Source: http://www.thefederalregister.com/d.p/2010-02-08-2010-2629
Timestamp: 2013-05-23 01:22:53
Document Index: 405548860

Matched Legal Cases: ['art 7114', 'art 3944', 'art 6726', 'art 140', 'art 5250', 'art 1739', 'art 30206', 'art 514', 'art 9740', 'art 180', 'art 3020']

14 CFR Part 7114 CFR Part 3944 CFR Part 6726 CFR Part 140 CFR Part 5250 CFR Part 1739 CFR Part 30206 CFR Part 514 CFR Part 9740 CFR Part 180	Federal Register: February 8, 2010 (Volume 75, Number 25)
DOCID: fr08fe10-11
FR Doc 2010-2629
Docket ID: [Docket Nos. MC2010-14 and CP2010-13; Order No. 376]
SUBJECT CATEGORY: New Postal Product DATES: Effective February 8, 2010 and is applicable beginning December 30, 2009.
DOCUMENT SUMMARY: The Commission is adding Canada Post-United States Postal Service Contractual Bilateral Agreement for Inbound Competitive Services to the Competitive Product List. This action is consistent with a postal reform law. Republication of the lists of market dominant and competitive products is also consistent with statutory requirements.
SUMMARY: New Postal Products
Regulatory History, 74 FR 65169 (December 9, 2009). Table of Contents I. Introduction II. Background III. Comments IV. Commission Analysis V. Ordering Paragraphs
The Postal Service seeks to add a new product, Canada PostUnited States Postal Service Contractual Bilateral Agreement for Inbound Competitive Services, to the Competitive Product List. For the reasons discussed below, the Commission approves the Request.
On November 25, 2009, the Postal Service filed a formal request pursuant to 39 U.S.C. 3642 and 39 CFR 3020.30 et seq. to add the Canada PostUnited States Postal Service Contractual Bilateral Agreement for Inbound Competitive Services (Bilateral Agreement or Agreement) to the Competitive Product List.\1\ The Postal Service asserts that the Bilateral Agreement is a competitive product ``not of general applicability'' within the meaning of 39 U.S.C. 3632(b)(3). This Request has been assigned Docket No. MC201014.
\1\ Request of United States Postal Service to Add Canada Post
United States Postal Service Contractual Bilateral Agreement for Inbound Competitive Services to the Competitive Product List and Notice of Filing (Under Seal) the Enabling Governors' Decision and Agreement, November 25, 2009 (Request). The Postal Service contemporaneously filed 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 inbound competitive services as reflected in the Bilateral Agreement. More specifically, the Bilateral Agreement, which has been assigned Docket No. CP201013, governs Inbound Parcel Post and XpresspostUSA from Canada. The Postal Service acknowledges an existing bilateral agreement with Canada Post for inbound competitive services, which is set to expire at the end of calendar year 2009. Id. at 3. The Postal Service asserts that the proposed MCS language in Docket No. MC201014 ``resembles the language'' for the existing bilateral agreement and that the differences ``reflect changes to certain operational details'' including a reclassification of Canada Post's ``XpresspostUSA'' product from a market dominant product to a competitive product. Id. The Commission reviewed and approved that bilateral agreement in Docket Nos. CP20099 and MC20098. The Commission had previously approved the ``XpresspostUSA'' product as a market dominant product in Docket No. MC20097.\2\ Qualifying that approval, however, the Commission noted that ``Xpresspost exhibits characteristics of a competitive product.'' Id. at 7.
\2\ Docket No. MC20097, Order Concerning Bilateral Agreement with Canada Post for Inbound Market Dominant Services, December 31, 2008 (Order No. 163). In support of its Request, the Postal Service filed the following materials: (1) A redacted version of the Governors' Decision including proposed MCS language, a management analysis of the Bilateral Agreement, certification of compliance with 39 U.S.C. 3633(a), and certification of the Governors' vote;\3\ (2) a Statement of Supporting Justification as required by 39 CFR 3020.32;\4\ (3) a redacted version of the agreement;\5\ and (4) an application for nonpublic treatment of pricing and supporting documents filed under seal.\6\ Request at 2. \3\ Attachment 1 to the Request. \4\ Attachment 2 to the Request. \5\ Attachment 3 to the Request.
\6\ Attachment 4 to the Request. The Postal Service erroneously noted in its Request that an Attachment 5 which contained the application for nonpublic treatment was filed. The application for nonpublic treatment is Attachment 4; there is no Attachment 5.
The Bilateral Agreement covers parcels arriving in the United States by surface transportation rather than air. Governors' Decision No. 0916.\7\ The Bilateral Agreement also covers Xpresspost, a Canadian service for documents, packets, and lightweight packages. Id. The Bilateral Agreement allows Canada Post to tender surface parcels and Xpresspost to the Postal Service at negotiated prices rather than the default prices set by the Universal Postal Union. Id. The Bilateral Agreement is effective January 1, 2010 and continues until December 31, 2011. Id., Attachment 3, at 7.
\7\ See Attachment 1 to the Request.
In the Statement of Supporting Justification, Lea Emerson, Executive Director, International Postal Affairs, asserts that ``[t]he addition of the [Bilateral] Agreement as a competitive product will enable the Commission to verify that the agreement covers its attributable costs and enables competitive products, as a whole, to make a positive contribution to coverage of institutional costs.'' Id., Attachment 2, at 2. Joseph Moeller, Manager, Regulatory Reporting and Cost Analysis, Finance Department, certifies that the contract complies with 39 U.S.C. 3633(a). Id., Attachment 1, Attachment C. He observes that the Bilateral Agreement ``should not impair the ability of competitive products on the whole to cover an appropriate share of institutional costs.'' Id. In Order No. 351, the Commission gave notice of the two dockets, appointed a public representative, and provided the public with an opportunity to comment.\8\
\8\ PRC Order No. 351, Notice and Order Concerning Bilateral Agreement with Canada Post for Inbound Competitive Services, December 1, 2009 (Order No. 351).
Comments were filed by the Public Representative.\9\ No other interested [[Page 6109]]
person submitted comments. The Public Representative states the Postal Service's Request comports with the applicable provisions of title 39. Id. at 1. He also states that the Postal Service's Request comports with the requirements of 39 U.S.C. 3632 and 39 CFR 3015. Id. at 12.
\9\ Public Representative Comments in Response to United States Postal Service Request to Add Canada PostUnited States Postal Service Contractual Bilateral Agreement for Competitive Services to the Competitive Products List, and Notice of Filing Agreement and Enabling Governors' Decision (Under Seal), December 15, 2009 (Public Representative Comments). The Public Representative filed an accompanying Motion of the Public Representative for Late Acceptance of Comments in Response to United States Postal Service Request to Add Canada PostUnited States Postal Service Contractual Bilateral Agreement for Competitive Services to the Competitive Product List, December 15, 2009. The motion is granted. The Public Representative states that the Bilateral Agreement is in compliance with the requirements of 39 U.S.C. 3633(a). He asserts that the Postal Service has provided adequate justification for maintaining confidentiality in this case. Id. at 23. Additionally, the Public Representative states that the Bilateral Agreement satisfies the requirements of 39 U.S.C. 3633 in that it will not allow market dominant products to subsidize competitive products, ensures each competitive product covers its attributable costs, and enables competitive products as a whole to cover their costs and contribute a minimum of 5.5 percent to the Postal Service's total institutional costs. Id. at 2. He also indicates that the Postal Service has complied with 39 U.S.C. 3642 and 39 CFR 3020. Id. The Public Representative relates that he has reviewed the supporting documentation filed under seal, and the Bilateral Agreement offers provisions favorable both to the Postal Service and the general public. Id. at 3.
The Commission has reviewed the Request, the Agreement, the financial analysis filed under seal, and the comments filed by all parties. Statutory requirements. The Commission's statutory responsibilities in this instance entail assigning the Bilateral Agreement to either the Market Dominant Product List or to the Competitive Product List. 39 U.S.C. 3642. As part of this responsibility, the Commission also reviews the proposal for compliance with the Postal Accountability and Enhancement Act (PAEA) requirements. This includes, for proposed competitive products, a review of the provisions applicable to rates for competitive products. 39 U.S.C. 3633. Product list assignment. In determining whether to assign the Bilateral Agreement to the Market Dominant Product List or the Competitive Product List, the Commission must consider whether ``the Postal Service exercises sufficient market power that it can effectively set the price of such product substantially above costs, raise prices significantly, decrease quality, or decrease output, without risk of losing a significant level of business to other firms offering similar products.'' 39 U.S.C. 3642(b)(1). If so, the product will be categorized as market dominant. The competitive category of products shall consist of all other products. The Commission is further required to consider the availability and nature of enterprises in the private sector engaged in the delivery of the product, the views of those who use the product, and the likely impact on small business concerns. 39 U.S.C. 3642(b)(3). In Docket No. RM20071, Order No. 43, the Commission determined that Inbound Surface Parcel Post shipments tendered at negotiated rates are appropriately classified as competitive.\10\ The Bilateral Agreement falls within this category.
\10\ Docket No. RM20071, Order Establishing Ratemaking Regulations for Market Dominant and Competitive Products, October 29, 2007 (Order No. 43). The Postal Service asserts that its bargaining position is constrained by the existence of other shippers who can provide similar services, thus precluding it from taking unilateral action to increase prices or decrease service without the risk of losing volume to private companies. Request, Attachment 2, at 23. It also contends that the Agreement relates to the exchange between the Postal Service and Canada Post of Inbound Surface Parcel Post at negotiated prices which it has determined to be a competitive product because of its exclusion from the letter monopoly and the level of competition in the market for these services. Id. The Bilateral Agreement also includes Xpresspost, which the Postal Service asserts should be a competitive product for essentially the same reasons. Id. at 3. The Postal Service states that for both products, the Agreement provides adequate incentive for Canada Post and its shipping customers to tender volume to it rather than a competitor. It contends that it may not increase prices without the risk of losing inbound Canadaorigin volume to a private competitor in the international shipping industry. Id. The Postal Service asserts that the underlying parcel services are excluded from the Private Express Statutes' prohibition on private carriage of letters over post routes. Id., para. (e). It also contends that Xpresspost is excluded from the Private Express Statutes' prohibition. Id. The Postal Service states that the rates payable under the Agreement are more than six times higher than the current price of a oneounce, First Class letter, and it presumes that a competitor could also offer prices exceeding this comparison rate. Id. The Postal Service also mentions that the determination that Xpresspost is competitive is consistent with its study and deliberations on the appropriate classification of the service as a result of the Commission's comments in Order No. 163. Id. at 2. Finally, the Postal Service states that the market for international parcel delivery services is highly competitive, and the Bilateral Agreement provides a benefit to Canada Post's and the Postal Service's small business customers by providing an additional option for shipping articles between the United States and Canada. It concludes that there should be little, if any, negative impact on small business. Id. at 45. In the instant Agreement, Xpresspost is classified as a competitive product for the first time. This reflects a change from the 2009 bilateral agreement with Canada Post. For purposes of the 2009 agreement, Xpresspost was subsumed within the market dominant product inbound Air Letter Post i.e., Air Letters and Cards (Air LC)).\11\ In reviewing that agreement, the Commission determined that Xpresspost, a Canada Post service for documents and merchandise, ``exhibits characteristics of a competitive product...[that] appears to parallel domestic Priority Mail.''\12\ See Order No. 163 at 7. The Commission concluded that Xpresspost should be classified as a competitive product. Id.
\11\ See Request of United States Postal Service to Add Canada PostUnited States Postal Service Contractual Bilateral Agreement for Inbound MarketDominant Services to the MarketDominant Product List, Notice of Type 2 rate Adjustment, and Notice of Filing Agreement (Under Seal), November 13, 2008.
\12\ See Docket No. MC20097 R20091, PRC Order No. 163, Order Concerning Bilateral Agreement with Canada Post for Inbound Market Dominant Services, December 31, 2008, at 7. The Commission concurs with the Postal Service's decision to classify Xpresspost as a competitive product. Request, Attachment 2, at 6. No commenter opposes the proposed classification of the Bilateral Agreement as competitive. Having considered the statutory requirements and the support offered by the Postal Service, the Commission finds that the Bilateral Agreement is appropriately classified as a competitive product and should be added to the Competitive Product List.
The Postal Service's filing seeks to establish a new product for Inbound competitive services. The Postal Service notes that the Commission observed in the FY 2007 and FY 2008 Annual Compliance Determination that revenues for inbound Surface Parcel Post at nonUPU rates did not cover its attributable cost during those fiscal years. Id., Attachment 2, at 5. It asserts that the negotiated rates in the instant Bilateral Agreement are an improvement over the 2009 rates and include an adjustment in the second year of the Bilateral Agreement to maintain cost coverage. Id. Data issues. The Postal Service's filing is responsive to the Commission's concerns representing an improvement over the existing rates. The Postal Service uses FY 2008 costs rather than FY 2009 costs to forecast unit costs for Inbound Surface Parcel Post and Xpresspost during the contract period, CY 2010 and CY 2011. When forecasting unit costs, the use of more recent data is preferable. In response to Chairman's Information Request No. 1,\13\ the Postal Service states that it was unable to provide FY 2009 processing, delivery, and ``other'' unit costs, or FY 2009 domestic air and surface transportation costs per kilogram, notwithstanding that its Request was filed in FY 2010.\14\ The use of FY 2008 rather than the more recent FY 2009 costs necessitates relying on Global Insight indices to inflate FY 2008 costs for 3 years i.e., CY 2009, CY 2010, and CY 2011) instead of 2 years i.e., CY 2010 and CY 2011), and may produce less accurate forecasts than desirable. In subsequent filings, the Commission requests the Postal Service to submit the most recent supporting data available even if it is unaudited, in addition to the most recent ACD data.
\13\ Chairman's Information Request No. 1, December 10, 2009 (CHIR No. 1).
\14\ Notice of the United States Postal Service of Filing Responses to Chairman's Information Request No. 1 and Revised Financial Documentation, December 16, 2009, Questions 7 and 8. In addition, the Postal Service filed Notice of the United States Postal Service of Filing Response to Chairman's Information Request No. 1, Question 8, on December 11, 2009. An accompanying Motion for Late Acceptance of Response to Chairman's Information Request No. 1, Question 8 was filed December 11, 2009. The motion is granted.
The Postal Service's financial model also reveals that for CY 2010, Xpresspost merchandise will incur the cost of scans for Signature Confirmation. For CY 2011, however, the Postal Service does not include the cost of Signature Confirmation scans in its model. Rather, it uses the cost of Delivery Confirmation scans. The effect on costs of using Delivery rather than Signature Confirmation scans in CY 2011 is dramatic. The cost associated with Xpresspost merchandise scans decrease more than 84 percent between CY 2010 and CY 2011, resulting in a slight reduction in CY 2011 total costs for Inbound Surface Parcel Post and Xpresspost, as compared to CY 2010. The Postal Service explains that the use of Delivery Confirmation scan costs reflects a planned change in its process of capturing signatures. Postal Service revenues can be adversely affected if certain ``targets'' for delivery service and scanning are not met. During each year of the Bilateral Agreement, the Postal Service is not expected to receive the maximum revenues available because it fails to meet such ``Pay for Performance'' targets. Request at 2. See WPCanada Bilateral
CompIB06, WPCanada BilateralCompIB07, WPCanada BilateralComp
IB08, and WPCanada BilateralCompIB09. This occurs because of an increase in the targets for delivery, and the absence of any improvement in the Postal Service's delivery service and scan performance during the contract. The Commission encourages the Postal Service to improve its performance in order to generate additional revenue and improve cost coverage. Based on the data submitted and the comments received, the Commission finds that the Bilateral Agreement should cover its attributable costs (39 U.S.C. 3633(a)(2)), should not lead to the subsidization of competitive products by market dominant products (39 U.S.C. 3633(a)(1)), and should have a positive effect on competitive products' contribution to institutional costs (39 U.S.C. 3633(a)(3)). Thus, an initial review of the proposed Bilateral Agreement indicates that it comports with the provisions applicable to rates for competitive products. Other considerations. The Postal Service shall, no later than 30 days after the effective date of the new contract, provide cost, revenue, and volume data associated with the current contract.
The Postal Service submitted the Bilateral Agreement which has not been executed by the parties. The Postal Service is directed to file the executed Bilateral Agreement with the Commission within 30 days of execution. The Postal Service shall promptly notify the Commission if the Bilateral Agreement terminates earlier than its proposed term, but no later than the actual termination date. The Commission will then remove the Bilateral Agreement from the Mail Classification Schedule at the earliest possible opportunity. In conclusion, the Commission approves the Canada PostUnited States Postal Service Contractual Bilateral Agreement for Inbound Competitive Services as a new product. The existing contract will be removed from the Competitive Product List. The revision to the Competitive Product List is shown below the signature of this order and will be effective January 1, 2010. V. Ordering Paragraphs It is ordered: 1. Canada PostUnited States Postal Service Contractual Bilateral Agreement for Inbound Competitive Services (MC201014 and CP201013
Inbound Surface Parcel Post at NonUPU Rates and Xpresspost USA) is added to the Competitive Product List as a new product under International. 2. The Postal Service shall file cost, revenue, and volume data under the existing contract no later than 30 days after the effective date of the new contract. 3. The Postal Service shall file an executed copy of the Bilateral Agreement within 30 days of its execution. 4. The Postal Service shall notify the Commission if the Bilateral Agreement terminates earlier than its proposed term by no later than the actual termination date. 5. The Secretary shall arrange for the publication of this order in the Federal Register.
Appendix A to Subpart A of Part 3020Mail Classification Schedule Part AMarket Dominant Products 1000 Market Dominant Product List FirstClass Mail SinglePiece Letters/Postcards [[Page 6111]] Bulk Letters/Postcards Flats Parcels Outbound SinglePiece FirstClass Mail International
Inbound International Expedited Services 3 (MC201013 and CP2010 12) Priority Mail Priority Mail Outbound Priority Mail International Inbound Air Parcel Post (at nonUPU rates) Royal Mail Group Inbound Air Parcel Post Agreement Inbound Air Parcel Post (at UPU rates) Parcel Select Parcel Return Service International International Priority Airlift (IPA) International Surface Airlift (ISAL) International Direct SacksMBags Global Customized Shipping Services Inbound Surface Parcel Post (at nonUPU rates) [[Page 6112]]
CP201013Inbound Surface Parcel post at NonUPU Rates and XpresspostUSA) International Money Transfer Service International Ancillary Services Special Services Premium Forwarding Service Negotiated Service Agreements Domestic Express Mail Contract 1 (MC20085) Express Mail Contract 2 (MC20093 and CP20094) Express Mail Contract 3 (MC200915 and CP200921) Express Mail Contract 4 (MC200934 and CP200945) Express Mail Contract 5 (MC20105 and CP20105) Express Mail Contract 6 (MC20106 and CP20106) Express Mail Contract 7 (MC20107 and CP20107)
Parcel Return Service Contract 1 (MC20091 and CP20092) Priority Mail Contract 1 (MC20088 and CP200826) Priority Mail Contract 2 (MC20092 and CP20093) Priority Mail Contract 3 (MC20094 and CP20095) Priority Mail Contract 4 (MC20095 and CP20096) Priority Mail Contract 5 (MC200921 and CP200926) Priority Mail Contract 6 (MC200925 and CP200930) Priority Mail Contract 7 (MC200925 and CP200931) Priority Mail Contract 8 (MC200925 and CP200932) Priority Mail Contract 9 (MC200925 and CP200933) Priority Mail Contract 10 (MC200925 and CP200934) Priority Mail Contract 11 (MC200927 and CP200937) Priority Mail Contract 12 (MC200928 and CP200938) Priority Mail Contract 13 (MC200929 and CP200939) Priority Mail Contract 14 (MC200930 and CP200940) Priority Mail Contract 15 (MC200935 and CP200954) Priority Mail Contract 16 (MC200936 and CP200955) Priority Mail Contract 17 (MC200937 and CP200956) Priority Mail Contract 18 (MC200942 and CP200963) Priority Mail Contract 19 (MC20101 and CP20101) Priority Mail Contract 20 (MC20102 and CP20102) Priority Mail Contract 21 (MC20103 and CP20103) Priority Mail Contract 22 (MC20104 and CP20104) Priority Mail Contract 23 (MC20109 and CP20109) Outbound International Direct Entry Parcels Contracts Direct Entry Parcels 1 (MC200926 and CP200936)
Part DCountry Price Lists for International Mail [Reserved] [FR Doc. 20102629 Filed 2510; 8:45 am]