commission finds that progress is being made toward addressing the issues it raised in 

the FY 2010 ACD. As a result, no further remedial action is required at this time. However, the 

Postal Service should continue improving cost coverage for Standard Mail Flats.

 

66 See Library Reference PRC–LR–ACR2014/1.

67 Docket No. R2015-4, Response of the United States Postal Service to Order No. 2378, March 12, 2015, Excel file “CAPCALC-STD-R2015-4-

Remand-USPS.xls,” tab “LFP Revenues@New Prices.”

68 ld., United States Postal Service Notice of Market Dominant Price Adjustment, January 15, 2015, at 14-15, 22-23.
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Although the Commission is not ordering further remedial action for Standard Mail Flats, it 

remains concerned that the product’s financial performance has diverged from the positive 

trend demonstrated in the last two fiscal years. The Postal Service must take aggressive 

action to reduce the unit costs or propose above-CPI price increases in each subsequent 

Market Dominant price adjustment proceeding to ensure financial performance improves 

each fiscal year.

Further, though the Postal Service has described new and ongoing operational initiatives 

during FY 2014 to make processing Standard Mail Flats more efficient, it was not able to 

quantify their financial effects. Generally, cost savings programs or initiatives target one or 

more specific activities to produce cost savings. As the Commission has stated, the Postal 

Service’s cost saving initiatives should have specific measurable targets by which the 

benefits of the program can be evaluated. See FY 2012 ACD at 116 and FY 2013 ACD at 54. 

The Commission remains concerned that the Postal Service has not been able to quantify 

the cost savings from operational changes designed to reduce Standard Mail Flats costs. In 

this chapter’s discussion of the noncompensatory cost coverage for Periodicals, the 

Commission further expresses its concerns with the Postal Service’s inability to quantify the 

cost savings of its initiatives to reduce costs for flat-shaped mail. In that discussion, the 

Commission recommends the Postal Service take further action concerning its cost reduction 

initiatives for flat-shaped mail. As such, all the recommendations pertaining to reducing 

Periodicals’ costs also apply to Standard Mail Flats.

Finally, the Commission is not persuaded by the Alliance of Nonprofit Mailer’s comments 

that the costs for Standard Mail Flats are unreliable. As the Commission stated in its FY 

2011 ACD, “the fact that some costs rise faster than others is not per se an indicator that 

cost estimates are incorrect or anomalous.” FY 2011 ACD at 119. The Commission 

expressed that the “CRA level costs are reasonably accurate for evaluating product costs 

and related prices.” ld. Additionally, the Commission noted that “[p]ersuasive evidence is 

required to discard and replace a litigated costing framework that has been developed and 

refined for over 40 years.” ld. Nevertheless, it may be possible to improve the costing 

approach for Standard Mail Flats within the CRA framework to rectify possible anomalies. 

The Commission encourages interested parties to present alternate methodologies for 

distributing costs, or initiate a rulemaking to explore alternative methodologies to 

distribute costs.

3. Standard Mail Parcels

In FY 2014, Standard Mail Parcels had a cost coverage of 70.2 percent, 2.3 percentage 

points more than in FY 2013.69 In FY 2014, volumes for Standard Mail Parcels decreased by 

8.5 percent. Additionally, unit revenues increased by 5.7 percent and unit attributable costs 

increased by 2.2 percent compared with FY 2013. This resulted in a 5.2 percent increase in 

unit contribution in FY 2014 compared with FY 2013.

 

69 The Commission’s calculated cost coverage differs from the Postal Service’s figure because the Commission includes fees in the revenues for 

each product and the Postal Service does not.
- 49 -

The Postal Service explains that it has proposed above-average price increases over the last 

3 years to address the cost coverage for Standard Mail Parcels. FY 2014 ACR at 18. 

However, it states that the realignment and reclassification of Parcels in the Standard Mail 

class since FY 2012 has resulted in the remaining Standard Mail Parcels product retaining a 

significantly higher proportion of nonprofit Parcels, thereby driving down the product’s 

cost coverage.70 ld.

Table III-7 displays the unit revenues, unit attributable costs, unit contributions, cost 

coverage, and volumes for Standard Mail Parcels from FY 2012 to FY 2014. Table III-8 

displays the distribution of commercial and nonprofit volumes for Standard Mail Parcels 

from FY 2012 to FY 2014. Both tables illustrate the effect of Parcels realignment and 

reclassification on the recent financial performance of Standard Mail Parcels since FY 2012.

Table III-7

Standard Mail Parcels Financial Comparison, FY 2012–FY 2014

FY 2012 FY 2013 FY 2014

FY 2012 to 

FY 2013

Change

FY 2013 to 

FY 2014

Change

FY 2012 to 

FY 2014

Change

Unit Revenues $0.952 $1.034 $1.094 8.7% 5.7% 14.91%

Unit Attributable Costs $1.113 $1.524 $1.557 36.9% 2.2% 39.92%

Unit Contribution -$0.161 -$0.489 -$0.464 -203.4% 5.2% -187.50%

Cost Coverage 85.5% 67.9% 70.2% -20.6% 3.5% -17.87%

Volumes 303,558,642 71,966,232 65,845,949 -76.3% -8.5% -78.31%

Source: Library Reference PRC–LR–ACR2014/4.

Table III-8

Standard Mail Parcels Commercial to Nonprofit Volume Distributions, FY 2012–FY 2014

FY 2012 FY 2012

Distribution FY 2013 FY 2013Distribution FY 2014 FY 2014Distribution

Commercial Volume 285,925,057 94.2% 55,275,452 76.8% 48,028,038 72.9%

Nonprofit Volume 17,633,585 5.8% 16,690,780 23.2% 17,817,911 27.1%

Total Volume 303,558,642 100.0% 71,966,232 100.0% 65,845,949 100.0%

Source: Library Reference PRC–LR–ACR2014/4.

As Table III-8 shows, between FY 2012 and FY 2013, commercial volume decreased by 230 

million pieces, while nonprofit volume remained about the same. During the same period, 

 

70 On January 22, 2012, a large portion of the Standard Mail Parcels product was transferred to the Competitive product list. See Docket No. 

MC2010-36, Order Conditionally Granting Request to Transfer Commercial Standard Mail Parcels to the Competitive Product List, March 2, 

2011 (Order No. 689); Docket No. CP2012-2, Order Approving Changes in Rates of General Applicability for Competitive Products, December 21, 

2011 (Order No. 1062). Simultaneously, a portion of the remaining Parcels product became Marketing Parcels with different mailing standards. 

See Docket No. R2012-3, United States Postal Service Notice of Market-Dominant Price Adjustment, October 18, 2011, at 19-22.
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as seen in Table III-7, unit attributable cost for all Standard Parcels increased by 36.9 

percent. Because unit revenue increased only 8.7 percent, the unit contribution decreased 

by 203.4 percent, resulting in a decrease in cost coverage from 85.5 percent in FY 2012 to 

67.9 percent in FY 2013.

To improve Standard Mail Parcels cost coverage, the Postal Service states that it will 

continue proposing above-average price increases. FY 2014 ACR at 19. Most recently, in 

Docket No. R2015-4, the Postal Service proposed a price increase for Standard Mail Parcels 

of approximately 9.3 percent, more than 7 percent higher than the average price increase 

for Standard Mail.71

The Public Representative asserts that there has been sufficient time since the transfer of 

Standard Mail commercial parcels for the Postal Service to improve the cost coverage for 

the resulting Standard Mail Parcels product. PR Comments at 30-31. She recommends that 

the Postal Service continue taking meaningful measures to improve the cost coverage for 

Standard Mail Parcels by proposing above-average price increases in future price 

adjustments. ld.

The Commission concludes that FY 2014 revenues for Standard Mail Parcels were not 

sufficient to cover attributable costs. However, it concludes the Postal Service’s approach to 

improve cost coverage through above-average price increases in future Market Dominant 

price adjustments is appropriate.

4. Media Mail

In FY 2014, Media Mail/Library Mail had a cost coverage of 94.0 percent, a 9.0 percentage 

point increase compared with FY 2013.72 Unit contribution increased 36.2 cents per piece 

from FY 2013 to FY 2014. Id. This is the eighth consecutive year that Media Mail/Library 

Mail did not generate sufficient revenues to cover attributable costs. The Postal Service 

intends to continue improving the cost coverage over time through above-average price 

increases. FY 2014 ACR at 33.

The Public Representative notes that Media Mail/Library Mail has not covered its 

attributable costs for the eighth consecutive year, and notes the increase in the product’s 

cost coverage for FY 2014 over FY 2013. PR Comments at 38. Furthermore, she believes the 

increase in cost coverage corresponds with the Postal Service’s goal to improve cost 

coverage stated in Docket No. R2013-11, and supports the Postal Service’s intent to 

continue improving the cost coverage over time through above average price increases. ld.

Media Mail/Library Mail did not cover its attributable costs or make a contribution to 

institutional costs in FY 2014. Though the product may not be consistent with cost 

coverage requirements in 39 U.S.C. § 3622(c)(2), the Commission must also consider the 9 

 

71 See Docket No. R2015-4, United States Postal Service Notice of Market Dominant Price Adjustment, January 15, 2015, at 21 (Docket No. 

R2015-4 Notice).

72 See Library Reference PRC–LR–ACR2014/1, Excel file “Summary_LR1_FSS Adj.”
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objectives and 14 factors in their totality, such as the pricing factor outlined in 39 U.S.C. 

§ 3622(c)(11). This section, which is especially relevant to Media Mail/Library Mail, 

requires the Commission to consider the ECSI value to the recipient of the mail matter.

The Postal Service has used its pricing flexibility to propose above-inflation price increases 

for Media Mail/Library Mail in order to bring its revenues closer to 100 percent cost 

coverage. The above-inflation price increases tend to produce prices that are consistent 

with 39 U.S.C § 3622(b)(5) that would assure adequate revenues to maintain financial 

stability.

Therefore, the Commission does not find the product inconsistent with 39 U.S.C. § 3622 in 

FY 2014. Table III-9 shows the history of price increases for Media Mail/Library Mail under 

the PAEA.

Table III-9

Media Mail/Library Mail

Price Adjustment vs. Price Adjustment Authority

Docket No. Price Adjustment Price Adjustment Authority 

(Price Cap)

R2008-1 4.538% 2.900%

R2009-2 7.468% 3.800%

R2011-2 1.964% 1.741%

R2012-3 2.581% 2.133%

R2013-1 3.469% 2.570%

R2013-10 2.061% 1.696%

R2015-4 2.313% 1.966%

Source: Postal Regulatory Commission Package Services Price Cap Adjustment Workpapers.

In the most recent Market Dominant price adjustment, the Postal Service proposed aboveaverage price increases for Media Mail/Library Mail. Docket No. R2015-4 Notice at 29. The 

Commission encourages the Postal Service to continue pricing the Media Mail/Library Mail 

product in a way that brings the product toward full cost coverage.

5. Stamp Fulfillment Services

The Stamp Fulfillment Services (SFS) product fulfills stamp orders placed by mail, phone, 

fax, or online to the Stamp Fulfillment Services Center in Kansas City, Missouri. It was 

added to the Mail Classification Schedule as a Market Dominant product in FY 2010. In 

every fiscal year since SFS was introduced, its costs have exceeded revenues and its cost 

coverage has been below 100 percent. However, cost coverage improved substantially in 

FY 2013, increasing 11.5 percent over FY 2012; in FY 2014, it decreased 3.3 percent points 

to 77.5 percent. See Table III-10.
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Table III-10

Stamp Fulfillment Services Cost Coverage, FY 2010–FY 2014

Fiscal Year Cost Coverage

FY 2010 53.1%

FY 2011 59.7%

FY 2012 59.3%

FY 2013 80.8%

FY 2014 77.5%

Source: February 26, 2015, Response to CHIR No. 12, question 1 and 

FY 2013 ACD at 58.

To explain this change, the Postal Service states:

“[g]oing from FY 2013 to FY 2014, the total number of transactions 

dropped, as did the average cost per transaction. There was, however, 

a larger drop in average revenue per transaction, as fewer customers 

placed orders for purchases of greater than $50. As a result of average

revenue declining proportionately a bit more than average cost, the 

cost coverage decreased to 77.5 percent for FY 2014.”73

The Postal Service also contends that “[t]here is a possibility that the exigent surcharge, 

which resulted in a price increase of $0.10, caused customers to choose to make purchases 

for smaller amounts to avoid the higher SFS fees associated with orders greater than $50.”

Id., question 2. The Postal Service adds that it “will keep an eye on how volume reacts to a 

lack of price change in the current Market Dominant price change proposal in Docket No. 

R2015-4 and, at the time of the next price change, will use the knowledge gained during the 

intervening period to determine an appropriate action to improve cost coverage.” Id. The 

Postal Service continues to agree with the Commission’s comments from the FY 2012 ACD, 

at 142.

The Commission finds that the costs and revenues associated with the SFS product do not 

entirely capture the value that the Services Center adds to the Postal Service and to other 

Postal Service products. Although SFS does not cover its attributable costs, the Services Center 

promotes the objectives of reducing costs and increasing efficiency. See 39 U.S.C. 

§§ 3622(b)(1) and (c)(12).

6. Inbound Letter Post

The Inbound Letter Post product consists of international mail (generally referred to as 

Letter Post) that originates in foreign countries and is delivered in the United States.74

Foreign postal operators remunerate the Postal Service for delivering Inbound Letter Post 

 

73 Response to CHIR No. 12, question 1.

74 Mail Classification Schedule, Section 1130.6. “Letter Post” refers to international mail that is not classified as Parcel Post or Express Mail. It 

consists of mail items similar in content to domestic First-Class Mail, Periodicals, Standard Mail, BPM, and Media Mail/Library Mail, weighing up 

to 4.4 pounds (2 kilograms).
- 53 -

items at prices set by the Universal Postal Union (UPU)75 which are called terminal dues. 

The Postal Service also concludes bilateral and multilateral agreements with foreign postal 

operators for the entry of Letter Post at negotiated rates.

a. Inbound Letter Post at UPU Terminal Dues

In FY 2014, though revenues for the Inbound Letter Post product did not cover attributable 

costs,76 its financial results were better than in FY 2013. (The FY 2014 reported loss was 

$74.8 million; it was $78.5 million in FY 2013.) Cost coverage also increased to 70 percent 

from 65.6 percent in FY 2013.

The increase in contribution and cost coverage from FY 2013 through FY 2014 reflects a 

9.2 percent increase in total unit revenue and a 1.8 percent increase in total unit cost. The 

Postal Service states that the increase in total unit revenue likely resulted from the increase 

in UPU terminal dues, which became effective January 1, 2014. FY 2014 ACR at 8.

The Postal Service explains that the “continued failure of Inbound Letter Post [revenue] to 

cover its attributable costs stems from the product’s unique pricing regime.” Id. Prices are 

set according to a UPU terminal dues formula, which for most of the mail is based upon a 

percentage of the 1-ounce retail Single-Piece First-Class Mail price. Id. For the remainder of 

the mail, prices are based on a set rate per kilogram instead of actual Postal Service costs. 

Id. The formula is renegotiated in the UPU once every 4 years. Thus, the Postal Service 

maintains that it does not “independently determine the prices [paid by foreign postal 

operators] for delivering foreign origin mail” in the United States. Id.

The Commission recognizes that the pricing regime for the Inbound Letter Post product, 

based upon the current UPU formula, results in noncompensatory terminal dues rates. As a 

result, domestic mailers continue to subsidize the entry of Inbound Letter Post by foreign 

mailers who use the same postal infrastructure but bear none of the burden of contributing 

to its institutional cost.

To address this issue during the past several years, the United States delegation to the 

UPU—which included representatives from the Department of State, Postal Service and the 

Commission—played an active role in UPU negotiations. This led to the adoption of a more

compensatory terminal dues formula, effective January 1, 2014. The Commission notes that 

the formula requires further increases in UPU terminal dues during CY 2015, CY 2016, and 

CY 2017. Continued terminal dues increases, if accompanied by modest cost increases, 

should have a positive effect on Inbound Letter Post revenue and cost coverage during the 

same period.

 

75 The UPU is a United Nations technical agency comprising 192 member countries, including the United States. Member countries negotiate 

international agreements governing the exchange of international mail, including applicable rates.

76 Unless stated otherwise, this section analyzes revenue and expenses for international mail products developed according to the “booked” 

accounting method. The use of booked revenue and expenses ensures that the Commission’s financial analyses are consistent with the Postal 

Service’s audited financial statements. The Postal Service also reports “imputed” revenue, presented in the FY 2014 ICRA. Imputed revenue 

differs from booked revenue, which is consistent with revenue reported in the Postal Service’s financial statements and the Revenue, Pieces,

and Weight report.
- 54 -

Under current circumstances, the Commission does not recommend any remedial action at 

this time. However, it does recommend continued efforts to develop a more compensatory 

UPU terminal dues formula for 2018 to 2021.

b. Quality of Service Link to UPU Terminal Dues

Despite improved financial results for Inbound Letter Post in FY 2014, the Postal Service 

did not maximize the product’s revenue. This is because under the UPU’s Quality Link 

Measurement System, terminal dues can be adjusted downward if service performance 

fails to achieve the UPU-established annual quality-of-service performance target. In 2013, 

the Postal Service’s final on-time service performance score did not meet the 88 percent 

quality-of-service target.77 As a result, the Postal Service lost potential revenue in 2013, 

which included the first quarter of FY 2014 (i.e., October through December).

Preliminary on-time service performance scores from January through November 2014 

show, except for January, a decrease in the preliminary monthly scores compared with the 

final monthly scores for the same period in 2013. Id. Consequently, the annual on-time 

service performance score for 2014, when finalized,78 will likely be less than the final 2013 

score. For these reasons, in 2014 the Postal Service could expect to forego even more 

revenue than in 2013, assuming constant volumes. This means a larger loss in Inbound 

Letter Post revenue for FY 2014, Quarters 2 through 4 (i.e., January through September).

The Postal Service maintains that test pieces used to measure service performance from 

April to December 2013 were not compliant with the technical design of the UPU Global 

Monitoring System.79 Issues of noncompliance concern the entry of test pieces at the New 

York International Service Center at John F. Kennedy International Airport rather than the 

Morgan Processing and Distribution Center in Manhattan, New York, and insufficient test 

pieces from Great Britain from January through March 2013.80 In response to a Postal 

Service appeal seeking alternatives to these measurement results, the UPU rejected the 

alternatives and relied on only the actual results for test pieces entered between January 

and March 2013 to calculate the 2013 final service performance score. Id.

For 2014, the Postal Service attributes the decrease in preliminary monthly service 

performance scores to force majeure.81 It cited weather-related events in January, 

February, and March that affected transportation and caused delays in processing and 

delivering domestic and international mail. February 6, 2015, Response to CHIR No. 4, 

 

77 Responses of the United States Postal Service to Questions 1-2, 3a-b, 3d, 4, 6, 7a-e, 8-9, and 11-21 of Chairman’s Information Request No. 1, 

January 16, 2015, question 1, filed under seal in Library Reference, USPS-FY14-NP30.

78 The UPU finalizes quality-of-service scores following the close of each calendar year. It has not yet finalized service performance scores for 

2014.

79 See http://www.upu.int/en/activities/global-monitoring-system/gms-description.html.

80 February 6, 2015, Response to CHIR No. 4, question 17.b. International Service Centers are postal facilities that receive inbound mail for 

processing and delivery in the United States and process outbound international mail for dispatch to foreign countries. They are located in New 

York, Miami, Chicago, Los Angeles, and San Francisco.

81 Force majeure, literally “greater force,” is a term used in contracts or other agreements that excuses a party from performing its obligations 

following an unforeseen event beyond the party’s control, such as war, natural disasters, or other “acts of God.”
- 55 -

question 17.a. The Postal Service also cited a fire at a Federal Aviation Administration 

facility in Illinois that damaged air traffic control systems and contributed to major 

transportation delays and mail backlogs at the Chicago International Service Center. Id.

Except for January, the preliminary monthly on-time service performance scores for 2014 

are consistently below the final monthly scores for the same period in 2013. The 

Commission’s analysis of these monthly service performance scores suggests that factors 

other than unique or one-time events beyond the Postal Service’s control are largely 

responsible for this deterioration in reported monthly service performance.

The impact of the winter storms in January, February, and March 2014 on the preliminary 

on-time service performance scores is not clear. The January 2014 service performance 

score increased, not only compared with the same month a year earlier, but also relative to 

December 2013. The February 2014 service performance score increased relative to 

January. It seems unlikely that winter storms explain the decrease in preliminary monthly 

service performance scores for all subsequent months compared with the prior year. Nor is 

it clear how a fire at a Federal Aviation Administration facility in Illinois explains the 

across-the-board decrease in preliminary monthly service performance scores (excluding 

January), notwithstanding the impact at the Chicago International Service Center. 

Moreover, the decrease in 2014 preliminary monthly service performance scores is 

measured against lower domestic service standards which became effective in 2013 for 

purposes of UPU service performance measurement.

These observations suggest that larger, more systemic factors are at work—factors that 

have not been addressed—that prevent the Postal Service from achieving the UPU qualityof-service target on a monthly or calendar year basis. Given the regular occurrence of 

winter storms, for example, it is reasonable to expect the Postal Service to factor the impact 

of such events on service performance into its operations. These observations are further 

bolstered by the fact that the Postal Service’s final quality service performance scores met 

the UPU quality-of-service target in only one calendar year since enactment of the PAEA.

The Commission concludes that the 2014 preliminary on-time service performance scores 

indicate systemic problems that will continue to prevent the Postal Service from receiving 

the maximum revenue possible under the UPU terminal dues system.

The Commission directs the Postal Service to report within 90 days on its plans to improve ontime service performance scores for Inbound Letter Post. In its report, the Postal Service shall 

identify systemic problems preventing on-time service performance scores from achieving the 

UPU quality-of-service target each year and its plans to address these problems.

c. Market Dominant International Products Consisting of 

NSAs

As an alternative to UPU terminal dues, the Postal Service enters into bilateral NSAs with 

foreign postal operators that include negotiated rates for some or all of their inbound 

Letter Post items. These negotiated rates are designed to improve the overall cost coverage 
- 56 -

for inbound Letter Post items compared with the cost coverage at UPU default terminal 

dues.

The Postal Service reports financial results for two inbound international products that 

consist of NSAs: Inbound Market Dominant Multi-Service Agreements with Foreign Postal 

Operators 1 and Inbound Market Dominant Exprès Service Agreement 1. Both are included 

on the Market Dominant product list. In addition, the Postal Service reports financial 

results for Global Direct Entry with Foreign Postal Administrations (Global Direct Entry). 

The two inbound international products and Global Direct Entry govern the entry of Letter 

Post pursuant to negotiated agreements with foreign postal operators.

The Inbound Market Dominant Multi-Service Agreements with Foreign Postal Operators 1 

product comprises 11 bilateral agreements with seven foreign postal operators: the 

Australia Postal Corporation, Canada Post, the China Post Group, Hongkong Post, Korea 

Post, Royal PostNL,82 and Singapore Post. For FY 2014, the Postal Service reports that these 

NSAs generated sufficient revenues to cover attributable costs.

Although revenues exceeded attributable costs for the Inbound Market Dominant MultiService Agreements with Foreign Postal Operators 1 product as a whole, the Postal Service 

reports that revenues for three NSAs in the product did not cover attributable costs. The 

foreign postal operators with which these NSAs were concluded and the corresponding 

NSAs (identified by docket number) in effect during FY 2014 were Royal PostNL (Docket 

No. R2013-4), Hongkong Post (Docket Nos. R2013-3 and R2014-4), and the Australian 

Postal Corporation (Docket Nos. R2012-2 and R2014-2). The 2-year NSA with Royal PostNL 

is coterminous with 2013 and 2014, so its reported FY 2014 financial results occur entirely 

within the 2-year term.

Inbound Letter Post at UPU terminal dues tendered as Exprès and displaying the Common 

Logo of Exprès service is authorized under Inbound Market Dominant Exprès Service 

Agreement 1. This product arises from Postal Service accession to the Exprès Service 

Agreement, a multilateral agreement with the designated postal operators of 24 UPU 

member countries. For FY 2014, Letter Post entered pursuant to the Inbound Market 

Dominant Exprès Service Agreement 1 product generated sufficient revenue to cover costs.

In addition, within domestic First-Class Mail, a handling charge of $0.01 per piece applies to 

foreign-origin, inbound direct entry of Single-Piece First-Class Mail (excluding Single-Piece 

Double Cards) tendered by foreign postal operators, subject to the terms of an 

authorization arrangement.83 The Postal Service has authorization arrangements in effect 

with eight foreign postal operators; such arrangements, which predate the PAEA, are not 

classified as a product on the Market Dominant product list. The Postal Service presented 

financial results for the inbound direct entry of First-Class Mail in the ICRA report. For FY 

2014, the inbound direct entry of Single-Piece First-Class Mail generated sufficient

revenues to cover costs.

 

82 This agreement is with the postal operator for the Netherlands.

83 Mail Classification Schedule, Section 1105.5, n.2.
- 57 -

The FY 2014 financial results for the Inbound Market Dominant Multi-Service Agreements 

with Foreign Postal Operators 1 product appear to validate the Postal Service’s strategy, 

advocated in previous ACRs, of negotiating bilateral NSAs with some of the larger foreign 

postal operators that exchange Letter Post items with the Postal Service.84 Over time, 

pursuit of this strategy should continue to improve the overall cost coverage for inbound 

Letter Post.

The statutory test for compliance of Market Dominant NSAs is found in 39 U.S.C. §§ 

3622(c)(10)(A)(i) and (ii), and requires that the Commission determine whether such 

NSAs improve the net financial position of the Postal Service or enhance the performance 

of certain operations. To make this determination, the Commission compares the cost 

coverage for each NSA at negotiated rates with the cost coverage at UPU terminal dues.

In response to an information request, the Postal Service provided financial results for each 

NSA based upon the UPU terminal dues. For the NSAs with Royal PostNL (Docket No. 

R2013-4) and the Australian Postal Corporation (Docket No. R2012-2), the cost coverage at 

the UPU terminal dues exceeded the cost coverage at the negotiated rates. These results 

indicate that the NSAs did not improve the Postal Service’s net financial position.

The Commission finds that the NSA with Royal PostNL did not comply with 39 U.S.C. § 

3622(c)(10)(A). The Commission directs the Postal Service to report within 90 days on the 

following: the factors that caused the Royal PostNL NSA cost coverage at the UPU terminal 

dues to exceed the cost coverage at the negotiated rates; the extent to which the Postal 

Service incorporated knowledge of these factors into its financial model for the successor NSA 

that was the subject of Docket No. R2015-3; and whether the successor NSA with Royal 

PostNL will improve the Postal Service’s net financial position during FY 2015.

The Commission finds that the NSA with the Australian Postal Corporation did not comply 

with 39 U.S.C. § 3622(c)(10)(A). No remedial action is required because the Australian Postal 

Corporation NSA expired in FY 2014 and the successor NSA that was the subject of Docket No. 

R2014-2 covered costs in FY 2014.

The Commission finds that the Hongkong Post NSA satisfies the applicable statutory 

requirement, because the cost coverage at the negotiated rates exceeded the cost coverage at 

the UPU terminal dues.

7. Other Issues

The Utah Hispanic Chamber of Commerce and Valpak comment on loss-making products in 

general. The former proposes that the Postal Service implement substantial price increases 

for loss-making products, and urges the Postal Service to examine the viability of offering 

these products if they continue to lose money. UHCC Comments at 2.

Valpak reiterates its belief, stated in previous ACDs, that loss-making products are a 

financial threat to the Postal Service’s viability. Valpak Initial Comments at V-5. It points 

 

84 Docket No. ACR2012, United States Postal Service FY 2012 Annual Compliance Report, December 2, 2012, at 9 (FY 2012 ACR).
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out that in FY 2014, losses were mitigated by extra revenues received due to the temporary 

exigent surcharge, and projects that the Postal Service’s losses will exceed $100 million 

once the surcharge is removed. Id. at V-5, V-6. Valpak asserts that these losses are the 

primary causes of liquidity shortages, which in turn contribute to a failure to make needed 

capital investments. Id. at V-6. It predicts that contribution from First-Class Mail will 

continue to decline, adding to the Postal Service’s financial losses. Id. at V-11. Valpak calls 

upon the Commission to “prevent the further deliberate underpricing of postal products” 

by Postal Service management. Id. at V-13, V-14.

The Postal Service states that Valpak’s argument that underwater products receive rapid 

and substantial price increases fails to correctly consider the interplay of the price cap and 

demand trends for underwater products. Postal Service Reply Comments at 20. It 

elaborates that the unique strictures of the price cap make it unlikely that Valpak’s 

preferred course of action will materially benefit the Postal Service’s overall finances. ld. 

The Commission shares commenter concerns about underwater products. Nevertheless, it 

determines that the Postal Service’s approach in recent Market Dominant price 

adjustments of proposing above-average price increases for underwater products is 

reasonable. It encourages the Postal Service to use its pricing flexibility to improve the cost 

coverage of underwater products through the combination of above-average price 

increases and cost reduction initiatives. The Commission suggests that the Postal Service 

propose as high an above-average price increase as is practicable in each Market Dominant 

price adjustment proceeding.

C. Domestic Market Dominant NSAs

Market Dominant NSAs must comply with 39 U.S.C. § 3622(c)(10), which requires them to 

improve the Postal Service’s net financial position by reducing costs or increasing the 

overall contribution to institutional costs.85 They also must not cause unreasonable harm to 

the marketplace. Id. § 3622(c)(10)(B).

After approving a Market Dominant NSA, the Commission also evaluates that NSA in the 

ACD to ensure that the agreement continues to meet the requirements of 39 U.S.C. 

§ 3622(c)(10). It bases its review on the NSA’s performance during “contract years,” 12-

month periods measured from the time the contract was implemented. In ACDs, the 

Commission reviews the contract year that ends during the fiscal year of the ACD.

In FY 2014, three domestic Market Dominant NSAs were in effect: PHI Acquisitions, Inc. 

(PHI) NSA, Valassis Direct Mail, Inc. (Valassis) NSA, and Discover Financial Services 

(Discover) NSA.86 The Commission evaluates these NSAs based on their performance 

during the following contract years:

 

85 39 U.S.C. § 3622(c)(10)(A)(i). Alternatively, NSAs must “enhance the performance of mail preparation, processing, transportation, or other 

functions[.]” Id. § 3622(c)(10)(B).

86 FY 2014 ACR at 37. International Market Dominant NSAs are discussed in section B. 6. c., supra.
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 PHI NSA: First Quarter of Contract Year 1 (July 1, 2014 through September 30, 

2014)

 Valassis NSA: Contract Year 2 (August 23, 2013 through August 22, 2014) 

 Discover NSA: Contract Year 3 (April 1, 2013 through March 31, 2014)

Table III-11 shows the net effect of these NSAs on the contribution to institutional costs for 

the contract years that ended during FY 2014 using the current accepted analytical 

principle.87

Table III-11

Summary of Net Effect on Contribution for 

Domestic Market Dominant NSAs in Effect During FY 2014

($ Thousands)

FY 2012 FY 2013 FY 2014 Total

Discover -$4,338 -$6,861 -$14,179 -$25,378

Valassis $0 $0 $0

PHIa$263 $263

a The PHI NSA was in effect for only one quarter of FY 2014.

Source: Library Reference PRC–LR–ACR2014/8.

1. Current Accepted Analytical Principle

For domestic Market Dominant NSAs, the current accepted analytical principle for 

estimating volume changes due to the Postal Service’s pricing incentive programs uses 

price elasticity to estimate the new volume generated by pricing incentive programs.88 This 

principle states that “the financial impact of price incentives to increase mail volume or to 

shift mail volume between products should be based on the Postal Service’s best estimate 

of the price elasticity of the discounted product.” Id. at 3. 

The Postal Service argues that it “should have the flexibility to determine and employ 

relevant and appropriate methodologies compatible with its business model.” USPS Reply 

Comments at 11. It contends that no statutory requirement mandates the use of any one 

methodology. Id.

In all ACRs, including this ACR, the Postal Service is required to use accepted analytical 

principles. 39 C.F.R. § 3050.10. The Commission has applied the current elasticity-based 

 

87 The estimated impact of the PHI NSA reflects the first quarter of activity. Responses of the United States Postal Service to Chairman’s 

Information Request No. 8, February 20, 2015 (Response to CHIR No. 8). Volumes sent during the remainder of the first contract year may alter 

these results. Responses of the United States Postal Service to Questions 1-6, 8, 10, 12-13, and 15-22 of Chairman’s Information Request No. 2, 

January 23, 2015, question 5 (January 23, 2015, Response to CHIR No. 2); PHI Comments at 3-4.

88 Docket No. RM2010-9, Order Terminating Proceeding, May 27, 2011, at 1 (Order No. 738).
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accepted analytical principle since the PAEA was enacted in 200689; in 2010, the 

Commission initiated a rulemaking to consider changing this principle.90 It evaluated 

comments from several interested persons, including the Postal Service. Order No. 738 at 

4-10. The Commission concluded that the alternative methods the commenters suggested 

did not “offer a demonstrable improvement over the current method.” Id. at 1. It decided to 

retain the elasticity-based accepted analytical principle for evaluating the financial effects 

of price incentives to increase mail volume or to shift mail volume between products. See

id. at 16 (Ordering Paragraph No. 2).

In future ACRs, the Postal Service is directed to use the elasticity-based accepted analytical 

principle when estimating volume changes resulting from its pricing incentive programs 

unless the Commission accepts an alternative analytical principle. See 39 C.F.R. §§ 3050.10 

and 3050.11.91

2. PHI NSA

The Postal Service implemented the PHI NSA on July 1, 201492; it was in effect during the 

last quarter of FY 2014 (July 2014 through September 2014).93 PHI sent enough mail pieces 

to qualify for approximately $175,000 in discounts. However, the Postal Service asserts 

that it could not calculate the net contribution from the PHI NSA on a contract year basis 

because a full contract year has not been completed. FY 2014 ACR at 38. Nevertheless, 

using the elasticity-based accepted analytical principle, the Postal Service estimates that 

the first quarter of the PHI NSA resulted in a net increase in contribution of $281,025.94 It 

concludes that the PHI NSA complies with 39 U.S.C. § 3622(c)(10)(A) and the Commission’s 

rules.95

Two parties commented on the PHI NSA. PHI identifies an error in the calculations 

underlying the Postal Service’s initial estimate of the NSA’s financial impact during the first 

quarter of FY 2014. PHI Comments at 2. Valpak urges the Commission to closely monitor 

 

89 See Docket No. ACR2007, Annual Compliance Determination, March 27, 2008, at 127 (FY 2007 ACD).

90 Docket No. RM2010-9, Notice of Proposed Rulemaking Concerning Methods to Estimate Volume Changes Caused by Pricing Incentive 

Programs, June 8, 2010 (Order No. 469).

91 The Postal Service must also apply accepted analytical principles when it submits a request to add an NSA to the Market Dominant product 

list. 39 C.F.R. § 3010.42(f).

92 Docket Nos. MC2014-21 and R2014-6, Notice of the United States Postal Service of Implementation Date for PHI Acquisitions, Inc. Negotiated 

Service Agreement, July 30, 2014, at 1.

93 Implementation occurred pursuant to Docket Nos. MC2014-21 and R2014-6, Order Adding PHI Acquisitions, Inc. Negotiated Service 

Agreement to the Market Dominant Product List, June 19, 2014 (Order No. 2097).

94 Library Reference USPS-FY14-30, revised February 20, 2015. The Postal Service initially miscalculated its estimate of the impact of the PHI 

NSA during the first quarter of FY 2014, stating that it had a net loss of $128,090 in contribution. January 23, 2015, Response to CHIR No. 2, 

question 4. The Postal Service acknowledged the error and revised its estimate accordingly. Response to CHIR No. 8. These revisions changed 

the initial $128,090 estimate of a net loss in contribution to a $281,025 net increase in contribution. Incorporating the updated elasticity 

provided in the attachment to the January, 20, 2015 letter from Daniel Foucheaux, Jr., produces the estimate of $263 thousand shown in Table 

III-11.

95 Notice of the United States Postal Service of Filing of Revised Annual Compliance Report Page – Errata, January 23, 2015 (FY 2014 ACR 

Revised Page 38).
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the PHI NSA and consider in this and subsequent ACR dockets whether it is profitable and 

lawful and whether it should remain in effect.96

The Commission is encouraged by the early positive results of the PHI NSA. By incentivizing 

new volumes that generate more contribution than the discounts awarded, the agreement 

may achieve the goal of improving the net financial position of the Postal Service. The 

Commission will continue to monitor this NSA.

3. Valassis NSA

The Commission approved the Valassis NSA on August 23, 2012.97 It requires Valassis to 

begin sending Contract Pieces (i.e., mail pieces eligible for contract prices) within 90 days 

after the effective date.98 If it does not, it must mail at least 1 million Contract Pieces during 

the ensuing 12-month period. Id. If mail volume does not reach this threshold during that 

period, Valassis agrees to pay the Postal Service a $100,000 “transaction fee.” Id.

Valassis did not meet the 1 million threshold because it did not send any Contract Pieces 

under its NSA during FY 2013 and FY 2014.99 The Postal Service states that operations 

related to the Valassis NSA began during May 2013 in Atlanta, Georgia; Phoenix, Arizona; 

and Washington, DC. Response to CHIR No. 10, question 1.b. Valassis ceased NSA-related 

operations in Atlanta in August 2013 and in Phoenix and Washington, DC in December 

2013. Id. The Valassis NSA is currently not operating in any market and there are no plans 

to initiate mailing Contract Pieces in 2015. Id.

The Postal Service has deferred collecting the $100,000 transaction fee “as it considers and 

evaluates its business options.” Id. question 2.b. It did not amend the Valassis NSA to reflect 

its deferral of the transaction fee. Id. question 2.c.

Despite entering three markets and sending a small volume of NSA-related mail in FY 2013, 

it appears that Valassis was unable to achieve the density necessary to qualify for contract 

prices.100 Because Valassis did not send any Contract Pieces in FY 2014, the NSA did not 

improve or harm the net financial position of the Postal Service.

The Commission is concerned that the Postal Service has not collected the $100,000 

transaction fee (sometimes referred to as a “penalty” in the original docket). In proposing 

 

96 Valpak Initial Comments at VI-4-5. Valpak’s comments were based on the Postal Service’s initial estimate of the PHI NSA’s financial impact. 

Valpak’s concerns are addressed in part by the revision to the initial estimate. See n.94, supra.

97 Docket Nos. MC2012-14 and R2012-8, Order Approving Addition of Valassis Direct Mail, Inc. Negotiated Service Agreement to the Market 

Dominant Product List, August 23, 2012 (Order No. 1448).

98 Docket Nos. MC2012-14 and R2012-8, Notice of the United States Postal Service of Filing of Contract and Supporting Data and Request to Add 

Valassis Direct Mail, Inc. Negotiated Service Agreement to the Market Dominant Product List, April 30, 2012, Attachment B, at 3 (Valassis NSA 

Notice).

99 Docket No. ACR2013, Responses of the United States Postal Service to Questions 1-20 of Chairman’s Information Request No. 4, February 6, 

2014, question 14 (FY 2013 ACR, Response to CHIR No. 4); Responses of the United States Postal Service to Questions 1-2 of Chairman’s 

Information Request No. 10, February 27, 2015, question 1.a. (Response to CHIR No. 10).

100 To qualify for contract prices, at least 85 percent of the total volume of Contract Pieces must be Standard Mail Saturation Flats entered at 

DDU. See id. question 2.b. n.5.
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the Valassis NSA, the Postal Service stated that this provision would ensure that if Valassis 

did not meet the specified minimum volume, “the expected value of the agreement would 

still be positive, because of the penalty Valassis must pay[.]” Valassis NSA Notice at 7. When 

it approved the Valassis NSA, the Commission noted that the penalty provision reduced the 

risk of the agreement.101

Other NSAs—including all of those active in FY 2014—enable for the Postal Service to 

collect similar fees if anticipated volumes do not materialize. The Commission has found 

that these fees can be an integral part of NSAs.102 In one case, the Public Representative 

argues that the ability of the Postal Service and its NSA partner to agree on changes to 

penalties “could become an all-purpose tool for evading regulatory scrutiny.” Id. In that 

instance, the Commission responded by requiring the Postal Service to file additional 

information on the penalty and changes to it. Id. If the Postal Service fails to enforce these 

types of provisions, it could alter the perception of prospective NSA partners as to the 

consequences of risk-balancing provisions and potentially undermine the strength of its 

bargaining position.

The Postal Service failed to comply with the requirement that it notify the Commission 

within 30 days of when the Valassis NSA became operational in a market. See Order No. 

1448 at 42. Furthermore, the Postal Service did not report this information in its FY 2013 

or FY 2014 ACR. The ability of the Commission to perform its regulatory oversight duties 

depends on Postal Service compliance with reporting requirements. Accordingly, the Postal 

Service shall report the information required by Order No. 1448 to be filed within 60 days of 

the end of each contract year. That information includes, but is not limited to, information 

regarding the payment of the $100,000 transaction fee/penalty. Order No. 1448 at 41.

4. Discover Financial Services NSA

The Commission approved the Discover NSA on March 15, 2011. Order No. 694 at 24. 

When requesting approval, the Postal Service stated the “objective of this multi-class 

market dominant agreement is to maintain the total contribution the Postal Service 

receives from [Discover] First Class and Standard postage, and to provide an incentive for 

net contribution to grow beyond that.”103 Pursuant to the agreement, Discover receives 

rebates on “qualifying mail”104 if its total revenue exceeds the agreed-upon revenue 

threshold.105 In Contract Year 3, that threshold was $288.9 million, which Discover 

exceeded by $15.2 million. The NSA provides Discover with a rebate of a portion of the 

 

101 Order No. 1448 at 4.

102 See, e.g., Docket Nos. MC2011-19 and R2011-3, Order Adding Discover Financial Services 1 Negotiated Service Agreement to the Market 

Dominant Product List, March 15, 2011, at 17 (Order No. 694).

103 Docket Nos. MC2011-19 and R2011-3, Notice of the United States Postal Service of Filing of Contract and Supporting Data and Request to 

Add Discover Financial Services Negotiated Service Agreement to the Market Dominant Product List, January 14, 2011, at 2 (Discover Notice).

104 Discover earns rebates on all Intelligent Mail barcode mail pursuant to the agreement. Mail that qualifies for other promotions, such as the 

mobile barcode promotion, or is not prebarcoded with an Intelligent Mail barcode does not qualify for rebates pursuant to the NSA.

105 For Contract Year 3, the revenue threshold is equal to 120 percent of Discover’s revenue during the baseline period (February 2010 through 

January 2011), plus an adjustment to account for the lower contribution of Standard Mail, based on changes in Discover’s First-Class revenue 

since the baseline period.
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generally applicable Market Dominant price increases during the contract for eligible 

volume (75 percent of the price increase for First-Class Mail and 37.5 percent of the price 

increase for Standard Mail).

a. Postal Service Calculation of Net Financial Benefit

In the Discover Notice, the Postal Service used its preferred net value estimation 

methodology to estimate that the Discover NSA would generate an increase of $2 to $15 

million in contribution over the agreement’s 3-year span. Discover Notice at 5. In the Data 

Collection Report for Contract Year 3, the Postal Service estimated that the Discover NSA 

resulted in a net contribution increase of between $16 million and $24 million based on its 

preferred net value estimation methodology.106 It calculated net contribution by comparing 

actual Contract Year 3 results with projected volumes as forecast by the Postal Service 

prior to implementation of the Discover NSA. Table III-12 details the Postal Service’s 

estimate of net contribution.

Table III-12

Postal Service Estimate of Net Contribution

($ Thousands, Except Unit Contribution)

The Postal Service’s net value estimation methodology assumes that all volume greater 

than the projected Contract Year 3 volume is due to the rebate. For First-Class Mail, this 

amounted to 44.5 million pieces. The unit contribution of Discover’s First-Class letters is, 

 

106 Docket Nos. R2011-3 and MC2011-19, Data Collection Report for Year 3 of Discover Financial Services, Inc.’s Negotiated Service Agreement, 

October 16, 2014. The Commission views this as the best representation of the financial impact using the Postal Service’s preferred method. 

The ACR reports the estimated impact to be between $18.2 million and $23.1 million. FY 2014 ACR at 38, revised January 23, 2015. The FY 2014 

ACR identifies the source of these figures as Library Reference USPS–FY14–30. Id. at n.15. However, the referenced spreadsheets show different 

values for the estimated impact ($18 million to $22.9 million), and also erroneously use the before-rates volume forecast for Contract Year 2 

instead of those for Contract Year 3. (A revised version of Library Reference USPS–FY14–30 filed on February 20, 2015, does not correct this 

error.) While there are minor differences in the actual Contract Year 3 volumes reported in the Data Collection Report and those in the library 

reference, the Data Collection Report uses the before-rates volumes forecast corresponding to the correct contract year.

Year 3 

Before Rates 

Volume 

(Projected)

Year 3 

After Rates 

Volume 

(Actual)

Incremental 

Volume

Unit 

Contrib.

Total 

Contribution

Earned 

Rebate

Net Postal 

Service 

Value

[1] [2] [3] [6] [7] [8] [9]

First-Class Mail 163,851 208,325 44,473 $0.254 $11,313 $7,292

(Low Volume Estimate)

Standard Mail 761,484 1,046,187 284,704 $0.110 $31,229 $11,246

Total 925,335 1,254,512 $42,543 $18,538 $24,005

(High Volume Estimate)

Standard Mail 834,213 1,046,187 211,974 $0.110 $23,252 $11,246

Total 998,064 1,254,512 $34,565 $18,538 $16,027

Source: Docket No. R2011-3 Data Collection Report for Year 3 of Discover Financial Services, Inc.'s Negotiated Service Agreement, October 16, 2014.
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on average, 25.4 cents per piece. Thus, using the net value estimation methodology, the 

total contribution from the 44.5 million pieces was $11.3 million. The First-Class rebate 

was $7.3 million. The Postal Service estimates the net value after the First-Class rebate to 

be $4 million.

For Standard Mail, the Postal Service develops two alternative assumptions: Standard 

Mail–Low and Standard Mail–High. The Postal Service estimates that between 212 million 

and 285 million pieces of Standard Mail are due to the rebate. The unit contribution of 

Discover’s Standard Mail letters is, on average, 11 cents per piece. Thus, using net value 

estimation methodology, the 212 to 285 million incremental pieces had a contribution of 

$23.3 million to $31.2 million. The Standard Mail rebate was $18.5 million. The Postal 

Service estimates the net value after the Standard Mail rebate to be $12 million to $20 

million.

Applying its preferred net value estimation methodology, the Postal Service combines its 

net value calculations for First-Class and Standard Mail and estimates that the Discover 

NSA increased net contribution by $16 million to $24 million in Contract Year 3. However, 

using the elasticity-based accepted analytical principle, the Postal Service estimates that 

effect of the Discover NSA on the Postal Service’s net financial position during Contract 

Year 3 is negative $14.2 million. FY 2014 ACR Revised Page 38.

b. Comments

One commenter, Valpak, addresses the Discover NSA. Valpak criticizes the Postal Service’s 

reliance on its preferred net value estimation methodology as the basis for its assertion 

that the Discover NSA complied with the requirements of 39 U.S.C. § 3622(c)(10), and for 

“defying the authority of the Commission to approve costing methodologies.” Valpak 

Comments at VI-2. Valpak points out that using the current accepted analytical principle, 

the Discover NSA resulted in a net loss of contribution of about $14 million in Contract Year 

3 and concludes that the NSA violated section 3622(c)(10)(A). Id. Because of this, Valpak 

urges the Commission to find that the statute has been violated and to ask the Postal 

Service to explain how it would propose to remedy the $25 million in cumulative losses 

from the agreement. Id. at VI-4.

Overall, Valpak concludes that the Postal Service’s Market Dominant NSAs have generated 

losses totaling nearly $50 million since the enactment of PAEA, and that the program has 

proven to be a failure. Id. at VI-5.

In its reply comments, the Postal Service argues that Valpak’s criticisms are unwarranted. 

USPS Reply Comments at 9. Noting the “strong” cost coverage of First-Class Mail and the 

increasing cost coverage of Standard Mail, the Postal Service asserts that Market Dominant 

NSAs (including the Discover NSA) contributed to those results. Id. at 10. The Postal Service 

also cites the statement of Harit Talwar in Docket No. R2015-2, which credits the Discover 

NSA with boosting the amount that Discover has spent on postage in recent years, in 

support of its conclusion that the NSA improved the Postal Service’s financial position. Id.
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c. Commission Analysis

The Commission uses the elasticity-based accepted analytical principle to develop its 

estimates of the Discover NSA’s net financial impact on the Postal Service’s finances. The 

purpose is to estimate mailer response to a lower price using quantitative inputs. The 

accepted analytical principle incorporates the Contract Year 3 rebated volume, the 

marginal rebate, and the Standard Regular and First-Class workshared subclass own-price 

elasticities.107 The Commission recognizes that the elasticity of individual mailers may 

differ from that of the subclass as a whole; however, the accepted analytical principle uses 

subclass elasticities because they are the only elasticity estimates produced by the Postal 

Service at this time.

In Contract Year 3, 203 million First-Class Mail pieces qualified for the marginal rebate of 

3.6 cents per piece.108 Using the 2014 First-Class workshared subclass elasticity of -0.305, 

6.1 million pieces were incentivized by the rebate. Therefore, the Postal Service gained $1.5 

million in contribution from these pieces.

In Contract Year 3, 1.032 billion Standard Mail pieces qualified for a 1.1 cent rebate. Using 

the 2014 Standard Regular elasticity of -0.482, the rebate incentivized 25.5 million pieces. 

Thus, the Postal Service gained $2.8 million in contribution from these pieces. Using the 

accepted analytical principle, the estimated increase in contribution from incentivized 

volume in Contract Year 3 of the Discover NSA is about $4.4 million. However, because the 

Postal Service paid rebates of $7.3 million for First-Class Mail volumes and $11.2 million 

for Standard Mail volumes, the estimated net benefit to the Postal Service of the Discover 

NSA in Contract Year 3 was negative $14,178,974.109

The Postal Service estimates that 44.5 million First-Class Mail pieces were incentivized by 

the rebate. Discover would need to have an elasticity of -2.45 to be incentivized to mail 44.5 

million pieces by a marginal rebate of 3.6 cents. This is roughly 8 times the own-price 

elasticity of workshared First-Class Mail as a whole. The Postal Service estimates that the 

rebate incentivized more than 211 million Standard Mail pieces. Discover would need an 

elasticity of -4.42 to be incentivized to mail 211 million pieces by a marginal rebate of 1.1 

cents, roughly 9 times the own-price elasticity of Commercial Standard Regular Mail as a 

whole.

 

107 The Postal Service’s estimates of elasticity reflect subclasses, rather than products, that were used prior to the PAEA. Standard Regular 

includes the following commercial Standard Mail products: Letters, Flats, and Not Flat-Machinables/Parcels. Enhanced Carrier Route includes 

the following commercial products: Carrier Route, High Density and Saturation Letters, and High Density and Saturation Flats/Parcels. The 

accepted methodology was developed in Docket No. MC2004-3. The 2014 Standard Mail Regular elasticity is -0.482 and the First-Class 

workshared Letters, Flats, and Cards elasticity is -0.305, as provided in the attachment to the January 20, 2015 letter from Daniel Foucheaux Jr.

The Postal Service provides its estimates of price elasticity pursuant to the Commission’s Periodic Reporting Rules.

108 The per-piece discounts for Contract Year 3 are substantially larger than in prior contract years. The discounts are determined by comparing 

the rates Discover paid at the end of each contract year with those paid before the implementation of the NSA. The implementation of the 

exigent price increases with less than 3 months remaining in Contract Year 3 resulted in relatively large per-piece discounts awarded to all of 

Discover’s Contract Year 3 volume, including the volume it sent at lower rates before the exigent increase was implemented.

109 The formula for estimating the incremental volume incentivized by a rebate is [Eligible Volume x (1-(Revenue Per Piece/(Revenue Per PieceMarginal Rebate)) ˄

Own-Price Elasticity]. The incentivized volume is multiplied by the contribution per piece of the incentivized volume to calculate 

the increase in contribution due to the incentivized volume. These calculations are presented in PRC–LR–ACR2014/8.
- 66 -

Section 3622(c)(10) of Title 39 of the U.S.C. requires that Market Dominant NSAs improve 

the net financial position of the Postal Service or improve operational performance while 

not causing unreasonable harm to the marketplace. The Discover NSA, using the accepted 

analytical principle, is estimated to have had a negative effect on the net financial position 

of the Postal Service in FY 2014. This does not mean that revenues did not cover 

attributable costs for these mail pieces; rather, the aggregate contribution was reduced 

from what it would have been absent the agreement.

The Postal Service’s estimates of the Discover NSA’s net benefits are based on qualitative 

rather than quantitative factors.110 When approving the Discover NSA, the Commission 

expressed reservations about the qualitative methods the Postal Service used to estimate 

what Discover’s net contribution would be absent the NSA. Order No. 694 at 13. It further 

noted, “[i]t is incumbent upon the Postal Service to develop a quantitative approach that 

incorporates the factors it is using to estimate volumes.” Id. at 14. Using the elasticity-based 

accepted analytical principle, the Commission concluded that the Discover NSA was 

unlikely to improve the Postal Service’s net financial position. Id.

The Commission also evaluated the agreement using an analysis presented by the Public 

Representative. Although the Commission did not endorse that method, it encouraged the 

Postal Service to explore that approach when analyzing similar agreements. Id. at 14-15. 

Recognizing that “[t]he context of the Postal Service’s proposal is important,” the 

Commission authorized the Discover NSA to proceed, stating, “allowing this negotiated 

service agreement to proceed will allow management to enhance its knowledge of potential 

tools to slow the overall declining trend for First-Class Mail volume.” Id. at 15.

In the FY 2013 ACD, the Commission found that the Discover NSA resulted in a net loss of 

almost $11.2 million for the Postal Service during the first two contract years. FY 2013 ACD 

at 62, Table III-5. It directed the Postal Service to provide in its FY 2014 ACR “a detailed 

analysis of the lessons learned from the [Discover] NSA.” Id. at 68. The Postal Service did 

not do so. However, in response to an information request, it stated that it learned that the 

NSA achieved its goals of maintaining Discover’s contribution from First-Class Mail and 

Standard Mail, gaining a net increase in contribution of nearly $71 million over 3 years.111

The Postal Service also stated that its experience with this NSA has “deepened its 

understanding that First-Class Mail is highly affected by customer behavior in the 

acceptance of Electronic Statements from financial entities.” It also concluded that future 

NSAs should provide overall net increases in contribution for all sub-products of a 

customer’s mail volume. Id.

 

110 The Postal Service’s method for estimating the net value of the Discover NSA is a function of the following inputs: Contract Year 3 volumes 

projected in Docket No. R2011-3, Contract Year 3 volumes, and estimated unit contribution. In Docket No. R2011-3, the Postal Service provided 

a list of qualitative factors it used to estimate the Contract Year 3 projected volumes. Order No. 694 at 13. The Commission has encouraged the 

Postal Service to develop quantitative methods for estimating net value of NSAs. For example, in Docket No. RM2010-9, the Commission 

attempted to develop alternative quantitative methods for estimating volume responses to pricing incentives.

111 January 23, 2015, Response to CHIR No. 2, question 19.
- 67 -

These conclusions are based on the Postal Service’s evaluation of Discover’s volumes 

compared with the forecast developed prior to implementation. The Postal Service’s 

response stated that it was “currently evaluating alternative Net Value methodologies.” Id.

However, the Postal Service did not elaborate on the nature of these methodologies or 

when it anticipated proposing one for acceptance by the Commission.

As discussed above, the Postal Service is required to use the elasticity-based accepted 

analytical principle when estimating volume changes resulting from its pricing incentive 

programs unless the Commission accepts an alternative analytical principle. See 39 C.F.R. 

§§ 3050.10 and 3050.11.

In approving the Discover NSA, the Commission anticipated that the Postal Service would 

use the experience as an opportunity to observe and attempt to measure the specific 

factors affecting Discover’s mailing behavior. The Postal Service could then use these data 

to develop and refine new potential methods for evaluating the financial impact of volume 

discounts based on quantitative inputs. 

Based on the Postal Service’s statements, it has not availed itself of this opportunity. 

Instead, it compares volume forecasts it developed nearly 5 years ago to the volumes 

actually sent by Discover and, with no apparent effort to analyze the effects of changed 

circumstances or other information, concludes that the entire difference is due to the 

discounts. The Postal Service’s statement that it has “deepened its understanding that FirstClass Mail is highly affected by customer acceptance of Electronic Statements from financial 

entities” seems to suggest that First-Class Mail is less likely to respond significantly to 

volume-based price incentives. It is unclear how this leads the Postal Service to conclude 

that future NSAs should provide incentives to increase overall net contribution without 

regard to “any sub-product of a customer’s mail volume.” January 23, 2015, Response to 

CHIR No. 2, question 19. In fact, one could conclude the opposite. The Postal Service’s 

description of its efforts to develop a net value method with quantitative inputs does not 

suggest any progress or substantial effort toward this goal.

The Commission finds that the Discover NSA did not comply with 39 U.S.C. § 3622(c)(10) for 

the contract year that ended during FY 2014. The agreement implemented by the Postal 

Service was designed to pay rebates for all of Discover’s qualifying volume, but the rebate was 

greater than the contribution incentivized by the agreement. The Discover NSA completed its 

third and final contract year on March 31, 2014; therefore no further action is necessary at 

this time.

D. Nonpostal Services

In FY 2014, Nonpostal Services generated $68 million in revenue and incurred $13 million 

in expenses, which resulted in a net income of $55 million. This is a 31 percent increase 

compared with FY 2013.
- 68 -

E. Other Issues

1. Metered Letter Prices

Several commenters address the price differential between Stamped and Metered Letters 

and the Metered Letters price in general. Pitney Bowes Inc. (Pitney Bowes), the National 

Postal Policy Council (NPPC), the National Association of Presort Mailers (NAPM), and 

Stamps.com asserted that the introduction of a separate price for Metered Letters has been 

a success. Pitney Bowes Comments at 4-5; NPPC Reply Comments at 3-13; NAPM Reply 

Comments at 2-3; Stamps.com Comments at 2-4. They support the differential between 

Stamped and Metered Letters and would support increasing the differential in the future. 

Id.

In contrast, APWU and the Greeting Card Association (GCA) questioned the legality of the 

differential between Stamped and Metered Letters. APWU Comments at 8-11; GCA 

comments at 2. They argue that the lower price for Metered Letters may simply lower the 

postage bill for businesses that already meter all Single-Piece Letter Mail they send. GCA 

Comments at 3; APWU Comments at 8-11. Consequently, GCA contends that the price 

differential between Stamped and Metered Letters may not conform with 39 U.S.C. §§ 

3622(b)(1), 3622(b)(5), and 3622(b)(8). Likewise, APWU asserts that the differential 

violates 39 U.S.C. § 3622(b)(8) and suggests that the differential may also violate the 

39 U.S.C. § 403(c) nondiscrimination principle. APWU Comments at 8-11. APWU notes that 

the Postal Service relied on the “experience of foreign posts” to justify the introduction of 

the Metered Letters price, ignoring the fact that foreign posts are not subject to 39 U.S.C. 

§ 403(c) and may benefit from unequal treatment of its customers. Id. at 9. It urges the 

Commission to “revisit the legitimacy of the metered-mail discount.” Id. at 2.

The Commission has not determined that a workshare relationship exists between Stamped 

and Metered Letters. To conclude that the Postal Service violates 39 U.S.C. § 403(c), the 

Commission must find that the price discrimination between Stamped and Metered Letters is 

either “undue or unreasonable.” The Commission approved the establishment of the Metered 

Letters price in Docket No. R2013-10, based on a rational explanation presented by the Postal 

Service that supported pricing Stamped and Metered Letters differently. The same reasons 

justify its continuation. Furthermore, the Commission finds that the price differential between 

Stamped and Metered Letters is an appropriate exercise of the Postal Service’s pricing 

flexibility.

2. First-Class Mail Product Cost Coverage Disparity

Pitney Bowes, NPPC, and NAPM have expressed concern about the high cost coverage of 

First-Class Presorted Letters/Postcards, contending that its relative cost coverage and unit 

contribution compared with Single-Piece Letters/Postcards is too high. Pitney Bowes 

Comments at 1-2; NPPC Comments at 2-8; NAPM Reply Comments at 1-2. NAPM argues 

that the above-average increases imposed on Presort Letters represent a missed 

opportunity for the Postal Service to encourage the use of its most efficient and profitable 

letter product. NAPM Reply Comments at 2. Pitney Bowes suggests that the Postal Service 
- 69 -

should rebalance the cost coverage and unit contributions among First-Class Mail products, 

lowering prices on Presort Letters. Pitney Bowes Comments at 1-2. NPPC contends that the 

Postal Service’s price increases for Presorted Letters/Postcards may violate 39 U.S.C 

3622(b)(1), (4), (5) and (8). 

As the Commission noted in response to similar concerns expressed in the FY 2012 ACD and FY 

2013 ACD, one objective of the PAEA was to allow the Postal Service pricing flexibility, subject 

to an inflation-based cap on price changes. See FY 2012 ACD at 82; FY 2013 ACD at 70. That 

flexibility can be used to apply non-uniform price adjustments within a class. Id.; see 39 U.S.C. 

§ 3622(b)(8). The Commission continues to encourage the Postal Service to balance its own 

needs with those of its customers.

3. Discount for Automation 5-Digit Letters

Pitney Bowes, NPPC, and NAPM contend that the passthrough of avoided costs for 

Automation 5-Digit Letters penalizes users because it was too low. Pitney Bowes 

Comments at 3-4; NPPC Comments at 7; NAPM Reply Comments at 2. They argue that the 

Postal Service is sending inefficient price signals. Id. They contended the Postal Service 

should set workshare discounts as close as practicable to 100 percent of the costs avoided. 

Id.

The worksharing requirements of Title 39 impose a ceiling but not a floor on passthroughs. 

See 39 U.S.C. § 3622(e)(2). The Commission notes that passthroughs below 100 percent send 

inefficient price signals to mailers. Therefore, it encourages the Postal Service to adjust 

discounts to bring passthroughs closer to 100 percent. The Commission, however, recognizes 

that the PAEA gives the Postal Service pricing flexibility and encourages it to balance its own 

needs with those of its customers.

4. Cost Reduction Issues

PostCom believes that the Postal Service’s cost reduction efforts have been 

counterproductive. PostCom Comments at 2. It asserts that instead of reducing costs, these 

initiatives have shifted mail processing costs to mailers and created higher costs for both 

mailers and the Postal Service. Id. PostCom also explains that the FSS, Load Leveling, and 

Network Rationalization initiatives have failed to yield savings in processing and delivery 

costs. Id. at 2-3. PostCom suggests that the Commission direct the Postal Service to, in 

future ACRs, provide top-level workpapers containing attributable costs associated with 

each rate category and separated by activity. Id. at 5.

The Commission agrees that the Postal Service must do a better job of quantifying the 

savings from its cost reduction initiatives. However, at this time, the Commission does not 

believe it necessary to direct the Postal Service to provide top-level workpapers showing 

attributable costs for each rate category and separated by activity. This information is 

available in the workpapers that accompany the ACR. Nevertheless, the Commission 

suggests that the Postal Service, in future ACRs, clearly identify where this information can 

be found.
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5. Standard Mail Automation Letters

Pitney Bowes argues that the Postal Service sends inefficient price signals with its Standard 

Mail Automation Letters rate design. Pitney Bowes Comments at 3. It points out that the 

Automation AADC Letters passthrough is 137.5 percent, while the Automation 5-Digit 

Letters passthrough is 81.8 percent, and maintains that the Postal Service should set 

workshare discounts as close as practicable to 100 percent of the avoided costs. ld. It 

asserts that this approach promotes efficiency, lowers the total combined costs for mailers, 

and encourages the retention and growth of its most finely presorted and profitable 

products. ld.

Although the Commission concurs that the Postal Service should set its workshare discounts 

at avoided costs, it is not unlawful to set discounts below avoided costs.
Docket No. ACR2014 - 71 -

CHAPTER 4: COMPETITIVE PRODUCTS

A. Introduction

In this chapter, the Commission reviews Competitive products to determine whether any 

rates or fees in effect during FY 2014 were not in compliance with 39 U.S.C. § 3633, which:

 Prohibits subsidization of Competitive products by Market Dominant products: 

39 U.S.C. § 3633(a)(1)

 Requires that each Competitive product cover its attributable costs: 39 U.S.C. 

§ 3633(a)(2)

 Requires that, collectively, Competitive products cover an appropriate share of the 

Postal Service’s institutional costs: 39 U.S.C. § 3633(a)(3)

The principal FY 2014 findings for Competitive products are:

 Revenues, as a whole, exceeded incremental costs. Thus, Market Dominant products 

did not subsidize Competitive products during FY 2014, satisfying 39 U.S.C. 

§ 3633(a)(1).

 Revenues for two products did not cover attributable costs and therefore did not 

comply with 39 U.S.C. § 3633(a)(2): International Money Transfer Service—

Outbound and International Money Transfer Service—Inbound. The Commission 

orders the Postal Service to take corrective action.

 Collectively, Competitive products satisfied the Commission’s 5.5 percent minimum 

contribution regulatory requirement. See 39 C.F.R. § 3015.7(c). As a result, 

Competitive products complied with 39 U.S.C. § 3633(a)(3) during FY 2014.

B. Cross-Subsidy Provision: 39 U.S.C. § 

3633(a)(1)

In Order No. 399, the Commission approved the Postal Service’s hybrid incremental cost 

methodology.112 Under this methodology, the Postal Service aggregates three cost 

categories: incremental costs for Competitive domestic products, attributable costs for 

international Competitive products,113 and Competitive group specific costs.

 

112 Docket No. RM2010-4, Order Accepting Analytical Principles Used in Periodic Reporting (Proposals Twenty-Two through Twenty-Five), 

January 27, 2010, at 2-5 (Order No. 399).

113 Order No. 399 established that international Competitive mail would use attributable costs instead of incremental costs, because the latter 

are not available for international products. ld. at 5.
- 72 -

According to the hybrid methodology, Competitive products had incremental costs of $11.2 

billion114 in FY 2014; the total revenues for Competitive products were $15.3 billion. Id.

Accordingly, in FY 2014, revenues from Competitive products exceeded the hybrid 

incremental costs.115 Consequently, the Commission finds that revenues from Market 

Dominant products did not subsidize Competitive products, satisfying 39 U.S.C. § 3633(a)(1).

C. Product Cost Coverage Provision: 39 U.S.C. 

§ 3633(a)(2)

Section 3633(a)(2) of Title 39 of the U.S.C. requires the revenues for each Competitive 

product to cover attributable costs. Below, the Commission separately discusses the FY 

2014 financial performance for five Competitive product groupings:

 Competitive domestic products with rates of general applicability

 Competitive domestic products consisting of NSAs116

 Competitive international products with rates of general applicability

 Competitive international products consisting of NSAs

 Competitive non-postal services

1. Competitive Domestic Products with Rates of 

General Applicability

In FY 2014, there were 12 Competitive domestic products with rates of general 

applicability: Priority Mail Express; Priority Mail; Parcel Select; Parcel Return Service; 

First-Class Package Service; Standard Post; Address Enhancement Services; Greeting Cards, 

Gift Cards, and Stationery; Competitive Ancillary Services; Premium Forwarding Service; 

Post Office Box Service; and Shipping and Mailing Supplies.

In the FY 2014 ACR, every Competitive domestic product within rates of general applicability 

covered its attributable costs and complied with the statutory requirements of 39 U.S.C. § 

3633(a)(2). FY 2014 ACR at 47.

2. Competitive Domestic Products Consisting of 

Negotiated Service Agreements

As shown in Table IV-1, in FY 2014, there were 136 Competitive domestic products 

consisting of NSAs.

 

114 See FY 2014 ACR at 46.

115 The Public Representative also concludes that revenues from Competitive products exceed the FY 2014 hybrid incremental costs.

PR Comments at 48-49.

116 As discussed in Chapter 3, an NSA is a written contract between the Postal Service and a mailer, to be in effect for a defined period, which 

provides for customer-specific rates or fees and/or terms of service in accordance with the terms and conditions of the contract. See 39 C.F.R. 

§ 3001.5(r).
- 73 -

Table IV-1

Competitive Domestic NSA Products in Effect During FY 2014

Competitive Domestic NSA Product Groupings Number of Productsa

First-Class Package Service Contracts 35

Parcel Return Service Contracts 4

Parcel Select & Parcel Return Service Contracts 2

Parcel Select Contracts 7

Priority Mail—Non-Published Ratesb1

Priority Mail & First-Class Package Service Contracts 1

Priority Mail Contracts 64

Priority Mail Express & Priority Mail Contracts 7

Priority Mail Express Contracts 11

Priority Mail Express, Priority Mail, & First-Class Package Service Contracts 4

Total 136

a With exception of NSAs entered into under the Priority Mail—Non-Published Rates (NPR) product, each Competitive domestic NSA is a 

separate product.

b The Priority Mail—NPR product allows the Postal Service to enter into Priority Mail NSAs without filing the agreements with the Commission 

for pre-implementation review

Source: Library Reference USPS–FY14–NP27.

Pursuant to 39 U.S.C. § 3633(a)(2), each Competitive domestic NSA product must cover its 

attributable costs. The Commission finds that each product for which the Postal Service 

filed contract-specific data covered its attributable costs and complied with these statutory 

requirements. The Commission was, however, unable to make a definitive finding on 31 of 

the 35 First-Class Package Service NSA products because the Postal Service did not file 

contract-specific data for them. Commission regulations require the Postal Service to file 

data that allows the Commission to evaluate each Competitive domestic NSA for 

compliance with 39 U.S.C. § 3633. See 39 C.F.R. § 3050.21(g)(2). However, the Postal 

Service did not provide total volume, revenue, and cost data for 58 products that were in 

effect during FY 2014.117

The Postal Service notes that 31 of the 35 First-Class Package Service contracts in effect 

during FY 2014 paid published, not discounted, prices and that the sole purpose of the 

contracts was to allow partners to use the PC Postage payment method during a time when 

it was not authorized for First-Class Package Service rates. Id. The Postal Service further 

explains that as of January 27, 2013, PC Postage became an authorized payment method for 

First-Class Package Service and, therefore, these types of First-Class Package Service 

contracts are no longer required. ld.

 

117 In Response to CHIR No. 9, question 1, the Postal Service discusses 27 additional non-First-Class Package Service NSA products for which it 

did not provide financial data. Response of the United States Postal Service to Question 1 of Chairman’s Information Request No. 9, February 

24, 2015 (Response to CHIR No. 9). It notes that 24 of these products had no mail pieces shipped under the respective contracts in FY 2014. It 

further notes that the revenue, volume, weight, and attributable costs data for contracts of the other three products were included in another 

contract with the same customer. Consequently, for those three products, the Postal Service provided the financial data with the corresponding 

contract with the same mailer that was in effect in FY 2014.
- 74 -

For these reasons, the Postal Service did not track the 31 First-Class Package Service NSA 

products. ld. Because the mail was entered at published rates, data entered by mailers for 

these products are included with all other First-Class Package Service data. Id.

The Commission recognizes the unique status of these First-Class Package Service NSA 

products and accepts the Postal Service’s rationale for reporting their financial data with the 

First-Class Package Service product in this limited instance. However, the Commission is 

required to review each NSA product to determine compliance with 39 U.S.C. § 3633(a)(2). 

Therefore, for those Competitive domestic NSAs that are not active or are paying published 

rates, the Postal Service should file a notice of termination to remove the agreement from the 

Competitive product list.118 Furthermore, the Commission directs the Postal Service to identify 

each NSA product that had no mail pieces shipped under the respective contracts.

Because the Postal Service did not file contract-specific data for these 31 First-Class 

Package Service NSA products, the Commission cannot make a definitive finding pursuant 

to 39 U.S.C. § 3633(a)(2). However, because each of the underlying contracts paid 

published prices that were found to satisfy the statutory requirements in FY 2014, it is 

likely that each product also satisfied the requirements in FY 2014.

The Postal Service filed a motion for late acceptance of its notice of filing for two Priority 

Mail—Non-Published Rates customer agreements on December 22, 2014,119 with effective 

dates of June 1 and July 28, 2014.120 These notices were not filed in a timely manner. The 

Commission directs the Postal Service to file future notices within a reasonable time of the 

contract’s effective date. Reasonableness requires consideration of all relevant factors. It is 

incumbent upon the Postal Service to identify and address those relevant factors in order 

to establish that its request for late acceptance is being made within a reasonable time.

3. Competitive International Products with Rates of 

General Applicability

Ten Competitive international mail products feature rates and fees of general 

applicability:121

 Outbound International Expedited Services

 Outbound Priority Mail International

 Inbound Air Parcel Post (at UPU rates)

 

118 See, e.g., Docket No. CP2014-29, Notice of the United States Postal Service of Termination of Global Reseller Expedited Package Contracts 1 

Negotiated Service Agreement, September 30, 2014. 

119 Docket No. CP2011-51, Motion for Late Acceptance of Customer Contract Filing Notice for Priority Mail—Non-Published Rates Serial Number 

Ending: 0008-0009, December 22, 2014.

120 Docket No. CP2011-51, Customer Contract Filing Notice for Priority Mail—Non-Published Rates Serial Number Ending: 0008 and 0009, 

December 22, 2014, at 2.

121 Prices of general applicability in effect during FY 2014 for Competitive international mail products were established pursuant to Docket No. 

CP2014-5, Order Approving Changes in Rates of General Applicability for Competitive Products, December 12, 2013 (effective January 26, 2014) 

(Order No. 1903); Docket No. CP2013-3, Order Approving Changes in Rates of General Applicability for Competitive Products, November 8, 

2012 (effective January 27, 2013) (Order No. 1536).
- 75 -

 Outbound Single-Piece First-Class Package International Service

 International Surface Airlift

 International Priority Airmail

 International Direct Sacks—M-Bags

 International Money Transfer Service (IMTS)—Outbound

 IMTS—Inbound

 International Ancillary Services122

The Commission concludes that all but the IMTS—Outbound and IMTS—Inbound products 

satisfy 39 U.S.C. § 3633(a)(2).123

The Postal Service separately reports financial results for the IMTS—Outbound and IMTS—

Inbound products. The FY 2014 revenue for IMTS—Outbound was less than its attributable 

costs. In response to an information request, the Postal Service offers no explanation for 

the cause(s) of the FY 2014 loss, but observes that the product “has a long history of 

challenges associated with determining [its] attributable costs with confidence.” January 

16, 2015, Response to CHIR No. 1, question 4. In this regard, the Postal Service reports that 

only five In-Office Cost System (IOCS) tallies were available to estimate IMTS—Outbound 

costs,124 which resulted in a Coefficient of Variation of 44 percent. Id., question 6.a.

In FY 2014, the revenue for IMTS—Inbound product did not exceed attributable costs. The 

Postal Service explains that attributable costs for IMTS—Inbound were based on only one 

IOCS tally. Moreover, that tally was inadvertently excluded from the calculation of 

attributable costs initially included in its FY 2014 International Cost and Revenue Analysis 

(ICRA) report.125 As a result, all attributable costs for the IMTS—Outbound product were 

revised. Id.

The Public Representative observes that the Postal Service provided little information 

concerning the failure of the IMTS—Outbound product to cover costs. PR Comments at 50-

51. The Public Representative therefore suggests that the Commission require the Postal 

Service to provide detailed data to permit a proper analysis of the IMTS—Outbound and 

IMTS—Inbound products. The Public Representative also requests that the Commission 

 

122 The Competitive International Ancillary Services product consists of the following Special Services: International Certificate of Mailing, 

Outbound Competitive International Registered Mail, International Return Receipt, International Insurance, and Customs Clearance and 

Delivery Fee. Mail Classification Schedule § 2615, August 29, 2014.

123 Unless stated otherwise, this section analyzes revenue and expenses for international mail products developed according to the “booked” 

accounting method. The use of booked revenue and expenses ensures that the Commission’s financial analyses are consistent with the Postal 

Service’s audited financial statements. The Postal Service also reports “imputed” revenue, presented in the FY 2014 ICRA. Imputed revenue 

differs from booked revenue, which is consistent with revenue reported in the Postal Service’s financial statements and the Revenue, Pieces, 

and Weight report.

Federal Express asks the Commission to direct the Postal Service to issue a public version of the ICRA. FedEx Reply Comments at 4-5. This 

request is outside the scope of the Commission’s ACD.

124 The IOCS collects data on the proportion of time spent by an employee performing various functions on different mail products or services. 

These proportions of time are used to estimate the costs of such products or services (e.g., the time city carriers spend in a delivery post office 

sorting mail). “Tally takers” collect the time data, so “tallies” are used as the source of the data.

125 January 16, 2015, Response to CHIR No. 1, question 6.b.; see also Notice of the United States Postal Service of Revisions to USPS-FY14-NP2—

Errata, February 5, 2015.
- 76 -

consider whether rate increases may be necessary to offset the current losses and bring the 

products into statutory compliance with 39 U.S.C. § 3633(a)(2). Id. at 51.

Both IMTS products are relatively small, as evidenced by the few IOCS tallies collected in FY 

2014 and in previous fiscal years. Consequently, attributable costs based upon IOCS tallies 

for both IMTS products will continue to be unreliable or unavailable.

For FY 2014, the Commission finds that the IMTS—Outbound and IMTS—Inbound products 

do not comply with 39 U.S.C. § 3633(a)(2). The Commission directs the Postal Service to report 

within 90 days on the feasibility of developing attributable costs for both products based on 

alternatives to the IOCS methodology. In its report, the Postal Service should discuss the 

feasibility of conducting engineering studies or utilizing costs from other Special Services with 

similar functions, such as domestic Money Orders. In addition, the Commission considers a 

price increase for the IMTS—Outbound product to be one option the Postal Service may want 

to implement to reduce current losses.

4. Competitive International Products Consisting of 

NSAs

Competitive international mail also includes products with rates and fees not of general 

applicability that are established pursuant to one or more NSAs. These agreements often 

require a minimum volume and/or revenue commitment by mailers or foreign postal 

operators in exchange for reduced rates from the Postal Service.

In general, each international NSA is classified as a separate Competitive product.126 The 

Commission must evaluate each international NSA for compliance with 39 U.S.C. § 

3633(a)(2), which requires that the revenues for each product cover its attributable costs.

In some cases, international NSAs with similar cost or market characteristics may be 

grouped together under a single product. At the request of the Postal Service the 

Commission permitted the grouping of functionally equivalent NSAs to address 

administrative concerns involving product reporting and classification on the Competitive 

product list. Such functionally equivalent international NSAs are collectively evaluated as a 

product for compliance with 39 U.S.C. § 3633(a)(2). The Commission grouped functionally 

equivalent NSAs with the express understanding that each NSA within a product must 

cover its attributable costs.127

To that end, the Commission specifically requires that the revenue for each international 

NSA, grouped by product under one of the following organizational categories, cover its 

attributable costs: Inbound Express Mail Service (EMS), Inbound Direct Entry Contracts 

 

126 Docket No. RM2007-1, Order Establishing Ratemaking Regulations for Market Dominant and Competitive Products, October 29, 2007, ¶¶ 

2177 and 3001 (Order No. 43).

127 See, e.g., Docket Nos. CP2011-34, CP2011-35, CP2011-36, CP2011-37, and CP2011-38, Order Approving Five Additional Global Expedited 

Package Services 3 Negotiated Service Agreements, December 1, 2010, at 5 (Order No. 601). See also Docket No. CP2012-3, Notice of United 

States Postal Service of Filing Functionally Equivalent Inbound Competitive Multi-Service Agreement with a Foreign Postal Operator, November 

30, 2012, at 2.
- 77 -

with Customers, Inbound Direct Entry Contracts with Foreign Postal Administrations, and 

International Business Reply Service Competitive Contracts.128 Similarly, Governors’ 

Decisions for products established under the following categories authorize postal 

management to enter into NSAs, provided the negotiated prices will generate sufficient 

revenues to cover attributable costs: Inbound Air Parcel Post (at non-UPU rates) and 

Inbound Competitive Multi-Service Agreements with Foreign Postal Operators 1.

129 Thus, 

the Commission also evaluates each functionally equivalent NSA within a product 

separately for compliance with 39 U.S.C. § 3633(a)(2).

The Postal Service reports volume, revenue, and cost data on each Competitive 

international NSA. For FY 2014, it provides such data on 282 international NSAs, of which 

262 include negotiated rates for outbound mail and 20 include negotiated rates for 

inbound mail. The financial results for Competitive outbound and inbound international 

products consisting of NSAs are discussed below.

a. Competitve Outbound International Products Consisting 

of NSAs

Competitive outbound international products with negotiated rates are classified on the 

Competitive product list. Table IV-2 shows the Competitive outbound international 

products for which the Postal Service reported FY 2014 financial results.

130

Table IV-2

Competitive Outbound International Products by Category (FY 2014)131

Category Name

Global Expedited Package Services (GEPS) Contracts GEPS 3

Global Expedited Package Services—Non-Published Rates GEPS—NPR 3

GEPS—NPR 4

Global Plus Contracts Global Plus 1C

Global Plus 2C

Global Reseller Expedited Package Contracts

Global Reseller Expedited Package Service (GREPS) 1

GREPS 2

GREPS 4

Source: Library Reference PRC–LR–ACR2014/NP2.

 

128 See Mail Classification Schedule §§ 2515.6 (Inbound International Expedited Services), 2515.4 (Inbound Direct Entry Contracts with 

Customers), 2515.5 (Inbound Direct Entry Contracts with Foreign Postal Administrations), and 2515.3 (International Business Reply Service 

Competitive Contracts), August 29, 2014.

129 See Docket Nos. MC2009-24 and CP2009-28, Request of the United States Postal Service to Add Royal Mail Inbound Air Parcel Post 

Agreement to the Competitive Products List and Notice of Filing (Under Seal) Contract and Enabling Governors’ Decision, April 21, 2009; and 

Docket Nos. MC2010-34 and CP2010-95, Request of United States Postal Service to Add Inbound Competitive Multi-Service Agreements with 

Foreign Postal Operators to the Competitive Products List and Notice of Filing (Under Seal) of Enabling Governors’ Decision and Negotiated 

Service Agreement, August 13, 2010.

130 The Postal Service does not report FY 2014 financial results for the following Competitive outbound international products: Global Direct 

Contracts 1, Global Bulk Economy Contracts, GREPS 3, GEPS—NPR 2, and Priority Mail International Regional Rate Boxes—Non-Published Rates.

131 This table presents the outbound international products by product category. In some cases, the product name is the same name as the 

product category.
- 78 -

For FY 2014, the Commission concludes that competitive outbound international products 

consisting of NSAs satisfy 39 U.S.C. § 3633(a)(2) because revenue exceeds attributable costs 

for each.

The Postal Service also reports financial results for each outbound international NSA 

within these products. For FY 2014, these results show that all 262 outbound international 

NSAs generated sufficient revenues to cover their attributable costs.

b. Competitive Inbound International Products Consisting of 

NSAs

As with Competitive outbound international products, Competitive inbound international 

products with negotiated rates are classified on the Competitive product list. Table IV-3 

shows the Competitive inbound international products for which the Postal Service 

reported FY 2014 financial results.132

Table IV-3

Competitive Inbound International Products by Category (FY 2014)133

Category Name

International Business Reply Service 

Competitive Contracts

International Business Reply Service

Competitive Contracts 3

Inbound EMS Inbound EMS 2

Inbound Air Parcel Post (at non-UPU rates) Royal Mail Group 

Inbound Air Parcel Post Agreement

Inbound Competitive Multi-Service Agreements 

with Foreign Postal Operators 1 (Same)

Source: Library Reference PRC–LR–ACR2014/NP2.

For FY 2014, the Postal Service reports that Inbound Air Parcel Post (at non-UPU rates) did 

not satisfy 39 U.S.C. § 3633(a)(2).

The Postal Service also reports financial results for each NSA within the Competitive 

inbound international products. Of the 20 Competitive inbound NSAs, 5 are included in the 

International Business Reply Service Competitive Contracts 3 product, 2 in the Inbound 

EMS 2 product, 1 in the Inbound Air Parcel Post (at non-UPU rates) product, and 12 in the 

Inbound Market Dominant Multi-Service Agreements with Foreign Postal Operators 1 

product. With the exception of two NSAs within the Inbound Market Dominant MultiService Agreements with Foreign Postal Operators 1 product, negotiated rates for each of 

the remaining 18 NSAs generated sufficient revenue to cover their attributable costs in 

FY 2014.

 

132 The Postal Service does not report FY 2014 financial results for four Competitive inbound international products: International Business 

Reply Service Competitive Contract 1, Inbound Direct Entry Contracts with Customers, Inbound Direct Entry Contracts with Foreign Postal 

Administrations, and Inbound Direct Entry Contacts with Foreign Postal Administrations 1.

133 As with Competitive outbound international products, in some instances the Competitive inbound international product has the same name 

as the product category.
- 79 -

c. Inbound Air Parcel Post (at Non-UPU Rates)

For Inbound Air Parcel Post (at non-UPU rates), the Postal Service separately reports 

financial results for parcels from Royal Mail and collectively from several other European 

postal operators that are parties to the Agreement for the Delivery of Day-Certain CrossBorder Parcels (E-Parcel Group (EPG) Agreement). Inbound Air Parcels from Royal Mail are 

entered pursuant to the Royal Mail Group Inbound Air Parcel Post Agreement, which is 

classified as a product on the Competitive product list.134 Bilateral agreements for the entry 

of inbound air parcels from postal operators in the EPG-member countries of Belgium, 

Denmark, Germany, Finland, Slovakia, Slovenia, Sweden, and Switzerland were executed 

prior to the PAEA.135 Therefore, they are not included on the Competitive product list 

because the rates for inbound air parcels tendered by EPG-member countries have not 

changed. Id.

For FY 2014, the Postal Service reports that revenue for Inbound Air Parcel Post (at nonUPU rates) did not cover attributable costs. FY 2014 ACR at 47. Revenue from inbound air 

parcels entered pursuant to the bilateral agreement with Royal Mail exceeded costs. 

Therefore, the loss is fully attributable to the financial results for inbound air parcels from 

EPG-member countries.

Financial penalties for the late delivery of EPG parcels, as well as late transmission of 

delivery data and missing delivery information, explain a large part of the FY 2014 loss. 

January 23, 2015, Response to CHIR No. 1, question 5.c. In FY 2014, as in FY 2013, the 

Postal Service implemented an EPG continuous improvement plan to make operational 

improvements to decrease financial penalties and increase revenue. This plan improved 

quarterly on-time service performance and reduced penalties compared with FY 2013. 

However, financial penalties in FY 2014 were several times greater than the entire loss for 

inbound air parcels from EPG-member countries. The Postal Service explains that factors 

such as operational changes at International Service Centers, adjustments to the domestic 

network service standards, and the consolidation of military mail operations “impacted” 

financial penalties. Id., question 5.b.

Moreover, the FY 2014 loss is considerably more than the FY 2013 loss. In the FY 2013 

ACD, the Commission directed the Postal Service to pursue additional improvements in ontime service performance through implementation of the EPG continuous improvement 

plan to improve the financial results for Inbound Air Parcel Post (at non-UPU rates) during 

FY 2014. FY 2013 ACD at 91. The Commission also directed the Postal Service to negotiate 

bilateral NSAs for the entry of inbound air parcels with EPG-member countries to add such 

NSAs to the Competitive product list. Id.

In its response to this directive in the FY 2013 ACD, the Postal Service states that it gave 

serious consideration to the Commission’s observations. January 16, 2015, Response to 

 

134 See Docket Nos. MC2009-24 and CP2009-28, Order Concerning Royal Mail Inbound Air Parcel Post Negotiated Service Agreement, May 29, 

2009 (Order No. 218).

135 Docket No. ACR2013, United States Postal Service FY 2013 Annual Compliance Report, December 27, 2013, at 49 (FY 2013 ACR).
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CHIR No. 1, question 4. However, it asserts that the EPG agreement “resulted in a net 

financial benefit as favorable rates on outbound flows outweighed losses on inbound 

flows.” Id. The Postal Service adds that it intends to pursue additional improvements in ontime service performance through the EPG continuous improvement plan, and to engage 

EPG-member countries during FY 2015 “in the process of examining alternatives to the 

existing agreements, . . . [although] there are no concrete developments that can be 

reported at this time.” Id.

The Public Representative observes that from FY 2012 through FY 2014, the Inbound Air 

Parcel Post (at non-UPU rates) product failed to cover costs and did not comply with 39 

U.S.C. §§ 407(a)(2) and 3633(a)(2). PR Comments at 51-52. Even though inbound air 

parcels entered pursuant to the Royal Mail agreement covered costs in FY 2014, she adds 

that Inbound Air Parcel Post (at non-UPU rates) as a whole was noncompliant because 

inbound air parcels from EPG-member countries failed to generate sufficient revenues to 

cover costs. Id.

The Public Representative, therefore, “reemphasizes [her] concern that domestic mailers 

are continuing, now for a fourth year in FY 2015, [to] subsidize a product that is competing 

with private industry.” Id. at 52. She also advises “the Commission to direct the Postal 

Service to push forward more aggressively with regard to the Inbound Air Parcel Post (at 

non-UPU rates) product.” Id.

In its reply comments, Federal Express Corporation (FedEx) favorably cites the Public 

Representative’s comments, and asks the Commission to “look carefully at this NSA along 

with the underlying UPU rates going forward.”

136

As noted above, current rates applicable to inbound air parcels from EPG-member 

countries have not changed, and in FY 2014 revenues again failed to cover costs. Because 

current rates for inbound air parcels do not cover attributable costs, the rates are 

inconsistent with federal policy to “promote and encourage unrestricted and undistorted 

competition in the provision of international postal services and other international 

delivery services.” 39 U.S.C. § 407(a)(2). The rates at issue distort competition.

Although the bilateral agreements with EPG-member countries precede enactment of the 

PAEA in 2006, the Commission considers this situation problematic. The Commission 

reiterates its view that the continued entry of inbound air parcels by EPG-member 

countries at rates that do not cover costs means that domestic mailers are subsidizing the 

entry of such parcels in competition with private companies engaged in international 

delivery services. The Postal Service’s view that the net financial benefit derived from 

outbound air parcels outweighs the loss on inbound air parcels evidences its willingness to 

continue such subsidies and distort competition.

 

136 FedEx Reply Comments at 5-6. The Commission notes that for the Inbound Air Parcel Post (at UPU rates) product, the Postal Service is 

compensated for the delivery of such parcels at UPU Inward Land Rates. In FY 2014, Inward Land Rates generated revenues for the Inbound Air 

Parcel Post (at UPU rates) product that exceeded attributable costs. See Postal Service Library Reference USPS-FY14-NP2 (revised February 5, 

2015), Excel file Reports (Booked).xls.
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The Commission concludes that the entry of inbound air parcels post from EPG-member 

countries is inconsistent with 39 U.S.C § 407(a)(2). The Commission therefore recommends 

that the Postal Service pursue additional improvements in on-time service performance 

through implementation of the EPG continuous improvement plan to improve the financial 

results for Inbound Air Parcel Post (at non-UPU rates) during FY 2015. The Commission 

directs the Postal Service to negotiate compensatory rates within the EPG-Agreement or 

extricate itself from the Agreement.

d. Inbound Competitive Multi-Service Agreements with 

Foreign Postal Operators 1

The Inbound Competitive Multi-Service Agreements with Foreign Postal Operators 1 

product consists of 12 bilateral NSAs with foreign postal operators for the entry of Inbound 

EMS, and inbound air and surface parcel post. For FY 2014, the Postal Service reports that 

revenues for two of these NSAs did not cover their attributable costs. The foreign postal 

operators with which these NSAs were concluded and the corresponding NSAs (identified 

by docket number) in effect during FY 2014 were with Royal PostNL (Docket No. CP2013-

24) and Hongkong Post (Docket No. CP2013-22). The NSA with Royal PostNL is a 2-year 

agreement coterminous with CY 2013 and CY 2014. Therefore, the FY 2014 financial 

results are included within its 2-year term.

In response to an information request, the Postal Service explains that the financial model 

for the Royal PostNL NSA was developed in FY 2012 using cost data from the FY 2011 ICRA 

report, which was the most current ICRA available at the time. January 30, 2015, Response 

to CHIR No. 3, question 14. a. (citing Library Reference USPS-FY14-NP33). The Postal 

Service further explains that despite the use of inflation factor adjustments in the financial 

model to project costs for the duration of the agreement, actual costs increased by 26 

percent compared with a projected cost increase of 11 percent between FY 2011 and FY 

2014. Id. As a result, costs exceeded revenue during FY 2014. Id.

The Postal Service provides a similar explanation with respect to the Hongkong Post NSA. 

The financial model for this NSA was developed in December 2013, using cost data from 

the FY 2012 ICRA report, which was the most current ICRA available at the time. January 

30, 2015, Response to CHIR No. 3, question 14. b. (citing Library Reference USPS-FY14-

NP33). Inflation factor adjustments were also incorporated into the financial model to 

project costs for the duration of the agreement.

However, the Postal Service projected cost inflation of 8.7 percent while the actual costs for 

processing, delivery, and other costs increased 10 percent, 62 percent, and 31 percent, 

respectively, between FY 2012 and FY 2014. Id. The Postal Service adds that the extension 

of the Hongkong Post NSA’s termination date from December 31, 2013 to February 28, 

2014, also contributed to the loss.

The Royal PostNL NSA expired on December 31, 2014. Prior to its expiration, the 

Commission approved a successor NSA in Docket No. CP2015-18. The Commission noted 

that the financial model for the successor NSA was developed in December 2014 using cost 
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data from the FY 2013 ICRA report, the most current ICRA available at the time. The 

successor NSA became effective January 1, 2015, and has a 2-year term.

The Commission finds that the Royal PostNL NSA (Docket No. CP2013-24) did not satisfy 

39 U.S.C. § 3633(a)(2). Moreover, the negotiated rates do not comply with 39 U.S.C. § 407(a) 

because such rates distort competition. For the successor NSA with Royal PostNL in Docket 

No. CP2015-18, the Commission directs the Postal Service to report within 90 days on the 

financial model’s projected change in cost compared with the actual change in cost for mail 

processing, delivery, and other costs, and whether the successor NSA is expected to cover costs 

during FY 2015. The Postal Service shall provide financial workpapers to support any 

statements or analysis in its report.

The Commission observes that the term of the Hongkong Post NSA (Docket No. CP2013-22) 

spanned portions of FY 2013 (Quarters 2-4) and FY 2014 (Quarter 1, January, and 

February). During FY 2013, the Hongkong Post NSA covered costs, although it did not cover 

costs in FY 2014. Upon expiration of the NSA in FY 2014, the Commission approved a 

successor NSA in Docket No. CP2014-21. The successor NSA became effective March 1, 

2014, and has a 1-year term.

Under these circumstances, no remedial action is required for the Hongkong Post NSA 

because it expired and the successor NSA covered costs in FY 2014.

5. Competitive Nonpostal Services

In FY 2014, Nonpostal Services137 generated $68 million in revenue and incurred $13 

million in expenses, which resulted in a net income of $55 million. This figure represents a 

31 percent increase compared with FY 2013.

D. Appropriate Contribution Provision: 39 

U.S.C. § 3633(a)(3)

Section 3633(a)(3) of Title 39 of the U.S.C. requires the Commission to ensure that all 

Competitive products collectively cover an appropriate share of the Postal Service’s 

institutional costs. In implementing this section, the Commission determined that if 

Competitive products contribute at least 5.5 percent toward the Postal Service’s total 

institutional costs, then, as a whole, they cover an appropriate share of the Postal Service’s 

total institutional costs. See 39 C.F.R. § 3015.7(c).138

 

137 The two Market Dominant products are Alliances with the Private Sector to Defray Cost of Key Postal Functions and Philatelic Sales. Docket 

No. MC2010-24, Order Approving Mail Classification Schedule Descriptions and Prices for Nonpostal Service Products, December 11, 2012, at 4 

(Order 1575).

138 In Order No. 1449, the Commission reaffirmed that the appropriate share of institutional costs to be borne by Competitive products is 5.5 

percent, subject to future revision, if necessary. See Docket No. RM2012-3, Order Reviewing Competitive Products’ Appropriate Share 

Contribution to Institutional Costs, August 23, 2012, at 24-25 (Order No. 1449).
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In FY 2014, the Postal Service reports that total institutional costs were $34.2 billion.139

Therefore, in order to comply with 39 U.S.C. § 3633(a)(3) for FY 2014, Competitive 

products must contribute at least $1.9 billion toward the Postal Service’s institutional costs. 

In FY 2014, the total Competitive products contribution was $4.3 billion (12.9 percent),140

which exceeds the minimum contribution requirement.141

Therefore, the Commission finds that Competitive products in FY 2014 satisfied 39 U.S.C. 

§ 3633(a)(3) by covering an appropriate share of the Postal Service’s institutional costs.

E. Issues Raised by Commenters

In its comments, United Parcel Service (UPS) raises two issues with Competitive 

products142: the cost attribution of the products and the attribution of institutional costs. 

UPS asserts that the Commission should require the Postal Service to provide additional 

information regarding the cost accounting for Competitive products in the current and 

future ACR proceeding. Id. at 2. Although UPS contends that the Commission should closely 

scrutinize these issues, it recognizes that the cost accounting issues need more thorough 

examination than is possible within the compressed time frame for comments. Id. at 14. 

Therefore, UPS “intends to submit a petition initiating a proceeding on these matters.” Id.

at 15. Each issue is discussed below.

1. The Attribution of Costs to Competitive Products

UPS asserts that the Postal Service failed to account for large expenditures and investments 

made in its Competitive products business. Id. at 1-2. It states that even with access to nonpublic data for its outside counsel and consultants, “it was not possible to determine how 

the Postal Service is accounting for these large expenditures, principally because the data 

does not contain all of the necessary information.”143 Id. UPS asserts that, despite a 

Congressional mandate in the PAEA, the “Postal Service has done little to improve its cost 

attribution.” Id. at 4.

UPS states that the “ACR data and public reports confirm that the Postal Service is rapidly 

expanding investments in its [C]ompetitive products business and making related 

operational changes.” Id. at 5. UPS cites examples such as investments in Delivery Scanning 

Systems, Passive Adaptive Scanning Systems, Mobile Delivery Devices, Sunday delivery of 

Competitive products, and “weekday package-specific delivery runs.” Id. at 5-6. UPS 

contends that the data the Postal Service provided “does not clearly show how the Postal 

Service is accounting for these investments” due to both gaps in the data and the 

 

139 See Library Reference USPS–FY14–1.

140 FY 2014 ACR at 47.

141 The Public Representative also concludes that the Postal Service complied with 39 U.S.C. § 3633(a)(3) in FY 2014. See PR Comments at 53.

142 Comments of United Parcel Service on Postal Service’s FY2014 Annual Compliance Report, February 2, 2014 (UPS Comments).

143 UPS filed a motion with the Commission requesting access to “a limited subset of non-public materials” for its outside consultants and 

counsel. United Parcel Service, Inc.’s Motion Requesting Access to Non-Public Materials Relevant to Compliance under Protective Conditions, 

January 9, 2015. The Commission issued an order granting the request for access on January 15, 2015. Order Granting Request for Access, 

January 15, 2015, at 2 (Order No. 2321).
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complexity of the Postal Service’s costing procedures. Id. at 7. UPS believes that “[w]ithout 

more transparency regarding these issues, neither the Commission nor the public can have 

confidence in any compliance determination regarding [C]ompetitive products.” Id. at 8.

UPS encourages the Commission to require the Postal Service to provide additional 

information disclosing how it is accounting for costs attributed to Competitive products. Id. 

It sets forth specific disclosures that the Postal Service should provide relative to its 

accounting for investments, operational changes, and “increased time and attention Postal 

Service management is devoting to [C]ompetitive products.” Id. at 9.

The Public Representative comments that although the “cross-subsidy test is satisfied and 

market dominant products did not subsidize [C]ompetitive products during FY 2014 ...

questions still remain concerning the accuracy of the methodology employed to calculate 

the total hybrid incremental costs.” PR Comments at 49. 

a. Federal Express Corporation Reply

In its reply comments, FedEx agrees with UPS that the Commission should re-evaluate the 

cost attribution process,144 pointing to the Postal Service’s recently announced intentions to 

make major investments aimed at supporting or expanding its Competitive products 

business. Id. FedEx claims that a “review of cost attribution procedures is long overdue.” Id.

at 3.

b. Postal Service Reply

The Postal Service contends that the issues raised by UPS are beyond the scope of the 

Commission’s ACR review and that despite UPS assertions, the costing system is working as 

intended.145 It asserts that the allegations regarding overall cost attribution are without 

merit and the costing methodologies applied by the Postal Service are approved by the 

Commission. Id. at 13. The Postal Service points out that it has made major efforts to 

improve cost attribution and cites to its efforts to improve city carrier cost attribution146

and its recent success in decreasing institutional costs by more than $100 million.147 Postal 

Service Reply Comments at 13-14.

The Postal Service counters UPS’s assertion that costs for investments in new equipment 

are not properly distributed to Competitive products. Id. at 17. It cites the Delivery 

Scanning Systems and Passive Adaptive Scanning Systems as one example of how costs are 

being distributed to Competitive products, contrary to UPS’s assertion. The Postal Service 

walks through the cost attribution of the resulting depreciation expenses to show how the 

majority of the attributable depreciation costs were distributed to Competitive products. 

 

144 Reply of Federal Express Corporation, February 18, 2015, at 2 (FedEx Reply Comments).

145 Reply Comments of the United States Postal Service, February 18, 2015, at 1-2, 12-13 (Postal Service Reply Comments).

146 Docket No. RM2015-7, Petition of the United States Postal Service for the Initiation of a Proceeding to Consider Proposed Change in 

Analytical Principals (Proposal Thirteen), December 11, 2014.

147 Docket No. RM2015-4, Petition of the United States Postal Service for the Initiation of a Proceeding to Consider Proposed Changes in 

Analytical Principles (Proposal Eleven), November 4, 2014.
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Id. at 16-17.148 It concludes that UPS’s concerns are not well-founded, stating that “the ACR 

docket is not the appropriate forum to attempt to resolve the concerns it has raised.” Id.

at 19.

c. Commission Analysis

The transparent and accurate costing of Competitive products is an issue of critical 

importance. The scope of the Commission’s ACR review is limited to determining the Postal 

Service’s compliance with rates and services in FY 2014. 39 U.S.C. § 3653(b). The issues 

raised by UPS relating to the costing methodology and attribution for Competitive products 

are more appropriately addressed in a separate proceeding. See UPS Comments at 15. 

At this time, the issues raised in the comments do not warrant initiation of a proceeding to 

investigate the methodology the Postal Service uses to attribute total postal costs. The 

Commission agrees with the Postal Service that attributable costs related to investments in 

new equipment are properly distributed to Competitive products. See Postal Service Reply 

Comments at 16-19. 

Although it is complicated to decipher the process of attributing equipment costs to 

products through the spreadsheets, the process of allocating the costs of equipment 

maintenance, labor, parts and supplies, and equipment depreciation has been in place since 

the first rate case before the Commission. See Docket No. R71-1, Opinion and 

Recommended Decision, June 5, 1972. The process and methodology by which the Postal 

Service attributes costs have been developed and revised through various Commission 

proceedings for more than 40 years. The Postal Service follows this process when 

equipment is purchased and develops an annual depreciation schedule. Total depreciation 

costs for a fiscal year are apportioned among the equipment types and a proportion factor 

is then developed for the CRA. A variability factor is applied to each of the different 

equipment categories to determine an applicable product distribution key. The same 

process is used to develop attributable costs for equipment maintenance, labor, and parts 

and supplies. Further, the Postal Service updates these spreadsheets annually to reflect any 

changes in the current equipment maintenance, labor, parts and supplies, depreciation 

costs, and new purchases as evidenced by the preface to Library Reference USPS–FY14–8.

The Commission examined and approved the current cost attribution methodology in 

Docket No. R2006-1 and subsequent rulemakings in which the Postal Service has proposed 

changes.149 Although the Commission encourages parties to develop and propose new 

methodologies for attributing cost to products, such consideration is outside the scope of 

its ACR review.

2. Appropriate Share of Institutional Costs

UPS contends that without appropriate cost accounting practices “the Postal Service may 

be staking its future on investments that are economically irrational, with the 

 

148 The Postal Service also discusses the cost attribution for Mobile Delivery Devices and Sunday delivery. Id. at 17-19.

149 See, e.g., Docket No. RM2007-1 and Docket No. RM2010-4.
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consequences of those decisions hidden for now but ultimately to be borne by the public.” 

UPS Comments at 10. Although UPS recognizes that the appropriate valuation of the 

“appropriate share” percentage is beyond the scope of this proceeding, it asserts that the 

current 5.5 percent threshold set by the Commission is insufficient to counter the Postal 

Service’s incentive to classify the majority of costs as institutional. Id. at 11, n.16. It 

encourages the Commission to require the Postal Service to evaluate whether fixed costs 

that vary with volume should be attributed, as opposed to being included in the 

institutional costs. Id. at 12.

The Public Representative comments that Competitive products met and exceeded the 5.5 

percent appropriate share requirement of the Postal Service’s total institutional costs. 

PR Comments at 52.

a. FedEx Reply

FedEx asserts that although the Public Representative found the appropriate share 

threshold was met and exceeded, there is no guarantee it will continue to be met given the 

rapid changes in the marketplace. FedEx Reply Comments at 2. FedEx agrees with UPS that 

the Commission should re-evaluate the appropriate share level for Competitive products. 

Id. 

b. Postal Service Reply

The Postal Service asserts that the Commission approved the costing methodologies 

applied to classify costs as attributable or institutional. Postal Service Reply Comments at 

13. Therefore, it is not the Postal Service alone that is deciding what costs to classify as 

institutional. Id. In addition, the Postal Service contends that the ACR docket is not the 

appropriate forum to attempt to resolve UPS’ concerns. Id. at 19.

c. Commission Analysis

In FY 2014, Competitive products contributed $4.3 billion (12.9 percent) to institutional 

costs. As noted by the Public Representative, this was well above the 5.5 percent minimum 

requirement. See PR Comments at 53. The Commission finds that Competitive products 

satisfied 39 U.S.C. § 3633(a)(3).

In Order No. 1449, the Commission reaffirmed that 5.5 percent was the appropriate 

minimum share of institutional costs to be borne by Competitive products. In that order, 

the Commission noted that the law permits it to initiate a proceeding to change the 

minimum contribution requirement at any time. Order No. 1449 at 24. The Commission 

also noted that the parties may petition the Commission to initiate a rulemaking 

proceeding if circumstances warrant. Id.

UPS acknowledges that the issue is outside the scope of this proceeding. See UPS Comments 

at 15. The Commission is required by law to re-examine the appropriate share requirement 

again no later than 2017. 39 U.S.C. § 3633(b).
Docket No. ACR2014 - 87 -

CHAPTER 5: SERVICE PERFORMANCE

A. Service Performance Results by Class

1. Introduction

Section 3652 (a)(2)(B)(i) of Title 39 of the U.S.C. requires the Postal Service to report on 

each Market Dominant product’s “level of service (described in terms of speed of delivery 

and reliability).” Speed of delivery is evaluated based on the mail piece reaching its 

destination within a given service standard; reliability refers to consistency of delivery. The 

Commission compares the information in the Postal Service’s ACR against targets 

established by the Postal Service to evaluate annual service performance for each Market 

Dominant product.150

On July 1, 2012, the Postal Service changed its business rules related to its service 

standards.151 For example, for First-Class Mail, the change in service standards decreased 

the volume of overnight mail and increased the volume of 2-Day and 3-5-Day mail.152

The products listed in Table V-1 met or exceeded their annual service performance target 

for FY 2014. Those shown in Table V-2 fell below their target for FY 2014.

Table V-1

Products that Met Annual Service Performance Targets, FY 2014

Class Product

First-Class Mail Presorted Letters/Postcards (Overnight and 2-Day)

Standard Mail High Density and Saturation Letters

Package Services  Bound Printed Matter Parcels

 Media Mail/Library Mail

Special Services

 Ancillary Services

 International Ancillary Services

 Money Orders

 Post Office Box Service

 Stamp Fulfillment Service

 

150 On an annual basis, the Commission compares a product’s on-time delivery with delivery targets established by the Postal Service. For 

Special Services, the Commission evaluates performance data from metrics developed by the Postal Service applicable to each product.

151 Revised Service Standards for Market-Dominant Mail Products; Designation of Implementation Date, 79 Fed. Reg. 44,700-44,701 (August 1, 

2014).

152 See FY 2013 ACD at 99-100.
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Table V-2

Products that Failed to Meet Annual Service Performance Targets, FY 2014

Class Product

First-Class Mail

 Single-Piece Letters/Postcards (Overnight; 2-Day; 

3-5-Day)

 Presort Letters/Postcards (3-5-Day)

 Inbound Letter Post

 Outbound Single-Piece First-Class Mail International 

Letters

Standard Mail

 High Density and Saturation Flats/Parcels

 Carrier Route

 Letters

 Flats

Periodicals  In-County

 Outside-County

Package Services

 Bound Printed Matter Flats

 Inbound International Surface Parcel Post (at UPU 

rates)

Special Services  Address List Services

According to the Postal Service, severe winter storms during the first and second quarters 

of FY 2014 had a significant impact on performance results for many service standards and 

products.153 The Postal Service’s claim that severe weather had an adverse effect on service 

performance results is, on its face, reasonable. However, it is unclear if weather alone was 

responsible for the continuing failure of some products, such as BPM Flats and many 

Standard Mail products, to meet intended annual targets.

Within Standard Mail, High Density and Saturation Letters exceeded service performance 

targets for the second consecutive year. Within Package Services, BPM Parcels and Media 

Mail/Library Mail exceeded targets for the third consecutive year.

2. Participant Comments and Concerns on Service 

Performance

In FY 2014, four participants offered comments on service standards or service 

performance results for Market Dominant products: NPPC, NTU, APWU, and the Public 

Representative.

NPPC suggests that the Commission “should consider adjusting the price cap [with respect 

to First-Class Mail] to offset the costs of service reductions as well as costs that the Postal 

Service has shifted onto customers.”154 NPPC argues that the Postal Service reduced service 

 

153 See Library Reference USPS–FY14–29 at 8. See also Responses of the United States Postal Service to Questions 7, 9, 11, and 14 of Chairman’s 

Information Request No. 2, January 29, 2015, questions 11. a. and 14. a. (January 29, 2015, Response to CHIR No. 2).

154 Docket No. ACR2014, Comments of the National Postal Policy Council, February 2, 2015, at 11 (NPPC Comments).
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as a consequence of the Network Rationalization plan and that, “the reduction in service 

standards has forced Presort mailers with a business-driven need to achieve overnight 

delivery to incur substantial costs in reconfiguring their mailing operations to achieve 

earlier entry times demanded by the Network Rationalization process.” Id. at 11-12. NPPC 

concludes that mailers incur higher preparation costs from reconfiguring their mailing 

operations. Id. NPPC also argues that the Postal Service has increased costs to mailers by 

changing entry regulations or amending mailing software. Id. It claims that this type of cost 

shifting takes the form of “mandates” that mailers must meet to maintain eligibility for 

workshare rates. Id. For example, NPPC highlights the conversion to Full-Service Intelligent 

Mail barcode (IMb) to illustrate mandated changes that result in additional costs to mailers. 

Id. at 13. NPPC concludes that the Commission should consider whether the cumulative 

effects of the Postal Service’s operational adjustments provide reason to reduce the price 

cap applicable to affected products. Id. at 14.

NTU states that the Postal Service is “witnessing an unfavorable trend as delivery times are 

expected to become slower—increasing from 1.8 days to 2.1 days on average.”155 NTU also 

mentions that customer satisfaction is declining. Id.

APWU expresses general concern over what it views as the disproportionate effect of 

service reductions on rural communities.156 It asserts that the Commission “should require 

the Postal Service to document the extent to which rural customers have been 

disproportionately affected by changing mail process and service patterns.” Id. It calculates 

that of the facilities affected by Phase I of the Network Rationalization plan consolidations, 

61.1 percent are in smaller, more rural “urban clusters.” Id. at 6. Specifically, APWU 

suggests that the Commission order an independent study to determine whether the 

benefits found in a 2011 study of rural mail services157 have survived changes in service 

related to mail-processing consolidation. Id. at 3. It also states that the Commission has a 

responsibility to determine whether the Postal Service serves urban businesses more 

faithfully than rural America. Id. at 7.

The Public Representative reports that the Postal Service showed no progress in service 

performance results for products the Commission requested or directed it to improve.158 In 

general, the Public Representative concludes that there was a consistent failure in FY 2014 

to meet product delivery category service performance targets, especially in the first and 

second quarters. Id.

For First-Class Mail, the Public Representative highlights that Presorted Letters/Postcard 

Overnight and 2-Day service standards were the only domestic delivery categories to meet 

the FY 2014 service performance targets. Id. at 6. She agrees with the Postal Service’s 

 

155 Docket No. ACR2014, Comments of Pete Sepp, President National Taxpayers Union, February 2, 2015, at 2 (NTU Comments).

156 Docket No. ACR2014, Initial Comments of American Postal Workers Union, AFL-CIO, February 2, 2015, at 1 (APWU Comments).

157 Consulting Group, Inc., Report on Measuring the Benefits of Rural Postal Service, August 2011; 

http://www.prc.gov/sites/default/files/archived/Rural_Service_Report.pdf.

158 Public Representative Comments, February 2, 2015, at 3 (PR Comments).
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explanation that several storms adversely affected First-Class Mail with service standards 

longer than 2 days, indicating that Quarters 1 and 2 sustained much lower service 

performance results for First-Class Mail Flats and Parcels. Id. at 8. However, she points to 

only slight improvements in Quarters 3 and 4 for First-Class Mail Flats. Id. The Public 

Representative finds that for all First-Class Mail products, the Postal Service does not set 

forth any new management plans intended to increase on-time delivery performance. Id. at 

12. Finally, the Public Representative assesses that the discrepancy between targets and 

actual performance suggest that the targets are misleading to mailers. Id. As a result, she 

concludes that the targets should be reduced if there is not significant improvement to 

Postal Service operating systems for which performance regularly falls 10 to 15 percent 

below target. Id. at 13.

For Standard Mail, the Public Representative noted general annual service performance 

improvement, but highlights the Postal Service’s continued inability to meet or exceed 

targets. Id. at 14. As with First-Class Mail, she criticizes the Postal Service’s actions to 

increase service performance. Id. Specifically, she asserts that diagnostic tools and timely 

start-the-clock scans, which the Postal Service considers to be a strategy that will increase 

service performance results, have not been successful. Id.

The Public Representative also discusses the Commission’s directive to enhance FullService mailer participation in Package Services. Id. at 16. She states that the Postal Service 

fails to meet this directive; therefore, she encourages the Commission to ask what steps 

have been taken pursuant to its FY 2013 ACD directive to improve service performance of 

Package Services, particularly BPM Flats. Id. Finally, the Public Representative theorizes 

that the “dichotomy of [the iMAPS (Intelligent Mail Accuracy and Performance System) and 

PTS (Product Tracking System)] measurement systems [which measure Bound Printed 

Matter Flats and Media Mail/Library Mail] may account for part of the large discrepancy in 

service performance results between these [two] products.” Id. at 18.

The Commission generally agrees with the Public Representative’s comments regarding 

First-Class Mail, Standard Mail, and Periodicals. For example, the Commission notes that 

some mail products are not making sufficient strides toward reaching annual service 

performance targets. The Commission views a lack of Full-Service IMb participation and 

relatively low service performance results as the primary causes of the large discrepancy in 

service performance between BPM Flats and Media Mail/Library Mail.

3. Measurement Systems

The Postal Service uses a variety of measurement systems to measure service performance 

for Market Dominant products. Table V-3 identifies each system used to measure those 

products reported in the Postal Service’s Annual Service Performance Report. In Table V-3 

and the discussion that follows, EXFC stands for “External First-Class Measurement,” iMAPS 

stands for “Intelligent Mail Accuracy and Performance System,” IMMS stands for 

“International Mail Measurement System,” PTS stands for “Product Tracking System,” and 

SASP stands for “Seamless Acceptance and Service Performance.”
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Table V-3

Service Performance Measurement Systems

Product Single-Piece Presort

Letters Flats Parcels Letters Flats Parcels

First-Class Mail EXFC EXFC PTS iMAPS EXFC by 

proxy

PTS

Periodicals iMAPS iMAPS

Standard Mail SASP SASP iMAPS iMAPS PTS

Package

Services PTS PTS iMAPS PTS

International Mail IMMS IMMS

Special Services Custom designed internally based measurement systems

Source: Docket No. PI2008-1, Service Performance Measurement, November 2007, at 6.

a. External First-Class Measurement System (EXFC)

EXFC is a sampling system managed by an independent contractor. Delivery performance is 

measured from the street collection box to the delivery mailbox. FY 2009 ACD at 49. When 

evaluating delivery performance, test mailers record the time they place First-Class Mail in 

the collection box. The pieces are deposited before the last collection time for the collection 

box. Those test mail pieces are sent to a nationwide panel of receivers who record when 

each was delivered to their mailbox. Actual transit time is then compared against FirstClass Mail service standards. EXFC provides quarterly service performance measurement 

scores at the area and district levels.

b. Intelligent Mail Accuracy and Performance Systems 

(IMAPS)

iMAPS provides an end-to-end service performance measurement by using documented 

mail arrival time at a designated postal facility to start a measurement clock and an IMb 

scan by an external, third-party reporter to stop the clock. The measurement involves two 

distinct steps. The Postal Service obtains processing times based on IMb scans reported 

through the SASP system. Throughout FY 2014, SASP captured data from all Full-Service 

Intelligent Mail.159 This is combined with a “last mile” factor that is developed through 

scans by third-party reporters upon receipt of the mail. Service performance is measured 

by comparing the overall transit time to the service standards to determine the percentage 

of mail delivered on time.

c. Product Tracking System (PTS)

For use with Parcels, PTS is an internal measurement system that measures transit time 

from the time of mailing until the time of delivery. Measurements are based on Delivery 

Confirmation scans. Actual transit time is compared against service standards for the 

Market Dominant Parcel products.

 

159 Library Reference USPS–FY14–29 at 2.
- 92 -

d. Seamless Acceptance and Service Performance (SASP)

SASP uses data provided by commercial mailers with Full-Service Intelligent Mail, such as 

acceptance time, payment, and verification, to enable the Postal Service to monitor service 

delivery and overall performance. Information collected also helps to determine address 

accuracy, verify the quality of mail preparation, and track individual pieces as they move 

through the mail system.

e. International Mail Measurement System (IMMS)

Based on a system similar to EXFC, IMMS measures the domestic leg of transit time for 

international mail. It measures the time between the domestic collection point and the 

outbound international service center for outbound letters, and between the inbound 

international service center and the domestic delivery point for inbound letters.

f. Intelligent Mail Barcode (IMb)

In Quarter 3 of FY 2011, the Postal Service began using IMb to measure Standard Mail, 

Periodicals, BPM Flats, and some First-Class Mail products. Mailers had since been 

encouraged to participate in the Full-Service option of IMb, in part because it provides data 

necessary to measure service performance.160 FY 2011 ACD at 63. The Full-Service feature 

allows the mailer to identify unique mail pieces throughout the mailstream and receive 

start-the-clock notifications, discounts, and automated address corrections. Id.

In FY 2013, the Postal Service acknowledged that measurable volumes for First-Class Mail 

Flats, BPM Flats, Standard Mail products, and DDU Entry Periodicals have been low since 

the onset of IMb measurement. FY 2013 ACD at 103.

Since FY 2011, the number and proportion of mail pieces measured by IMb has generally 

increased. Figure V-1 illustrates this trend, showing that the percent of presort First-Class 

Mail, Standard Mail, Periodicals, and BPM Flats volume measured by IMb has generally 

increased each quarter since 2011. However, as seen in Figure V-1, the majority of mail 

volume is not in measurement. The Package Services volume measured by IMb decreased 

slightly in FY 2014.

 

160 Mailers are required to prepare mail with IMbs and submit electronic mailing information listing IMbs used. Mail is verified to ensure it 

meets mail preparation criteria. Mail that does not meet mail prep standards is excluded from service performance measurement. See Docket 

No. PI2008-1, Order No. 140, Order Concerning Proposals for Internal Service Standards Measurement Systems, November 25, 2008, at 11.
- 93 -

Figure V-1

Percentage of Mail Measured by Full-Service IMb

In FY 2014, the volume of mail measured by IMb and categorized as Mixed Product Letters 

and Flats continued to decline.161 The Postal Service states that only “1.4 percent of 

measureable Standard letters and 0.1 percent of Full-Service Intelligent Mail flats fell into a 

Mixed Product category.”162 The Postal Service attributes this decline to the discontinued 

use of the range-record format.163 Previously, the range-record format did not require 

mailers to specify the rate categories and piece counts for their mailings. The Postal Service 

explains that when this information is missing for Standard Mail products, the associated 

pieces are mapped to the generic Mixed Letter or Mixed Flats product group. Id. Currently, 

the piece-detail record format that the Postal Service uses requires rate category 

information, thereby eliminating the automatic mapping of pieces with missing information 

to a Mixed Product category. Id. Figures V-2 and V-3 show the decline in volume of Mixed 

Flats and Mixed Letters since 2012.

 

161 The Postal Service included in its measurement Standard Mail pieces for which mailers did not supply enough information to identify the 

product. It categorized this mail as either Standard Mail Mixed Product Letters or Standard Mail Mixed Product Flats. See FY 2012 ACD at 54. 

See also Library Reference USPS–FY14–29 at 12.

162 Library Reference USPS–FY14–29 at 12.

163 Responses of the United States Postal Service to Questions 1-6, 8, 10, 12-13 and 15-22 of Chairman’s Information Request No. 2, January 23, 

2015, question 13 (January 23, 2015, Response to CHIR No. 2).

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

FY 2012

Q1

FY 2012

Q2

FY 2012

Q3

FY 2012

Q4

FY 2013

Q1

FY 2013

Q2

FY 2013

Q3

FY 2013

Q4

FY 2014

Q 1

FY 2014

Q 2

FY 2014

Q 3

FY 2014

Q 4

% Measured

First-Class Mail Standard Mail Periodicals Package Services
- 94 -

Figure V-2

Mixed Flat Volume

Figure V-3

Mixed Letter Volume

 -

 500

 1,000

 1,500

 2,000

 2,500

 3,000

 3,500

FY 2012 FY 2013 FY 2014

Millions

Destination Entry End-to-End

 -

 2,000

 4,000

 6,000

 8,000

 10,000

 12,000

FY 2012 FY 2013 FY 2014

Millions

Destination Entry End-to-End
- 95 -

The decrease in volume for Mixed Product categories compared with the increase in 

volume of other measured Standard Mail pieces suggests that more specific Standard Mail 

products are measured for service performance.

As previously noted, measurement of BPM Flats have been low since the onset of IMb 

measurement. This trend has continued in FY 2014. Figure V-4 shows that the proportion 

of measureable BPM Flats has never reached 15 percent.

Figure V-4

Measured BPM Flats

The Postal Service states that the number of mailers using Full-Service IMb is the main 

reason the volume of measureable BPM Flats fluctuates. February 18, 2015, Response to 

CHIR No. 6, question 4. It also acknowledges that one reason for the volume variability and 

low levels of measureable volume is that one mailer accounts for 70 percent of BPM mail 

pieces. Id. The Postal Service explains that a single mailer can easily influence the total 

number of mail pieces in measurement, and that volumes will vary widely as a result of 

having one large BPM Flats mailer. Id.

4. Service Performance Results by Class

a. First-Class Mail

Service performance for most First-Class Mail products and corresponding service 

categories, especially the 3-5-Day service standard, failed to meet or exceed annual targets. 

The Postal Service states that these results are primarily due to adverse effects of large 

winter storms occurring in the first and second quarters of FY 2014. As Table V-4 shows, 

service performance results for First-Class Mail Flats, Parcels, Outbound Single-Piece FirstClass Mail International, and Inbound Letter Post again failed to reach their on-time 

delivery performance targets. 

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

% Measured

Fiscal Year
- 96 -

Table V-4

Service Performance Results for First-Class Maila

Product

FY 2014 FY 2013 FY 2012 FY 2011

Target %

On-Time Target %On-Time Target %On-Time Target %On-Time

Single-Piece Letters/Postcards

Overnight 96.80 96.7 96.70 96.8 96.65 97.0 96.65 96.7

2-Day 96.50 95.7 95.10 96.0 94.15 95.6 94.15 94.2

3-5-Day 95.25 88.6 95.00 92.5 92.85 93.2 92.95 91.9

Presorted Letters/Postcards

Overnight 96.80 97.2 96.70 97.3 96.65 96.9 96.65 90.8

2-Day 96.50 96.6 95.10 97.2 94.15 95.9 94.15 89.2

3-5-Day 95.25 92.5 95.00 95.4 92.85 95.4 92.85 90.7

Flats

Overnight 96.80 84.9 96.70 86.6 96.65 89.8 96.65 90.3

2-Day 96.50 82.5 95.10 84.4 94.15 85.0 94.15 84.0

3-5-Day 95.25 72.6 95.00 77.6 92.85 80.0 92.85 80.0

Parcels

Overnight 96.80 88.4 96.70 89.8 96.65 89.8 96.65 90.3

2-Day 96.50 86.8 95.10 89.1 94.15 85.8 94.15 83.2

3-5-Day 95.25 83.8 95.00 88.8 92.85 88.4 92.85 86.6

Outbound Single-Piece First-Class Mail International

Overnight 93.0 - 94.3 95.0 96.1

2-Day 93.2 - 92.7 92.9 92.5

3-5-Day 85.7 - 87.5 90.7 91.1

Combined 94.00 87.8 94.00 88.9 94.00 91.5 94.00 91.9

Inbound Letter Post

Overnight 91.8 - 92.3 94.1 93.4

2-Day 89.4 - 90.7 91.5 88.6

3-5-Day 82.9 - 86.5 89.2 87.6

Combined 94.00 85.2 94.00 88.0 94.00 90.5 94.00 91.9

a

Service performance results are reported using one decimal place while targets are reported using two decimal places. This captures the 

incremental increase in annual service performance targets.

Note: Numbers in red indicate service performance results that did not meet or exceed the annual service performance target.

(1) Single-Piece Letters/Postcards

The Postal Service did not meet its service performance targets in FY 2014. This is one of 

the few times since passage of the PAEA that Single-Piece Letters/Postcards service 

performance did not meet its targets. Service performance for the Overnight service 

standard decreased only 0.1 percent since FY 2013, yet did not meet this year’s increased 

on-time service performance target of 96.8 percent. Service performance results for the 2-

Day service standard also decreased slightly (0.3 percent) compared with FY 2013. Service 

performance scores for the 3-5-Day service standard fell below 90 percent on-time delivery 

for the first time since FY 2011.
- 97 -

The Postal Service explains that mail with a 3-5-Day service standard utilizes the air 

transportation network, which is most susceptible to severe weather.164 As a result of the 

severe storms in Quarters 1 and 2, the Postal Service diverted First-Class Mail with service 

standards longer than 2 days to available surface transportation. Id. In FY 2014, the Postal 

Service claims that surface transportation was significantly affected by severe weather. Id.

Tables V-5 and V-6 show these winter storms, their dates, and the affected regions and 

corresponding Postal Service areas.

Table V-5

Quarter 1 Storms

Storm Begin End States/Regions Affected Service Area Affected

Atlas 10/3/2013 10/5/2013 Northern Rockies, Northern High 

Plains Western

Boreas 11/22/2013 11/27/2013

California, Maine, Southern 

Appalachians, New England, New 

York

Northeast, Pacific, 

Western

Cleon 12/1/2013 12/7/2013

Mountain West, Upper Midwest, 

Texas, Oklahoma, Northeast, 

Mississippi Valley

Southern , Western

Dion 12/5/2013 12/11/2013 Oregon, Mountain West, Midwest, 

Mid-Atlantic, Northeast

Capital Metro, Northeast,

Western

Electra 12/11/2013 12/14/2013 New York, New England Northeast

Falco 12/16/2013 12/18/2013 Northeast Northeast

Gemini 12/19/2013 12/23/2013 Michigan, New York, Northeast Great Lakes, Northeast

Hercules 12/31/2013 1/3/2014 Midwest, New England Great Lakes, Northeast

 

164 Library Reference USPS–FY14–29 at 8.
- 98 -

Table V-6

Quarter 2 Storms

Storm Begin End States/Regions Affected Service Area Affected

Ion 1/3/2014 1/6/2014 Midwest, Michigan, Indiana, Chicago Great Lakes

Janus 1/20/2014 1/22/2014 Ohio Valley, Appalachians, New York, 

Mid-Atlantic

Eastern, Northeast, 

Capital Metro

Kronos 1/23/2014 1/24/2014 Texas, Louisiana, Mississippi Southern

Leon 1/27/2014 1/29/2014 South, Mid-Atlantic, Atlanta, 

Birmingham Southern

Maximus 1/29/2014 2/3/2014

California, Idaho, Wyoming, 

Montana, Utah, Colorado, Great 

Lakes, Texas, Oklahoma, Ohio Valley, 

Appalachians

Eastern, Southern, 

Western

Nika 1/31/2014 2/5/2014 Arkansas, Pennsylvania, New Jersey, 

Maryland

Eastern, Capital Metro, 

Southern

Orion 2/6/2014 2/10/2014

Pacific Northwest, Oregon, Idaho

Louisiana, Oklahoma, Texas, 

Kentucky

Pacific, Southern

Pax 2/9/2014 2/14/2014 Southern, Mid-Atlantic, Northeast, 

Georgia, South Carolina

Capital Metro, Northeast, 

Southern

Quintus 2/14/2014 2/16/2014 Northeast Northeast

Rex 2/16/2014 2/19/2014

Maine, New Hampshire, 

Massachusetts, Rhode island, 

Connecticut, Vermont, New York

Pennsylvania, New Jersey, Delaware, 

Ohio, Mid-Atlantic, Michigan, 

Indiana, Illinois, Wisconsin, 

Minnesota, Iowa, Missouri, 

Nebraska, S. Dakota, N. Dakota

Northeast

Great Lakes, Eastern, 

Capital Metro

Seneca 2/19/2014 2/21/2014 Nebraska, Iowa, Minnesota, 

Wisconsin, Michigan

Great Lakes

Western

Titan 2/27/2014 3/3/2014

West, Rockies, Mid-Atlantic, 

Arkansas, Delaware, Illinois, Indiana, 

Kentucky, Missouri, Ohio

Oklahoma, Tennessee, Texas, 

Virginia, West Virginia, Texas

Western, Southern

Ulysses 3/5/2014 3/6/2014 North Carolina Capital Metro 

Vulcan 3/9/2014 3/13/2014 Midwest, Great Lakes, Northeast Great Lakes, Northeast

Wiley 3/16/2014 3/18/2014 Missouri, Mid-Atlantic Capital Metro

Xenia 3/30/2014 4/1/2014 North Dakota, Wyoming Western

Source: http://www.weather.com/storms/winter/news/winter-storms-2013-2014-recap-20140418?pageno=2#/26. These are not official names 

assigned by the National Weather Service. They are popular names given by the Weather Channel, a cable and satellite channel company.

For the 3-5-Day service standard, there was a noticeable difference between service 

performance in Quarters 1 and 2 and in Quarters 3 and 4. Figure V-5 compares service 

performance results across areas and quarters. The lower service performance results 

occurred when there was severe weather. For example, the Capital Metro and Eastern 

areas were not inordinately affected in Quarter 1, which correlates to relatively higher 
- 99 -

service performance during that time. The Great Lakes and Northeast areas experienced 

nine storms in Quarter 2, which correlates to very low performance scores.

Figure V-5

Single-Piece Letters/Postcards 3-5-Day

(2) Presorted Letters/Postcards

Service performance results for Presorted Letters/Postcards exceeded annual service 

performance targets for its Overnight and 2-Day service standard categories in FY 2014. In 

FY 2013, Network Rationalization caused a noticeable shift in volume between the 

Overnight, 2-Day, and 3-5-Day service standard categories. FY 2013 ACD at 105. As a result, 

significantly more of the measurable volume fell within the 3-5-Day category. Id.

The Postal Service notes that winter weather also had an adverse effect on Presorted 

Letters/Postcards 3-5-Day service performance results. According to Figure V-6, service 

performance for the Great Lakes area suffered in Quarter 2, similar to the lower service 

performance results for Single-Piece Letters/Postcards.

80.0

82.0

84.0

86.0

88.0

90.0

92.0

94.0

96.0

98.0

100.0

Capital Metro

Area

Eastern Area Great Lakes

Area

Northeast Area Pacific Area Southern Area Western Area

% On Time

Q1 Q2 Q3 Q4
- 100 -

Figure V-6

Presort Letters/Postcards 3-5-Day

(3) Flats

Service performance for First-Class Mail Flats continues to miss its annual on-time delivery 

performance targets. It has not met annual targets for 4 consecutive years. First-Class Mail 

Flats include Single-Piece and Presorted Flats. The Postal Service measures Single-Piece 

Flats through the EXFC system; the service performance results for Single-Piece Flats is 

used as a proxy for Presorted Flats.165 The proxy is used because there is insufficient FullService IMb data available to make reliable service performance estimates.166

Service performance for Flats has routinely missed its annual target. The Postal Service 

attributes FY 2013 and FY 2014 service performance results to extreme weather.167 As 

seen in Figure V-7, service performance results for End-to-End Flats with a 3-5-Day service 

standard have been lower than results for other domestic First-Class Mail products for 

more than 10 consecutive quarters.

 

165 FY 2013 ACD at 106. Library Reference USPS–FY14–29 at 2. See also Docket No. PI2008-1, Second Notice of Request for Comments on Service 

Performance Measurement Systems for Market Dominant Products, June 18, 2008.

166 FY 2013 ACD at 106. Library Reference USPS–FY14–29 at 2. The Postal Service states that 68 percent of First-Class Mail Flats were mailed at 

Single-Piece rates.

167 January 29, 2015, Response to CHIR No. 2, question 11. See also FY 2013 ACD at 106.

80.0

82.0

84.0

86.0

88.0

90.0

92.0

94.0

96.0

98.0

100.0

Capital Metro

Area

Eastern Area Great Lakes

Area

Northeast Area Pacific Area Southern Area Western Area

% On Time

Q1 Q2 Q3 Q4
- 101 -

Figure V-7

First-Class Mail Product Comparison

In FY 2013 and FY 2014, the Commission found that the service performance results for the 

Northeast area were consistently lower, especially for the 3-5-Day service standard. These 

low scores are one of the reasons the national scores are below target. FY 2013 ACD at 106. 

Service performance scores for the seven districts shown in Table V-7 ranked among the 

20 districts with the lowest service performance since FY 2012. Four of these districts are 

in the Northeast area, which consistently has low service performance results. Figure V-8 

shows the reported scores for the Northeast area and the national average.

Table V-7

Districts with Low Service Performance, FY 2012–FY 2014

District FY 2012 FY 2013 FY 2014

Caribbean 68.33 66.66 66.37

Westchester 71.72 69.13 64.42

South Florida 72.60 66.20 58.14

Long Island 73.04 72.21 69.68

Greater Boston 75.89 72.16 70.46

Connecticut Valley 77.25 72.14 65.53

Triboro 78.50 75.55 70.41

50.0

55.0

60.0

65.0

70.0

75.0

80.0

85.0

90.0

95.0

100.0

FY11-3 FY11-4 FY12-1 FY12-2 FY12-3 FY12-4 FY13-1 FY13-2 FY13-3 FY13-4 FY14-1 FY14-2 FY14-3 FY14-4

% On Time

First Class - Flats - End-to-End - 3-5-Day First Class - Parcels - End-to-End - 3-5-Day

First Class - Presort Letters/Cards - End-to-End - 3-5-Day First Class - Single-Piece Letters/Cards - End-to-End - 3-5-Day
- 102 -

Figure V-8

First-Class Mail Flats Regional Comparison

In response to such poor service performance results, the Postal Service maintains that its 

use of root cause diagnostic tools and other improvement projects will allow operating 

managers to improve processing and transportation flows, which will improve service 

performance. January 29, 2015, Response to CHIR No. 2, question 11. Overall, it appears 

this strategy has not been effective for Flats.

(4) Parcels

Service performance for Parcels did not meet the annual service performance targets in FY 

2014 or FY 2013. In FY 2014, large districts such as Chicago reported very low service 

performance results each quarter. For each service standard, the Chicago district had 

among the lowest performance of any district, and has consistently had low performance 

results since the fourth quarter of FY 2012. The Postal Service explains that mail 

prioritization was one factor that caused low service performance scores in the Chicago 

District.168 Processing and transportation delays caused the Postal Service to prioritize 

other mail classes and products over Chicago District Parcels in order to meet service 

standards for that mail. Id. Mail flow reconfiguration, transitional effects due to staffing 

shifts, operational window changes, and equipment relocations were other factors that 

caused reduced service performance scores. Id. The Postal Service, in response, has 

changed transportation operations to allow earlier arrival profiles, and increased staffing 

at the network distribution center (NDC). Id.

 

168 March 4, 2015, Response to CHIR No. 6, question 3.

25.0

30.0

35.0

40.0

45.0

50.0

55.0

60.0

65.0

70.0

75.0

80.0

85.0

90.0

95.0

100.0

FY11-3 FY11-4 FY12-1 FY12-2 FY12-3 FY12-4 FY13-1 FY13-2 FY13-3 FY13-4 FY14-1 FY14-2 FY14-3 FY14-4

% On Time

First-Class - Flats - End-to-End - 3-5-Day - Nation

First-Class - Flats - End-to-End - 3-5-Day - Northeast Area
- 103 -

Figure V-9 compares national service standards for Parcels, and Figure V-10 illustrates the 

Chicago district’s service performance versus the Great Lakes area and national results. 

Figure V-9

Parcels – Nationwide Service Standard Comparison

Figure V-10

Parcels – Chicago Service Standard Comparison

50.0

55.0

60.0

65.0

70.0

75.0

80.0

85.0

90.0

95.0

100.0

FY12-1 FY12-2 FY12-3 FY12-4 FY13-1 FY13-2 FY13-3 FY13-4 FY14-1 FY14-2 FY14-3 FY14-4

% On Time

Overnight 2-Day 3-5-Day

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

FY11-3FY11-4FY12-1FY12-2FY12-3FY12-4FY13-1FY13-2FY13-3FY13-4FY14-1FY14-2FY14-3FY14-4

% On Time

First-Class - Parcels - End-to-End - 3-5-Day - Chicago

First-Class - Parcels - End-to-End - 3-5-Day - Great Lakes Area

First-Class - Parcels - End-to-End - 3-5-Day - Nation
- 104 -

(5) Inbound Letter Post and Outbound Single-Piece FirstClass Mail International

In FY 2014, service performance for Inbound Letter Post and Outbound Single-Piece FirstClass Mail International did not meet its annual target of 94 percent on-time delivery. This 

is the second year in a row that service performance has been below target. Table V-8 

shows that at an aggregate level, service performance results for most inbound and 

outbound mail has slightly decreased since FY 2013. The Commission notes that a separate 

system for measuring the service performance of Inbound Letter Post is used by the UPU. 

For a more complete discussion of the measurement results based upon the other 

measurement system, see Chapter 3, Market Dominant Products: Other Rate and Fee 

Compliance Issues, Inbound Letter Post, Quality of Service Link to Terminal Dues.

Table V-8

Inbound and Outbound First-Class Mail Service Performance, FY 2013 and FY 2014

On-time Service Performance (%) FY 2013 FY 2014 Target

Inbound 

Overnight 92.3 91.8 --

2-Day 90.7 89.4 --

3-5-Day 86.5 82.9 --

Combined 88.0 85.2 94.0

Outbound 

Overnight 94.3 93.0 --

2-Day 92.7 93.2 --

3-5-Day 87.5 85.7 --

Combined 88.9 87.8 94.0

Note: Numbers in red indicate service performance results that did not meet or exceed the annual service 

performance target.

The Commission finds that, except for Presorted Letters/Postcards overnight and 2-Day, the 

Postal Service did not meet its service performance targets for First-Class Mail in FY 2014. The 

Postal Service’s claims that severe weather had an adverse impact on 3-5-Day service 

performance results for Single-Piece Letters/Postcards and Presort Letters/Postcards are, on 

its face, reasonable. However, weather cannot consistently be employed as a catchall excuse 

for failing to meet performance standards. The Commission expects service performance to 

improve in FY 2015.

This is the fourth consecutive year that First-Class Mail Flats did not meet service 

performance targets. In addition, service performance has not improved since FY 2011. The 

Commission directs the Postal Service to improve service for First-Class Mail Flats in FY 2015 

or to provide an explanation in the FY 2015 ACR for why efforts to improve service 

performance results for First-Class Mail Flats have been ineffective and detail what changes it 

plans to make to improve service performance.
- 105 -

b. Standard Mail

Table V-9 shows that service performance results for High Density and Saturation Letters 

exceeded the on-time delivery targets set by the Postal Service for the second consecutive 

year. According to the Postal Service, in FY 2014 there was not enough data to report 

service performance results for Parcels. See Library Reference USPS–FY14–29 at 11. 

Service performance results for Carrier Route did not meet on-time delivery targets, but 

the product continues to improve its performance. High Density and Saturation 

Flats/Parcels results were near this year’s target of 91 percent on-time delivery. Annual 

results for Flats remain below 80 percent on-time delivery. 

Table V-9

Service Performance Results for Standard Mail, FY 2011–FY 2014

Product

FY 2014 FY 2013 FY 2012 FY 2011

%

On-Time Target %On-Time Target %On-Time Target %On-Time Target

High Density and 

Saturation Letters 92.3 91.0 90.8 90.0 87.2 90.0 86.9 90.0

High Density and 

Saturation 

Flats/Parcels

87.2 91.0 87.0 90.0 90.8 90.0 76.6 90.0

Carrier Route 81.4 91.0 79.7 90.0 70.6 90.0 50.1 90.0

Letters 87.1 91.0 85.9 90.0 80.7 90.0 71.3 90.0

Flats 76.2 91.0 76.9 90.0 59.9 90.0 59.9 90.0

Parcels N/A 91.0 98.7 90.0 N/A 90.0 N/A 90.0

Mixed Product 

Lettersa 88.0 91.0 85.9 90.0 79.5 90.0 67.7 90.0

Mixed Product 

Flatsb 81.4 91.0 80.2 90.0 66.8 90.0 59.0 90.0

a,b Mixed Product Letters and Mixed Product Flats are not products. They are categories that account for Standard Mail Letters and Fats without 

proper documentation used to categorize a mail piece. See FY 2013 ACD, Library Reference USPS–FY12–29 at 11. See also Library Reference USPS–

FY14–29 at 11.

Note: Numbers in red indicate service performance results that did not meet or exceed the annual service performance target.

(1) High Density and Saturation Letters

In FY 2013, service performance results for High Density and Saturation Letters exceeded 

the annual target of 90 percent on-time delivery for the first time. Service performance 

results in FY 2014 remain above target, with a significant increase in service performance 

for the End-to-End 11-Day-and-Above service standard.169 See Figure V-11.

 

169 Mail to and from Alaska, Hawaii, Guam, American Samoa, Puerto Rico, and the U.S. Virgin Islands are represented in the 11-Day-and-Above 

service standard.
- 106 -

Figure V-11

High Density and Saturation Letters End-to-End Service Standards

(2) High Density and Saturation Flats/Parcels

Service performance results for High Density and Saturation Flats/Parcels comprise three 

service standards for each Destination Entry and End-to-End component. Table V-10 

compares results for the past 4 years. FY 2014 was the first year that service performance 

results for the End-to-End component were reported. 

Table V-10

Service Standards for High Density and Saturation Flats/Parcels, FY 2011–FY 2014

FY 2011 FY 2012 FY 2013 FY 2014

Destination Entry 2-Day (DDU) 95.0 94.7 94.1 93.1

Destination Entry 3-5-Day (SCF) 86.7 83.8 79.5 81.6

Destination Entry 5-Day-And-Above (NDC) 48.1 90.4 88.2 92.0

End-to-End 3-5-Day N/A N/A N/A 75.2

End-to-End 6-10-Day N/A N/A N/A 72.7

End-to-End 11-Day-And-Above N/A N/A N/A 64.4

The amount of High Density and Saturation Flats/Parcels pieces measured by IMb 

continues to grow; however, many districts did not report service performance results due 

to a lack of measurable data. Table V-11 lists the number and percent of districts that did 

not report results in FY 2013 and FY 2014. It illustrates that in FY 2014 service 

performance results for End-to-End High Density and Saturation Flats/Parcels with an 11-

22-Day service standard came from only 25 percent of measured districts. Nevertheless, 

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

FY 2012 FY 2013 FY 2014

% On-Time

End-to-End 3-5-Day End-to-End 6-10-Day End-to-End 11-20-Day
- 107 -

this is an increase from FY 2013, when none of the 67 districts reported End-to-End service 

performance results.

Table V-11

Districts that Did Not Report Annual Service Performance Results, FY 2013 and FY 2014

FY 2014 FY 2013

No. 

Districts

% of

Districts

No. 

Districts

% of 

Districts

Destination Entry 2-Day (DDU) 22 32.8% 22 32.8%

Destination Entry 3-5-Day (SCF) 1 1.5 1 1.5

Destination Entry 5-Day-and-above (NDC) 4 5.9 6 9.0

End-to-End 3-5-Day 12 17.9 67 100

End-to-End 6-10-Day 7 10.5 67 100

End-to-End 11-22-Day 51 76.1 67 100

Total Number of Districts without Measurement 106 26.4% 239 59.5%

(3) Carrier Route

Service performance for Carrier Route mail increased slightly compared to the previous 

year. Figure V-12 illustrates that service performance for all service standards of the Endto-End component decreased relative to FY 2013. The service standard for Destination 

Entry 3-4-Day was lengthened to 3-5-Day for noncontiguous States and territories only due 

to the Postal Service’s shifts in service standards.170

Figure V-12

Carrier Route Mail Service Performance

 

170 See Service Standards for Destination Sectional Center Facility Rate Standard Mail, 79 Fed. Reg. 12,390, 12,390-94 (March 5, 2014).

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

Destination Entry 5-

Day-And-Above

Destination Entry 3-

5-Day

End-to-End 3-5-Day End-to-End 6-10-Day End-to-End 11-20-

Day

% On-Time

FY 2014 FY 2013
- 108 -

(4) Letters

Service performance results for Standard Mail Letters, as well as the volume of Standard 

Mail Letters pieces measured by IMb, continue to increase annually. Figure V-13 illustrates 

the increasing trend in both volume and service performance since FY 2012.

Figure V-13

Service Performance and Full-Service IMb Volume for Standard Mail Letters

(5) Flats

Service performance results for Standard Mail Flats showed significant improvement 

between FY 2012 and FY 2013. In FY 2014, overall results remained steady relative to 

FY 2013; however, each End-to-End performance measure remained low and reported 

delivery results less than 70 percent on-time. Figure V-14 illustrates the stark difference in 

service performance results for Destination Entry and End-to-End products for FY 2014.

Figure V-14

Flats Components

In FY 2014, the total number of Flats mail pieces measured for service performance 

increased relative to FY 2013. Figure V-15 depicts this trend by illustrating volumes for 

 -

 5

 10

 15

 20

 25

 30

 35

 40

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

FY 2012 FY 2013 FY 2014

Billions

% On Time

Overall Service Performance Result Imb Volume

86.0 86.2

65.7

49.8 52.9

0.0

20.0

40.0

60.0

80.0

100.0

Destination Entry

3-5-Day

Destination Entry

5-Day-And-Above

End-to-End 3-5-

Day

End-to-End 6-10-

Day

End-to-End 11-

Day-And-Above

% On Time
- 109 -

Destination Entry and End-to-End measured mail over 3 years. The figure clearly shows the 

disproportionate amount of mail measured as Destination Entry.

Figure V-15

Destination Entry and End-to-End Volume for Standard Mail Flats

(6) Parcels

FY 2013 was the first year service performance results for Parcels were reported. In 

FY 2014, the Postal Service was not able to continue reporting results. It explains that only 

53 percent of Standard Mail Parcels had a barcode; of those, 10-15 percent lacked either a 

start-the-clock or stop-the-clock scan. January 23, 2015, Response to CHIR No. 2, question 

12. a. In line with other Market Dominant Parcel products, the Postal Service is requiring 

mailers to use an Intelligent Mail Package Barcode to increase the volume eligible for 

measurement, Id., question 12. b., noting that there are no price penalties for 

noncompliance but the addition of fees will likely yield more Parcel products with 

barcodes. Id.

The Commission commends the Postal Service for making significant strides in service 

performance results for Standard Mail High Density and Saturation Letters, High Density and 

Saturation Flats/Parcels, and Letters. In FY 2014, these products met, exceeded, or were near 

annual service performance targets. Although Standard Mail Parcels represent only 0.1 

percent of all Standard Mail, the Postal Service is required by statute to report service 

performance results for all products. The Commission directs the Postal Service to provide 

these results in the FY 2015 ACR.

Standard Mail Carrier Route and Flats continue to fall well short of intended annual 

performance targets. The Commission directs the Postal Service to improve service for these 

products in FY 2015 or to explain in the FY 2015 ACR why efforts to improve results have been 

ineffective and what changes it plans to make to improve service performance.

95.7 94.8 

89.9 

4.3 5.2 

10.1 

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

FY 2012 FY 2013 FY 2014

% Measured

Destination Entry End-to-End
- 110 -

c. Periodicals

Annual service performance results for Periodicals decreased slightly from FY 2013, as 

shown in Table V-12. The Postal Service attributes the lower scores to the extreme weather 

during the first two quarters of FY 2014. January 29, 2015, Response to CHIR No. 2, 

question 14. a.

Table V-12

Annual Service Performance Results for Periodicals, FY 2012–FY 2014

Product FY 2014 FY 2013 FY 2012

Target % On-Time Target % On-Time Target % On-Time

In-County 91.0 80.9 91.0 82.0 91.0 68.7

Outside County 91.0 80.8 91.0 82.1 91.0 68.7

Note: Numbers in red indicate service performance results that did not meet or exceed the annual service performance target.

Figure V-16 shows that the difference in quarterly service performance scores due to 

weather was relatively minimal in FY 2014. The difference between service performance 

results for Destination Entry and End-to-End measurement was pronounced.

Figure V-16

Destination Entry Versus End-to-End

For FY 2013 and FY 2014, the Great Lakes region reported the lowest End-to-End service 

performance scores of any region. See Figure V-17. The Postal Service plans to increase 

service performance results for all geographic areas by making operational changes to its 

processing windows. January 29, 2015, Response to CHIR No. 2, question 14. b.

 -

 100

 200

 300

 400

 500

 600

 700

 800

 900

 1,000

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

Q1 Q2 Q3 Q4

Millions

% On-Time

% On-Time Destination Entry % On-Time End-to-End

Destination Entry Volume Destination Entry Volume
- 111 -

Figure V-17

Regional Comparison of Service Performance Results, FY 2013 and FY 2014

In FY 2014, the proportion of Periodicals measured for service performance continued to 

increase. The Postal Service, in its FY 2014 ACR, emphasizes the importance of increasing 

the amount and proportion of mail pieces in measurement. FY 2014 ACR at 39. Figure V-18 

illustrates the steady increase in the amount of measured Periodicals.

Figure V-18

Measured Volume for Periodicals

The Postal Service again did not meet its delivery performance targets for its Periodicals 

product. The Commission directs the Postal Service to improve service for Periodicals in 

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 20124 Q3 2014 Q4

% On Time

Capital Metro Eastern Great Lakes Northeast Pacific Southern Western

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4

% Volume

Millions

Volume Measured % Measured
- 112 -

FY 2015 or to explain in its FY 2015 ACR why efforts to improve results have been ineffective 

and what changes it plans to make to improve performance.

d. Package Services

Only service performance for BPM Parcels and Media Mail/Library Mail met annual service 

performance targets within the Package Services category. See Table V-13. Both products 

have met or exceeded the annual target for 3 consecutive years. Service performance for 

Inbound Surface Parcel Post (at UPU rates) decreased slightly compared with FY 2013. 

Alaska Bypass Service, which was created when Single-Piece Parcel Post moved to the 

Competitive product list, was granted a semi-permanent exemption from service 

performance reporting in FY 2014. Library Reference USPS–FY14–29 at 18.

Table V-13

Service Performance for Package Services, FY 2012–FY 2014

Product FY 2014 FY 2013 FY 2012

Target % On-Time Target % On-Time Target % On-Time

Parcel Post/Alaska 

Bypass 90.0 N/A 90.0 85.0 90.0 86.8

Bound Printed Matter 

Flats 90.0 60.2 90.0 62.6 90.0 54.3

Bound Printed Matter 

Parcels 90.0 99.3 90.0 98.4 90.0 94.4

Media Mail/Library Mail 90.0 91.7 90.0 93.3 90.0 92.7

Inbound International 

Surface Parcel Post (at 

UPU rates)

90.0 85.2 90.0 87.8 90.0 86.8

Note: Numbers in red indicate service performance results that did not meet or exceed the annual service performance target.

In FY 2014, service performance for BPM Flats was well below other Package Services 

products for the third consecutive year. In FY 2013, the Postal Service suggested that 

improved diagnostics and an increase in mailers using Full-Service Intelligent Mail should 

lead to improved service performance results.171 Figure V-19 shows that the percent of 

BPM Flats measured for service performance has barely reached 10 percent in 12 quarters 

of measurement.

In FY 2014, there was also limited data available for BPM Parcels. The Postal Service 

explains this is a problem because some pieces did not have a barcode, or either a start-theclock or stop-the-clock scan. January 23, 2015, Response to CHIR No. 2, question 15. a. As a 

result, it has implemented policies to barcode all parcels. Id., question 15. b. The Postal 

Service reports extending Intelligent Mail Package Barcode requirements to all Parcel 

products, including Market Dominant products such as Standard Mail, BPM, Media 

 

171 FY 2013 ACD at 114. See also Library Reference USPS–FY13–29 at 20.
- 113 -

Mail/Library Mail, and Parcels. Id. These requirements took full effect on January 25, 2015, 

but there is no price penalty for not complying with the requirement. Id. The Postal Service 

expects measurable volumes to increase if noncompliance fees are added to the Parcel 

products. Id.

In FY 2014, the percentage of BPM Flats measured for service performance reached a high 

of approximately 10 percent in Quarters 1 and 4. Figure V-20 illustrates this, as well as the 

measured volume from FY 2012 is not much greater into FY 2014.

Figure V-19

Measured Volume for BPM Flats

There are two other concerns with BPM Flats: volume and performance differences 

between Destination Entry and End-to-End mail pieces. As figure Figure V-20 shows, 

despite the growth in volume of measured BPM Flats, there remains a significant 

discrepancy between the number of pieces in measurement for Destination Entry and Endto-End. In terms of service performance, BPM has consistently lagged behind other 

products and performance has not shown sustained improvement. See Figure V-21 for a 

comparison of End-to-End service performance for all Package Service products.

0.0

2.0

4.0

6.0

8.0

10.0

12.0

0

10

20

30

40

50

60

70

80

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

Millions

% Volume

Volume Measured % Measured
- 114 -

Figure V-20

Destination Entry and End-to-End Volume for BPM Flats

Figure V-21

Package Services Delivery Performance Comparison

Media Mail/Library Mail and Bound Printed Matter Parcels exceeded the Postal Service’s 

annual service performance target of 90 percent on-time delivery for the third consecutive 

year. Service performance for Inbound International Surface Parcel Post remained relatively 

similar to FY 2013 and is close to its annual target. Results for BPM Flats remain the lowest 

among Package Service products and have decreased since FY 2013. The Commission views 

the Postal Service’s previous strategies to increase performance results as largely ineffective. 

It directs the Postal Service to improve performance for BPM Flats in FY 2015 or include a 

discussion of its FY 2015 strategies to increase results and measureable volume in its FY 2015 

ACR.

0

5

10

15

20

25

30

35

Destination

Entry

End-to-End Destination

Entry

End-to-End Destination

Entry

End-to-End

Millions

FY 2012 FY 2013 FY 2014

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

FY11-3 FY11-4 FY12-1 FY12-2 FY12-3 FY12-4 FY13-1 FY13-2 FY13-3 FY13-4 FY14-1 FY14-2 FY14-3 FY14-4

% On Time

Package Services - Bound Printed Matter Flats - End-to-End - All - Nation

Package Services - Bound Printed Matter Parcels - End-to-End - All - Nation

Package Services - Media Mail/Library Mail - End-to-End - All - Nation
- 115 -

e. Special Services

Service performance results exceeded targets for each product within the Special Services 

category except for Address List Services. The Postal Service explains that the score for 

Address List Services, which is based on 12 transactions, was adversely affected by delayed 

processing from a single office.172 Due to other high priority work, it took that office 7 days 

longer than the 15-day requirement to process the request. Id. Table V-14 compares the 

most recent results to previous years and the annual target.

Table V-14

Special Services’ Performance Results, FY 2011–FY 2014

Product FY 2014 FY 2013 FY 2012 FY 2011 Target

Ancillary Services 92.3 91.4 93.4 93.4 90.0

International Ancillary Services 99.7 99.3 99.6 99.6 90.0

Address List Services 33.3 100.0 83.3 93.3 90.0

Caller Services -- -- -- -- --

Change-of-Address Credit Card 

Authentication

-- -- -- -- --

International Reply Coupon Service -- -- -- -- --

International Business Reply Mail 

Service

-- -- -- -- --

Money Orders 98.3 99.2 99.2 97.2 90.0

Post Office Box Service 90.2 90.9 92.6 93.1 90.0

Customized Postage -- -- -- -- --

Stamp Fulfillment Service 98.4 99.5 96.7 -- --

Notes: (1) Dashes indicate data not measured. (2) Number in red indicates service performance results that did not meet or exceed the 

annual service performance target.

B. Customer Access

1. Introduction

Pursuant to 39 C.F.R. § 3055.91, the Postal Service must provide the Commission with data 

on the number and type of post offices, including those under emergency suspension, and 

information about the number of collection boxes and similar collection points in its 

 

172 See FY 2014 ACR. Library Reference USPS–FY14–29 at 27.
- 116 -

network. Section 3055.91 also requires the Postal Service to provide information about 

average customer wait time in line by fiscal quarter.

Pursuant to 39 C.F.R. § 3055.92, the Postal Service must provide the Commission a copy of 

its Customer Insight Survey.

173 It must also provide additional information, including the 

type of customer surveyed, the number of surveys initiated and received, and the number 

of responses for each question (if a question is subject to multiple responses) 

disaggregated by each of the possible responses. The Postal Service supplements its 

reporting with information on alternative access channels.

Maintaining adequate customer access continues to be important. Over the years, the 

Postal Service has reduced its retail network by closing retail facilities or adjusting their 

hours. Since initiating its POStPlan in 2012, the Postal Service has reduced the hours of 

operation at many small post offices rather than closing them. The number of collection 

boxes and other collection points continues to be reduced. However, access to postal 

services has been supplemented with the addition and enhancement of alternative 

marketing channels.

2. Retail Facilities

The aggregate number of Postal Service-operated retail facilities (i.e., post office stations 

and branches) has declined each year since FY 2012. However, the total number of retail 

outlets not operated by the Postal Service increased from FY 2013 to FY 2014, reflecting 

the establishment of 374 Village Post Offices (VPOs). The number of contract postal units 

(CPUs) and community Post Offices (CPOs) together declined by 127 facilities from FY 

2013 to FY 2014. There were a total of 35,641 facilities in FY 2014, 207 more than the 

previous fiscal year. Table V-15 shows the number of these facilities for FY 2012 through 

FY 2014.

In FY 2014, the Postal Service opened nearly 400 VPOs within convenience stores, markets, 

and other neighborhood businesses. VPOs offer a limited selection of Postal Service 

products and services, which may include Post Office Boxes, Forever stamps, and flat rate 

boxes. They are often open longer than regular post offices, making them a convenient 

option for customers. More than 750 VPOs have opened since their inception in FY 2011.174

CPUs and CPOs sell stamps and offer a range of other postal services. CPUs are usually 

located within a place of business and operated by a contractor who accepts mail from the 

public, sells postage and supplies, and provides special services (e.g., Postal Money Orders 

and Registered Mail). CPOs provide services in communities where independent post 

offices have been discontinued.175 As Table V-15 illustrates, the number of CPUs and CPOs 

continues to decline.

 

173 Library Reference USPS–FY14–38.

174 Witness Day testified that the Postal Service sees VPOs “now as an enhancement rather than a replacement” of a POStPlan post office and 

that the Postal Service will “make a maximum effort to get village post offices in those communities” with POStPlan offices. Docket No. N2012-

2, Advisory Opinion on Post Office Structure Plan, August 23, 2012, at 49-50.

175 Glossary of Postal Terms, United States Postal Service, Publication 32, July 2013, at 45.
- 117 -

Table V-15

Postal Service Operational Retail Facilities

Facility Type FY 2014 FY 2013 FY 2012

FY 2014 

Change from 

FY 2013

FY 2013 

Change from 

FY 2012

Post Offices 26,669 26,670 26,755 (1) (85)

Classified Stations & Branches and 

Carrier Annexes 4,993 5,032 5,102 (39) (70)

Total Postal-managed 31,662 31,702 31,857 (40) (155)

Contract Postal Units 2,660 2,718 2,792 (58) (74)

Village Post Offices 759 385 47 374 338

Community Post Offices 560 629 673 (69) (44)

Total Non-Postal-managed 3,979 3,732 3,512 247 220

Total Offices, Stations & Branches 35,641 35,434 35,369 207 65

Note: These totals do not include offices under emergency suspension.

Source: United States Postal Service 2014 Annual Report to Congress at 45 and FY 2013 ACD at 117.

3. POStPlan

On May 25, 2012, the Postal Service requested an advisory opinion from the Commission 

on POStPlan, a proposal to realign the hours of operation at approximately 17,700 of its 

nearly 32,000 post office retail locations to more closely reflect the workload at these 

offices.176 The Commission issued its advisory opinion on August 23, 2012, in which it 

stated that if implemented properly, the POStPlan should help balance service and cost 

savings in a manner consistent with title 39.177

As a result of POStPlan, the hours of operation at nearly 13,000 post offices nationwide are 

being reduced to 6, 4, or 2 hours per weekday. In a few locations, hours of operation will 

increase. Table V-16 shows the total number of offices subject to POStPlan. 

 

176 Docket No. N2012-2, United States Postal Service Request for an Advisory Opinion on Changes in the Nature of Postal Services, May 25, 

2012, at 1.

177 Docket No. N2012-2, Advisory Opinion on Post Office Structure Plan, August 23, 2012.
- 118 -

Table V-16

Proposed Changes in Hours of Operation Under POStPlan

Type of Change Number of Offices Percent of Total

Increase 73 0.4%

No Change 4,752 27.0%

Decrease 12,801 72.6%

Total 17,626 100.0%

Source: Library Reference USPS–LR–N2012–2/11.

Although POStPlan may reduce retail service and customer convenience at certain post 

offices by reducing weekday hours of operation, the Postal Service plans to maintain retail 

access to postal services in the following ways:

 Post offices will continue to provide the same services they have always provided.

 Access to Post Office Boxes remains unchanged.

 Collection boxes at post offices remain in place.

 Saturday hours are not to be affected.

 Post offices in the most remote and isolated locations will remain open at least 6 

hours each weekday.

The Postal Service is implementing POStPlan in several phases. The first set of post offices 

transitioned were those slated to be upgraded to Executive and Administrative Schedule 

Level 18, which entails increased administrative responsibilities for the Postmaster but no 

change in hours of operation. The Postal Service is currently transitioning those post offices 

slated for reduced operating hours where there is a Postmaster vacancy. During the final 

POStPlan phase in early FY 2015, those post offices with occupied Postmaster positions will 

begin to transition.

Table V-17 shows the POStPlan progress through the end of FY 2014. The table 

demonstrates that a little more than 75 percent of the post offices proposed for reduced 

hours have been transitioned. The implementation of POStPlan appears to be uniformly 

distributed among projected Level 2 (2 hours per weekday), Level 4 (4 hours per 

weekday), and Level 6 (6 hours per weekday) offices. The Postal Service places POStPlan 

Headquarters Status Updates and dates of upcoming POStPlan community meetings on its 

website to keep the public informed of potential changes in operating hours at their local 

post offices. The Postal Service states that implementation of POStPlan has resulted in over 

$250 million in annual savings.178

 

178 United States Postal Service Responses to Questions 8, 11, and 15-19 of Chairman’s Information Request No. 13, March 19, 2015, question 

15. a. (March 19, 2015, Response to CHIR No. 13).
- 119 -

Table V-17

POStPlan Status Through FY 2014

Number of Offices

Projected 

Office Level

As Proposed

in N2012-2

Status as of

End of FY 2014 % Converted

Level 2 1,891 1,319 69.8%

Level 4 6,837 5,225 76.4%

Level 6 4,333 3,261 75.3%

Total 13,061 9,805 75.1%

Source: United States Postal Service FY 2014 Annual Report to Congress at 48.

4. Post Office Suspensions

The number of post offices under suspension at the end of FY 2014 is equal to the number 

at the start of the fiscal year, plus the number suspended during the year, and minus the 

number reopened during the year. Table V-18 shows the number of Postal Serviceoperated retail facilities with suspended operations at the end of FY 2014. The number of 

post offices under suspension has continued to grow.

Table V-18

Number of Offices Under Suspension at the End of FY 2014

Under Suspension at 

the Start of Fiscal 

Year

Suspended During 

Fiscal Year

Reopened During 

Fiscal Year

Under Suspension at 

End of FY 2014

Post Office 334 88 30 392

Station/Branch 86 14 3 97

Total 420 102 33 489

Source: Library Reference USPS–FY14–43.

According to Postal Service Handbook PO-101, Postal Service-Operated Retail Facilities 

Discontinuance Guide, the circumstances that may justify a suspension include:

 A natural disaster

 Termination of a lease or rental agreement when suitable alternate quarters are not 

available in the community, especially when the termination is sudden or 

unexpected

 Lack of qualified personnel to run the office

 Irreparable damage when no suitable alternate quarters are available in the 

community

 Severe damage to, or destruction of, the office

 Challenge to the sanctity of the mail 
- 120 -

 Lack of adequate measures to safeguard the office or its revenues179

Lease expirations/terminations are the leading cause of suspensions, followed by lack of 

qualified personnel. Table V-19 categorizes the 489 offices with suspended operations at 

the end of FY 2014 by the justification for the suspension.

Table V-19

Number of Offices Under Suspension

Reason for Suspension Number of Offices % of Total FY 2013

Lease Expiration/Termination 233 47.6%

Lack of Qualified Personnel 101 20.7%

Health/Safety 97 19.8%

Natural Disasters 50 10.2%

Other 4 0.8%

No Data 4 0.8%

Grand Total 489 100.0%

Source: Library Reference USPS–FY14–43.

The Postal Service’s formal discontinuance process is set out in Handbook PO-101 at 29-33. 

The first step is an official decision to undertake a feasibility study. Among other things, 

this step involves information gathering, including customer questionnaires to gather 

additional information about a community, its postal customers, and their access to 

delivery and retail services. After a headquarters review coordinator confirms that the 

review complies with Federal law and Postal Service policy, a formal proposal to 

discontinue the facility is prepared and forwarded to the district manager before it is 

issued. A community meeting can be held any time after the customer questionnaires have 

been sent out and before any final determination can be made.

If the proposed action appears warranted, a formal proposal to discontinue the facility is 

prepared and forwarded to the district manager before it is posted. A written copy of the 

proposal and an invitation for comments must be posted for at least 60 days in the retail 

facility under study, as well as in surrounding facilities. Next, management analyzes 

comments received. After the district manager reviews the proposal, it may continue or be 

halted as unwarranted.

If the proposal is found to be warranted, then a final determination is prepared and posted 

for at least 30 days in the affected facilities where the proposal had originally been posted. 

The Postal Service then observes a further 30-day waiting period. If there are no appeals to 

the Commission, the retail facility is officially discontinued—at the earliest, 60 days after 

the day the final determination was first posted.

 

179 United States Postal Service Handbook PO-101, Postal Service-Operated Retail Facilities Discontinuance Guide, October 2012, at 39 

(Handbook PO-101).
- 121 -

Data supplied by the Postal Service appear to indicate that as many as three-quarters of 

post offices remaining under suspension have entered the formal discontinuance 

process.180 However, at least 82 offices had final determinations issued, primarily in FY 

2011 and FY 2013, and yet remain under suspension.181 The discontinuance studies 

performed for many of these offices are more than 2 years old; they may have to be 

updated if the Postal Service chooses to proceed in discontinuing these offices. The 

Commission is concerned that the number of post office suspensions is increasing, not 

decreasing.

The Commission has previously recommended that the Postal Service proceed expeditiously in 

either discontinuing offices under suspension or reopening them.182 It reiterates that 

recommendation in this proceeding.

5. Delivery Points

Total delivery points increased by 971,543 from FY 2013 to FY 2014. This growth was due 

entirely to an increase in residential delivery points, as the number of business delivery 

points continued to decline. 

Table V-20 provides the number of residential and business delivery points by delivery 

type for FY 2011 through FY 2014, plus the change in delivery points between the years. 

Table V-21 shows the average number of pieces per delivery point from FY 2009 to 

FY 2014. This figure has decreased more than 30 percent since FY 2000,183 attributable to 

the simultaneous increase in delivery points and decrease in mail volume.

 

180 See Library Reference USPS–FY14–43.

181 See Library Reference USPS–FY11–44.

182 See FY 2013 ACD at 121.

183 FY 2012 ACD at 67.
- 122 -

Table V-20

Postal Service Delivery Point Statistics

Delivery Points FY 2014 FY 2013

FY 2014 

Change from 

FY 2013

FY 2012

FY 2013 

Change from 

FY 2012

Residential

City Delivery 81,650,586 81,297,883 352,703 81,040,591 257,292

Rural 40,750,668 40,111,620 639,048 39,449,400 662,220

PO Box 15,858,668 15,882,717 -24,049 15,994,508 -111,791

Highway Contract 2,774,213 2,736,005 38,208 2,678,508 57,497

Total Residential 141,034,135 140,028,225 1,005,910 139,163,007 865,218

Business

City Delivery 7,592,773 7,554,231 38,542 7,525,979 28,252

Rural 1,554,422 1,524,741 29,681 1,493,644 31,097

PO Box 3,634,467 3,738,314 -103,847 3,889,964 -151,650

Highway Contract 76,179 74,922 1,257 73,957 965

Total Business 12,857,841 12,892,208 -34,367 12,983,544 -91,336

Grand Total Delivery Points 153,891,976 152,920,433 971,543 152,146,551 773,882

Source: United States Postal Service 2014 Annual Report to Congress at 45.

Table V-21

Annual Pieces per Delivery Point

FY 2014 FY 2013 FY 2012 FY 2011 FY 2010 FY 2009

No. of Pieces (Millions) 155,375 158,384 159,859 168,297 170,859 176,744

Pieces/Delivery Point 1,010 1,036 1,051 1,111 1,133 1,177

Source: Commission calculation based on United States Postal Service 2014 Annual Report to Congress at 45.

6. Collection Points

Collection points—locations where a customer drops off mail for collection by the Postal 

Service—are an important access channel for Single-Piece First-Class Mail. They can 

include collection boxes, mail chutes, firm pickups, Self-Service Kiosks, lobby drops, and 

mail collection racks. The responsible district is required to enter all collection points in the 

Collection Point Management System, a database that includes collection point addresses, 

location types (e.g., Business, Residential, Post Office Lobby), box types (e.g., standard, 

jumbo, snorkel), days of the week the point is accessed, and the times it is accessed, 

including the final collection time. 

Table V-22 shows the number of collection points by location type. Table V-23 shows the 

last pick-up times from collection boxes for FY 2010 and FY 2014 for selected time 

intervals. In general, the intervals between noon and 4:59 p.m. accounted for nearly 63 

percent of the pick-up times. The profile of last pick-ups has shifted slightly earlier overall 

between FY 2010 and FY 2014.
- 123 -

Table V-22

Number of Collection Points by Location Type

Location Type Year Change in 

No.

% 

Change

Change 

in No.

% 

Change

2014 2013 2006 2014–2006 2014–2013

Business 76,304 78,721 108,116 -31,812 -29.4% -2,417 -3.1%

Residentiala38,590 39,714 61,027 -22,437 -36.8% -1,124 -2.8%

Post Office Outside 40,912 41,780 52,763 -11,851 -22.5% -868 -2.1%

Post Office Lobby 38,421 38,579 37,068 1,353 3.7% -158 -0.4%

Customer Lobby 2,890 3,062 4,057 -1,167 -28.8% -172 -5.6%

Other 1,157 1,082 2,641 -1,484 -56.2% 75 6.9%

Contract Station 1,053 988 928 125 13.5% 65 6.6%

Mail Room 440 461 797 -357 -44.8% -21 -4.6%

Customer Dock 128 143 425 -297 -69.9% -15 -10.5%

Airport 131 140 150 -19 -12.7% -9 -6.4%

Government Building 282 278 68 214 314.7% 4 1.4%

Approved Shipper 215 117 0 215 N/A 98 83.8%

Grand Total 200,523 205,065 268,040 -67,517 -25.2% -4,542 -2.2%

a

Collection boxes account for more than 99% of residential collection points.

Source: Library Reference USPS–FY13–43 and FY 2013 ACD at 124.

Table V-23

Collection Box Pick-Up Times

Last Pick-Up Time Range 2014 2010

Midnight to 11:59 a.m. 20.3% 22.4%

Noon to 2:59 p.m. 29.8% 30.7%

3:00 p.m. to 4:59 p.m. 32.9% 32.2%

5:00 p.m. to 6:59 p.m. 16.7% 14.3%

7:00 p.m. to 11:59 p.m. 0.3% 0.4%

Total 100.0% 100.0%

Source: FY 2014: January 16, 2015, Response to CHIR No. 1, question 19. FY 2010: Postal Regulatory 

Commission calculation based on Docket No. ACR2010, Library Reference USPS–FY10–43.

7. Alternative Access

In addition to providing postal products and services at postal retail counters, the Postal 

Service has continued to expand postal access through additional marketing channels. In 

FY 2014, more than 40 percent of retail revenue was generated through means other than 

a postal retail counter. 

Figure V-22 identifies the FY 2014 revenue each retail channel generated. The channels are 

post offices’ walk-in revenue, which is post office walk-in revenue plus walk-in revenue 

from CPUs; Internet Access, which consists of PC Postage and Click-N-Ship; and “All Other,” 
- 124 -

which consists of “Stamps only sales by retail partners,” Automated Postal Centers, and 

“Stamps by mail/phone/fax.”

Figure V-22

Retail Revenue by Channel

($ Millions)

Source: Response to CHIR No. 1, question 18; FY 2013 ACD at 126.

Table V-24 shows the number of Self-Service Kiosks in use for FY2014 and FY2013. Fiftyeight kiosks were added in FY 2014. The Postal Service indicates that the increase reflects 

the addition of several hundred Self-Service Kiosks between October 2012 and December 

2013 as part of its Self-Service Expansion Program. This program involved the addition of 

two kiosks in the inner lobbies and counter lines in five major urban markets: Chicago, 

Washington, D.C., Miami, Los Angeles, and New York City. The Postal Service further 

indicates that some kiosks may have been installed outside of the Self-Service Expansion 

Program.

$11,006 $10,723 $10,627 

$5,554 $4,857 $4,088 

$2,344

$2,303 $2,359 

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

$20,000

2014 2013 2012

Post Offices (WIR) Internet Access All Other
- 125 -

Table V-24

Number of Self-Service Kiosks, FY 2013 and FY 2014

Fiscal Year Number of Self-Service Kiosks

2014 2,843

2013 2,785

Source: February 23, 2015, Response to CHIR No. 7, question 12.

C. Customer Satisfaction

For Market Dominant products, 39 U.S.C. § 3652 (a)(2)(B)(ii) requires the Postal Service to 

report “the degree of customer satisfaction with the service provided.” The Postal Service 

accomplishes this by measuring retail experience using the Retail Customer Experience 

program and customer attitudes with the newly implemented Customer Insights (CI) 

measurement.

According to the Postal Service, the previous Customer Experience Measurement (CEM) 

relational survey methodology, which had been used to measure customer perception 

towards the Postal Service, was conducted on a random sample of the population and 

provided perception-based results from potential customers. Because the survey was 

offered to a random sample of the United States population, it included individuals who 

may not actually be customers. The new CI methodology is event-driven and ensures that 

all feedback is reflective of actual customers. Responses are received in a more timely 

fashion as compared to the CEM and the CI composite is comprised of multiple touch 

points, which provides a more accurate representation of the entire customer base.184

The Postal Service believes the CI methodology represents an improvement over the Customer 

Experience Measurement survey. However, changing measurement methodology without 

some baseline makes it difficult to make year-over-year comparisons of the surveys’ results 

and inhibits transparency and impedes the Commission’s ability to fulfill its responsibility. The 

Commission will be taking a more extensive look at this survey and the relevant practices in 

its analysis of the Postal Service’s FY 2014 Performance Report and FY 2015 Performance 

Plan.

1. Wait Time in Line

To provide insight into customer experiences at its retail outlets, the Postal Service, 

through the Retail Customer Experience program, hires private “mystery shoppers” who 

test customer experiences at approximately 8,600 of its larger retail outlets.185 Wait Time 

reports are taken at different times of the day and different days of the week. Table V-25 

shows the average wait time in line by administrative area for FY 2012 to FY 2014. 

 

184 United States Postal Service Responses to Questions 1-3 of Chairman’s Information Request No. 11, March 3, 2015, question 3.

185 United States Postal Service FY 2014 Annual Report to Congress at 50.
- 126 -

Table V-25

Postal Service Identified Average Wait Time in Line

Area

Average Wait Time in Line

FY 2014 FY 2013 FY 2012

Capital Metro 2:03 2:19 2:22

Eastern 2:00 2:16 2:24

Great Lakes 2:00 2:00 1:57

Northeast 2:28 2:21 2:23

Pacific 3:07 3:19 3:25

Southern 2:23 2:22 2:33

Western 2:47 2:48 2:58

National 2:24 2:29 2:34

Source: Library Reference USPS–FY14–33 and FY 2013 ACD at 122.

The Postal Service has emphasized that “One key measure of a customer’s retail experience 

is wait time in line. The service standard for this attribute is ‘Five Minutes or Less.’”186

According to the Postal Service, this wait time is the ideal balance of cost effectiveness, 

efficiency, and service. Table V-26 summarizes survey responses about wait time in line the 

Postal Service received from post office customers.187

Table V-26

Customer Insights Identified Wait Time in Line, FY 2014

Wait Time in Line (Minutes) FY 2014

1-3 64.9%

4-5 18.6%

6-10 8.8%

11-15 3.4%

16+ 4.3%

Source: Library Reference USPS–FY14–38.

2. Customer Insights

As noted above, in FY 2013, the Postal Service changed how it measures customer 

experience. It transitioned from the Customer Experience Measurement system, which was 

implemented in FY 2011, to a system called Customer Insights. The four key components of 

this new measurement system are the Point of Sale survey, the Business Service Network 

survey, the Delivery (Residential/Small & Medium Business) survey, and the Customer 

Care Center survey. Each is described below.

 

186 United States Postal Service FY 2014 Annual Report to Congress at 50.

187 In its February 19, 2015, Response to CHIR No. 7, question 14, the Postal Service stated, “The existing POS [Point of Sale] Survey does not 

offer a selectable option for time periods less than one minute. For future surveys, [the] Postal Service is considering revisions that would 

address wait times greater than zero seconds but less than one minute.”
- 127 -

3. Point of Sale Survey

The Point of Sale survey “includes all retail customers who conduct transactions at Postal 

Service locations with POS [Point of Sale] equipment.”188

Table V-27 and Table V-28 identify responses to questions the Postal Service considers to 

be the most important. Table V-27 shows the overall satisfaction of customers after their 

visit to a post office. More than 70 percent of customers were very satisfied with their visit; 

just 9.1 percent left very dissatisfied. These results stem from a sample size of more than 

170,000 people.189 Table V-28 shows satisfaction results for the question, “What was the 

most important characteristic for a sales associate to be: knowledgeable, efficient, positive, 

or courteous?” Each person surveyed picked one factor and shared their thoughts about 

how the sales associate embodied it.

Table V-27

Post Office Visit Satisfaction

Overall Satisfaction FY 2014

Very Satisfied 73.1%

Mostly Satisfied 8.5%

Somewhat Satisfied 3.7%

Somewhat Dissatisfied 2.7%

Mostly Dissatisfied 2.9%

Very Dissatisfied 9.1%

Source: Library Reference USPS–FY14–38.

Table V-28

Sales Associate Factors

Customer Response Be Knowledgeable? Work Efficiently? Have a Positive 

Attitude?

Treat You With 

Courtesy?

Strongly Agree 82.3% 65.7% 80.0% 75.2%

Mostly Agree 8.1% 15.7% 8.3% 5.8%

Somewhat Agree 3.1% 6.7% 3.9% 2.7%

Somewhat Disagree 1.3% 3.0% 1.7% 1.8%

Mostly Disagree 1.4% 2.9% 1.8% 3.0%

Strongly Disagree 3.8% 6.0% 4.3% 11.5%

Source: Library Reference USPS–FY14–38.

 

188 United States Postal Service FY 2014 Annual Report to Congress at 39.

189 Library Reference USPS–FY14–38.
- 128 -

4. Business Service Network Survey

The Business Service Network survey “assists major mailers with the resolution of service 

issues and information requests. It measures the customer’s level of satisfaction with their 

BSN [Business Service Network] Account Representative.”190 Table V-29 shows the level of 

satisfaction customers felt after dealing with their representative. More than 84 percent 

ended the communication feeling very satisfied.

Table V-29

Satisfaction with Business Service Network Representative

Customer Response Rate

Very Satisfied 84.1%

Mostly Satisfied 9.9%

Somewhat Satisfied 3.2%

Somewhat Dissatisfied 1.3%

Mostly Dissatisfied 0.9%

Very Dissatisfied 0.6%

Source: Library Reference USPS–FY14–38.

A component of high-quality customer service is how quickly problems are resolved. Table 

V-30 shows the average amount of time it took to resolve a problem.

Table V-30

Average Amount of Time to Resolve a Problem

Time Frame Result

Immediate resolution 30.7%

Less than one day 35.7%

1-2 days 19.7%

3-5 days 5.1%

More than 5 days 2.5%

Still Unresolved 6.3%

Source: Library Reference USPS–FY14–38.

5. Delivery (Residential/Small & Medium Business) 

Survey

The Delivery (Residential/Small & Medium Business) survey is “mailed to randomly 

selected residential and small- and medium-sized business customers (those with fewer 

 

190 United States Postal Service FY 2014 Annual Report to Congress at 39.
- 129 -

than 250 employees at one site) who are asked to complete a survey online or via 

telephone.”191 It focuses on customers’ satisfaction with Postal Service delivery. As shown 

in Tables V-31 and V-32, the majority of customers in this category reported satisfaction 

with the Postal Service’s delivery practices.

Table V-31

Residential Customer Delivery Satisfaction

Customer Response Rate

Very Satisfied 61.1%

Mostly Satisfied 20.5%

Somewhat Satisfied 5.9%

Somewhat Dissatisfied 5.3%

Mostly Dissatisfied 3.5%

Very Dissatisfied 3.8%

Source: Library Reference USPS–FY14–38.

Table V-32

Small Business Customer Delivery Satisfaction

Customer Response Rate

Very Satisfied 54.4%

Mostly Satisfied 23.4%

Somewhat Satisfied 7.4%

Somewhat Dissatisfied 5.9%

Mostly Dissatisfied 3.8%

Very Dissatisfied 5.1%

Source: Library Reference USPS-FY14-38.

6. Customer Care Center Survey

The Customer Care Center survey is “for residential customers who call the USPS Care 

Center at 1-800-ASK-USPS and interact with a live agent. A random sampling of all callers is 

afforded an opportunity to participate in the survey, which measures customer satisfaction 

with the agent’s performance.”192 Survey responses range from 1 (Extremely dissatisfied) 

to 5 (Extremely satisfied). The questions address different topics; some pertain to the 

quality of the representative, others ask about the overall quality of the Postal Service. See

Table V-33 and Table V-34.

 

191 United States Postal Service FY 2014 Annual Report to Congress at 39-40.

192 United States Postal Service FY 2014 Annual Report to Congress at 40.
- 130 -

Table V-33

Satisfaction with Postal Service

Rank Rate

5 (Best) 27.4%

4 19.3%

3 17.5%

2 11.6%

1 (Worst) 24.2%

Source: Library Reference USPS–FY14–38.

Table V-34

Likelihood to Select Postal Service for Next Shipping Need

Rank Rate

5 (Best) 37.3%

4 15.9%

3 15.1%

2 9.4%

1 (Worst) 22.4%

Source: Library Reference USPS–FY14–38.
Docket No. ACR2014 Appendix A

 Page 1 of 9

Appendix A: Commission-Directed 

Undertakings that May Result in Future 

Analytical Principle Changes

COMMISSION-DIRECTED UNDERTAKINGS THAT MAY RESULT IN FUTURE ANALYTICAL 

PRINCIPLE CHANGES (FY 2014 ACD) 

Periodicals Pricing Efficiency

 In the FY 2015 ACR, the Postal Service shall provide a detailed analysis of the cost and 

contribution impact of the worksharing incentives offered for 5-Digit and Carrier 

Route presortation. FY ACD at Chapter 2, page 16.

 In the FY 2015 ACR, the Postal Service shall provide a report on its progress in 

improving Periodicals pricing efficiency. FY 2014 ACD at Chapter 2, page 17.

Inbound Letter Post Service Performance

 The Commission directs the Postal Service to report within 90 days on its plans to 

improve on-time service performance scores for Inbound Letter Post. In its report, the 

Postal Service shall identify systemic problems preventing on-time service 

performance scores from achieving the UPU quality-of-service target each year and its 

plans to address these problems. FY 2014 ACD at Chapter 3, page 55.

Valassis Collection Fee

 Accordingly, the Postal Service shall report the information required by Order No. 

1448 to be filed within 60 days of the end of each contract year. That information 

includes, but is not limited to, information regarding the payment of the $100,000 

transaction fee/penalty. Order No. 1448 at 41. FY 2014 ACD at Chapter 3, page 62.

Royal PostNL NSA

 The Commission finds that the NSA with Royal PostNL did not comply with 39 U.S.C. 

§ 3622(c)(10)(A). The Commission directs the Postal Service to report within 90 days 

on the following: the factors that caused the Royal PostNL NSA cost coverage at the 
Docket No. ACR2014 Appendix A

 Page 2 of 9

UPU terminal dues to exceed the cost coverage at the negotiated rates; the extent to 

which the Postal Service incorporated knowledge of these factors into its financial 

model for the successor NSA that was the subject of Docket No. R2015-3; and whether 

the successor NSA with Royal PostNL will improve the Postal Service’s net financial 

position during FY 2015. FY 2014 ACD at Chapter 3, page 57.

 The Commission finds that the Royal PostNL NSA (Docket No. CP2013-24) did not 

satisfy 39 U.S.C. § 3633(a)(2). Moreover, the negotiated rates do not comply with 

39 U.S.C. § 407(a) because such rates distort competition. For the successor NSA with 

Royal PostNL in Docket No. CP2015-18, the Commission directs the Postal Service to 

report within 90 days on the financial model’s projected change in cost compared with 

the actual change in cost for mail processing, delivery, and other costs, and whether 

the successor NSA is expected to cover costs during FY 2015. The Postal Service shall 

provide financial workpapers to support any statements or analysis in its report. FY 

2014 ACD at Chapter 4, page 82.

IMTS—Outbound and IMTS—Inbound Products

 For FY 2014, the Commission finds that the IMTS—Outbound and IMTS—Inbound 

products do not comply with 39 U.S.C. § 3633(a)(2). The Commission directs the Postal 

Service to report within 90 days on the feasibility of developing attributable costs for 

both products based on alternatives to the IOCS methodology. In its report, the Postal 

Service should discuss the feasibility of conducting engineering studies or utilizing 

costs from other Special Services with similar functions, such as domestic Money 

Orders. In addition, the Commission considers a price increase for the IMTS—

Outbound product to be one option the Postal Service may want to implement to 

reduce current losses. FY 2014 ACD at Chapter 4, page 76.

Inbound Air Parcel Post

 The Commission concludes that the entry of inbound air parcels post from EPGmember countries is inconsistent with 39 U.S.C § 407(a)(2). The Commission therefore 

recommends that the Postal Service pursue additional improvements in on-time 

service performance through implementation of the EPG continuous improvement 

plan so as to improve the financial results for Inbound Air Parcel Post (at non-UPU 

rates) during FY 2015. The Commission directs the Postal Service to negotiate 

compensatory rates within the EPG-Agreement or extricate itself from the Agreement. 

FY 2014 ACD at Chapter 4, page 81.
Docket No. ACR2014 Appendix A

 Page 3 of 9

First-Class Flats–Service Performance

First-Class Flats

 This is the fourth consecutive year that First-Class Mail Flats did not meet service 

performance targets. In addition, service performance has not improved since FY 2011. 

The Commission directs the Postal Service to improve service for First-Class Mail Flats 

in FY 2015 or to provide an explanation in the FY 2015 ACR for why efforts to improve 

service performance results for First-Class Mail Flats have been ineffective and detail 

what changes it plans to make to improve service performance. FY 2014 ACD at 

Chapter 5, page 104.

Standard Mail High Density and Saturation Letters, High Density and Saturation 

Flats/Parcels, and Letters

 The Commission commends the Postal Service for making significant strides in service 

performance results for Standard Mail High Density and Saturation Letters, High 

Density and Saturation Flats/Parcels, and Letters. In FY 2014, these products met, 

exceeded, or were near annual service performance targets. Although Standard Mail 

Parcels represent only 0.1 percent of all Standard Mail, the Postal Service is required 

by statute to report service performance results for all products. The Commission 

directs the Postal Service to provide these results in the FY 2015 ACR. FY 2014 ACD at 

Chapter 5, page 109.

Standard Mail Carrier Route and Flats–Service Performance

 Standard Mail Carrier Route and Flats continue to fall well short of intended annual 

performance targets. The Commission directs the Postal Service to improve service for 

these products in FY 2015 or to explain in the FY 2015 ACR why efforts to improve 

results have been ineffective and what changes it plans to make to improve service 

performance. FY 2014 ACD at Chapter 5, page 109.

Periodicals–Service Performance

 The Postal Service again did not meet its delivery performance targets for its 

Periodicals product. The Commission directs the Postal Service to improve service for 

Periodicals in FY 2015 or to explain in its FY 2015 ACR why efforts to improve results 

have been ineffective and what changes it plans to make to improve performance. FY 

2014 ACD at Chapter 5, page 111-112.
Docket No. ACR2014 Appendix A

 Page 4 of 9

Media Mail/Library Mail and Bound Printed Matter Parcels–Service Performance

 Media Mail/Library Mail and Bound Printed Matter Parcels exceeded the Postal 

Service’s annual service performance target of 90 percent on-time delivery for the 

third consecutive year. Service performance for Inbound International Surface Parcel 

Post remained relatively similar to FY 2013 and is close to its annual target. Results for 

BPM Flats remain the lowest among Package Service products and have decreased 

since FY 2013. The Commission views the Postal Service’s previous strategies to 

increase performance results as largely ineffective. It directs the Postal Service to 

improve performance for BPM Flats in FY 2015 or include a discussion of its FY 2015 

strategies to increase results and measureable volume in its FY 2015 ACR. FY 2014 

ACD at Chapter 5, pages 114.

STATUS OF COMMISSION-DIRECTED UNDERTAKINGS THAT MAY RESULT IN FUTURE 

ANALYTICAL PRINCIPLE CHANGES (FY 2013 ACD) 

Excess Passthroughs Resulting from Timing of Price Adjustments

 Because the timing of price adjustments is not a statutory exemption for passthroughs 

over 100 percent, the Postal Service should consider different approaches for setting 

workshare discounts, including projecting cost avoidances, that may reduce the 

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

price adjustments. Alternatively, the Postal Service should consider revising the 

schedule of market dominant price adjustments. FY 2013 ACD at 14-15.

o The Postal Service filed a Notice of Market-Dominant Price Adjustment (Docket 

No. R2015-4) on January 15, 2015. The cost avoidances used in that docket 

reflected the FY 2014 costs available in the FY 2014 ACR. This solved the timing 

issue.

Investigation of Certain Additional Costs

 The Commission encourages the Postal Service to investigate the additional costs it has 

listed, such as allied operations, manual processing, and transportation costs, to 

ensure the avoided costs model accurately reflects the additional cost savings for 

having more finely presorted mail. FY 2013 ACD at 25.

o The Postal Service has not yet investigated the additional costs.

Further Derivation of Elasticity for Standard Mail Products
Docket No. ACR2014 Appendix A

 Page 5 of 9

 The Commission appreciates the Postal Service’s efforts to derive elasticity estimates 

as recommended in the FY 2012 ACD. Having these elasticity estimates would provide 

for a more realistic assessment of the impact of price changes on volume and total 

contribution. Therefore, the Postal Service should continue its efforts to derive 

elasticity estimates for Standard Mail products. FY 2013 ACD at 55.

o On January 27, 2014, Chairman’s Information Request No. 4 was issued to the 

Postal Service to clarify the basis of its estimates in its FY 2013 ACR.1 On 

February 6, 2014, the Postal Service filed its responses, which included its 

response to the Commission recommendation pertaining to elasticity estimates 

for Standard Mail Flats.2 In its Response to CHIR No. 4, question 13, the Postal 

Service indicates that it re-estimates both aggregate and disaggregated shapebased (letters and non-letters) Standard Mail equations with new volume data 

that become available each quarter. However, “[t]o date, the disaggregated 

shaped-based equations have still not yielded results which would suggest that 

substituting the disaggregated elasticity estimates for the aggregate estimates 

would generate better forecasts or otherwise improve the assessment of the 

impact of price changes on contribution.” Id.

o On May 2, 2014, the National Postal Policy Council, the Association for Mail 

Electronic Enhancement, the Association of Marketing Service Providers, 

GrayHair Software, Inc., the Greeting Card Association, the International Digital 

Enterprise Alliance, Inc., the Major Mailers Association, and the National 

Association of Presort Mailers (Petitioners) filed a petition pursuant to 39 C.F.R. 

§ 3050.11. The petition requests that the Commission initiate a proceeding to 

review and consider improvements to the econometric elasticities demand 

model used by the Postal Service and the Commission.3

o On May 9, 2014, the Postal Service filed its answer opposing the petition. It 

contends that a proceeding would serve no useful purpose and that the interests 

 

1

Docket No. ACR2013, Chairman’s Information Request No. 4, January 27, 2014.

2

Docket No. ACR2013, Reponses of the United States Postal Service to Questions 1-20 of Chairman’s Information Request No. 4, February 6, 

2014 (Response to CHIR No. 4)

3

Docket No. RM2014-5, Petition to Improve Econometric Demand Equations for Market-Dominant Products and Related Estimates of Price 

Elasticities and Internet Diversion, May 2, 2014.
Docket No. ACR2014 Appendix A

 Page 6 of 9

of the Commission and the Postal Service would be better served by focusing 

their scarce resources elsewhere.4

o On July 9, 2014, the Commission established Docket No. RM2014-5 for 

consideration of the matters raised by the petition. The Commission also 

scheduled a technical conference for August 13, 2014. Order No. 2117.5

o On August 13, 2014, the Commission held the technical conference to consider 

the elasticity of demand issue by exploring alternative methods that have 

already been developed and can be presented for discussion, of which a paper 

titled A Branching AIDS Model for Estimating U.S. Postal Price Elasticities by 

Lyudmila Y. Bzhilyanskaya, Margaret M. Cigno, and Edward S. Pearsall, was 

discussed.

o Between September 19-22, 2014, comments in response to the technical

conference were filed.

Costing Methodology for Parcel Return Service Full Network Contracts

 The Commission directs the Postal Service to develop a revised costing methodology 

that can be used for this contract and future Parcel Return Service Full Network 

contracts. The Postal Service should file the proposed methodology in a rulemaking 

proceeding within 90 days of the issuance of the FY 2013 ACD. If Parcel Return Service 

Contract 4 does not cover costs under the revised costing methodology, within 90 days 

of the Commission’s decision on the proposed methodology, the Postal Service will have 

to revise the terms of, or terminate, the contract. FY 2013 ACD at 82-83.

o On June 20, 2014, the Postal Service submitted a modification of the 

International Priority Airmail (IPA) costing methodology as Proposal Three in 

Docket No. RM 2014-6.6

o On September 10, 2014, the Commission approved Proposal Three because the 

proposed methodology reflects mailer-specific information and therefore 

improves the cost estimate for Parcel Return Service Contract 4.7

 

4

Docket No. RM2014-5, Answer of the United States Postal Service in Opposition to Petition to Initiate a Proceeding Regarding Postal Demand 

Analysis, May 9, 2014.

5

Docket No. RM2014-5, Notice and Order Scheduling Technical Conference, July 9, 2014 (Order No. 2117).

6

Docket No. ACR2013, Responses of the United States Postal Service to Commission Requests for Additional Information in the FY 2013 Annual 

Compliance Determination, June 25, 2014, answer 1.
Docket No. ACR2014 Appendix A

 Page 7 of 9

Costing of IPA Product

 The Commission therefore directs that the Postal Service report within 90 days and 

reconfirm that the IPA product will cover the projected attributable costs in FY 2014. 

The Postal Service shall provide an analysis of the causes of the FY 2013 loss and 

decrease in cost coverage. In addition, the Postal Service is to recommend 

modifications to its current methodology of developing costs and, if necessary, propose 

the modifications in a rulemaking, so as to improve the reliability of such cases for the 

IPA product. FY 2013 ACD at 86.

o On June 20, 2014, the Postal Service submitted a proposed modification of the 

IPA costing methodology as Proposal Four in Docket No. RM 2014-6.8

o On September 10, 2014, the Commission approved Proposal Four because the 

proposed methodology more accurately reflects the distribution of container 

costs and weight-related settlement charges between the IPA product and IPA 

NSAs. Order No. 2180.

Performance Measure for Inbound Surface Parcel Post/Alaska Bypass Service

 Within 90 days of the issuance of this ACD, the Postal Service shall propose to the 

Commission appropriate measurement systems for both Inbound Surface Parcel Post 

(at UPU rates) and Alaska Bypass Service. FY 2013 ACD at 115.

o In the 2012 ACD, the Commission instructed the Postal Service to “propose use 

of an appropriate measurement system or proxy for Inbound Surface Parcel Post 

(at UPU rates) for service performance measurement in FY 2013.” FY 2012 ACD 

at 61. The Postal Service continues to use Single-Piece Parcel Post as the proxy to 

measure service performance for Inbound Surface Parcel Post (at UPU rates).9

On October 1, 2014, the Postal Service filed a request for a semi-permanent 

exception from periodic reporting of service performance measurement and 

customer satisfaction for Alaska Bypass Service, pursuant to 39 C.F.R. § 3055.3.

 

7

Docket No. RM2014-6, Order on Analytical Principles Used in Periodic Reporting (Proposals Three through Eight), September 10, 2014 (Order 

No. 2180).

8

Docket No. ACR2013, Responses of the United States Postal Service to Commission Requests for Additional Information in the FY 2013 Annual 

Compliance Determination, June 25, 2014, answer 2.

9

See Docket No. ACR2013, Responses of the United States Postal Service to Questions 1-9 of Chairman’s Information Request No. 6, February 

18, 2014, question 9 (Response to CHIR No. 6).
Docket No. ACR2014 Appendix A

 Page 8 of 9

o The Commission issued Order No. 2206, which established Docket No. RM2015-

1 for consideration of matters raised by the Postal Service’s request.10

o On December 23, 2014, the Commission issued Order No. 2303 granting the 

Postal Service’s request concerning service performance measurement because 

the “cost of implementing a measurement system would be prohibitive in 

relation to the revenue generated by the product.” However, the Commission did 

not grant the Postal Service’s request to eliminate reporting of customer 

satisfaction because rule 3055.3 does not provide an exception and the request 

did not address why any exception to the reporting rules should be extended. 

See Order No. 2303 at 5.11

STATUS OF COMMISSION DIRECTED UNDERTAKINGS THAT MAY RESULT IN FUTURE 

ANALYTICAL PRINCIPLE CHANGES (FY 2012 ACD) 

 The Commission directs the Postal Service to develop a costing methodology that 

adequately measures the attributable costs of the enhanced services for the 

competitive Post Office Box service. The Commission also directs the Postal Service to 

file the proposed methodology in a rulemaking proceeding prior to including the 

methodology in any future competitive rate adjustment for competitive Post Office Box 

service or in its FY 2013 ACR. See FY 2012 ACD at 163.

o On November 8, 2013, the Postal Service filed a petition pursuant to 39 C.F.R. 

§ 3050.11 requesting the Commission to initiate an informal rulemaking 

proceeding to consider changes to analytical principles for use in periodic 

reporting.12 Among other things, the Postal Service proposed to update and 

improve the methodology for developing attributable costs for the 

enhancements to the competitive Post Office Box service. The Commission 

reviewed the proposal in Docket No. RM2014-1.

 

10 Docket No. RM2015-1, United States Postal Service Request for Semi-Permanent Exception from Periodic Reporting of Service Performance 

Measurement for Alaska Bypass Service, October 1, 2014.

11 Docket No. RM2015-1, Order Concerning Semi-Permanent Exception from Periodic Reporting of Service Performance Measurement for 

Alaska Bypass Service, December 23, 2014 (Order No. 2303).

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

Analytical Principles (Proposals Six through Eight), November 8, 2013, at 1.
Docket No. ACR2014 Appendix A

 Page 9 of 9

o On May 8, 2014, the Commission issued Order No. 2076 approving the updated 

methodology because it represented an improvement compared with the 

current procedure.13

 

13 Docket No. RM2014-1, Order on Analytical Principles Used in Periodic Reporting (Proposals Six through Nine), May 8, 2014 (Order No. 2076).
Docket No. ACR2014 Appendix B

 Page 1 of 3

Appendix B: Commenters

2014 Annual Compliance Determination

Commenter Comment Citation Citation Short Form

American Catalog Mailers 

Association (ACMA)

Initial Comments of the American Catalog 

Mailers Association, February 2, 2015 ACMA Comments

Reply Comments of the American Catalog 

Mailers Association, February 13, 2015 ACMA Reply Comments

American Postal Workers Union, 

AFL-CIO (APWU)

Initial Comments of American Postal Workers 

Union, AFL-CIO, February 2, 2015 APWU Comments

Reply Comments of American Postal Workers 

Union, AFL-CIO, February 13, 2015 APWU Reply Comments

Association for Postal Commerce 

(PostCom)

Initial Comments of the Association for Postal 

Commerce, February 2, 2015 PostCom Comments

Reply Comments of the Association for Postal 

Commerce, February 13, 2015 PostCom Reply Comments

Citizens Against Government Waste 

(CAGW)

Comments Before the Postal Regulatory 

Commission, February 2, 2015 CAGW Comments

Douglas F. Carlson (Carlson) Comments on Annual Compliance Report, 

January 16, 2015 Carlson Comments

Federal Express Corporation (FedEx) Reply of Federal Express Corporation, 

February 18, 2015 FedEx Reply Comments

Greeting Card Association (GCA) Initial Comments of the Greeting Card 

Association, February 2, 2015 GCA Comments

Reply Comments of the Greeting Card 

Association, February 13, 2015 GCA Reply Comments
Docket No. ACR2014 Appendix B

 Page 2 of 3

Commenter Comment Citation Citation Short Form

Magazine Publishers of America, 

Inc., and Alliance of Nonprofit 

Mailers (MPA & ANM)

Reply Comments of Magazine Publishers of 

America, Inc., and Alliance of Nonprofit 

Mailers, February 13, 2015

MPA & ANM Reply 

Comments

National Association of Presort 

Mailers (NAPM)

Reply Comments of the National Association 

of Presort Mailers, February 13, 2015 NAPM Reply Comments

National Postal Policy Council 

(NPPC)

Comments of the National Postal Policy 

Council, February 2, 2015 NPPC Comments

Reply Comments of the National Postal Policy 

Council, February 13, 2015 NPPC Reply Comments

National Taxpayers Union (NTU)

Comments of Pete Sepp, President, National 

Taxpayers Union Before the Postal 

Regulatory Commission, February 2, 2015

NTU Comments

PHI Acquisitions, Inc. (PHI) Initial Comments of PHI Acquisitions, Inc., 

February 2, 2015 PHI Comments

Reply Comments of PHI Acquisitions, Inc., 

February 13, 2015 PHI Reply Comments

Pitney Bowes Inc. (Pitney Bowes) Comments of Pitney Bowes Inc.,

February 2, 2015 Pitney Bowes Comments

Reply Comments of Pitney Bowes Inc., 

February 13, 2015

Pitney Bowes Reply 

Comments

Surreply Comments of Pitney Bowes Inc., 

February 18, 2015

Pitney Bowes Surreply 

Comments

Public Representative (PR) Public Representative Comments, 

February 2, 2015 PR Comments

Progressive Direct Mail Advertising 

(Progressive)

Comments on Annual Compliance Report, 

February 2, 2015 Progressive Comments

Stamps.com (Stamps.com) Initial Comments of Stamps.com, 

February 2, 2015 Stamps.com Comments
Docket No. ACR2014 Appendix B

 Page 3 of 3

Commenter Comment Citation Citation Short Form

Reply Comments of Stamps.com, 

February 18, 2015

Stamps.com Reply 

Comments

Taxpayers Protection Alliance (TPA) Comments on Annual Compliance Report, 

January 30, 2015 TPA Comments

United Parcel Service (UPS)

Comments of United Parcel Service on Postal 

Service’s FY 2014 Annual Compliance Report, 

February 2, 2015

UPS Comments

United States Postal Service (USPS) Reply Comments of the United States Postal 

Service, February 18, 2015 USPS Reply Comments

Utah Hispanic Chamber of 

Commerce (UHCC)

Utah Hispanic Chamber of Commerce 

Comments of Annual Compliance Report, 

February 2, 2015

UHCC Comments

Valpak Direct Marketing Systems, 

Inc. and Valpak Dealers’ Association, 

Inc. (Valpak)

Valpak Direct Marketing Systems, Inc. and 

Valpak Dealers’ Association, Inc. Initial 

Comments on the United States Postal 

Service FY 2014 Annual Compliance Report, 

February 2, 2015

Valpak Initial Comments

Valpak Direct Marketing Systems, Inc. and 

Valpak Dealers’ Association, Inc. Reply 

Comments on the United States Postal 

Service FY 2014 Annual Compliance Report, 

February 13, 2015

Valpak Reply Comments

Note: On February 18, 2015, the Postal Service and two commenters filed motions requesting late acceptance of 

their reply comments. Motion of the United States Postal Service for Late Acceptance of ACR Reply Comments, 

February 18, 2015; Motion of Federal Express Corporation, February 18, 2015; and Motion for Late Acceptance of 

Reply Comments of Stamps.com, February 18, 2015. In addition, Pitney Bowes filed a motion for leave to file 

surreply comments. Motion of Pitney Bowes Inc. for Leave to File Surreply, February 18, 2015. The motions are 

unopposed. The Commission grants each of these motions.
Docket No. ACR2014 Appendix C

 Page 1 of 2

Appendix C: Acronyms and 

Abbreviations

Acronym/Abbreviation Meaning

AADC Automated area distribution center

ACD Annual Compliance Determination

ACMA American Catalog Mailer Association 

ACR Annual Compliance Report 

ADC Area distribution center

AFSM Automated Flats Sorting Machine

APWU American Postal Workers Union

BPM Bound Printed Matter 

BSN Business Service Network

CAGU Citizens Against Government Waste

Carlson Douglas F. Carlson

CEM Customer Experience Measurement

C.F.R. Code of Federal Regulations

CHIR Chairman’s Information Request 

CI Customer Insights

CPI Consumer price index

CPI-U Consumer price index for all urban consumers 

CPO Community Post Office 

CPU Contract postal unit

CRA Cost and Revenue Analysis 

DDU Destination delivery unit 

DFSS Destination Flats Sequencing System

Discover Discover Financial Services

DNDC Destination network distribution center

DSCF Destination sectional center facility 

ECSI Educational, cultural, scientific or informational (value) 

EMS Express Mail Service 

EPG E-Parcel Group

EXFC External First-Class Measurement

FedEx Federal Express Corporation

FSS Flats Sequencing System 

FY Fiscal Year

GCA Greeting Card Association
Docket No. ACR2014 Appendix C

 Page 2 of 2

Acronym/Abbreviation Meaning

GEPS Global Expedited Package Service

GREPS Global Reseller Expedited Package Service

ICRA International Cost and Revenue Analysis 

iMAPS Intelligent Mail Accuracy and Performance System

IMb Intelligent Mail barcode 

IMMS International Mail Measurement System 

IMTS-Inbound International Money Transfer Service-Inbound 

IMTS-Outbound International Money Transfer Service-Outbound 

Mixed ADC Mixed area distribution center

MPA & ANM Magazine Publishers of America, Inc., and Alliance of Nonprofit Mailers

IOCS In-Office Cost System 

NAPM National Association of Presort Mailers 

NDC Network distribution center 

NPPC National Postal Policy Council

NSA Negotiated service agreement 

NTU National Taxpayers Union

PAEA Postal Accountability and Enhancement Act 

PHI PHI Acquisitions, Inc.

Pitney Bowes Pitney Bowes Inc.

POS Point of Sale

PostCom Association for Postal Commerce

PTS Product Tracking System

PR Public Representative

Progressive Progressive Direct Mail Advertising

QBRM Qualified Business Reply Mail 

SASP Seamless Acceptance and Service Performance

SFS Stamp Fulfillment Services

TPA Taxpayers Protection Alliance

UFSM Upgraded Flats Sorting Machine

UHCC Utah Hispanic Chamber of Commerce

U.S.C. United States Code

UPS United States Parcel Service

UPU Universal Postal Union 

Valassis Valassis Direct Mail, Inc.

Valpak Valpak Direct Marketing Systems, Inc. and Valpak Dealers’ Association, Inc.

VPO Village Post Office
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