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###### Postal Service

# AGENCY:

Postal Service.

# ACTION:

Notice.

# SUMMARY:

This notice sets forth the request of the Postal Service to add a new product (Express Mail Contract) to the competitive product list.

# DATES:

*Effective Date:*                         August 15, 2008.                    

# FOR FURTHER INFORMATION CONTACT:

Daniel J. Foucheaux, Jr., 202-268-2989.

# SUPPLEMENTARY INFORMATION:

                    The Postal Service in accordance with 39 U.S.C. 3642 and 39 CFR 3020.30*et seq.*                     is filing a Request before the Postal Regulatory Commission, the addition of a new product, Express Mail Contract 1, to the competitive product list of the Mail Classification Schedule. As required by 39 U.S.C. 3642(d)(1), the Request is being published in the                     **Federal Register**                    . The Request is set out below.                

Neva R. Watson,

Attorney, FOIA/Privacy and Government Relations.

## Before the Postal Regulatory Commission

### Washington, DC 20268-0001

## Modification of the Mail Classification Schedule; Addition to Competitive Product Category; Express Mail Contract 1

## Request of the United States Postal Service To Add Express Mail Contract to Competitive Product List and Notice of Establishment of Rates and Class Not of General Applicability

                    In accordance with 39 U.S.C. 3642 and 39 CFR 3020.30*et seq.*                    , the United States Postal Service hereby requests modification of the Mail Classification Schedule product list. The Postal Service proposes to add Express Mail Contract 1 to the competitive product list.[1]                                          This is a competitive product not of general applicability within the meaning of 39 U.S.C. 3632(b)(3).[2]                                          A redacted version of the Governors' Decision establishing the price and classification and a certification of the Governors' vote is provided in Attachment A.[3]                                          Attachment B shows the requested changes in the Mail Classification product list with the addition in brackets.[4]                                          Attachment C provides a statement of supporting justification for this request, as specified in 39 CFR 3020.32.[5] 

                    As explained in the supporting justification, the Postal Service believes that it is appropriate to add this contract to the list of competitive products. The Commission should therefore approve this request as set forth in its rules. As required by 39 U.S.C. 3642(d)(1), this Request is being published in the                     **Federal Register**                     .                

                    The Postal Service also gives notice, pursuant to 39 U.S.C. 3632(b)(3) and 39 CFR 3015.5, that the Governors have established prices and classifications not of general applicability for this contract.[6]                                          The prices and class are to be effective one day after the Commission approves the required addition to the product list.[7]                                          An explanation and                           ( print page 47985)                        justification is provided in the Governors' Decision and accompanying analysis, which are being filed in unredacted version under seal.[8]                                          Also, being filed under seal are the required cost and revenue data [9]                                          and certification of compliance with 39 U.S.C. 3633(a)(1) and (3).[10] 

                    While aware that the Commission intends to address broader confidentiality issues in the future,[11]                                          the Postal Service maintains that the contract, related financial information, the customer's name and the portions of the Governors' Decision and accompanying analysis that provides prices, terms, and conditions should remain confidential. The contract contains pricing and other information related to the customer and its processes as well as to Postal Service processes and procedures for handling the mail tendered under the contract. Related financial information contains cost and pricing information underlying the contract. Prices and other contract terms relating to the parties' processes and procedures are highly confidential in the business world and the Postal Service protects them in accordance with industry standards. The ability of the Postal Service to negotiate such contracts would be severely compromised if prices and other information pertaining to these types of agreements were publicly disclosed. Also, public disclosure would compromise the ability of the customer to negotiate favorable shipping services contracts in the future. The name of the customer should remain confidential due to the substantial likelihood that the Postal Service's competitors would use such information to target their efforts and undercut the Postal Service's prices. The Postal Service is aware of no competitor or private company of comparable size and scope that releases similar information to the public.                

Respectfully submitted,

United States Postal Service,

By its attorneys:

Daniel J. Foucheaux, Jr.,

*Chief Counsel, Ratemaking*,                    

Scott L. Reiter,

475 L'Enfant Plaza West, S.W.,

Washington, DC 20260-1137,

(202) 268-2999, Fax-5402,

*scott.l.reiter@usps.gov,*

July 21, 2008.

## ATTACHMENT A to Postal Service Request

## Docket No. MC2008-5

## Redacted Governors' Decision

## Decision of the Governors of the United States Postal Service on Establishment of Rate and Class Not of General Applicability for Express Mail Service (Governors' Decision No. 08-9)

## Statement of Explanation and Justification

The Postal Service and* * * have entered into a shipping services contract that provides specialized pricing for* * * use of Express Mail service. Accordingly, pursuant to our authority under section 3632 of title 39, as amended by the Postal Accountability and Enhancement Act of 2006 (“PAEA”), we establish a new price not of general applicability, and such changes in classifications as are necessary to implement the new price.

Under the contract,* * * The contract is for three years.* * *

We have reviewed management's analysis of the contract, which is attached. We have evaluated the new price and classification changes in this context in accordance with 39 U.S.C. 3632-3633 and 39 CFR 3015.5 and 3015.7. We approve the changes, finding that they are appropriate, and are consistent with the regulatory criteria, as indicated by management.

## Order

We direct management to file with the Postal Regulatory Commission appropriate notice of these classification and rate changes and to request any needed addition to the competitive product list. The changes in price and class set forth herein shall be effective one day after the Commission approves any required addition to the product list under 39 CFR 3020 Subpart B.

By The Governors:

Alan C. Kessler 

Chairman

## Analysis of the Express Mail Service Contract with* * *

Under the terms of the Postal Service's Express Mail contract with.* * *

* * * The customized features included in this contract will make the pieces less costly for the Postal Service than the average Express Mail piece.* * *

Based on the estimated increase in contribution from this contract, in light of anticipated costs and volumes, this contract will cover its attributable cost (39 U.S.C. 3633(a)(2)) and will result in competitive products as a whole complying with 39 U.S.C. 3633(a)(3), which, as implemented by 39 CFR 3015.7(c), requires competitive products to contribute a minimum of 5.5 percent to the Postal Service's total institutional costs. Accordingly, no issue of subsidization of competitive products by market dominant products arises (39 U.S.C. 3633(a)(1)).

## MAIL CLASSIFICATION SCHEDULE

## PART B—COMPETITIVE PRODUCTS

## 2000 COMPETITIVE PRODUCT LIST

## NEGOTIATED SERVICE AGREEMENTS

Domestic

[Express Mail Contract 1]

## Statement of Supporting Justification

I, Kim Parks, Manager, Sales and Communications, Expedited Shipping, am sponsoring this request that the Commission add Express Mail Contract 1 to the list of competitive products. This statement supports the Postal Service's request by providing the information required by each applicable subsection of 39 CFR 3020.32. I attest to the accuracy of the information contained herein.

(a) Demonstrate why the change is in accordance with the policies and applicable criteria of the Act.

As demonstrated below, the change complies with the applicable statutory provisions.

(b) Explain why, as to the market dominant products, the change is not inconsistent with each requirement of 39 U.S.C. 3622(d), and that it advances the objectives of 39 U.S.C. 3622(b), taking into account the factors of 39 U.S.C. 3622(c).

Not applicable. The Postal Service is proposing that this Express Mail contract be added to the competitive products list.

(c) Explain why, as to competitive products, the addition, deletion, or transfer will not result in the violation of any of the standards of 39 U.S.C. 3633.

The service to be provided under the contract will cover its attributable costs and make a positive contribution to coverage of institutional costs. The contract will increase contribution toward the requisite 5.5 percent of the Postal Service's total institutional costs. Accordingly, no issue of subsidization of competitive products by market dominant products arises (39 U.S.C. 3633(a)(1)).

                    (d) Verify that the change does not classify as competitive a product over                           ( print page 47986)                        which the Postal Service exercises sufficient market power that it can without risk of losing a significant level of business to other firms offering similar products: (1) Set the price of such product substantially above costs, (2) raise prices significantly; (3) decrease quality; or (4) decrease output.                

The contract sets specific terms and conditions for providing Express Mail service to the customer. Express Mail is provided in a highly competitive market. The Postal Service is unable to set prices substantially above costs, raise prices significantly, decrease quality, or decrease output, without losing this business to private competitors in the expedited shipping market.

In negotiating this contract, the Postal Service's bargaining position was constrained by the existence of other providers of services similar to the Postal Service's. As such, the market precludes the Postal Service from taking unilateral action to increase prices or decrease service. As with Express Mail service in general, the Postal Service may not decrease quality or output without risking the loss of business to competitors that offer similar expedited delivery services. The market does not allow the Postal Service to raise prices or offer prices substantially above costs; rather, the contract is premised on prices and terms that provide sufficient incentive for the customer to ship with the Postal Service rather than a competitor.

(e) Explain whether or not each product that is the subject of the request is covered by the postal monopoly as reserved to the Postal Service under 189 U.S.C. 1696, subject to the exceptions set forth in 39 U.S.C. 601.

I am advised that Express Mail service and this contract are not covered by these provisions. See part (d) above.

(f) Provide a description of the availability and nature of enterprises in the private sector engaged in the delivery of the product.

See part (d) above. Expedited shipping, including guaranteed overnight shipping, is widely available from well-known and successful private firms at both published and contract prices.

(g) Provide any available information of the views of those who use the product on the appropriateness of the proposed modification.

Having entered into this contract with the Postal Service, the customer supports the addition of the contract to the product list so that the contractual terms can be effectuated.

(h) Provide a description of the likely impact of the proposed modification on small business concerns.

The market for expedited delivery services is highly competitive and requires a substantial infrastructure to support a national network. Large shipping companies serve this market. The Postal Service is unaware of any small business concerns that could offer comparable service for this customer.

(i) Include such other information, data, and such statements of reasons and bases, as are necessary and appropriate to fully inform the Commission of the nature, scope, significance, and impact of the proposed modification.

Additional details regarding the terms of the contract have been provided to the Commission under seal due to the sensitivity of the contract to both the customer and the Postal Service.

# Footnotes

1.                             39 CFR § 3020.31(a), (c).                    
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2.                                                     *Id.*                         § 3020.31(d).                    
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3.                                                     *Id.*                         § 3020.31(b).                    
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4.                                                     *Id.*                         § 3020.31(f).                    
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5.                                                     *Id.*                         § 3020.31(e).                    
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6.                                                     *Id.*                         § 3015.5(a).                    
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7.                                                     *Id.*                         § 3015.5(b).                    
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8.                                                     *Id.*
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9.                                                     *Id.*                         § 3015.5(c)(1).                    
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10.                                                     *Id.*                         § 3015.5(c)(2).                    
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11.                                                     *See*                         Order No. 86, Order Concerning Global Expedited Package Services Contract, Docket No. CP2008-5, June 27, 2008, at 7.                    
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[FR Doc. E8-18887 Filed 8-14-08; 8:45 am]

BILLING CODE 7710-12-P