[Federal Register Volume 73, Number 22 (Friday, February 1, 2008)]
[Notices]
[Pages 6219-6221]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-1778]


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POSTAL SERVICE


Change in Rates of General Applicability for a Competitive 
Product

AGENCY: Postal Service.

ACTION: Notice of a change in rates of general applicability for a 
competitive product.

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SUMMARY: This notice sets forth changes in rates of general 
applicability for a competitive product, specifically the establishment 
of prices for a Priority Mail large-sized flat-rate box.

DATES: Effective Date: March 3, 2008.

FOR FURTHER INFORMATION CONTACT: Daniel J. Foucheaux, Jr., 202-268-
2989.

SUPPLEMENTARY INFORMATION: On January 17, 2008, pursuant to their 
authority under 39 U.S.C. 3632, the Governors of the Postal Service 
established prices for a new large-size Priority Mail flat-rate box. 
The Governors' Decision and the record of proceedings in connection 
with such decision are reprinted below in accordance with section 
3632(b)(2). Implementing regulations are published elsewhere in this 
issue.

Neva R. Watson,
Attorney, Legislative.

Decision of the Governors of the United States Postal Service on the 
Priority Mail Large Flat-Rate Box (Governors' Decision No. 08-1)

January 17, 2008.

Statement of Explanation and Justification

    Pursuant to our authority under section 3632 of title 39, as 
amended by the Postal Accountability and Enhancement Act of 2006, we 
establish the following prices for a new, larger (approximately 1/2 
cubic foot) Priority Mail flat-rate box: $12.95 for domestic mail 
destined to most ZIP Codes, $10.95 for domestic mailed destined to 
APO/FPO ZIP Codes, $29.95 for international mail destined to Mexico 
and Canada, and $49.95 for international mail destined to all other 
countries. We have reviewed the attached analysis provided by 
management and have evaluated this change in accordance with 39 
U.S.C. Sec. Sec.  3632-3633 and 39 C.F.R. Sec.  3015.2, which 
address changes in rates of general applicability for competitive 
services.
    As background, we first approved the domestic flat-rate box as 
an experiment more than three years ago.\1\ Subsequently, we 
concluded that the experiment was a success, and we approved a 
permanent classification for the flat-rate box as part of the recent 
omnibus rate case.\2\ The existing box has a volume of 0.34 cubic 
feet, with a price of

[[Page 6220]]

$8.95.\3\ The Postal Service extended the flat-rate box to 
international mail in May 2007, at prices of $23.00 for mail 
destined to Canada and Mexico, and $37.00 for mail destined to all 
other countries.
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    \1\ Governors' Decision on Docket No. MC2004-2 (October 29, 
2004).
    \2\ Governors' Decision on Docket No. R2006-1, at 13-14 (March 
19, 2007).
    \3\ Governors' Decision on Reconsideration, Docket No. R2006-1, 
at 1-2 (May 2, 2007).
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    The Priority Mail flat-rate box has proven to provide value to 
customers in the form of convenience and ease of use and has made a 
positive contribution to postal finances. This success suggests a 
place for an additional Priority Mail flat-rate box. Such an 
offering would enhance customer choice, convenience and ease of use. 
The larger box will have a cubic capacity of approximately 1/2 cubic 
foot, or about 50 percent more than the current flat-rate box.
    As indicated in the attached analysis, the addition of this new 
option will benefit the Priority Mail flat-rate box rate category. 
Moreover, the lower rate for APO/FPO-destined ZIP Codes is justified 
by the analysis, and provides an opportunity for the Postal Service 
to assist American troops stationed abroad and their families.
    Establishment of the larger flat-rate box is a minor change that 
does not raise an issue of subsidization of competitive products by 
market dominant products. (39 U.S.C. Sec.  3633(a)(1)). The change 
will have no negative effects on the ability of Priority Mail or 
Priority Mail International to cover attributable costs (39 U.S.C. 
Sec.  3633(a)(2)), or for competitive products as a whole to comply 
with 39 U.S.C. Sec.  3633(a)(3), which, as implemented by 39 C.F.R. 
Sec.  3015.7(c), requires competitive products to contribute a 
minimum of 5.5 percent to the Postal Service's total institutional 
costs.

Order

    The prices specified above for the new flat-rate Priority Mail 
box shall be effective March 3, 2008. We direct the Secretary to 
have this decision published in the Federal Register in accordance 
with 39 U.S.C. Sec.  3632(b)(2). We also direct management to file 
with the Postal Regulatory Commission appropriate notice of this 
change.

By The Governors:

James C. Miller III,
Chairman.

Analysis of the Priority Mail Large Flat-Rate Box

DOMESTIC

    The Priority Mail large flat-rate box is 0.52 cubic feet 
(exterior), with dimensions of 12\1/4\'' x 12\1/4\'' x 6'' exterior 
and 12'' x 12'' x 5\1/2\'' interior.

Pricing

    <bullet> $10.95 for Priority Mail shipments to APO/FPO 
addresses.
    <bullet> $12.95 for Priority Mail shipments to all other 
addresses.

                         Estimated Profitability
                             [FY 2007 Basis]
------------------------------------------------------------------------
                                            Non-APO/FPO       APO/FPO
                                             addresses       addresses
------------------------------------------------------------------------
Price...................................          $12.95          $10.95
Est. Unit Cost..........................           $8.03           $8.46
Est. Unit Contribution..................           $4.92           $2.49
Implicit Cost Coverage..................            161%           129%
------------------------------------------------------------------------
Note: Calculations include the incremental cost of packaging (over and
  above the approximately 10 cents per piece ``baked in'' to every
  Priority Mail rate cell).

Support for the Domestic Prices

    Given the most recent price change, estimated domestic Priority 
Mail cost coverage is currently in the range of 135 to 140 percent. 
The $12.95 price reflects a premium comparable to that established 
for the original flat-rate box in 2004, which proved sufficient to 
protect against the risk of contribution leakage. A preferential 
$10.95 price is offered for shipments to APO/FPO addresses. These 
shipments account for only seven percent of total current flat-rate 
box volume. The price is sufficient to provide adequate contribution 
because of the unique demand characteristics of care-package 
shipments.

Compliance With Relevant Law

    By sheer weight of volume, the primary use of the larger flat-
rate box will be for general domestic Priority Mail shipments. Based 
on experience with the existing flat-rate box, the premium built 
into the $12.95 price is likely to produce an increase in 
contribution. Some contribution leakage is likely to result from 
lower-volume APO/FPO applications, but the amount should be minimal. 
As shown above, the Priority Mail large flat-rate box will easily 
cover its costs. Therefore, the domestic Priority Mail large flat-
rate box is not expected to raise an issue of subsidization of 
competitive products by market dominant products (39 U.S.C. Sec.  
3633(a)(1)); or undermine the ability of Priority Mail to cover its 
attributable costs (39 U.S.C. Sec.  3633(a)(2)); or undermine the 
ability of competitive products as a whole to comply with 39 U.S.C. 
Sec.  3633(a)(3), which, as implemented by 39 CFR Sec.  3015.7(c), 
requires competitive products to contribute a minimum of 5.5 percent 
to the Postal Service's total institutional costs.

INTERNATIONAL

    The same flat-rate box will be used for Priority Mail 
International (PMI).

Pricing

    <bullet> $29.95 for Priority Mail International shipments to 
Canada and Mexico.
    <bullet> $49.95 for Priority Mail International shipments to the 
rest of the world.

                         Estimated Profitability
                             [FY 2007 Basis]
------------------------------------------------------------------------
                                            Canada and       All other
                                              Mexico         countries
------------------------------------------------------------------------
Price...................................          $29.95          $49.95
Est. Unit Cost..........................          $21.46          $39.83
Est. Unit Contribution..................           $8.49          $10.12
Implicit Cost Coverage..................            140%            125%
------------------------------------------------------------------------

Support for the International Prices

    The estimated overall Priority Mail International cost coverage 
is 128 percent. The Canada and Mexico price of $29.95 and the Rest-
of-the-World price of $49.95 yield a weighted-average implicit cost 
coverage the same as PMI as a whole, 128 percent. The risk of 
contribution leakage is contained by the imposition of a 20-pound 
weight limit.

[[Page 6221]]

Compliance With Relevant Law

    The Priority Mail large flat-rate box will represent a small 
percentage of total Priority Mail International (PMI) volume. It, 
therefore, can have only a limited effect on total contribution, but 
it is designed to increase contribution by having a price set 
approximately at the average for similar-weight PMI pieces. It may 
also increase contribution by increasing total PMI usage. Any 
potential for contribution loss is partially offset by the 
imposition of a 20-pound limit. As shown above, the large flat-rate 
box will easily cover its costs. Therefore, the Priority Mail 
International large flat-rate box will not raise an issue of 
subsidization of competitive products by market dominant products 
(39 U.S.C. Sec.  3633(a)(1)); or undermine the ability of Priority 
Mail International to cover its attributable costs (39 U.S.C. Sec.  
3633(a)(2)); or undermine the ability of competitive products as a 
whole to comply with 39 U.S.C. Sec.  3633(a)(3), which, as 
implemented by 39 CFR Sec.  3015.7(c), requires competitive products 
to contribute a minimum of 5.5 percent to the Postal Service's total 
institutional costs.

Certification of Governors' Vote in the Governors' Decision No. 08-1

    I hereby certify that the following Governors voted by paper 
ballot on adopting Governors' Decision No. 08-1:

Mickey D. Barnett
James H. Bilbray
Carolyn Lewis Gallagher
Louis J. Giuliano
Alan C. Kessler
Thurgood Marshall, Jr.
James C. Miller III
Katherine C. Tobin
Ellen C. Williams

    The vote was 9-0 in favor.
Wendy A. Hocking,
Secretary of the Board of Governors.
 [FR Doc. E8-1778 Filed 1-31-08; 8:45 am]
BILLING CODE 7710-12-P