E8-30169. Administrative Practice and Procedure, Postal Service

AGENCY:

Postal Regulatory Commission.

ACTION:

Final rule.

SUMMARY:

The Commission is adding a new international mail product to the Competitive Product List. This product is a contract between the United States Postal Service and Canada Post for inbound competitive services. It modifies and extends an existing agreement. The Commission's action is consistent with changes to applicable federal law and regulations and with a recent Postal Service request. Republication of the lists of market dominant and competitive products is also consistent with requirements in the law.

DATES:

Effective December 19, 2008.

ADDRESSES:

Submit comments electronically via the Commission's Filing Online system at http://www.prc.gov.

FOR FURTHER INFORMATION CONTACT:

Stephen L. Sharfman, General Counsel, 202-789-6820 and [e-mail].

SUPPLEMENTARY INFORMATION:

Regulatory History, 73 FR 70681 (November 21, 2008).

The Postal Service seeks to add a new product identified as Canada Post-United States Postal Service Contractual Bilateral Agreement for Inbound Competitive Services (MC2009-8 and CP2009-9) to the Competitive Product List. For the reasons discussed below, the Commission approves the Request.

I. Background

On November 13, 2008, the Postal Service filed a formal request pursuant to 39 U.S.C. 3642 and 39 CFR 3020.30 et seq. to add the Canada Post-United States Postal Service Contractual Bilateral Agreement for Inbound Competitive Services (Bilateral Agreement) to the Competitive Product List.^[1] The Postal Service asserts that the Contractual Bilateral Agreement is a competitive product “not of general applicability” within the meaning of 39 U.S.C. 3632(b)(3). This Request has been assigned Docket No. MC2009-8.

The Postal Service contemporaneously filed notice, pursuant to 39 U.S.C. 3632(b)(3) and 39 CFR 3015.5, that the Governors have established prices and classifications not of general applicability for inbound competitive services as reflected in the Bilateral Agreement. More specifically, the Bilateral Agreement, which has been assigned Docket No. CP2009-9, governs the exchange of Inbound Surface Parcel Post from Canada.

In support of its Request, the Postal Service filed a redacted version of the Governors' Decision establishing prices for the Bilateral Agreement. Attached to the Governors' Decision are proposed Mail Classification Schedule language; a redacted version of management's analysis of the Bilateral Agreement; certification of compliance with 39 U.S.C. 3633(a); certification of the Governors' vote; ^[2] and a Statement of Supporting Justification as required by 39 CFR 3020.32.^[3] In addition, the Postal Service indicates that it filed an unredacted copy of the Governors' Decision, the Bilateral Agreement, and other supporting documents designed to establish compliance with 39 CFR 3015.5 under seal. Request at 2, n.2.

In the Statement of Supporting Justification, Lea Emerson, Executive Director, International Postal Affairs, asserts that “[t]he addition of the [Bilateral] Agreement as a competitive product will enable the Commission to verify that the agreement covers its attributable costs and enables competitive products, as a whole, to make a positive contribution to coverage of institutional costs.” Id. at 2. W. Ashley Lyons, Manager, Corporate Financial Planning, Finance Department, certifies that the contract complies with 39 U.S.C. 3633(a). Request, Attachment C. He observes that the Bilateral Agreement “should not impair the ability of competitive products on the whole to cover an appropriate share of institutional costs.”Id.

The Postal Service filed much of the supporting materials, including the Governors' Decision and the Bilateral Agreement, under seal. It maintains that the Bilateral Agreement, related financial information, and the Governor's Decision should remain under seal as they contain pricing, cost, and other information that are highly confidential. Request at 2.^[4]

The Postal Service has an existing bilateral agreement with Canada Post which is set to expire December 31, 2008. Id. at 3. The new prices and classifications modify the current agreement, extend it for 1 year, and are scheduled to take effect January 1, 2009, or “after filing with and review by the Postal Regulatory Commission, whichever, is later.” Request, Attachment 1, at 2.

In Order No. 134, the Commission gave notice of the two dockets, appointed a public representative, and provided the public with an opportunity to comment.^[5] Pursuant to 39 CFR 3015.6, Chairman's Information Request No.1 was issued November 24, 2008. The Postal Service filed its response on December 1, 2008 as requested.^[6]

II. Comments

Comments were filed by the Public Representative.^[7] No filings were submitted by other interested parties. The Public Representative's comments focus principally on confidentiality and pricing under the contract. Public Representative Comments at 3-4.

The Public Representative states that a sufficient rationale for maintaining the confidentiality of the documents under seal has been provided by the Postal Service. He reviewed the cost savings measures for the contract and determined that the contract is advantageous to the Postal Service and beneficial to the general public. Id. He notes that the Commission's 2007 Annual Compliance Determination (ACD) found that Inbound Surface Parcel Post under the bilateral agreement with Canada incurred a loss and the Postal Service is attempting to remedy this issue with this agreement.^[8] Additionally, he observes that the pay-for-performance standards will improve the performance of both postal administrations. He concludes, inter alia, that the contract appears to meet each element of 39 U.S.C. 3633(a). Id. at 2.

III. Commission Analysis

The Commission has reviewed the contract, the financial analysis provided under seal that accompanies it, the additional information filed by the Postal Service in response to the Chairman's Information Request, and the comments filed by the Public Representative.

Statutory requirements. The Commission's statutory responsibilities in this instance entail assigning the Bilateral Agreement with Canada Post for Inbound Competitive Services to either the Market Dominant Product List or to the Competitive Product List. 39 U.S.C. 3642. As part of this responsibility, the Commission also reviews the proposal for compliance with the Postal Accountability and Enhancement Act (PAEA) requirements. This includes, for proposed competitive products, a review of the provisions applicable to rates for competitive products. 39 U.S.C. 3633.

Product list assignment. In determining whether to assign the Bilateral Agreement with Canada Post for Inbound Competitive Services as a product to the Market Dominant Product List or the Competitive Product List, the Commission must consider whether

the Postal Service exercises sufficient market power that it can effectively set the price of such product substantially above costs, raise prices significantly, decrease quality, or decrease output, without risk of losing a significant level of business to other firms offering similar products.

39 U.S.C. 3642(b)(1). If so, the product will be categorized as market dominant. The competitive category of products shall consist of all other products.

The Commission is further required to consider the availability and nature of enterprises in the private sector engaged in the delivery of the product, the views of those who use the product and the likely impact on small business concerns. 39 U.S.C. 3642(b)(3).

In Docket No. RM2007-1, Order No. 43, the Commission determined that Inbound Surface Parcel Post shipments tendered at negotiated rates are appropriately classified as competitive. The Canada Post Bilateral Agreement falls within this category.

The Postal Service asserts that its bargaining position is constrained by the existence of other shippers who can provide similar services, thus precluding it from taking unilateral action to increase prices without the risk of losing volume to private companies. Request, Attachment 2, at 2-3. The Postal Service also contends that it may not decrease quality or output without risking the loss of business to competitors that offer similar expedited delivery services. Id. Finally, the Postal Service states that the market for international parcel delivery services is highly competitive and that the agreement provides a benefit to Canada Post's and the Postal Service's small business customers by providing an additional option for shipping articles between the United States and Canada. It concludes that there should be little, if any negative impact on small business. Id. at 4.

No commenter opposes the proposed classification of the Canada Post-United States Postal Service Contractual Bilateral Agreement for Inbound Competitive Services, as competitive. Having considered the statutory requirements and the support offered by the Postal Service, the Commission finds that the Canada Post-United Postal Service Contractual Bilateral Agreement for Inbound Competitive Services is appropriately classified as a competitive product and should be added to the Competitive Product List.

Cost considerations. The Postal Service's filing seeks to establish a new product for Inbound Surface Parcel Post from Canada. The Postal Service asserts the rates provide financial benefits for inbound competitive services which are better than those that would exist if the rates used are set by the Universal Postal Union (UPU) treaty. Request, Attachment 1B, at 1.

The Postal Service contends, as mentioned in the comments of the Public Representative, adding the Canada Post-United States Postal Service Contractual Bilateral Agreement for Inbound Competitive Services product will result in better cost coverage for Inbound Surface Parcel Post and address the Commission's concern about cost coverage as expressed in the Annual Compliance Determination for Fiscal Year 2007. The Commission's summary and findings for International Mail concluded that revenues for corresponding competitive Inbound Surface Parcel Post at non-UPU rates did not provide revenues that covered attributable costs. The Postal Service states that its financial analysis of the new prices negotiated in this agreement shows that this contract covers its attributable costs, and does not result in subsidization of competitive products by market dominant products and should not impair the ability of competitive products on the whole to cover an appropriate share of institutional costs. Id., Attachment 1C, at 1.

Based on the data submitted and the comments received, the Commission finds that Canada Post-United States Postal Service Contractual Bilateral Agreement for Inbound Competitive Services should cover its attributable costs (39 U.S.C. 3633(a)(2)), should not lead to the subsidization of competitive products by market dominant products (39 U.S.C. 3633(a)(1)), and should have a positive effect on competitive products' contribution to institutional costs (39 U.S.C. 3633(a)(3)). Thus, an initial review of the proposed Canada Post-United States Postal Service Contractual Bilateral Agreement for Inbound Competitive Services indicates that it comports with the provisions applicable to rates for competitive products.

It is our understanding that this contract extension will terminate December 31, 2009. If this is not the case, the Postal Service shall promptly notify the Commission when the contract terminates, but no later than the actual termination date. The Commission will then remove the contract from the Mail Classification Schedule at the earliest possible opportunity.

In conclusion, the Commission approves the Canada Post-United States Postal Service Contractual Bilateral Agreement for Inbound Competitive Services as a new product. The revision to the Competitive Product List is shown below the signature of this Order and is effective upon issuance of this Order.

IV. Ordering Paragraphs

It is Ordered:

1. Canada Post-United States Postal Service Contractual Bilateral Agreement for Inbound Competitive Services (MC2009-8 and CP2009-9) is added to the Competitive Product List as a new product under International Inbound Surface Parcel Post (at non-UPU) rates.

2. The Secretary shall arrange for the publication of this Order in the Federal Register.

List of Subjects in 39 CFR Part 3020

• Administrative practice and procedure
• Postal Service

By the Commission.

Steven W. Williams,

Secretary.

For the reasons stated in the preamble, under the authority at 39 U.S.C. 503, the Postal Regulatory Commission amends 39 CFR part 3020 as follows:

PART 3020—PRODUCT LISTS

1. The authority citation for part 3020 continues to read as follows:

Authority: 39 U.S.C. 503; 3622; 3631; 3642; 3682.

2. Revise Appendix A to subpart A of part 3020—Mail Classification to read as follows:

Part A—Market Dominant Products

1000 Market Dominant Product List

First-Class Mail

Single-Piece Letters/Postcards

Bulk Letters/Postcards

Flats

Parcels

Outbound Single-Piece First-Class Mail International

Inbound Single-Piece First-Class Mail International

Standard Mail (Regular and Nonprofit)

High Density and Saturation Letters

High Density and Saturation Flats/Parcels

Carrier Route

Letters

Flats

Not Flat-Machinables (NFMs)/Parcels

Periodicals

Within County Periodicals

Outside County Periodicals

Package Services

Single-Piece Parcel Post

Inbound Surface Parcel Post (at UPU rates)

Bound Printed Matter Flats

Bound Printed Matter Parcels

Media Mail/Library Mail

Special Services

Ancillary Services

International Ancillary Services

Address List Services

Caller Service

Change-of-Address Credit Card Authentication

Confirm

International Reply Coupon Service

International Business Reply Mail Service

Money Orders

Post Office Box Service

Negotiated Service Agreements

HSBC North America Holdings Inc. Negotiated Service Agreement

Bookspan Negotiated Service Agreement

Bank of America Corporation Negotiated Service Agreement

The Bradford Group Negotiated Service Agreement

Market Dominant Product Descriptions

First-Class Mail [Reserved for Class Description]

Single-Piece Letters/Postcards [Reserved for Product Description]

Bulk Letters/Postcards [Reserved for Product Description]

Flats [Reserved for Product Description]

Parcels [Reserved for Product Description]

Outbound Single-Piece First-Class Mail International [Reserved for Product Description]

Inbound Single-Piece First-Class Mail International [Reserved for Product Description]

Standard Mail (Regular and Nonprofit) [Reserved for Class Description]

High Density and Saturation Letters [Reserved for Product Description]

High Density and Saturation Flats/Parcels [Reserved for Product Description]

Carrier Route [Reserved for Product Description]

Letters [Reserved for Product Description]

Flats [Reserved for Product Description]

Not Flat-Machinables (NFMs)/Parcels [Reserved for Product Description]

Periodicals [Reserved for Class Description]

Within County Periodicals [Reserved for Product Description]

Outside County Periodicals [Reserved for Product Description]

Package Services [Reserved for Class Description]

Single-Piece Parcel Post [Reserved for Product Description]

Inbound Surface Parcel Post (at UPU rates) [Reserved for Product Description]

Bound Printed Matter Flats [Reserved for Product Description]

Bound Printed Matter Parcels [Reserved for Product Description]

Media Mail/Library Mail [Reserved for Product Description]

Special Services [Reserved for Class Description]

Ancillary Services [Reserved for Product Description]

Address Correction Service [Reserved for Product Description]

Applications and Mailing Permits [Reserved for Product Description]

Business Reply Mail [Reserved for Product Description]

Bulk Parcel Return Service [Reserved for Product Description]

Certified Mail [Reserved for Product Description]

Certificate of Mailing [Reserved for Product Description]

Collect on Delivery [Reserved for Product Description]

Delivery Confirmation [Reserved for Product Description]

Insurance [Reserved for Product Description]

Merchandise Return Service [Reserved for Product Description]

Parcel Airlift (PAL) [Reserved for Product Description]

Registered Mail [Reserved for Product Description]

Return Receipt [Reserved for Product Description]

Return Receipt for Merchandise [Reserved for Product Description]

Restricted Delivery [Reserved for Product Description]

Shipper-Paid Forwarding [Reserved for Product Description]

Signature Confirmation [Reserved for Product Description]

Special Handling [Reserved for Product Description]

Stamped Envelopes [Reserved for Product Description]

Stamped Cards [Reserved for Product Description]

Premium Stamped Stationery [Reserved for Product Description]

Premium Stamped Cards [Reserved for Product Description]

International Ancillary Services [Reserved for Product Description]

International Certificate of Mailing [Reserved for Product Description]

International Registered Mail [Reserved for Product Description]

International Return Receipt [Reserved for Product Description]

International Restricted Delivery [Reserved for Product Description]

Address List Services [Reserved for Product Description]

Caller Service [Reserved for Product Description]

Change-of-Address Credit Card Authentication [Reserved for Product Description]

Confirm [Reserved for Product Description]

International Reply Coupon Service [Reserved for Product Description]

International Business Reply Mail Service [Reserved for Product Description]

Money Orders [Reserved for Product Description]

Post Office Box Service [Reserved for Product Description]

Negotiated Service Agreements [Reserved for Class Description]

HSBC North America Holdings Inc. Negotiated Service Agreement [Reserved for Product Description]

Bookspan Negotiated Service Agreement [Reserved for Product Description]

Bank of America Corporation Negotiated Service Agreement

The Bradford Group Negotiated Service Agreement

Part B—Competitive Products

Competitive Product List

Express Mail

Express Mail

Outbound International Expedited Services

Inbound International Expedited Services

Inbound International Expedited Services 1 (CP2008-7)

Priority Mail

Priority Mail

Outbound Priority Mail International

Inbound Air Parcel Post

Parcel Select

Parcel Return Service

International

International Priority Airlift (IPA)

International Surface Airlift (ISAL)

International Direct Sacks—M-Bags

Global Customized Shipping Services

Inbound Surface Parcel Post (at non-UPU rates)

Canada Post—United States Postal Service Contractual Bilateral Agreement for Inbound Competitive Services (MC2009-8 and CP2009-9)

International Money Transfer Service

International Ancillary Services

Special Services

Premium Forwarding Service

Negotiated Service Agreements

Domestic

Express Mail Contract 1 (MC2008-5)

Express Mail Contract 2 (MC2009-3 and CP2009-4)

Express Mail & Priority Mail Contract 1 (MC2009-6 and CP2009-7)

Parcel Return Service Contract 1 (MC2009-1 and CP2009-2)

Priority Mail Contract 1 (MC2008-8 and CP2008-26)

Priority Mail Contract 2 (MC2009-2 and CP2009-3)

Priority Mail Contract 3 (MC2009-4 and CP2009-5)

Priority Mail Contract 4 (MC2009-5 and CP2009-6)

Outbound International

Global Expedited Package Services (GEPS) Contracts

GEPS 1 (CP2008-5, CP2008-11, CP2008-12, and CP2008-13, CP2008-18, CP2008-19, CP2008-20, CP2008-21, CP2008-22, CP2008-23, and CP2008-24)

Global Plus Contracts

Global Plus 1 (CP2008-9 and CP2008-10)

Global Plus 2 (MC2008-7, CP2008-16 and CP2008-17)

Inbound Direct Entry Contracts with Foreign Postal Administrations (MC2008-6, CP2008-14 and CP2008-15)

Competitive Product Descriptions

Express Mail [Reserved for Group Description]

Express Mail [Reserved for Product Description]

Outbound International Expedited Services [Reserved for Product Description]

Inbound International Expedited Services [Reserved for Product Description]

Priority [Reserved for Product Description]

Priority Mail [Reserved for Product Description]

Outbound Priority Mail International [Reserved for Product Description]

Inbound Air Parcel Post [Reserved for Product Description]

Parcel Select [Reserved for Group Description]

Parcel Return Service [Reserved for Group Description]

International [Reserved for Group Description]

International Priority Airlift (IPA) [Reserved for Product Description]

International Surface Airlift (ISAL) [Reserved for Product Description]

International Direct Sacks—M-Bags [Reserved for Product Description]

Global Customized Shipping Services [Reserved for Product Description]

International Money Transfer Service [Reserved for Product Description]

Inbound Surface Parcel Post (at non-UPU rates) [Reserved for Product Description]

International Ancillary Services [Reserved for Product Description]

International Certificate of Mailing [Reserved for Product Description]

International Registered Mail [Reserved for Product Description]

International Return Receipt [Reserved for Product Description]

International Restricted Delivery [Reserved for Product Description]

International Insurance [Reserved for Product Description]

Negotiated Service Agreements [Reserved for Group Description]

Domestic [Reserved for Product Description]

Outbound International [Reserved for Group Description]

Footnotes

1.  Request of United States Postal Service to Add Canada Post-United States Postal Service Contractual Bilateral Agreement for Inbound Competitive Services to the Competitive Product List, and Notice of Filing (Under Seal) the Enabling Governors' Decision and Agreement, November 13, 2008 (Request).

2.  See Attachment 1 to the Request.

3.  See Attachment 2 to the Request.

4.  The Postal Service indicates that the materials filed under seal constitute a subset of the overarching agreement between the parties, representing the parties' agreement concerning inbound competitive services. The Postal Service further indicates that the parties anticipate finalizing “this and related agreements by mid-December, and any lingering details will not affect the rates, classification, or other fundamental basis for this Request and Notice.” Request at 5, n.12.

5.  PRC Order No. 134, Notice and Order Concerning Bilateral Agreement with Canada Post For Inbound Competitive Services, November 18, 2008 (Order No. 134).

6.  Response of United States Postal Service to Chairman's Information Request No. 1 and Notice of Filing of Responsive Materials (Under Seal) December 1, 2008 (Response).

7.  Public Representative Comments in Response to United States Postal Service Request to add Canada Post-United States Postal Service Contractual Bilateral Agreement for Inbound Competitive Services, to the Competitive Product List, and Notice of Filing (Under Seal) the Enabling Governors' Decision and Agreement, December 3, 2008 (Public Representative Comments).

8.  In the ACD summary of International Mail, issued March 27, 2008, the Commission concludes that revenue for competitive Inbound Surface Parcel Post (at non-UPU rates) did not cover its corresponding attributable costs by a relatively small amount.