Chapter 2 Postal Operations


The Postal Service developed the Approved Shipper Program to improve the quality of postal information given to customers by third-party retail establishments. Unlike CPUs, these retailers do not provide services under contract with the Postal Service and receive no compensation. However, they routinely accept letters and packages and tender them to the local Post Office on behalf of their customers. The Approved Shipper Program provides participating retailers with standard product information and signage, which protects the Postal Service brand, improves compliance with aviation security procedures, and minimizes the incidence of inaccurate information. To participate in the program, retailers must sign a license agreement and receive approval from the local Postal Service district. The Postal Service began a pilot of the program in the Southwest Area in 2005 with more than 700 stores joining the program.

K. Pricing and Classification

The Postal Service continued to pursue innovation in pricing by adopting a strategy that customizes and simplifies rates and requirements and promotes pricing that better represents the value derived by customers. In embracing this strategy, the following initiatives were developed or implemented in 2006.

1. Negotiated Service Agreements

A negotiated service agreement (NSA) is a mutually beneficial customized agreement between the Postal Service and a customer, designed to increase mail volume, enhance mail preparation, and reduce Postal Service costs when possible. The Postal Service successfully litigated and implemented one new baseline NSA, began litigating a second baseline agreement, and submitted the extension of an existing NSA to the Postal Rate Commission (PRC).

The PRC approved the Bookspan NSA, the first baseline for Standard Mail service in May. The NSA provides Bookspan incentives to increase its use of Standard Mail letters to solicit members for its book clubs. The Postal Service in turn will receive revenue generated by increased Standard Mail volumes, and additional revenue from the volume generated by new club members. The Bookspan NSA sets important precedents by establishing volume-based pricing without associated cost savings, and by extending NSAs to Standard Mail service. The second new baseline NSA, with Washington Mutual Bank (WMB), requires WMB to convert 90% of its marketing volumes to First-Class Mail. The Capital One extension allows the current agreement to be extended for 1 year.

2. Priority Mail Flat-Rate Box

The Postal Service continued the 2-year experiment, implemented in November 2004, for the Priority Mail flat-rate box and proposed that the flat-rate box be made a permanent classification as part of the Omnibus Rate Case filed in May 2006. Available in two shapes, each with the same cubic capacity, the box is priced at $8.10 regardless of the actual weight or destination of the parcel. Providing flat-rate options offers customers the convenience of determining shipping costs in advance without scales or zone-based rate charts. The Priority Mail flat-rate box provides an additional easy-to-use option for retail and business customers.

3. Repositionable Notes

In April 2006, the Postal Service extended the 1-year experiment for Repositionable Notes (RPNs) placed on the outside of letter and flat mailpieces. This experiment was originally launched in April 2005. RPNs provide customers the ability to complement their First-Class Mail, Periodicals and Standard mailpieces with removable messages to their customers and potentially to generate higher response rates to their mailings. RPNs can be used as another means for mailers to advertise a product or service directly on a mailpiece.

4. Parcel Return Service

Parcel Return Service (PRS) allows participating mailers to retrieve returned parcels in bulk from designated postal facilities, providing them with additional convenience and cost savings while benefiting the Postal Service by reducing costs. PRS was in 1,848 postal facilities including bulk mail centers and delivery units. Launched in October 2003 as a 2-year test, PRS generated $36 million this year. The Postal Service filed a request before the Postal Rate Commission (PRC) in October 2005 to make PRS a permanent classification. The PRC approved an unopposed settlement of the case in March and the Board of Governors implemented the permanent PRS classification in April.

5. Co-palletization Drop Ship Incentives

The Postal Service continued the Co-palletization Drop Ship Incentives experiment which attempts to control the cost of Periodicals processing by offering mailers additional discounts that encourage the use of pallets and drop shipping. The experiment encourages smaller circulation publications to co-palletize and drop ship their mail and gain discounts otherwise accessible only to larger circulation publications. Handling mail on pallets instead of in sacks is more cost-efficient for the Postal Service. The experiment is scheduled to run through the implementation date of the R2006-1 Omnibus Rate Case, when it will be replaced by a new pricing structure that includes other incentives that will encourage co-palletization and drop shipping.

6. Escrow Rate Case (R2005-1)

On November 15, 2005, the Governors voted to accept the PRC’s decision to raise most domestic prices by approximately 5.4% across the board. The price changes were implemented on January 8, 2006, and affect all classes and subclasses of mail and special services. These rate increases were necessitated by the $3.1 billion escrow requirement imposed on the Postal Service by Public Law 108–18.

7. Omnibus Rate Case (R2006-1)

On May 3, 2006, the Postal Service filed an omnibus rate case to cover a projected revenue shortfall of about $5.9 billion in fiscal year 2008. Featured among the proposed rate changes are a 42-cent stamp for 1-ounce First-Class Mail letters and a $4.65 rate for 1-pound Priority Mail pieces. The Postal Service also proposed a new classification for a “forever stamp,” which will always be valid for the first ounce of First- Class Mail letters, regardless of intervening rate changes. Also proposed in the filing new pricing for certain Priority Mail pieces that are based on the size of the piece as well as its weight, and a more detailed rate design structure based on shape for First-Class Mail and Standard Mail. The PRC is expected to render its decision on the proposed rates in March 2007.