U.S. Postal Service: A Primer on Postal Worksharing
Published: 2003-07-31T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The U.S. Postal Service (USPS) faces major financial, operational, and human capital challenges that call for a transformation if USPS is to remain viable in the 21st century. Given these challenges, the President established a commission to examine the state of USPS and submit a report by July 31, 2003, with a proposed vision for USPS and recommendations to ensure the viability of postal services. The presidential commission has addressed worksharing (activities that mailers perform to obtain lower postage rates) in the course of its work. About three-quarters of domestic mail volume is workshared. Worksharing is fundamental to USPS operations, but is not well understood by a general audience. To help Congress and others better understand worksharing, GAO was asked to provide information on the key activities and the rationale for worksharing and the legal basis for worksharing rates. GAO discusses USPS's and the Postal Rate Commission's rationale for worksharing but did not assess the benefits that they claimed for worksharing. GAO will issue a second report later this year on worksharing issues raised by stakeholders. In commenting on this report, USPS and the Postal Rate Commission reemphasized the benefits of worksharing.
section_title: What GAO Found
paragraphs: Postal worksharing activities generally involve mailers preparing, sorting, or transporting mail to qualify for reduced postage rates, that is, worksharing rates. These rates are based on what are referred to as worksharing discounts because the rates are reduced based on the costs that USPS is estimated to avoid as a result of mailer worksharing activities. Key activities include (1) barcoding and preparing mail to be sorted by USPS automated equipment, which reduces manual sorting; (2) presorting mail by ZIP Code or specific delivery location, which reduces USPS sorting; and (3) entering mail at a USPS facility that generally is closer to the final destination of the mail. Worksharing also requires mailers to perform numerous other activities, such as updating addresses to improve their accuracy. According to USPS and the Postal Rate Commission, the rationale for worksharing is that it benefits USPS, mailers and the mailing industry, and the nation. They said worksharing benefits (1) USPS by enabling it to improve its operations and thereby help minimize its workforce and infrastructure, and by stimulating mail volume growth that generates revenues to cover rising costs; (2) mailers by reducing mail-related costs and improving delivery service, and the mailing industry that performs worksharing activities; and (3) the nation, in part by lowering business costs, and in part by the associated benefits that consumers can realize. While stakeholders generally support the concept of worksharing, they have raised differing concerns in this area. For example, the American Postal Workers Union has asserted that worksharing discounts are too large, but some mailers and members of the mailing industry have asserted that the worksharing discounts are not large enough. The primary legal basis for worksharing rates is the requirement in law that, when recommending postage rates, the Postal Rate Commission consider mail preparation and its effect upon reducing USPS costs. Postal rate cases have established precedents clarifying the basis for worksharing rates.

section_title: Letter
paragraphs: As you know, we have recently raised concerns that the U.S. Postal Service  (USPS) faces major challenges that collectively call for a structural  transformation if USPS is to remain viable in the 21st century. We have  reported that USPS has experienced financial difficulties, its business  model is not well suited to operate efficiently in an increasingly  competitive environment, and growth in mail volume has stagnated or  declined. About three-quarters of U.S. domestic mail volume is  “workshared” by mailers that barcode, sort, or transport mail in ways  estimated to reduce USPS’s costs and thus obtain lower postage rates.  Although worksharing is fundamental to USPS operations, it is not well  understood by a general audience because little information is available  that explains its basic concepts. As Congress continues to consider how  best to address USPS’s transformation challenges, Members of Congress,  their staff, and other interested parties will need a basic understanding of  postal worksharing.
Accordingly, you requested that we provide available information on  worksharing fundamentals, key issues, and stakeholder views in this area.  We agreed with your offices to provide the information in two reports. This  first report provides a primer on the fundamentals of worksharing.  Specifically, our objectives for this report are to provide summary  information on the following questions: (1) What are the key activities  included in postal worksharing? (2) What is the rationale for worksharing,  according to USPS and the Postal Rate Commission, the independent  federal establishment that reviews USPS proposals for changes in domestic  postage rates? and (3) What is the legal basis for establishing worksharing  rates?
Some postal stakeholders have expressed divergent points of view  regarding the rationale for worksharing, raising a series of related detailed  technical and policy issues that are beyond the scope of this report.  Accordingly, among other things, you requested that we issue a second  report later this year to address key worksharing issues and stakeholder  views regarding these issues. In this first report, we discuss USPS’s and the  Postal Rate Commission’s rationale for worksharing but do not assess the  benefits that they claimed are derived from worksharing.
As you requested, this first report is being issued on July 31, 2003. This date  coincides with the expected issuance date of the report by the President’s  Commission on the United States Postal Service. The commission was  mandated to report on its proposed vision for USPS and recommend  reforms to ensure the viability of postal services.
To address the three objectives, among other things, we reviewed  documents that defined worksharing rates and the rationale for these rates.  These documents included materials filed in postal rate cases—Postal Rate  Commission proceedings that consider changes to domestic postage rates  and fees—by USPS, the Postal Rate Commission, and other postal  stakeholders. In addition, we reviewed USPS requirements for mailer  worksharing activities and reviewed published papers and analyses on  worksharing. To observe the handling and preparation of workshared mail,  we visited USPS mail processing facilities in Florida and Maryland that  handle workshared mail as well as mailer facilities in Florida that prepare  workshared mail. We interviewed representatives of groups that filed  material on worksharing issues in the most recent postal rate case that  resulted in increases in most postage rates, including the rate for sending a  letter via First-Class Mail. These representatives included officials of USPS,  the Postal Rate Commission and its Office of the Consumer Advocate,  mailer groups, and the American Postal Workers Union. We also reviewed  material that some of these organizations provided us on worksharing. To  obtain information on the legal basis for worksharing rates, we reviewed  pertinent laws, regulations, and the Postal Rate Commission’s  recommended decisions in rate cases that established worksharing rates.  Additional information on our objectives, scope, and methodology appears  in appendix I. We requested comments on a draft of this report from USPS  and the Postal Rate Commission, and their comments are discussed later in  this report and reproduced in appendixes III and IV.
subsections: section_title: Background
paragraphs: USPS is an independent establishment of the executive branch mandated  to provide postal services to bind the nation together through the personal,  educational, literary, and business correspondence of the people.  Established by the Postal Reorganization Act of 1970, USPS is one of the  largest organizations in the nation, with annual revenues of about   $67 billion in fiscal year 2002 and a workforce of about 850,000 full-time  and part-time employees.
To fulfill its responsibilities, USPS has a massive infrastructure that, in  fiscal year 2002, included about 300,000 collection boxes; 209,000 vehicles  that transport and deliver mail; almost 38,000 post offices, post office  stations, and post office branches; and about 350 mail processing facilities  that sort and route mail across the country and within local areas. USPS  delivered mail to the nation’s 139 million addresses, a number that grows  by about 1.7 million annually. USPS carried over 40 percent of the world’s  mail, and USPS’s total mail volume was nearly 203 billion pieces in fiscal  year 2002. A simplified illustration of how USPS handles a single piece of  personal correspondence that is mailed cross-country (referred to as “Aunt  Minnie” mail) is shown in figure 1.
USPS handles a wide variety of mail items ranging from correspondence,  bills, and publications to payments and packages. Most mail is generated by  businesses, with households generating 11 percent of domestic mail  volume—primarily remittance mail and other mail sent to businesses and  other organizations. Household-to-household mail, such as personal  correspondence, represents only 4 percent of domestic mail volume.
Postage rates vary widely, depending on the mail’s content, weight, size,  destination, and how it is prepared and presented by mailers to USPS,  among other things. Mail is organized into groupings called classes. The  four main mail classes include (1) First-Class Mail, which includes items  such as business and personal correspondence, bills, payments, and  advertisements; (2) Standard Mail, which is primarily advertising mail such  as catalogs, coupons, and solicitations; (3) Periodicals, which include  publications such as mailed newspapers and magazines; and (4) Package  Services, which is primarily packages that include merchandise as well as  large quantities of printed material.
The Postal Reorganization Act of 1970 shifted postage ratemaking authority  from Congress to two presidentially appointed bodies: the USPS Board of  Governors and the independent Postal Rate Commission (PRC). The Board  of Governors is USPS’s governing body, which, among other things, sets  policy, directs and controls expenditures, and participates in establishing  postage rates and fees. The Board consists of 11 members: (1) 9 Governors  who are appointed by the President, with the advice and consent of the  Senate, to 9-year staggered terms; (2) the Postmaster General, who is  appointed by the Governors; and (3) the Deputy Postmaster General, who  is appointed by the Governors and the Postmaster General. By law,  Governors are chosen to represent the public interest and cannot be  representatives of special interests. They serve part time and may be  removed only for cause. Not more than five of the nine Governors may  belong to the same political party. No other qualifications or restrictions  are specified in law.
PRC is an independent establishment of the executive branch that is  composed of five full-time Commissioners, who are appointed by the  President, with the advice and consent of the Senate, to 6-year staggered  terms. Among other things, PRC Commissioners review proposed changes  to domestic postage rates and fees and appeals of USPS decisions to close  post offices. By law, Commissioners shall be chosen on the basis of their  professional qualifications and may be removed only for cause. Not more  than three of the five Commissioners may belong to the same political  party. No other qualifications or restrictions are specified in law. In  addition to the five Commissioners, PRC has a staff of about 40 full-time  employees.
When USPS wishes to change domestic postage rates and fees, it must  submit its proposed changes and supporting material to PRC, which  generally must render its recommended decision within 10 months. During  that time, interested parties, such as mailer groups, individual mailers,  companies that provide mail-related services, USPS competitors, postal  labor unions, PRC’s Office of the Consumer Advocate, and members of the  public, have the opportunity to provide evidence and comments to PRC  reflecting their respective concerns. PRC also generally holds public  hearings before issuing its recommended decision to the Governors, who  may approve, allow under protest, reject, or modify PRC’s decision.
USPS has a break-even mandate. Thus, when USPS proposes changes to  domestic postage rates and fees, USPS (1) projects its “revenue  requirement” for the “test year” (a fiscal year representative of the period of  time when the new rates will go into effect), based on the total estimated  costs plus a provision for contingencies, and a provision for the recovery of  prior years’ losses; and (2) proposes rates and fees that are estimated to  raise sufficient revenues to meet USPS’s revenue requirement. USPS also  proposes domestic postage rates and fees that are intended to fulfill the  requirement in law that each class of mail or type of service must cover the  direct and indirect postal costs that are attributable to that class or type of  service plus a portion of its other remaining “institutional” costs, which  include all “common” or “overhead” costs.
USPS has raised postage rates several times in recent years. Although these  rate increases have contributed to the decline in mail volume, USPS credits  the rate increases with adding billions of dollars to USPS revenues. USPS  now plans to keep postage rates steady until 2006, largely because recently  enacted legislation has reduced USPS’s payments for its pension  obligations. Although USPS’s short-term financial pressures have been  alleviated, fundamental issues remain associated with USPS’s business  model, which relies on mail volume growth to help finance rising costs,  including the cost of universal postal service provided through an  expanding delivery network. USPS has recognized that its business model  is outmoded in today’s rapidly changing and increasingly competitive  business environment. As growth in mail volume has stagnated or declined,  USPS has increasingly relied on rate increases to generate additional  revenues.
Congress has debated proposals for comprehensive legislation to address  postal transformation issues for the past decade, including USPS’s mission,  role, business model, and regulation of postage rates. None of these  proposals have been enacted to date. When legislative action was not  forthcoming, various postal stakeholders and we proposed that a  presidential commission be formed to consider postal transformation  issues and develop recommendations.
In April 2001, we put USPS’s long-term financial outlook and  transformation efforts on our high-risk list and recommended that USPS  develop a comprehensive plan to address its financial, operational, and  human capital challenges. In the fall of 2001, USPS's financial situation  became even more complex and critical due to the events of September  11th and the subsequent use of the mail to transmit anthrax. These events,  the economic downturn, electronic diversion of mail, and rate increases,  among other things, have led to unprecedented declines in total mail  volume and continuing declines in the volume of First-Class Mail. This mail  class generates more than half of USPS’s revenues and covers most of its  institutional costs.
USPS issued its Transformation Plan in April 2002 and has begun to  implement it. USPS’s actions are useful but cannot resolve the fundamental  and systemic challenges associated with USPS’s current business model.  These challenges threaten USPS's ability to carry out its mission of  providing affordable, high-quality, universal postal services on a self- financing basis.
Given these challenges, on December 11, 2002, President Bush issued an  executive order that established the President’s Commission on the United  States Postal Service. The executive order stated that the commission’s  mission shall be to examine the state of USPS and submit a report to the  President by July 31, 2003, that articulates a proposed vision for USPS,  along with recommendations for the legislative and administrative reforms  needed to ensure the viability of postal services. The commission examined  many issues that are critical to postal transformation, including the  worksharing of mail. The commission held seven public hearings during  which it received testimony and statements for the record from a wide  variety of stakeholders, including USPS, PRC, postal labor unions and  management associations, mailers, mailer groups, companies that provide  mail-related products and services, USPS competitors, subject matter  experts, and others.
section_title: Worksharing Involves Activities Mailers Must Perform to Qualify for Lower Rates
paragraphs: Postal worksharing activities generally involve mailers preparing,  barcoding, sorting, or transporting mail to qualify for reduced postage  rates, that is, worksharing rates. Worksharing rates are based on what are  commonly referred to as worksharing discounts because the rates are  reduced based on the costs that USPS is estimated to avoid as a result of  mailer worksharing activities. Key worksharing activities include   (1) barcoding and preparing mail so it can be sorted by USPS automated  equipment, which reduces manual sorting and other USPS handling of the  mail; (2) presorting mail, such as by ZIP Code or specific delivery location,  to reduce the number of times USPS must sort the mail to route it to the  addressee; and (3) entering mail at a USPS facility that is generally closer to  the final destination of the mail, which is commonly referred as entering  the mail deeper into USPS’s network used to move the mail. In addition,  mailers must perform numerous other worksharing activities, such as  updating and properly formatting addresses to improve their quality and  accuracy, thus reducing the amount of undeliverable and forwarded mail,  as well as improving USPS’s ability to use its automated equipment to sort  the mail. To qualify for worksharing rates, mailers must perform  worksharing activities and meet minimum volume requirements for bulk  mailings, such as mailings of at least 500 letters sent via First-Class Mail  that may include credit card bills, utility bills, advertisements, and bank  statements. Aside from First-Class Mail that is workshared, other  workshared mail may include bulk mailings of advertisements, magazines,  local newsletters, or packages.
subsections: section_title: Key Worksharing Activities
paragraphs: Three key worksharing activities performed by mailers are applying  barcodes to mail and preparing it so that the mail can be sorted by USPS  automated equipment; presorting mail, such as by ZIP Code or specific  delivery location; and entering mail at a USPS facility that is generally  closer to the final destination of the mail. Mailers must also perform  numerous other worksharing activities. Specifically, worksharing activities  include the following:  Applying barcodes: USPS automation equipment relies heavily on  barcodes to sort mail. Barcodes provide machine-readable ZIP Code and  delivery point information. When mailers apply barcodes (see fig. 2) and  prepare the mail so it is compatible with USPS automated equipment,  USPS avoids applying barcodes or sorting the mail manually. Mailer- barcoded mail can go directly to USPS automated equipment for  processing.
Sorting mail: Mailers who sort their mail, such as by groupings of ZIP  Codes, five-digit ZIP Codes, or specific delivery locations; place their  mail in mail trays; and then take their mail to a USPS facility for  processing save USPS money by reducing the number of times USPS has  to sort the mail to route it to its final destination. Such mailer sorting is  called “presorting” because it occurs before USPS receives the mail.  Figure 3 illustrates an example of mail sorted by five-digit ZIP Codes.
Destination entry of mail: Mailers can prepare and transport some  mail, such as advertisements, periodicals, and packages, from where the  mail is generated to USPS facilities that generally are closer to where  the mail will be delivered. Destination entry mail also must meet other  worksharing requirements, such as being presorted to qualify for a  lower “destination entry” rate that is discounted from the rate for mail  that is not destination-entered. When destination entry mail meets the  worksharing requirements, it is generally expected to (1) bypass the  originating USPS mail processing facilities that initially receive and  organize mail according to areas where it will be delivered; and (2) be  transported by the mailers to USPS’s facilities that generally are closer  to the final destination of the mail, including USPS’s mail processing  and delivery unit facilities where carriers pick up their mail for delivery  (e.g., post offices). When destination entry mail is transported by  mailers to USPS mail processing facilities, USPS processes the mail,  such as sorting the mail, and then transports the mail to a destination  delivery unit for delivery. In addition, mailers can receive even lower  destination entry rates when they transport destination entry mail to  USPS delivery unit facilities. For this mail, USPS is generally expected  to avoid handling this mail at its mail processing facilities and then  transporting it to its delivery unit facilities. Figure 4 provides a  simplified illustration of how USPS handles bulk quantities of  destination-entered mail sent from Philadelphia to Los Angeles,  compared with how USPS handles a single letter sent by an individual  (“Aunt Minnie”) via First-Class Mail.
Worksharing rates are based on what are commonly referred to as  “worksharing discounts.” For example, for First-Class Mail, the  worksharing discounts for workshared mail refer to the difference between  the rates for single-piece First-Class Mail weighing up to 1 ounce and the  corresponding rates applicable to workshared mail. First-Class Mail  discounts vary depending on the worksharing activities that are performed  and the degree of presorting, among other things. Mailers can barcode and  presort bulk mail in exchange for lower worksharing rates when they meet  minimum volume requirements for mail sent to specific areas or locations,  which reduces the number of times that USPS sorts the mail to route it to  these areas or locations.
Consider the example of letters weighing up to 1 ounce sent via First-Class  Mail that are workshared so that they will be compatible with USPS  automation equipment. The mailer worksharing activities performed for  these letters include barcoding and presorting, among other things. In this  example, which could apply to credit card bills and utility bills, the  workshared mail can qualify for different discounts and postage rates  depending on the extent of worksharing activities that are performed.  Specifically, depending on the degree of presorting of this barcoded mail, it  can qualify for varying worksharing discounts, such as discounts of either  7.8 cents, 9.2 cents, or 9.5 cents per piece from the single-piece rate of 37  cents (see table 1).
Mailers must fulfill numerous requirements in addition to barcoding and/or  presorting to qualify for worksharing rates that apply to automation- compatible mail. These requirements are intended to reduce USPS’s costs  of handling mail and can include (1) updating addresses that are intended  to reduce the amount of mail that USPS must forward or return to the  sender; (2) limiting the maximum weight of each mail piece so workshared  mail can be sorted by USPS automated equipment; (3) printing barcodes  according to USPS specifications so the barcodes can be read by USPS  automated equipment;, and (4) packaging mail, placing mail in trays,  labeling trays, and performing other activities to enhance USPS’s ability to  efficiently handle the mail. Highlights of worksharing requirements for  letters sent via First-Class Mail that qualify for automation-compatible  discounts are shown in table 2.
section_title: Recipients of Worksharing Rates
paragraphs: Although all mailers of bulk mail can receive worksharing rates when they  meet the worksharing requirements, in practice, for-profit businesses  generate most workshared mail. For-profit businesses send about three- quarters of domestic mail and frequently send enough large-volume  mailings that meet the minimum volume requirements to qualify for  worksharing rates. In addition, postage costs can represent a significant  cost of doing business, providing an incentive for mailers to qualify for the  lowest possible worksharing rates. Businesses typically use worksharing to  send bulk mailings, including such mail as bills, statements, periodicals,  newsletters, advertisements, and packages. Nonprofit entities such as  charitable organizations and associations also generate substantial  quantities of workshared mail, such as mailings to raise funds, solicit  members, and disseminate information. In fiscal year 2002, nearly three- quarters of domestic mail received worksharing rates (see fig. 5).
Most domestic workshared mail is either (1) First-Class Mail, primarily  business correspondence, bills, advertisements, and financial statements;  or (2) Standard Mail, primarily advertisements, such as catalogs, coupons,  flyers, and solicitations (see fig. 6).
By way of comparison, most non-workshared mail consists of letters  weighing up to 1 ounce sent via First-Class Mail with 37-cent stamps. This  mail includes such mail as remittance mail (e.g., checks sent through the  mail to pay bills); a variety of business mail (e.g., individual invoices and  other business correspondence); and personal correspondence.
section_title: The Rationale for Worksharing Is That It Benefits USPS, Mailers, and the Nation, but Some Concerns Have Been Raised
paragraphs: USPS and PRC have said that worksharing benefits USPS, mailers and the  mailing industry, and the nation. First, they credit worksharing with  benefiting USPS, in part because it enables USPS to improve its operations  and thereby helps minimize its workforce and infrastructure. In addition,  they said worksharing benefits USPS because it stimulates mail volume  growth, which helps USPS achieve economies of scale. Historically, mail  volume growth has been critical to USPS’s business model, which depends  on mail volume growth to generate more revenues to help cover rising  USPS costs. Second, they credit worksharing with benefiting mailers and  the mailing industry. With respect to mailers, USPS and PRC credit  worksharing with reducing the total mail-related costs for mailers who  workshare, helping to keep postage rates affordable for all mailers; and  improving the quality of delivery service. Regarding the mailing industry,  USPS and PRC credit worksharing with spurring the development of the  direct mail industry, as well as that of other mail-related companies that  perform worksharing activities, enabling more mailers to participate in  worksharing. Third, they credit worksharing with benefiting the nation, in  part by lowering business costs, and in part by creating associated benefits  that consumers can realize. They said consumers benefit if worksharing  helps keep postage rates affordable; if mailers pass along lower prices  when their mail-related costs are reduced by worksharing; if their  workshared mail is delivered in a more expeditious and reliable manner;  and if the mail volume growth caused by worksharing results in more mail  that consumers consider useful, such as business correspondence or  catalogs that some consumers find useful.
While stakeholders generally support the concept of worksharing, they  have raised differing concerns in this area. For example, APWU has  asserted that the worksharing discounts are too large and thus worsen  USPS’s financial situation. In contrast, some mailers and members of the  mailing industry have asserted that the discounts are not large enough and  thus improve USPS’s financial situation. Integral to stakeholder differences  are divergent views on technical issues relating to the data, assumptions,  and analyses used in rate cases to develop the estimates of the costs that  USPS is to avoid incurring in the test year as a result of mailer worksharing  activities. In this regard, stakeholders have raised issues regarding (1) the  quality and accuracy of the estimates of cost avoidance; (2) the extent to  which USPS has avoided costs as a result of worksharing activities  performed by mailers; and (3) whether data can be generated on what costs  USPS has avoided as a result of mailer worksharing activities.
We recognize that stakeholders have raised detailed concerns about  worksharing relating to technical and policy issues that are beyond the  scope of this report. Among other things, we plan to address other  stakeholder views on worksharing in our second report.
subsections: section_title: Worksharing Is Credited with Benefiting USPS
paragraphs: According to USPS and PRC, worksharing benefits USPS by enabling it to  improve its operations and help minimize its workforce and infrastructure,  and by stimulating mail volume growth. Historically, mail volume growth  has been critical to USPS’s business model, which depends on mail volume  growth to generate more revenues, which helps cover rising USPS costs  and also helps USPS achieve economies of scale.
USPS has noted that worksharing improves its financial situation, in part  by stimulating mail volume growth, and in part by enabling USPS to  operate more efficiently, thereby helping USPS control its costs. USPS has  reported that in response to worksharing discounts, mailers performed  worksharing activities that reduced USPS’s costs. In addition, USPS  reported that worksharing requirements for automation-compatible mail,  such as requirements in the areas of address quality and mail preparation,  have enabled USPS to make more effective use of its automated equipment,  thereby reducing USPS’s costs and improving service times. Further, USPS  reported that well-prepared and easy-to-process workshared mail has  furthered the cost-effective deployment of additional automated  equipment.
Specifically, USPS reported that mailer barcoding and presorting of mail  help USPS maximize the use of its automated equipment that sorts up to  34,650 letters per hour, avoiding less efficient manual sorting. Also, some  workshared mail is presented in mail trays on pallets that can be moved by  forklifts, avoiding the need for USPS employees to separately handle each  mail tray on the loading dock. USPS has estimated that the worksharing  activities performed by mailers, such as barcoding and presorting, will  reduce its costs of handling workshared letters that are compatible with its  automation equipment and are sent via First-Class Mail. USPS refers to its  estimated cost reduction from worksharing activities as “avoided costs.”  These avoided costs (see fig. 7) were estimated to result from the reduction  in USPS’s costs associated with:  manually sorting mail (38 percent of these avoided costs);  USPS’s allied labor activities (22 percent), which are activities  performed by USPS employees who prepare mail for processing or  dispatch, either on the loading dock or inside the mail processing  facility;   USPS automated operations (20 percent), such as reduced USPS  automated sorting of presorted mail; and  applying barcodes and performing associated operations on the mail (15  percent).
To put the potential for worksharing-related cost savings into context,  USPS has reported that if it can change the processing of letters or flat- sized mail (e.g., large envelopes, catalogs, and magazines) from manual  processing to automated processing, “there are tremendous savings  opportunities.” According to USPS, “while only about 8 percent of the  letter mail we receive each day is processed manually, it accounts for one- half of letter mail processing labor costs.” USPS has also estimated that  the “labor processing cost” associated with manually handling letters was  about $56 per thousand letters, which was about 11 times more costly than  for automated processing. Thus, even a 1 percent reduction in the  percentage of mail that USPS processes manually can result in significant  savings.
According to USPS and PRC, worksharing is credited with stimulating mail  volume growth over the past three decades, which has helped USPS cover  rising costs and achieve economies of scale. USPS has reported that  worksharing has been “a primary source of growth” for mail volume, and a  PRC staff analysis concluded that mail volume growth was caused by the  successive introduction of worksharing rates for different groupings of  mail and for different worksharing activities (e.g., mailers barcoding and  presorting mail). Over the past three decades, workshared mail has  accounted for all of the growth in domestic mail volume. As we have  reported, USPS’s business model relies on growth in mail volume to  generate revenues to help cover rising costs. Thus, since the Postal  Reorganization Act of 1970 was enacted, USPS’s business model has relied  on growth in workshared mail volume. The volume of workshared mail  increased 365 percent from fiscal years 1972 through 2002, while the  volume of non-workshared mail declined 3 percent over the same period  (see fig. 8). However, as figure 8 shows, the volume of workshared mail  declined in fiscal years 2001 and 2002, a period when USPS incurred  growing financial difficulties that included deficits of $1.7 billion and   $676 million, respectively; a freeze on most capital investments in USPS  facilities; and rising USPS debt.
Looking back over USPS’s history, when mail volume has grown, USPS  could realize greater economies of scale, because the additional  worksharing mail revenues exceeded the marginal costs of delivering the  additional volumes of workshared mail. In fiscal year 2002, USPS employed  a letter carrier workforce of about 351,000 full-time and part-time  employees who serviced a delivery network of 139 million addresses that  operated 6 days each week. USPS’s delivery network has considerable  fixed costs. For this reason, USPS can become more efficient when the  volume of workshared mail increases and USPS realizes the associated  economies of scale. Per-piece delivery costs can go down as USPS letter  carriers deliver more mail to each address. For example, USPS can deliver  mail less expensively, per piece, if a USPS letter carrier delivers a full bag of  mail that includes the additional workshared mail volumes rather than a  bag of mail that would be partially full if the additional workshared mail  volumes were not included.
A key reason that worksharing contributed to mail volume growth is that  mail volume has been sensitive to mailing costs. When worksharing  reduced mailing costs, mailers expanded their use of the mail, such as by  sending more catalogs and other advertisements to potential customers.  Thus, worksharing helped mail compete with other communication and  delivery alternatives. For example, some advertisements can be delivered  either as mail or as newspaper inserts, or they can be delivered via other  media. Also, packages can be delivered by USPS or private delivery  companies such as United Parcel Service or FedEx.
The introduction of worksharing rates for First-Class Mail, Standard Mail,  and Parcel Post reportedly stimulated growth in their mail volumes.  Statistical studies have shown that worksharing discounts resulted in  volume growth for these types of mail, in part because price increases were  kept smaller than they otherwise would have been. For example, First- Class Mail volume growth increased after the introduction of presorting  and barcoding discounts. Further, Standard Mail growth accelerated after  the successive introduction of various presorting, barcoding, and  destination entry discounts. Standard Mail worksharing rates were the  “catalyst for increasing volumes,” according to the PRC staff analysis.
Similarly, the introduction of destination entry rates for workshared Parcel  Post mail in fiscal year 1991 reinvigorated mail volume growth for Parcel  Post. Specifically, Parcel Post volume, which had declined from 498 million  pieces in fiscal year 1972 to 128 million pieces in fiscal year 1990, increased  to 373 million pieces in fiscal year 2002. Parcel Post became “a much more  competitive product,” according to the PRC staff analysis. The growth in  Parcel Post volume generated additional USPS revenue, as well as  additional contribution to USPS’s institutional costs, even after taking into  account USPS’s costs associated with the additional Parcel Post volume.
After the introduction of destination entry discounts for Parcel Post,  companies called consolidators emerged to collect Parcel Post mail from  multiple mailers, sort their mail, and transport it to USPS’s destinating  facilities. By combining mail from multiple mailers into larger mailings,  these consolidators can qualify the mail for lower worksharing rates. Most  Parcel Post items are being entered at destinating mail processing facilities,  thus reducing “upstream” USPS handling of the parcels at USPS’s  originating mail processing facilities. This has enabled what is often  referred to as a partnership between USPS and the private sector to  provide the complementary set of activities needed to prepare, barcode,  sort, transport, and deliver Parcel Post mail.
According to USPS and PRC, the growth in workshared mail volume over  the years has generated additional postage revenue to help cover rising  USPS costs. These costs include the attributable costs for USPS to process  and deliver the mail—that is, the direct and indirect costs that can be  attributed to particular groupings of mail—as well as institutional costs,  which are costs that are not attributed and are also referred to as common  or overhead costs. Institutional costs include fixed costs associated with  maintaining a national network of post offices and 6-day delivery of mail  and common costs, which are not identified with individual classes of mail.  Institutional costs represent more than one-third of all USPS costs and, like  attributable costs, have increased over time as the compensation and  benefits of USPS employees have increased and other costs have risen,  including the costs of financing universally available postal services  through an expanding delivery network.
As workshared mail volume has grown, it has accounted for a growing  share of domestic mail revenues.   In fiscal year 2002, workshared mail  accounted for 52 percent of USPS domestic mail revenues (see fig. 9).
Further, as workshared mail revenues have grown, these revenues have  accounted for an increasing proportion of the domestic mail revenues that  exceed the attributable costs of domestic mail and thus are applied to help  cover USPS institutional costs. In fiscal year 2002, workshared mail  accounted for 58 percent of domestic mail revenues that USPS applied to  help cover its institutional costs (see fig. 10).
First-Class Mail is a particularly important category with respect to USPS  institutional costs because it has historically covered most of these costs.  Workshared First-Class Mail accounts for a growing proportion of all First- Class Mail volume; revenues; and revenues applied to help cover  institutional costs, also referred to as the “contribution to institutional  costs.” By fiscal year 2002, workshared First-Class Mail represented 50  percent of First-Class Mail volume, 39 percent of First-Class Mail revenues,  and 52 percent of First-Class Mail contribution to institutional costs.  Workshared First-Class Mail was slightly more profitable, per piece, than  non-workshared First-Class Mail. In fiscal year 2002, USPS data compiled  according to PRC methodology showed that the average piece of  workshared First-Class Mail accounted for slightly more institutional  contribution per piece than non-workshared First-Class Mail (see fig 11).  The workshared mail was also less costly per piece for USPS to handle than  non-workshared First-Class Mail. For example, some non-workshared mail  had handwritten addresses, a portion of which could not be barcoded,  necessitating costly manual sorting by USPS employees instead of sorting  by USPS automated equipment. Other non-workshared mail had  typewritten addresses but could not be sorted by USPS automated  equipment for a variety of reasons. For example, typewritten mail cannot  be barcoded in some cases if the address is incomplete, such as missing the  street directional (e.g., North, South), or a street suffix (e.g., St, Rd, Dr).
In total, workshared First-Class Mail accounted for $9.0 billion in  contribution to cover institutional costs in fiscal year 2002, compared with  $8.4 billion for non-workshared First-Class Mail. Aside from First-Class  Mail, Standard Mail—virtually all of which has been workshared— accounted for most domestic mail revenues and most of the contribution to  institutional costs. In fiscal year 2002, Standard Mail accounted for   $5.1 billion in contribution to institutional costs.
According to USPS and PRC, worksharing is also credited with having  important effects on USPS’s infrastructure and workforce. USPS and PRC  officials have noted that USPS requirements for the preparation of  workshared mail furthered USPS investments in automated equipment to  handle workshared mail efficiently, which meant that the combination of  worksharing and automation helped USPS handle mail in a more efficient  manner. For example, increased worksharing incentives were introduced  for mailers to barcode letter mail and perform other activities to make it  automation compatible when USPS was making major investments in  automated equipment that sorts mail by reading barcodes. These  worksharing incentives led to a sharp increase in the proportion of  automation-compatible letter mail with mailer-applied barcodes, which is  considered to have reduced the proportion of mail that USPS employees  manually sort.
According to USPS, worksharing has significantly reduced USPS  compensation costs and the size of the USPS workforce needed to process  and handle mail. A 2001 PRC staff study stated that USPS would have  required a much larger workforce than it currently has if USPS had to  perform all of the worksharing tasks performed by the private sector. The  study concluded that worksharing has reduced USPS’s size and likely made  USPS more efficient and less difficult to manage. Looking ahead, USPS  plans to expand automated sorting of flat-sized mail, such as large  envelopes, catalogs, and magazines, which is intended to reduce the need  for USPS employees to sort this mail manually and help USPS reduce the  cost of sorting flat-sized mail. If new USPS automated equipment is  deployed, USPS would be expected to propose modified worksharing  requirements for flat-sized mail so that it will be compatible with the new  automation equipment.
section_title: Worksharing Is Credited with Benefiting Mailers
paragraphs: USPS and PRC credit worksharing with benefiting mailers by reducing  their total mail-related costs—that is, the cost to the mailer to generate  mail pieces and pay the postage costs. The underlying rationale is as  follows:  When mailers obtain lower worksharing rates, their postage costs are  reduced.
Mailers’ postage savings are partly offset by their costs of performing  worksharing activities. However, mailers have an economic incentive to  perform worksharing activities when they realize a net savings—that is,  the difference between their reduced postage costs and their increased  costs associated with performing worksharing activities.
In addition to economic incentives, worksharing is credited by USPS and  PRC with helping keep postage rates affordable for all mailers. By  stimulating mail volume growth, worksharing has increased the volume of  mail that generates revenues that exceed attributable costs and thus helps  cover USPS’s institutional costs. Further, according to USPS, worksharing  has improved the implementation of its automation program and thereby  improved mail processing and handling generally. Specifically, USPS stated  that because worksharing of bulk mail facilitated the use and further  installation of automation equipment, it reduced USPS’s costs and kept rate  increases to a minimum for all mailers, including individuals mailing single  pieces of mail like the proverbial Aunt Minnie.
Similarly, USPS has reported that worksharing has improved the speed of  delivery by helping facilitate the implementation of USPS’s automation  program and handling of mail generally. In some cases, mailers reportedly  perform worksharing primarily to improve the speed of delivery, such as  performing destination entry for periodicals. Other mailers reportedly  perform destination entry of packages to improve their speed of delivery  and narrow the window when delivery will occur.
According to USPS and PRC, worksharing rates were the catalyst for the  development of a $900 billion mailing industry that includes USPS;  providers of mailing services that do worksharing tasks for mailers; and  companies that depend on the mail for service fulfillment, customer  acquisition, or customer retention, such as catalog companies, printers,  and magazine publishers. Worksharing has enabled the mailing industry to  perform tasks that USPS once performed exclusively, particularly in the  areas of mail preparation, presorting, and transportation. The mailing  industry, including USPS, employed nearly 9 million workers in 2001.  Some of the companies that provide mail services are known as  consolidators because they combine letter mail, flat-sized mail, or parcels  from many mailers in order to achieve sufficient mail volumes to qualify for  the lowest possible worksharing rates.
section_title: Worksharing Is Credited with Benefiting the Nation
paragraphs: According to USPS and PRC, worksharing benefits the nation, in part by  lowering business costs, and in part by creating associated benefits that  consumers can realize. USPS and PRC have concluded that total mail- related costs to the economy—including costs to mailers and to USPS—are  reduced by worksharing. Their rationale is that some postal activities can  be performed less expensively by mailers who workshare than by USPS,  which lowers the total costs of mail. For example:  Many worksharing mailers can organize mail by ZIP Code more  inexpensively than USPS. Mailers can prepare workshared mail by using  their computers to presort their mailing lists in ZIP Code order and then  sequentially printing the addresses on each letter.
Many worksharing mailers can use computers to barcode letters and  print the barcodes on the letters. In comparison, when USPS processes  non-barcoded mail, its automated equipment attempts to read the  address and print a barcode. When these attempts are unsuccessful,  USPS employees become involved in attempting to read the address and  apply a barcode, and if a barcode cannot be applied, the mail is manually  sorted.
Worksharing rates are designed to create incentives for the lowest-cost  provider to perform certain postal activities, which can be either the mailer  performing worksharing activities or USPS performing additional activities  when mailers do not workshare. The USPS and PRC rationale is as follows:  When postage rates are set, estimates are prepared of the costs that  USPS is to avoid incurring as a result of the mailers’ worksharing  activities.
PRC has a guideline for recommending worksharing discounts so that,  as a result, the estimated reduction in USPS revenues will equal the  estimated reduction in USPS costs. This outcome is often referred to as  “100 percent passthrough” of the expected USPS savings to the mailer.  That is, the full amount of whatever USPS is expected to save will be  passed along to the mailer via the worksharing discount.
Worksharing discounts with 100 percent passthrough create an  incentive for the lowest-cost provider to do the work. This is because  mailers have an incentive to workshare when they save money—which  happens in this case when the full amount of whatever USPS is expected  to save will be passed along to the mailers, and will be enough to fully  offset the mailers’ cost of performing the worksharing activities.
Worksharing discounts with less than 100 percent passthrough can still  create an incentive for the lowest-cost provider to do the work. This is  because some mailers would still have an incentive to save money by  worksharing. In this case, the portion of the USPS savings passed along  to the mailers would still be enough to fully offset some mailers’  worksharing costs. However, some lowest-cost providers may not have  an incentive to workshare because the portion of expected USPS  savings passed along to mailers would not be sufficient to fully offset  the mailers’ worksharing costs.
Worksharing discounts with greater than 100 percent passthrough can  create incentives for some highest-cost providers to do the work. In this  case, some mailers could be the highest-cost providers that have  worksharing costs covered only because USPS passed along more than  its expected savings. Moreover, mailers who are lowest-cost providers  would also have an incentive to workshare.
When the lowest-cost provider performs postal activities, the total cost of  mail is reduced. This can reduce the cost of doing business. The economy  benefits when the cost of doing business is reduced, whether that entails  the cost of sending out bills for merchandise and services rendered or  sending out advertisements to generate business. In other words, according  to PRC staff, reducing the cost of doing business “increases the economic  welfare of the nation.”
Consumers may benefit in several ways from USPS’s worksharing program.  First, consumers benefit if, as previously discussed, worksharing helps  keep postage rates affordable for all mailers. Second, consumers benefit to  the extent that lower mail costs are passed along in the form of lower  prices for merchandise and services. Third, consumers benefit if their  workshared mail is delivered in a more expeditious and reliable manner, as  previously discussed. Fourth, consumers benefit if lower mail costs result  in more workshared mail, to the extent that this increased mail volume  contains information that is useful to the consumer. For example,  additional workshared mail could include business correspondence,  periodicals, and newsletters that some consumers find useful; catalogs that  some consumers respond to; or workshared packages that USPS delivers  to consumers at their request.
section_title: Stakeholders Support Worksharing but Raise Concerns in this Area
paragraphs: A broad array of postal stakeholders generally express support for the  concept of worksharing—that is, they express support for the concept that  mailers should receive worksharing discounts in exchange for performing  worksharing activities that lower USPS’s costs. However, stakeholders  have raised differing concerns in the worksharing area. APWU has  generally criticized the worksharing program, while some members of the  mailing industry have made diametrically opposing criticisms. For  example, APWU has asserted that worksharing discounts are too large, but  some members of the mailing industry have asserted that worksharing  discounts are not large enough (see table 3). APWU believes that  worksharing has eroded USPS’s financial position, thus threatening its  ability to support universal postal service. However, some members of the  mailing industry, USPS, and PRC disagree with APWU’s assertions. Integral  to stakeholder differences are divergent views regarding technical issues  relating to the data, assumptions, and analyses used in rate cases to  estimate the costs that USPS is to avoid incurring in the test year as a result  of mailer worksharing activities. Such cost avoidance estimates affect the  size of worksharing discounts that are established for reasons previously  described in this report. Further, stakeholders have raised issues regarding  (1) the quality and accuracy of the estimates of cost avoidance; (2) the  extent to which USPS has avoided costs as a result of worksharing  activities performed by mailers; and (3) whether data can be generated on  what costs USPS has avoided as a result of mailer worksharing activities.
section_title: The Legal Basis for Worksharing Rates Is Derived from Title 39 and Is Implemented through Postal Rate Cases and Regulations
paragraphs: The primary legal basis for worksharing rates is derived from one of the  nine factors cited in the Postal Reorganization Act of 1970 that PRC must  consider in recommending changes to domestic postage rates proposed by  USPS. Specifically, the act requires that, in recommending changes to  postage rates, PRC consider nine factors, including “the degree of  preparation of mail for delivery into the postal system performed by the  mailer and its effect upon reducing costs to USPS.” The nine factors that  PRC must consider when recommending domestic postage rates and fees  are as follows:   the establishment and maintenance of a fair and equitable schedule;  the value of mail service actually provided each class of mail 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;  the requirement that each class of mail or type of mail service bear the  direct and indirect postal costs attributable to that class or type plus  that portion of all other costs of USPS reasonably assignable to such  class or type;  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;  the available alternative means of sending and receiving letters and  other mail matter at reasonable costs;  the degree of preparation of mail for delivery into the postal system  performed by the mailer and its effect upon reducing costs to USPS;  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;  the educational, cultural, scientific, and informational value to the  recipient of mail matter; and  such other factors as PRC deems appropriate.
By way of background, presorting of Standard Mail and periodicals by ZIP  Code was required before the 1970 act reorganized the U.S. Post Office  Department into USPS. In the first rate case under the 1970 act, PRC cited  this presorting requirement, and the statutory factor regarding the degree  of mail preparation and its effect on reducing USPS’s costs (39 U.S.C.  3622(b)(6)), in its 1972 recommended decision on postage rates, as one of  several reasons for recommending lower rates for Standard Mail and  Periodicals. In 1976, a unanimous settlement was reached in a  reclassification case that recognized the first specific worksharing  discount—a 1-cent discount for presorting First-Class Mail by ZIP Code.  The implementation of the first worksharing discount for presorted  First-Class Mail marked the inception of USPS's worksharing program as it  is known today. Subsequent rate cases have expanded worksharing rates to  cover most types of mail (see table 4).
In addition to the nine factors listed previously, the law specifies that PRC  is required to make a recommended decision on domestic postage rates  and fees in accordance with the policies of Title 39 of the U.S. Code, which  defines policies for USPS.   When considering the relevance of Title 39  policies to PRC recommendations on worksharing rates, it is important to  keep in mind that these rates represent most of USPS’s entire rate structure  and generate 74 percent of its domestic mail volume and 52 percent of its  domestic mail revenues. Key Title 39 policies include the following:  USPS shall have as its basic function the obligation to provide postal  services to bind the nation together through the personal, educational,  literary, and business correspondence of the people. To this end, USPS  shall provide prompt, reliable, and efficient postal services to patrons in  all areas.
USPS shall plan, develop, promote, and provide adequate and efficient  postal services at fair and reasonable rates and fees. To this end, USPS  has the responsibility to maintain an efficient national system of  collecting, sorting, and delivering the mail, and to provide types of mail  service to meet the needs of different groupings of mail and mail users.  However, USPS shall not, except as specifically authorized in Title 39,  make any undue or unreasonable discrimination among users of the  mails, nor shall it grant any undue or unreasonable preferences to any  such user.
Postage rates and fees shall be reasonable and equitable and sufficient  to enable USPS under honest, efficient, and economical management to  maintain and continue the development of postal services of the kind  and quality adapted to the needs of the United States. To this end,  postage rates and fees shall provide sufficient revenues so that the total  estimated income and appropriations to USPS will equal as nearly as  practicable total estimated costs of USPS.
USPS shall promote modern and efficient operations. USPS should  refrain from expending any funds, engaging in any practice, or entering  into any agreement or contract (other than an employee-management  agreement or contract between USPS and a labor union representing  postal employees) that restricts the use of new equipment or devices  that may reduce the cost or improve the quality of postal services,  except where such restriction is necessary to ensure safe and healthful  employment conditions.
Worksharing rates and classifications are implemented through federal  regulations issued and updated by PRC and USPS. After each rate and  classification case is completed, PRC updates the Domestic Mail  Classification Schedule to be consistent with the outcome of the case. This  schedule is incorporated into the Code of Federal Regulations and lists the  terms and conditions for domestic mail classes, subclasses, and rate  categories as well as for domestic special services, such as post office  boxes, registered mail, and certified mail. Also, after each rate and  classification case, USPS updates its Domestic Mail Manual, which is also  incorporated into the Code of Federal Regulations, to include the  worksharing rates for each specific type of workshared mail as well as the  corresponding worksharing requirements.
Worksharing rates have been considered in successive postal rate cases— proceedings in which PRC considers USPS proposals for changing postage  rates—dating back to the 1970s. These proceedings have established  precedents that have further clarified the legal basis for worksharing rates.  Over the years, the structure of worksharing rates has evolved. For  example, in a 1995 reclassification case, USPS proposed and PRC  recommended numerous changes to workshared rates that were intended  to provide greater incentives for mailers to barcode their workshared mail,  among other things. In addition, PRC also recommended some changes to  the structure of workshared mail classifications, such as adding a new  subclass to Standard Mail called the Enhanced Carrier Route subclass. This  subclass was distinguished from other types of Standard Mail in that  minimum volume requirements apply for each carrier route as well as  requirements for including mail preparation, barcoding, and presorting,  among other things. Enhanced Carrier Route mail receives lower rates in  part because of the estimated cost savings to USPS from worksharing.
subsections: section_title: Niche Classifications and Negotiated Service Agreements Also Provide Lower Rates
paragraphs: On a related matter, there has been long-standing and continuing debate  over whether certain types of postage rates can be offered within existing  law and, if so, under what circumstances. Recent debate has focused on  rate arrangements with reduced rates agreed to by USPS and individual  mailers that were intended to enable USPS to reduce its costs. In February  2002, PRC reported to Congress that rate and service adjustments agreed  upon by USPS and individual mailers would be legally authorized if certain  conditions are met, notably that the proposed agreement is submitted to  PRC for prior review, be made available to other mailers willing to meet the  same terms of service, and work to the mutual benefit of mail users and the  postal system as a whole. PRC noted that USPS had proposed and PRC  had subsequently recommended some “niche classifications” that were  specialized classifications that included reduced, but cost-justified, rates or  fees. Niche classifications make lower rates available to all mailers when  they perform the required activities and meet other requirements of the  niche classification. However, as a practical matter, these requirements  may be tailored in a way that means few mailers would generate mail that  would qualify for inclusion in the niche classification.
Recently, USPS proposed and PRC subsequently recommended a  negotiated service agreement (NSA) between USPS and Capital One  Services, Inc., the nation’s largest-volume mailer of First-Class Mail, on a 3- year contractual basis. According to PRC, “negotiated service agreements  are targeted pricing initiatives designed to encourage greater efficiencies  and to take advantage of the Postal Service's existing pricing flexibility.”  USPS noted that “NSAs, generally, specify mutual agreements between the  Postal Service and customers involving the preparation, presentation,  acceptance, processing, transportation and delivery of mailings under  particular rate, classification and service conditions and restrictions that  go beyond those required of other mailers.” This was the first time that  USPS proposed and PRC recommended an NSA covering domestic mail.  USPS hopes to reinvigorate mail volume growth through this and other yet- to-be proposed NSAs and also to reduce its costs through NSA  requirements applying to qualifying mailers.
The Capital One NSA, which USPS’s Governors approved in June 2003,  specifies that Capital One is to receive lower rates for bulk First-Class Mail  exceeding 1.225 billion pieces of mail annually in each of the next 3 years,  with rate discounts increasing from 3 to 6 cents as volumes increase above  the annual threshold. During this period, USPS will electronically provide  Capital One with information about its undeliverable First-Class Mail  solicitations instead of physically returning the mail to Capital One. USPS  has stated that this change will result in USPS cost savings, estimating that  it will avoid returning approximately 80 million mail pieces per year to  Capital One during the term of the NSA. In addition, under the NSA  agreement, Capital One has agreed to practices intended to produce  accurate address lists, which relate to minimizing the quantity of  undeliverable and forwarded mail that USPS must handle. Another  provision of the NSA specifies that the total amount of the discounts is  limited to $40.6 million over the NSA’s 3-year term. This limit is intended to  reduce the risk that the NSA discounts could reduce USPS revenues more  than the costs that USPS avoids as a result of the NSA.
section_title: Agency Comments and Our Evaluation
paragraphs: We received written comments on a draft of this report from the Chairman  of the Postal Rate Commission dated July 15, 2003, and the Chief Marketing  Officer and Senior Vice President of the Postal Service dated July 16, 2003.  The USPS and PRC comments are summarized below and reprinted in  appendices III and IV, respectively. In addition, PRC and USPS officials  provided technical and clarifying comments. All technical and clarifying  comments were incorporated where appropriate.
The Chairman commented that worksharing rates “have provided major  impetus for improved productive efficiency in postal services and  stimulated the mail volume growth that has had the effect of moderating  rate increases for all mail classes and services.” He stated that the  approach used to develop worksharing rates means that to the extent  practicable, the rates paid by mailers who do not participate in  worksharing do not have to increase because worksharing discounts are  approved. He also commented that our draft report accurately describes  the types of worksharing rates currently available to mailers and fairly  characterizes the major policy reasons justifying current workshare  programs.
The Chief Marking Officer and Senior Vice President commented that USPS  believes that, overall, worksharing benefits USPS, the mailers, and the  entire economy. She stated that worksharing enhances efficient postal  operations and stimulates mail growth and revenue for USPS; reduces  overall mailer costs and has encouraged development of the presort and  direct mail industries; and “benefits the entire economy, because reduced  mailing costs increase productivity and efficiency.” She also commented  that our draft report appeared to define the scope of worksharing in a  slightly different manner than USPS does, and that, within this definition,  we seemed to encompass all of the rates within all of the bulk mail classes  as well as some NSAs and niche classifications. We clarified our report to  address USPS’s comments.
We are sending copies of this report to the Chairmen of the House  Committee on Government Reform and its Subcommittee on Civil Service  and Agency Reorganization; the Chairman and Ranking Minority Member  of the Senate Committee on Governmental Affairs; the Chairman of its  Subcommittee on Financial Management, the Budget, and International  Security; the Postmaster General; the Chairman of the Postal Rate  Commission; and other interested parties. Copies will be made available to  others on request. In addition, this report will also be available on our Web  site at http://www.gao.gov.
Key contributors to this report are listed in appendix V. If you or your staffs  have any questions about this letter or the appendixes, please contact me at  (202) 512-2834 or at ungarb@gao.gov.
section_title: Objectives, Scope, and Methodology
paragraphs: Our objectives for this report were to provide summary information on the  following questions: (1) What are the key activities included in postal  worksharing? (2) What is the rationale for worksharing, according to the  U.S. Postal Service (USPS) and the Postal Rate Commission (PRC), the  independent federal establishment that reviews USPS proposals for  changes in domestic postage rates? and (3) What is the legal basis for  establishing worksharing rates?
To address these objectives, we reviewed documentation of federal laws  and regulations pertinent to worksharing, including USPS and PRC  regulations; USPS requirements for mailer worksharing activities, such as  USPS publications describing these requirements; and documentation of  worksharing matters addressed in rate cases, based on publicly available  information filed in postal rate cases. The information documented, among  other things, USPS proposals for new worksharing rates, PRC  recommended decisions, and USPS responses to these recommended  decisions.
We reviewed USPS data on workshared mail that had been filed with PRC,  such as trend data on the volumes of different types of mail. We compiled  the total volumes of workshared mail on the basis of these data. Other data  covered workshared mail revenues and the contribution that workshared  mail has made to help cover USPS’s institutional costs. We compiled data  on the estimated USPS savings from mailer worksharing activities for  automation-compatible letters sent via First-Class Mail, using the same  methodology used by PRC in the 2000 rate case—the most recent rate case  in which PRC recommended a methodology for making such projections.  We did not independently assess or verify any of the data to determine their  accuracy, nor did we assess or evaluate differences between PRC and USPS  costing methodologies.
To obtain a better understanding of how USPS processes workshared mail,  we visited USPS mail processing facilities in Orlando and Tampa, Florida,  and Baltimore and Gaithersburg, Maryland, to observe how USPS  processes workshared mail. These facilities were judgmentally selected on  the basis of their characteristics and their geographic proximity to our  headquarters and to mailer facilities that we also visited. We interviewed  USPS officials at those facilities.
In addition, to obtain a better understanding of how mailers prepare  workshared mail, we visited mailer facilities in Apopka and Tampa, Florida,  where workshared mail is prepared. Specifically, we visited the facilities of  the Apopka facility of Sprint, where it prepares bills and statements; the  Tampa facility of Regulus, where it receives remittance mail on behalf of  other companies; and the Tampa facility of AOL/Time Warner where bills  and statements are prepared. We observed how these facilities prepare  workshared mail and interviewed representatives of these companies.  These companies and facilities were judgmentally selected, based on their  preparation and receipt of different types of workshared mail sent via First- Class Mail, invitations from their officials for GAO to make site visits, and  their geographic proximity to each other. First-Class Mail represents a  major portion of workshared mail.
We also reviewed documentation of the rationale for worksharing,  including rate case materials; published papers and analyses; testimony in  2003 to the President’s Commission on the United States Postal Service;  and material provided to us by representatives of USPS, PRC, mailer  groups, and the American Postal Workers Union (APWU). We interviewed  representatives of groups that filed material on worksharing issues in the  most recent rate case that resulted in increases in most worksharing rates,  including representatives of USPS, PRC, PRC’s Office of the Consumer  Advocate, the American Bankers Association, APWU, the Association of  Postal Commerce, the Direct Marketing Association, the Mail Order  Association of America, the Mailing and Fulfillment Services Association,  the Major Mailers Association, the National Association of Presort Mailers,  and the Saturation Mail Coalition. Some of these groups provided us with  analyses and other material pertaining to worksharing rates and issues. In  addition, we reviewed published books, articles, and other  communications written by these groups and other postal experts on  worksharing rates and issues. We did not assess the benefits that USPS and  PRC claimed are derived from worksharing. We also did not assess any of  the documentation provided by stakeholders or any of the statements made  by stakeholders that we interviewed.
To obtain information on the legal basis for worksharing, we reviewed  pertinent laws, decisions in postal rate cases interpreting legal criteria for  worksharing rates, and pertinent USPS and PRC regulations.
We conducted our review from June 2002 through June 2003 in Apopka,  Tampa, and Orlando, Florida; Baltimore and Gaithersburg, Maryland; and  Washington, D.C., in accordance with generally accepted government  auditing standards.
section_title: Estimated USPS Avoided Costs for Automation-Compatible Letters That Are Workshared and Sent via First-Class Mail
paragraphs: Type of USPS worksharing-related savings  1.  Automated barcoding: If letters were not workshared, they would not be barcoded and USPS  automated equipment would try to read the address and apply a barcode. When this is unsuccessful,  an electronic image of the letter would be sent to a facility where a USPS clerk would try to read the  address and key in data so that a barcode could be applied.  2.  Manual operations: If the letters were not workshared, USPS would engage in more costly manual  processing of the mail. For example, the letters would be sorted manually when USPS automated  equipment could not apply a barcode or sort the mail. Worksharing requirements attempt to minimize  such problems by limiting the dimensions and thickness of letters, specifying requirements for updating  of addresses, and mandating how the address and barcode are printed, among other things. 3.  Automated operations: If the letters were not workshared, they would not be presorted and thus would  require more sorting by USPS automated equipment. Also, very large workshared mailings are  organized on pallets with each pallet containing mail sent to only one area. In such cases, the mail  would generally not need to be sorted by USPS automated equipment at the originating mail  processing facility to organize it according to the area where it is to be delivered. Instead, the mail can  be handled on the loading dock and dispatched to the area where it is to be delivered.  4.  Allied operations: If the letters were not workshared, they would generate more USPS “allied labor”  costs to prepare mail for processing or dispatch, either on the loading dock or inside the mail  processing facility. As in the above example of very large workshared mailings organized on pallets sent  to only one area, each pallet can be handled in the loading dock and dispatched to the destinating  facility without having allied labor separately handle each mail tray stacked on the pallet. 5.  Other: If the letters were not workshared, USPS would incur more costs to distribute them to post office  boxes and prepare them for delivery, among other things.
section_title: Comments from the U.S. Postal Service
section_title: Comments from the Postal Rate Commission
section_title: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: Kenneth E. John, Charles W. Bausell, Jr., Alan N. Belkin, Frederick T.  Evans, Eric Fielding, Latesha A. Love, Mark F. Ramage, Jill P. Sayre, and  Walter K. Vance made key contributions to this report.
section_title: GAO’s Mission
paragraphs: The General Accounting Office, the audit, evaluation and investigative arm of  Congress, exists to support Congress in meeting its constitutional responsibilities  and to help improve the performance and accountability of the federal government  for the American people. GAO examines the use of public funds; evaluates federal  programs and policies; and provides analyses, recommendations, and other  assistance to help Congress make informed oversight, policy, and funding  decisions. GAO’s commitment to good government is reflected in its core values of  accountability, integrity, and reliability.
section_title: Obtaining Copies of GAO Reports and Testimony
paragraphs: The fastest and easiest way to obtain copies of GAO documents at no cost is  through the Internet. GAO’s Web site (www.gao.gov) contains abstracts and full- text files of current reports and testimony and an expanding archive of older  products. The Web site features a search engine to help you locate documents  using key words and phrases. You can print these documents in their entirety,  including charts and other graphics.
Each day, GAO issues a list of newly released reports, testimony, and  correspondence. GAO posts this list, known as “Today’s Reports,” on its Web site  daily. The list contains links to the full-text document files. To have GAO e-mail this  list to you every afternoon, go to www.gao.gov and select “Subscribe to   e-mail alerts” under the “Order GAO Products” heading.
subsections: section_title: Order by Mail or Phone
section_title: To Report Fraud, Waste, and Abuse in Federal Programs
section_title: Public Affairs