U.S. Postal Service: Opportunities to Increase Revenue Exist with Competitive Products; Reviewing Long-Term Results Could Better Inform Promotions Decisions
Published: 2013-06-25T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: For several years USPS has not generated sufficient revenues to cover its expenses. Although much focus has been on USPS's costs as a way to close the gap between its revenues and expenses, generating additional revenue is also needed. To increase mail volume and revenue, USPS has implemented NSAs, sales, and promotions with a variety of products.
As requested, GAO reviewed (1) the trends and reported results of USPS's sales, promotions, and NSAs, as well as (2) any opportunities and challenges related to generating additional revenue from them. GAO reviewed USPS documents, PRC decisions, and annual reports, and interviewed officials from USPS and PRC. GAO also interviewed mailers, which were selected in part based on participation in NSAs, sales, and promotions. Their views cannot be generalized to all mailers.
section_title: What GAO Found
paragraphs: The U.S. Postal Service (USPS) has developed numerous negotiated service agreements (NSA), sales, and promotions since the enactment of the Postal Accountability and Enhancement Act (PAEA) in 2006, and they generate a small but growing portion of USPS total revenue. PAEA established two categories of products: "market dominant," where USPS has a monopoly, and "competitive," which includes all other products, such as shipping services. NSAs, sales, and promotions are generally designed to encourage additional mail volume and revenue through temporary discounts on specific mail products. For example, USPS has offered promotions to incentivize mailers to invest in technology that may increase the value of mail for those mailers over the long-term. No NSAs, sales, or promotions followed the enactment of PAEA until regulations were issued in late 2007. The number of NSAs, sales, and promotions has increased most years since. The revenue generated from NSAs, sales, and promotions has also increased overall. The most revenue was generated by competitive NSAs. Financial results of competitive NSAs are not reported publicly. According to the Postal Regulatory Commission (PRC), which exercises regulatory oversight over USPS, nearly all competitive NSAs have covered their costs. Market dominant NSAs generated little revenue, in part because few were done. Sales and promotions have also generated little revenue.
Opportunities for increasing revenue from NSAs, sales, and promotions are primarily with competitive NSAs, though challenges may limit revenue, and it will likely not offset declines from other products. Continued growth in e-commerce is creating opportunities to generate additional revenue through competitive NSAs. Opportunities to generate additional revenue through market dominant NSAs are limited by low demand for those products. Also, it is difficult for USPS to determine whether any volume and revenue increases directly result from market dominant NSAs because it is difficult to accurately estimate mailers' future mail volume. In addition, USPS and some mailers we spoke with noted that the process for developing both market-dominant and competitive NSAs can be burdensome, hindering the development of new agreements. USPS has taken actions, though, to streamline the process for developing competitive NSAs. Opportunities for generating revenue from sales and promotions are also limited by low demand as well as limited review of the long-term financial results before implementation. USPS has noted that promotions satisfy rate requirements by, for example, helping to generate revenues for USPS. In particular, promotions are used to encourage mail volume over the long term. However, USPS does not provide data and analysis about the potential long-term financial results when submitting promotions to PRC for its approval. As a result, PRC does not assess the methodologies for evaluating the long-term financial results of promotions before implementation. Given USPS's financial situation, USPS should demonstrate how promotions may achieve positive long-term financial results, in order to help maximize the revenue generated by those postage rate discounts.
section_title: What GAO Recommends
paragraphs: GAO recommends that when filing for approval, USPS provide information to PRC about USPS's data collection and analysis plans for estimating the longterm financial results of promotions. GAO also recommends that PRC evaluate USPS's data collection and analysis plans for promotions as part of its review. In commenting on the report, USPS disagreed with the first recommendation, and PRC agreed with both recommendations. USPS stated it does not believe the recommendation will significantly affect the PRC's review process or improve the quality of USPS's business decisions. GAO continues to believe this recommendation has merit, as discussed in this report.

section_title: Letter
paragraphs: For several years, the United States Postal Service (USPS) has not  generated sufficient revenues to cover its expenses, putting its mission to  provide prompt, reliable, and efficient service at risk. Although much of  the focus has been on USPS’s costs as the way to close the gap between  its revenues and expenses, generating additional revenue is also  necessary. As customers increasingly turn to digital communications and  online payment methods, total mail volume has decreased precipitously,  falling 25 percent from its peak in fiscal year 2006 to fiscal year 2012. As  a result, USPS’s revenue has declined substantially. In 2012, USPS  reached its $15-billion borrowing limit and incurred a $15.9-billion net  loss. USPS expects that its expenses will exceed revenue and that mail  volume will continue to decline each year through fiscal year 2020.
Among USPS’s activities to enhance its revenue are negotiated service  agreements (NSA), sales, and promotions designed to increase or  sustain mail volume and revenue through temporary discounts on specific  mail products. In 2010, we reported on various options to generate  additional revenue, including the use of NSAs, as part of a broader report  on options to facilitate USPS’s progress toward financial sustainability.  Since that time, USPS has developed dozens more NSAs, sales, and  promotions, which you asked us to review. We examined (1) the NSAs,  sales, and promotions USPS has developed and their reported financial  results, and (2) any opportunities to generate additional revenue from  NSAs, sales, and promotions and any challenges that could hinder their  development and implementation.
To describe the NSAs, sales, and promotions that USPS has developed,  as well as their reported financial results, we reviewed public and non- public documents. To summarize the financial results of NSAs, we  examined non-public versions of USPS’s Cost and Revenue Analysis  reports as well as other non-public USPS documents that included the  volume, cost, and revenue of individual NSAs. We also reviewed USPS  data collection reports for market dominant NSAs. To summarize the  number of, and results from, USPS sales and promotions, we reviewed  USPS documents requesting approval for sales and promotions and  obtained additional data from USPS on the estimated results of sales and  promotions. We assessed the reliability of these data sources by  interviewing USPS officials, and determined that the data were sufficiently  reliable for our reporting purposes. We also reviewed the Postal  Regulatory Commission (PRC) conclusions about NSAs, sales, and  promotions in their Annual Compliance Determination Reports.
To identify and assess any opportunities to generate additional revenue  from NSAs, sales, and promotions, as well as challenges, if any, that  could hinder their development and implementation, we reviewed USPS  and PRC documents, and conducted interviews with stakeholders.  Specifically, we reviewed relevant regulations, PRC proceedings, and  internal USPS evaluations of NSAs. We also conducted interviews with  officials from USPS, PRC, and 15 “mailers” to enhance our understanding  of the circumstances in which NSAs, sales, and promotions are  developed and implemented. We selected mailers that both have and  have not participated in NSAs, sales, and promotions, as well as other  factors. We also spoke with industry associations that represent major  USPS mailers. The views of mailers and industry associations cannot be  generalized to all mailers and industry associations because the sampled  mailers were selected as part of a nonprobability sample. Appendix I  contains a detailed discussion of our scope and methodology.
We conducted this performance audit from September 2012 to June 2013  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: An NSA is a customized contract between USPS and a specific entity— often a mailer or foreign postal operator—typically lasting a year or more.  NSAs provide customer-specific rates—generally lower prices on specific  mail products—in exchange for meeting volume targets and mail  preparation requirements. The goal of these agreements is generally to  encourage additional mail volume and revenue. For example, an NSA  may provide a postage rate discount, paid to the mailer as a rebate at the  end of a fiscal year, for all mail volume above a specific threshold.
The Postal Accountability and Enhancement Act (PAEA) authorized  USPS to create NSAs for two discrete categories of mail products, market  dominant and competitive, as outlined in table 1. The market dominant  category includes products for which USPS has a monopoly or would be  able to exercise substantial market power, such as First-Class Mail and  Standard Mail. Competitive products are all other types of mail, and  include primarily shipping services such as Priority Mail, Express Mail,  and Parcel Select.
The legal requirements for NSAs differ based on whether the postal  products are market dominant or competitive. PAEA requires market  dominant NSAs to improve the net financial position or enhance the  performance of operational functions of USPS so long as the agreement  does not cause unreasonable harm to the marketplace. Also, market  dominant product NSAs must be made available to “similarly situated  mailers.” PAEA requires competitive NSAs, as well as competitive  products in general, to cover their attributable costs, meaning they must  generate more revenue than the costs attributable to delivery of the  products, such as the labor involved in handling that mail. Further,  competitive products overall, including NSAs, must contribute at least 5.5  percent of USPS’s institutional costs—that is, overhead costs not directly  related to the delivery of products.
As directed by PAEA, PRC issued final regulations in 2007 that  established procedures for its reviews of competitive and market  dominant NSAs, as summarized in table 1. As with all postal rate  changes, USPS must obtain approval from PRC prior to implementing  NSAs. PRC has approved all NSAs proposed by USPS through fiscal  year 2012. PRC also reviews NSAs after implementation for compliance  with regulatory criteria, in its Annual Compliance Determination Report.
To increase or sustain mail volume and revenue, USPS has also provided  short-term discounts, called sales or promotions, on specific mail  products for groups of mailers, in contrast to NSAs, which are  agreements with individual mailers for longer periods. Sales—often called  price incentive programs—have sought to increase, or curb the decline of,  mail volume by temporarily offering a discount (paid through a rebate) to  mailers whose mail volume exceeds a predetermined volume threshold  during a specific period. Some sales were offered in the summer, when  USPS stated it had excess capacity in its system. These sales were  designed to generate revenue during the sale period and not necessarily  to have long-term benefits. After 2010, USPS began offering promotions  instead of sales, which also provide temporary discounts, but seek to  increase the long-term value of mail by, for example, integrating mobile  technology into mailers’ advertising campaigns. As with all postal rate  changes, USPS must obtain approval from PRC prior to implementing  sales and promotions. PRC reviews whether the proposed sales and  promotions meet postal rate regulations that include several qualifying  factors such as whether sales and promotions help assure adequate  revenues for USPS. See appendix II for a full list of these objectives and  factors of postal rate regulation.
section_title: Since 2007, USPS Has Developed Numerous NSAs, Sales, and Promotions That Have Generated a Small but Growing Portion of USPS’s Total Revenue
subsections: section_title: Number and Revenue Have Increased since 2007
paragraphs: The number of NSAs, sales, and promotions has increased in most years  since the enactment of PAEA. There were no new NSAs approved  following the enactment of PAEA until PRC regulations governing NSAs  were issued in October 2007. As seen in table 2, the majority of NSAs  have been with competitive products. Starting in fiscal year 2011, USPS  began using “umbrella” products that allow multiple mailers to agree to  similar NSAs. As a result, the total number of NSA-product requests for  approval in the table below appears to decline in 2011 and 2012, when in  fact the total number of individual contracts with mailers has continued to  grow.
The first sales were offered in fiscal year 2009, in part as a response to  the decline in mail volume resulting from the recession, and USPS has  since offered a variety of promotions (see table 3 below).
USPS data show that revenue generated from NSAs, sales, and  promotions has generally increased each year since the enactment of  PAEA, with most of the revenue generated by competitive product NSAs.  We cannot report the specific revenue generated by competitive NSAs  because of the proprietary nature of data related to competitive products.  However, the total revenue generated as part of all NSAs increased over  240 percent from fiscal year 2009 to 2012, though it remains a small  portion of USPS’s total revenue (see fig. 1). Market dominant NSAs  generated a relatively small portion of this revenue, partly because there  have been few such agreements. Beyond NSAs, sales and promotions  have also generated limited revenue since the first sale in 2009. As  discussed below, it is not clear how much net revenue USPS has  generated from market dominant NSAs or sales and promotions.
Since the enactment of PAEA, the number of competitive NSAs has  grown substantially. PRC has approved 327 domestic and international  competitive NSA product requests through fiscal year 2012. A number of  these NSA requests are actually “umbrella” products that include  numerous individual contracts, all with similar terms. Counting these  individual contracts separately illustrates the substantial number of NSAs,  with 446 domestic and international competitive NSAs active in fiscal year  2012 alone.
According to USPS officials and a mailer we spoke with, the increased  number of competitive NSAs was due mainly to increased experience  with NSA contracts and product enhancements. For example, according  to these officials, USPS and PRC processes associated with developing  competitive NSAs have become more efficient as a result of improved  costing techniques and additional experience developing contracts with  mailers. USPS and PRC also worked together to develop umbrella  products that allow multiple mailers to agree to similar discounts for  related mail products. Product enhancements may have also increased  USPS’s ability to attract more business with NSAs. For example, officials  from USPS and a mailer we spoke with noted that USPS’s ability to track  packages’ transit times and its delivery performance improvements for  parcels have made USPS products more attractive to customers.
The financial results of competitive product NSAs are not reported  publicly, but according to PRC, most such agreements have covered their  costs, and according to USPS, these agreements have generally been  successful in enhancing revenue. According to PRC, all domestic  competitive NSAs have complied with the legal requirements, including  that they generate revenue that covers their attributable costs. Four  international competitive NSAs in fiscal year 2012, however, did not cover  their costs. According to PRC, the international competitive NSAs that did  not cover costs were projected to cover costs when USPS filed its  request.
Although competitive NSAs are collectively profitable, these agreements  generate a small portion of USPS’s total revenue and help cover less of  USPS’s institutional costs than market dominant products. Competitive  products overall, including NSAs, generate a relatively small part of  USPS’s total revenue because they generally involve much lower mail  volumes than market dominant products. Additionally, total revenue from  competitive products covers less of USPS’s institutional costs than the  revenue from the two major market dominant products, First-Class Mail  and Standard Mail.
section_title: Since Enactment of PAEA, USPS Has Developed Few Market Dominant NSAs and Generated Limited, if Any, Net Revenue from Them
paragraphs: USPS has implemented few market dominant NSAs. USPS has been  granted approval by PRC to implement two domestic, market dominant  NSAs since the enactment of PAEA, though only one of these was active,  as of May 2013. In fiscal year 2012, there was one active market  dominant domestic NSA, and eight active market dominant international  NSAs. USPS has implemented few such NSAs in part because of the  decline in demand for market dominant mail products, as discussed  further below.
Domestic, market dominant NSAs have likely generated limited, if any,  net revenue (see fig. 2). Most of these agreements were implemented  prior to the enactment of PAEA. According to USPS, all domestic market  dominant NSAs have generated net revenue of $68.5 million dollars to  date. However, PRC, using a different methodology that is discussed  below, estimates a net loss of $11.8 million for all domestic market  dominant NSAs.
For example, the USPS and PRC estimates of net revenue for the  Discover NSA approved in fiscal year 2011 differ substantially. USPS’s  estimate of net revenue assumes that all volume greater than the  projected volume is because of the rebate. USPS developed its estimates  of projected volume based on Discover’s mail volume history as well as  other qualitative factors. PRC used a quantitative methodology based on  product elasticities—that is, the estimated sensitivity of total product mail  volume to price changes—associated with the mail product involved. As a  result, USPS estimated net revenue of about $24 million in the first year  of the NSA with Discover, while PRC estimated USPS lost over $4  million. As discussed further below, PRC has encouraged USPS to  identify a more reliable method for evaluating the impact of market  dominant NSAs.
International market dominant NSAs implemented since the enactment of  PAEA consist mainly of agreements with foreign posts and are estimated  to have lost approximately $25 million in net revenue in fiscal year 2012,  according to USPS. However, PRC has noted that the volume sent under  the NSAs generated smaller losses than what would have occurred if the  volumes were sent under Universal Postal Union (UPU) international  postal rates. According to USPS officials, agreements with foreign posts  are governed by UPU rates, which are developed based on domestic  postal rates. The U.S. has low domestic postal rates compared to other  countries, and as a result, its UPU-established inbound mail rates do not  allow some international NSAs to cover their costs. As PRC explained in  its 2012 Annual Compliance Determination Report, the “current UPU  formula  adversely affects the  financial performance of inbound mail .” Similar to competitive  domestic NSAs, the first international market dominant NSAs after PAEA  were active in fiscal year 2009.
section_title: Since Enactment of PAEA, USPS Has Increased Sales and Promotions but Generated Limited, if Any, Net Revenue
paragraphs: USPS has implemented six sales and three promotions, all of which  offered temporary discounts to mailers to sustain and grow mail volume.  USPS estimates that these sales and promotions have earned a  maximum net revenue of about $184 million (see table 4). According to  USPS data, some sales and promotions are estimated to have generated  little to no net revenue during the program periods. However, according to  USPS officials, these incentives have generally been successful in that  they will eventually help sustain mail volume. Officials said that mailers  who have taken advantage of sales and promotions have increased their  overall mail volume, while those who have not participated in these  programs have kept their volume steady or reduced it. Further, USPS’s  long-term goal for promotions is that they will enhance the value of the  mail for mailers and therefore help to keep mailers in the mail beyond the  program period. It is unclear the extent to which sales and promotions are  accomplishing this goal, as discussed below. PRC approves sales and  promotions under the requirements for setting rates and has conducted  after the fact reviews of two sales. According to PRC officials, they were  unable to evaluate the results of the other sales or promotions because  USPS did not provide sufficient data to PRC.
USPS offered sales on First-Class Mail and Standard Mail products to  encourage additional mail volume and revenue during a historically low- volume period. For example, USPS’s first sale was held during 4 months  in the summer of 2009, offering a 30 percent discount for Standard Mail  on incremental volume above a threshold volume tailored to each  participating mailer. USPS stated that it had the ability to offer a steep  discount on any mail volume sent above what the customer mailed during  the same four month period in the summer of 2009 because it had  significant excess capacity and, as a result, there was little incremental  cost for USPS to mail the additional volume. USPS conducted a similar  sale in the summer of 2010 because of the estimated profits from the first  sale, as well as continued excess capacity.
USPS estimated maximum net revenue of $126 million for the sales it has  conducted, though PRC has estimated different results than USPS in  every case where PRC has examined the net revenue. Specifically, PRC  estimated that the 2009 sales programs—Standard Mail Volume Incentive  Pricing Program and First-Class Mail Incentive Program—lost money for  USPS during the time in which it offered the discount. PRC estimated a  $7 million net loss for the First-Class Mail Incentive Program, and an  approximately $37 million net loss for the Standard Mail Volume Incentive  Pricing Program. As with domestic, market dominant NSAs, PRC used a  different methodology than USPS to estimate the net revenue generated  by these sales. The different methodologies used by PRC and USPS to  evaluate discount programs for market dominant products are discussed  further below. According to PRC, they have not evaluated the results of  all sales because of corrupt or missing USPS data.
USPS estimated a maximum net value of about $58 million for  promotions conducted to date (see table above). USPS has offered  promotions as temporary discounts on First-Class Mail and Standard Mail  products to help connect physical mail to technology, which USPS  assumed would increase the value of mail for mailers and help sustain  mail volume and revenue in the future. For example, USPS promotions  encourage retailers to print Quick Response (QR) codes on physical mail  pieces, which allow the consumer to scan the QR code with their mobile  device, directing them to the retailers’ website, as illustrated in figure 3.
USPS has used promotions to increase the value of the mail for mailers  so that they sustain their use of mail. Specifically, USPS uses promotions  as tools to develop innovative products, such as the use of discounts as  incentives for mailers to invest in technology that may increase the value  of mail over the long term. For instance, USPS implemented the 2012  holiday mobile shopping promotion for 2 weeks and gave a 2 percent  discount to First-Class Mail and Standard Mail cards, letters, and flats that  included a QR code. With this promotion, USPS sought to provide  incentives for more mailers to use mobile barcodes to direct consumers to  their websites for more information on sales. Officials told us that USPS  believed direct mail that included such barcodes is more valuable  because it makes the mail a multi-media experience. USPS noted that by  increasing the value of its mail products it can retain as much advertising  revenue as possible. An additional component of this promotion was the  potential for customers to earn an additional 1 percent discount if their  volume exceeded specified Priority Mail thresholds. Although USPS has  estimated the financial result of promotions for the program period, it has  not provided any estimates of the long-term financial results to PRC, as  discussed in more detail later in this report.
section_title: Opportunities for Increasing Revenue from NSAs, Sales, and Promotions Are Primarily from Competitive NSAs, though Challenges May Limit Revenue
subsections: section_title: Opportunities Exist to Generate Additional Revenue from Competitive NSAs but Will Likely Not Offset Declines from Other Products
subsections: section_title: Opportunities Exist Because of Continued Growth in E- Commerce
paragraphs: Opportunities exist to generate additional revenue through competitive  product NSAs primarily because of merchandise shipments associated  with the continued growth in e-commerce. USPS projects that total  shipping and package volume will grow by about 33 percent by the end of  fiscal year 2017, after increasing about 7.5 percent in fiscal year 2012.  Expansion of e-commerce has been a key factor in the growth of these  products, most of which are competitive. Moreover, e-commerce  continues to grow and has not reached its full potential because of  accessibility, returns, payment, and security concerns. Companies that  can solve these shortcomings may garner additional business, and USPS  may be able to develop NSAs with these companies.
Other factors may allow USPS to continue taking advantage of the growth  in e-commerce and generate additional revenue through competitive  product NSAs. First, even if USPS moves to a 5-day delivery schedule, it  has proposed that it would continue to deliver packages on Saturday to  maintain its advantage of delivering to every household 6 days a week  without a surcharge. Second, although USPS faces private-sector  competitors with entrenched market share of the package delivery  business, USPS has certain competitive advantages. Although FedEx  and UPS lead the high-volume business-to-business package delivery  market, it can be very expensive for them to deliver single items to  residential addresses, particularly in rural areas. Along with such “last  mile” delivery advantages, USPS also has special access to some large  residential buildings.
While the growth and opportunities associated with competitive products  are substantial, additional growth is not likely to offset declines in other  products. Competitive products taken as a whole are a modest piece of  USPS’s total revenue, and generate relatively low profits, compared to  the most profitable market dominant products, First-Class Mail and  Standard Mail (see fig. 4). Even with robust growth in competitive  products, including NSAs involving those products, it is extremely unlikely  that this additional revenue will offset the projected declines in First-Class  Mail and other products.
USPS’s ability to generate additional revenue from competitive product  NSAs may also face challenges because of the length of the process to  develop NSAs. The USPS Office of Inspector General (OIG) reported in  2011 that, despite improvements, the preparation and review process for  new product approvals puts USPS at a competitive disadvantage in terms  of speed to market. Three mailers we spoke with that had NSAs with  USPS said that the time it took to develop and obtain approval for NSAs  was long when compared to negotiating contracts with USPS’s  competitors, and three other mailers also described the process as  lengthy (see fig. 5). Four of the mailers we spoke with that had not  developed NSAs with USPS also told us that they perceive the process of  developing NSAs as burdensome, which deters them from pursuing such  agreements.
USPS officials said that they employ a “risk-based” process for evaluating  proposed NSAs, which involves differing levels of scrutiny depending on  the size of the proposed agreement. Specifically, USPS has a multi-step  internal process for developing and approving competitive NSAs. First,  the agreement is generally negotiated by sales representatives using  costing templates, which allows them to develop agreements that are  estimated to cover the costs of the particular product involved. USPS’s  finance office also examines each agreement to ensure that it is projected  to cover its costs. USPS conducts a “business evaluation” to ensure that  the agreement is likely to generate profit for USPS. USPS’s Law  Department reviews an agreement throughout its development. USPS  officials noted that carrying out business evaluations can be difficult  because of the availability of the data and the ability to turn the analysis  around quickly. Competitive NSAs are also authorized by the USPS  Board of Governors, subject to internal USPS review, as well as review  by PRC. The officials said that the competitive, dynamic, nature of the  marketplace requires them to “go to market” quickly, which has to be  balanced with the review process to ensure agreements generate profit  for USPS.
USPS officials noted that the PRC review process for competitive product  NSAs offers competitors the opportunity to undercut USPS’s price. In  2011, PRC noted that “mailers have expressed concerns about the time  and expense associated with NSAs” but concluded that “xperience  suggests that the time and effort required to put an NSA into effect is due,  in greater part, to negotiating with the Postal Service and internal Postal  Service review and approval rather than to the Commission’s limited  regulatory review.” Two mailers we spoke with also noted that they  spent the majority of the time developing NSAs with USPS, not waiting for  a PRC review. USPS officials noted that the time and effort that they  spend on internal review and approval for international NSAs in particular  are largely a result of the PRC’s Rules of Practice. If the regulatory review  were further streamlined, according to USPS, the time and effort needed  to develop NSAs would be substantially reduced. PRC officials noted that  as USPS and PRC have gained experience with competitive NSAs and  streamlined the process, the average time has steadily decreased.
USPS has taken actions to streamline the process for developing  competitive NSAs. First, to expedite and simplify the review of some  competitive NSAs, USPS and PRC developed “umbrella” products. These  products allow USPS to enter into NSAs that fall within a range of prices.  A mailer may enter into such an NSA without pre-implementation review  by PRC. According to USPS officials and PRC, this structure has  facilitated the development of many NSAs, while maintaining an  appropriate level of oversight. Second, USPS officials employ risk-based  internal reviews, submitting NSAs with larger potential revenues to  greater internal scrutiny than those with more limited potential before they  are provided to PRC for review. Finally, USPS has developed costing  “templates” for its sales force. These templates include mail products’  attributable costs, facilitating the sales forces’ ability to offer discounts to  mailers that allow USPS to at least cover its costs with the NSA.
To further streamline the process for developing NSAs, USPS has  advocated for “after the fact” reviews of all competitive product NSAs.  These reviews could improve NSAs’ speed-to-market, as is currently  done with the “umbrella” products discussed above. According to PRC  officials, they have determined that it is best to allow after the fact reviews  of certain types of NSAs only after USPS and PRC have gained  experience with those types of NSAs and determined how to best  improve data quality and collection.
section_title: Opportunities to Generate Net Revenue from Market Dominant NSAs Are Limited by Low Demand and Other Challenges
subsections: section_title: Price Increases for Market Dominant Products May Generate More Revenue than Discounts in NSAs
paragraphs: Opportunities to generate net revenue through market dominant product  NSAs are limited. USPS’s current estimates, as well as those of  Christensen Associates on behalf of the USPS’s OIG, suggest that First- Class Mail has low price elasticity. These estimates mean that First- Class Mail volume is relatively insensitive to price changes and that  recent volume declines are not related to the price of the postal products  but to other factors, such as the lower cost of electronic communication.  As a result, many mailers are not likely to respond to price decreases,  such as discounts in NSAs, with additional mail volume, or to price  increases with less volume. USPS’s estimates also suggest that Standard  Mail has relatively low price elasticity.
As a result of these price elasticities, price increases for some market  dominant products may actually generate more revenue than discounts in  market dominant NSAs. Indeed, it is likely that First-Class Mail as a whole  could weather higher prices, according to the USPS OIG. In theory, an  attractive target for price increases would be products with low price  elasticities, as modest price changes would likely have relatively minor  effects on volume. As USPS commented in 2011, it might be rational, in  some cases, to increase prices of profitable products with low  elasticities. First-Class Mail, and to a lesser extent Standard Mail, are  highly profitable for USPS and have low price elasticities. There may  therefore be additional revenue potential in the remaining First-Class Mail  and Standard Mail volume, and capturing this intrinsic value by increasing  prices is a common business practice. However, there may also be a  point at which rate increases are self-defeating, potentially triggering  large, permanent declines in mail volume. Also, market dominant  products are subject to a price cap for each class of mail, limiting the  extent to which USPS can increase the prices on, for example, First- Class Mail.
USPS faces the difficulty of determining whether market dominant NSAs  will increase volume and revenue. To show that market dominant NSAs  improve the net financial position of USPS (i.e., create net revenue), PRC  requires USPS to provide details about the expected improvements in  USPS revenue resulting from any proposed NSA. Estimating the net  revenue generated by an NSA depends on accurately estimating how  much mailers would mail in the absence of an agreement. Accordingly,  PRC has directed that USPS provide it with details of projected mailer- specific costs, volumes, and revenues absent the NSA and as a result of  the NSA. To satisfy this requirement, USPS has generally used mail  volume data, as well as expectations of future economic conditions, to  develop projections of mailers’ future volumes. However, USPS has not  described to the PRC its precise methods for using past mail volume data  and other qualitative factors used to develop these projections.
While PRC has noted that “it is incumbent upon the Postal Service to  develop a quantitative approach that incorporates the factors it is using to  estimate volumes,” this approach can be challenging because of data  limitations. One possible quantitative approach, suggested by PRC, to  estimate mailer-specific volumes both in the absence of and as a result of  an NSA is an elasticity model, using mailer-specific elasticities (that is, a  measure of the mailer’s sensitivity to price for a specific product). Using  mailer-specific elasticities would allow for a precise estimation of volumes  in the absence and as a result of an NSA. However, developing mailer- specific elasticities can be very difficult. According to PRC officials,  estimation of mailer-specific price elasticities depends on having many  observations of a mailer’s volumes at different prices, in order to use  statistical models to isolate the effect of price from all other factors that  influence a mailer’s volume. PRC has reported that when it is not possible  to develop a mailer-specific elasticity, “the system-wide average for  products will generally provide useable proxies.” However, as USPS has  noted, the use of average product elasticities to estimate the results of  NSAs, rather than mailer-specific elasticities, can be problematic,  particularly when the response of individual mailers to NSAs are very  different than the average response. Further, according to a mailer we  spoke with, USPS has little choice but to evaluate the projected net value  of an NSA based on historical mail volumes and qualitative factors. The  mailer explained that the projection of future mail volumes is inherently  uncertain; even the mailer did not know how much it was going to mail in  the next year.
In a 2010 proceeding, PRC “sought suggestions from interested persons  for new methods to estimate volume changes resulting from pricing- incentive programs of the Postal Service.” After comments from  stakeholders, PRC concluded that “it is not persuaded that the  alternatives offer a demonstrable improvement over the current  method.” PRC encouraged USPS to identify a more reliable method for  evaluating the impact of NSAs, sales, and promotions and to continue  collecting data that could be used for that purpose. PRC said that the  accuracy of analysis could be improved by USPS’s willingness to collect  mailer-specific, or even industry-specific, information. The lack of this  data has frustrated PRC efforts to evaluate their financial impact.  Ultimately, though, the case for pursuing NSAs must be a matter of  business judgment by USPS management, according to USPS.
Although these data limitations may increase the risk that market  dominant NSAs will lose money for USPS, they are partially mitigated by  provisions in recent NSAs. USPS has implemented early-out clauses in  NSAs to mitigate the risk posed by unclear projections of net revenue. For  instance, the recent Discover NSA may be canceled at the end of any  contract year, by either party, should the experience prove to be at odds  with the parties’ expectations. Further, when approving the Discover NSA,  PRC estimated that the NSA was unlikely to improve USPS’s net financial  position but stated that “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.”  However, in the 2012 Annual Compliance Determination Report, PRC  recommended that USPS re-evaluate the benefits and costs of continuing  the NSA if it is not realizing a net benefit. As of May 2013, USPS had not  canceled the contract.
Another challenge to generating additional revenue from market dominant  product NSAs is that the process for developing these agreements can  hinder the development of new agreements. Market dominant product  NSAs are reviewed by PRC as part of a public proceeding. According to  four mailers we spoke with, the fact that such NSAs go through a public  process is a disincentive to developing such agreements. These mailers  are sensitive about allowing any company-specific information to become  public through the PRC review process. According to a 2011 USPS OIG  report, transparency requirements, although prudent, make operating in a  competitive marketplace difficult. PRC officials told us, though, that the  transparency of these proceedings helps balance the increased pricing  flexibility granted to USPS under PAEA with the need for USPS  accountability. Further, PRC regulations allow USPS to file confidential or  proprietary information under seal, so that it remains nonpublic.
Beyond the transparency concerns, many mailers are concerned about  the time and resources needed to obtain a market dominant NSA. Many  mailers we spoke with expressed concern about the length of time it took  to develop NSAs. Officials from Valassis told us that they spent about 2  years negotiating its recent market dominant NSA, and officials for  Discover said their negotiation lasted about a year. According to another  mailer we spoke with, such long negotiations can hinder the ability to  agree on an NSA because during these time periods the marketplace can  shift, changing the incentives for mailers. PRC review times for these  NSAs can also be substantial, though this time has decreased. For  domestic, market dominant NSAs approved since the enactment of  PAEA, the average review time was 88 days, whereas the average  review time for those NSAs prior to PAEA was 214 days.
A major reason for the substantial time and resources needed to develop  market dominant NSAs is that many such agreements have faced  substantial opposition from mailers and stakeholders. In particular, some  mailers and mailer industry associations have claimed that some  proposed market dominant NSAs would harm the marketplace. By  statute, market dominant NSAs “may not cause unreasonable harm to the  marketplace.” In the proceeding for the most recent such NSA, with  Valassis, a majority of commenters opposed the agreement because they  claimed it would create an unfair competitive advantage for Valassis and  harm the marketplace. Commenters said that the agreement would  prevent other direct mail companies from competing on a level playing  field, since Valassis would have a discount on its mail as part of the  agreement. Some commenters also expressed concern that the NSA  could negatively affect local newspapers by replacing the Sunday or  weekend newspaper’s preprinted advertising package—a crucial source  of income, according to newspapers—with stand-alone direct mail from  Valassis. Despite such opposition, though, PRC has approved both  market dominant NSAs proposed since enactment of PAEA.
section_title: Opportunities for Generating Net Revenue from Sales and Promotions Are Limited by Mail Use Changes and Limited Analysis of Long-term Impact
paragraphs: Opportunities to generate substantial additional revenue through sales  and promotions are limited because of changes in the use of mail. Sales  and promotions have been used for the market dominant products First- Class Mail and Standard Mail. As noted above, though, estimates indicate  that demand for these market dominant products is low, and the volume  for these products continues to decline. Further, the small scale of sales  and promotions—often with short time frames and relatively small  discounts—limit their impact for large mailers, since they may be unlikely  to change their mailing patterns in response to a relatively small incentive.  Two mailers we spoke with maintained that USPS’s sales and promotions  are most effective for small and medium sized mailers.
USPS has noted that by encouraging additional mail volume and  revenue, sales and promotions provide pricing flexibility to mailers and  help assure adequate revenues for USPS. By statute, sales and  promotions must “help achieve” several objectives, such as assuring  adequate revenues, to maintain financial stability. Additionally, the  system for regulating rates must take into account several factors, such  as the requirement that each class of mail bear the direct and indirect  costs attributable to that class of mail. (See app. II for a list of all  objectives and factors.)
In support of sales and promotions when filing for approval with PRC,  USPS has provided estimates of the financial result during the program  time period. A few of these estimates for recent promotions have  projected USPS to lose money during the program period. For example,  USPS estimated that its 2011 mobile barcode promotion would reduce  revenue by as much as $4.63 million. USPS has maintained, though, that  promotions in particular can have value after the program period ends, so  evaluating the financial effect based solely on mailer performance during  the program period does not accurately reflect the true value of these  programs. Indeed, USPS has stated that the long-term goal of promotions  is to enhance the value of the mail for mailers, thereby helping sustain  mail volume. USPS continues to implement a variety of such promotions,  with six new domestic promotions planned for calendar year 2013.
According to USPS, it continues to refine the methodologies used to  measure the long-term financial effects of sales and promotions, including  tracking mailer behavior and surveying customers, but further data  collection and analysis can be difficult. For example, without knowledge of  mailers’ planned mail volumes, USPS cannot precisely measure volume  that would have been sent by mailers absent the sale or promotion.  Further, attempts to gather data to estimate mailers’ planned mail  volumes can be difficult, as with market dominant NSAs. Nevertheless,  USPS monitors the performance of promotion participants after the  promotion period, and benchmarks their performance (i.e., mail volume)  against their past performance, expected performance, and non-program  participant performance.
Although not required to when filing for approval, USPS has not provided  details to PRC on the long-term goals, the information it plans to collect in  support of those goals, and the analysis it plans to perform to assess  whether the long-term financial results of promotions met the intended  goals. As a result, PRC has not assessed USPS methodologies for  evaluating the long-term financial results of promotions. As USPS has  noted, its financial challenge leaves little margin for error. Providing  detailed data collection and analysis plans to PRC before implementation  of promotions would allow USPS to better justify how these incentives  help assure adequate revenues. PRC’s assessment of these plans, as  part of its approval decisions for promotions, would also help ensure that  USPS promotions have positive financial results.
section_title: Conclusions
paragraphs: To achieve financial sustainability, USPS has been working to generate  additional revenue to cover its costs. NSAs, sales, and promotions may  help achieve this goal. Since enactment of PAEA in late 2006, USPS has  made significant progress in using its increased pricing flexibility and  generated billions of dollars in revenue through domestic and  international NSAs. It is very unlikely, though, that additional net revenue  created by NSAs will offset the revenue declines in other product areas.  Additionally, the benefits, including long-term financial results, of  promotions are not well understood by PRC and other postal  stakeholders because USPS does not provide detailed information on its  data collection and analysis plans to PRC before implementation. As a  result, PRC has not had an opportunity to evaluate USPS’s long-term  goals and analysis plans for promotions. Though it can be difficult to  collect and analyze data on the impact of promotions, given USPS’s dire  financial situation, demonstrating how promotions may achieve positive  long-term financial results can help USPS maximize the revenue  generated by those postage rate discounts.
section_title: Recommendations
paragraphs: Because USPS faces a deteriorating financial situation, we recommend  that the following two actions be taken to help ensure that future  promotions generate net revenue for USPS:  The Postmaster General should direct staff to provide specific data- collection methods and analytical processes for estimating the net  financial results of promotions to PRC as part of USPS’s request for PRC  approval of all promotions.
The Chairman of the PRC should direct staff to evaluate USPS’s data- collection and analysis plans for USPS’s proposed mail promotions and  discuss these evaluations in the PRC decisions for those mail  promotions.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to USPS and PRC for review and  comment. USPS and PRC both provided written comments in response,  which are summarized below and included in their entirety in appendixes  III and IV, respectively. In USPS’s written response, USPS disagreed with  the first recommendation and noted concerns regarding the  characterizations of promotions, sales, and NSAs in the report. In  separate correspondence, USPS also provided technical comments,  which we incorporated as appropriate. In PRC’s written response, PRC  agreed with both recommendations and provided comments on NSAs.
subsections: section_title: Promotions
paragraphs: USPS stated that it disagreed with the first recommendation that USPS  should provide specific data-collection methods and analytical processes  for estimating the net financial results of promotions to PRC as part of  USPS’s request for PRC approval of all promotions. USPS stated that it  does not believe the recommendation will significantly affect the PRC’s  review process, improve the quality of USPS’s business decisions, or  assure that promotions yield positive financial results. USPS noted that  PRC has concluded that past promotions proposed by USPS comply with  the relevant requirements, which emphasize the importance of pricing  flexibility. PRC stated that it agreed with both recommendations and that  it welcomes the opportunity to evaluate USPS’s data-collection and  analysis efforts for promotions.
We continue to believe that providing additional information to PRC on  the potential long-term results would allow USPS to better justify  promotions, and provide PRC with valuable additional information for its  evaluation. Promotions for market dominant products must comply with  several statutory objectives and factors, including that they help assure  adequate revenues. When filing for approval, USPS has provided  information to PRC estimating that some promotions may lose money  during the program period. However, as USPS has noted, promotions are  designed to increase the long-term value of mail, thereby helping to  sustain mail volume and revenue. Given its dire financial situation, USPS  should be commended for using its pricing flexibility to try and enhance its  revenue. However, USPS has not provided information to PRC  demonstrating how promotions could achieve these long-term goals.  Providing information about the potential long-term financial results of  promotions could help PRC better evaluate whether the proposed  promotions help assure adequate revenues and comply with the other  objectives and factors. USPS cannot afford to implement promotions  without demonstrating how they can achieve positive long-term results.
USPS also stated in its letter that the report does not articulate how  USPS could improve upon the methodologies it is using to conduct  evaluations of promotions. We agree. We did not intend for the report to  proscribe the methodologies that USPS should use to evaluate these  long-term effects. Rather, the report concludes, though, that USPS’s  methodologies should be made available for PRC’s evaluation prior to the  implementation of promotions. This review would allow PRC to better  evaluate the extent to which the promotions satisfy requirements.
USPS also provided additional comments related to promotions:  In USPS’s letter, USPS stated that the draft report concluded that  promotions should not be offered unless USPS had “assurance” that  promotions will achieve positive financial results. USPS correctly  notes that no business decision is ever accompanied by a guarantee  of success, and we have revised the relevant statement in our  conclusions. However, as USPS agreed, sound analysis should  accompany every business decision, including the implementation of  promotions, particularly given USPS’s financial situation.
In its letter and technical comments, USPS stated that the report  should more clearly delineate the differences between promotions and  sales. In particular, USPS noted that promotions are designed to help  sustain mail volume and revenue over the long-term. Sales, though,  are designed to generate additional mail volumes, but only during the  sale period itself. We have revised the relevant text throughout this  report to better distinguish between the different goals of sales and  promotions.
In USPS’s letter, USPS also notes that some of the costs for recent  promotions have been recovered through the creation of additional  price cap authority, mitigating the risk of financial losses from the most  recent promotions. USPS is to be commended for seeking ways to  mitigate the financial risks of any postage rate discount, as it has done  with early-out clauses in market dominant NSAs. However, in a recent  decision approving a promotion, PRC did not accept the price cap  treatment proposed by USPS.
In its letter, USPS also requested that we characterize the data  provided by USPS to PRC on some sales not as “corrupt” but  “incomplete” or “insufficient.” The term “corrupt” is not meant to imply  that USPS intended to make data provided to PRC unusable.  However, according to PRC, data provided to it by USPS on an early  sale was “corrupt” and hindered PRC’s ability to evaluate the financial  results of that effort. We did not modify the report related to this issue.
USPS also disagreed with the statement in the report that many mailers  are not likely to respond to price decreases, such as discounts in market  dominant NSAs, with additional mail volume. USPS stated that market  dominant NSAs can provide promising opportunities to increase mail  volumes and revenues in the future. Our conclusion about market  dominant NSAs is based primarily on USPS’s estimates indicating that  market dominant mail products have low elasticities. These estimates are  a measure of the degree to which mailers respond to price changes and  alter their demand for products and services. However, these estimates  are product-wide averages. To the extent individual mailers have  elasticities different from the average, it may be possible to incentivize  additional mail volume from those mailers through price decreases. Few  mailers, though, are likely to have an elasticity different enough from the  average to warrant such an agreement.
PRC also clarified two points in the report related to market dominant  NSAs. First, PRC noted that USPS’s methodologies for assessing the  financial impact of market dominant NSAs are not considered  authoritative under statutory and regulatory requirements unless and until  such methodologies are accepted by PRC as “accepted analytical  principles” under sections 3050.10 and 3050.1(a) of the Code of Federal  Regulations, Title 39. Second, PRC noted that after-the-fact review of  NSAs works well for Non-Published Rate contracts, but is not applicable  for agreements not subject to established, specific limitations that assure  consistency with applicable statutory requirements. No change to the  report was necessary based on these comments.
As we agreed with your office, unless you publicly announce the contents  of this report earlier, we plan no further distribution of it until 30 days from  the date of this letter. At that time, we will send copies of this report to the  appropriate congressional committees, Postmaster General, Chairman of  PRC, USPS OIG, and other interested parties. In addition, the report will  be available at no charge on GAO’s website at http://www.gao.gov.
If you or your staff have any questions regarding this report, please  contact me at (202) 512-2834 or stjamesl@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found  on the last page of this report. GAO staff who made key contributions to  this report are listed in appendix V.
section_title: Appendix I: Scope and Methodology
paragraphs: To describe the NSAs, sales and promotions U.S. Postal Service (USPS)  has developed, as well as their reported financial results, we reviewed  public and non-public documents as well as additional USPS data. To  summarize the financial results of NSAs, we examined non-public  versions of USPS’s Cost and Revenue Analysis reports for fiscal years  2009 through 2012. We also reviewed non-public documents that  included the volume, cost, and revenue of active competitive, domestic  NSAs, for fiscal years 2009 through 2012. There were no active domestic  competitive NSAs in fiscal years 2007 and 2008. We also reviewed non- public documents that included the volume, cost, and revenue of active  competitive, international NSAs, for fiscal years 2007 through 2012. We  also reviewed the data collection reports for market dominant NSAs. To  confirm our summaries of the number and results of NSAs, we also  obtained additional data from USPS on the number of active NSAs, by  fiscal year, as well as the estimated financial results of all market  dominant NSAs. We also reviewed Postal Regulatory Commission’s  (PRC) Annual Compliance Determination Report for fiscal years 2007  through 2012, to identify, where applicable, which competitive NSAs PRC  determined covered their attributable costs. We also reviewed PRC’s  conclusions in these reports about the financial results of market  dominant NSAs. To summarize the number of, and results from, USPS  sales and promotions to date, we reviewed USPS documents filed with  PRC requesting approval for sales and promotions as well as PRC’s  Annual Compliance Determination Reports. We also obtained additional  data from USPS on the estimated results of sales and promotions.
To put the financial results of incentives into context of USPS’s overall  financial situation, we also examined other USPS documents. These  included the Revenue, Pieces, and Weights reports for fiscal years 2007  through 2012 and the fiscal year 2012 Form 10-K filing. Further, we also  obtained USPS projections of future mail revenue and volume.
We assessed the reliability of these data sources by interviewing USPS  officials. Based on this information, we determined that the data provided  to us were sufficiently reliable for our reporting purposes.
We also conducted interviews with USPS and PRC officials, as well as 15  mailers that have participated in NSAs, sales, and promotions, on the  financial condition of USPS and the results of those incentives, in order to  enhance our understanding of the circumstances in which these  incentives are developed and implemented. In these interviews we also  discussed potential limitations to USPS and PRC analyses of incentives’  results. See below for information on how we selected mailers to  interview.
To identify and assess any opportunities to generate additional revenue  from NSAs, sales, and promotions, as well as challenges, if any, that  could the hinder their development and implementation, we conducted  interviews with a variety of stakeholders. We conducted interviews with  officials from USPS, PRC, and 15 mailers that both have and have not  participated in USPS incentives (see list below). In order to obtain a range  of perspectives on the opportunities and challenges related to NSAs,  sales, and promotions, we identified mailers that have participated in  NSAs involving a variety of competitive and market dominant products,  and both international and domestic mail. We also identified mailers that  had not participated in NSAs. Among these mailers, we interviewed both  large and small mailers, defined as whether the mailer had more or less  than $250 million in annual revenue in the most recent fiscal year for  which data or estimates were available, as well as some that were  recommended to us by a mailer association. Finally, we interviewed  industry associations that represent major mailers in order to gather  additional perspectives on the opportunities and challenges associated  with NSAs, sales, and promotions, including the Association for Postal  Commerce, Direct Marketing Association, National Newspaper  Association, and Newspaper Association of America. The views of  mailers and industry associations cannot be generalized to all mailers and  industry associations because they were selected as part of a  nonprobability sample.
4imprint
Amazon
AT&T
Barnes & Noble
Canada Post
Discover Financial Services
FedEx SmartPost
Gardens Alive!
Harriet Carter Gifts
Highlights for Children, Inc.
Pitney Bowes
Quad/Graphics
UPS
Valassis
Valpak  To further identify and assess opportunities and challenges related to  NSAs, sales, and promotions, we also reviewed a variety of documents.  First, we reviewed the 2007 PRC regulations governing NSAs. Second,  we reviewed a variety of PRC proceedings, including its 2010 proceeding  to investigate methodologies for estimating volume changes due to  pricing incentive programs, and its recommended decisions for all  domestic, market dominant NSAs approved to date. We also examined  PRC approval decisions for other NSAs in order to document the length  of the PRC review process. We also reviewed the internal business  evaluations conducted by USPS for a variety of domestic, competitive  NSAs. Finally, we reviewed findings from relevant USPS Office of  Inspector General reports. We determined that the methodologies of  these reports were sufficiently reliable for our purposes.
section_title: Appendix II: Required Objectives and Factors for Sales and Promotions
paragraphs: As part of the review for a proposed sale or promotion or market  dominant products, PRC evaluates whether the sale or promotion  satisfies the requirements of postal rate regulation. As listed below, these  requirements include several objectives that the sale or promotion must  be designed to achieve and several factors that PRC must take into  account.
subsections: section_title: Objectives
paragraphs: (1) To maximize incentives to reduce costs and increase efficiency.  (2) To create predictability and stability in rates.  (3) To maintain high quality service standards established under section  3691.  (4) To allow the Postal Service pricing flexibility.  (5) To assure adequate revenues, including retained earnings, to  maintain financial stability.  (6) To reduce the administrative burden and increase the transparency of  the ratemaking process.  (7) To enhance mail security and deter terrorism.  (8) To establish and maintain a just and reasonable schedule for rates  and classifications, however the objective under this paragraph shall not  be construed to prohibit the Postal Service from making changes of  unequal magnitude within, between, or among classes of mail.  (9) To allocate the total institutional costs of the Postal Service  appropriately between market-dominant and competitive products.
section_title: Factors
paragraphs: (1) the value of the mail service actually provided each class or type of  mail service to both the sender and the recipient, including but not limited  to the collection, mode of transportation, and priority of delivery;  (2) the requirement that each class of mail or type of mail service bear the  direct and indirect postal costs attributable to each class or type of mail  service through reliably identified causal relationships plus that portion of  all other costs of the Postal Service reasonably assignable to such class  or type;  (3) the effect of rate increases upon the general public, business mail  users, and enterprises in the private sector of the economy engaged in  the delivery of mail matter other than letters;  (4) the available alternative means of sending and receiving letters and  other mail matter at reasonable costs;  (5) the degree of preparation of mail for delivery into the postal system  performed by the mailer and its effect upon reducing costs to the Postal  Service;  (6) simplicity of structure for the entire schedule and simple, identifiable  relationships between the rates or fees charged the various classes of  mail for postal services;  (7) the importance of pricing flexibility to encourage increased mail  volume and operational efficiency;  (8) the relative value to the people of the kinds of mail matter entered into  the postal system and the desirability and justification for special  classifications and services of mail;  (9) the importance of providing classifications with extremely high  degrees of reliability and speed of delivery and of providing those that do  not require high degrees of reliability and speed of delivery;  (10) the desirability of special classifications for both postal users and the  Postal Service in accordance with the policies of this title, including  agreements between the Postal Service and postal users, when available  on public and reasonable terms to similarly situated mailers, that—  (i) improve the net financial position of the Postal Service  through reducing Postal Service costs or increasing the  overall contribution to the institutional costs of the Postal  Service; or  (ii) enhance the performance of mail preparation,  processing, transportation, or other functions; and  (B) do not cause unreasonable harm to the marketplace.  (11) the educational, cultural, scientific, and informational value to the  recipient of mail matter;  (12) the need for the Postal Service to increase its efficiency and reduce  its costs, including infrastructure costs, to help maintain high quality,  affordable postal services;  (13) the value to the Postal Service and postal users of promoting  intelligent mail and of secure, sender-identified mail; and  (14) the policies of this title as well as such other factors as the  Commission determines appropriate.
section_title: Appendix III: Comments from the United States Postal Service
section_title: Appendix IV: Comments from the Postal Regulatory Commission
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
paragraphs: Lorelei St. James, (202) 512-2834 or stjamesl@gao.gov.
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Teresa Anderson (Assistant  Director), Ken Bombara, Kyle Browning, Colin Fallon, Imoni Hampton,  Josh Ormond, Sara Ann Moessbauer, and Crystal Wesco made key  contributions to this report.