E9-23895. New Postal Product

AGENCY:

Postal Regulatory Commission.

ACTION:

Final rule.

SUMMARY:

The Commission is adding Inbound Direct Entry Contracts with Foreign Postal Administrations (MC2008-6) to the Competitive Product List. This action is consistent with changes in a recent law governing postal operations. Republication of the lists of market dominant and competitive products is also consistent with new requirements in the law.

DATES:

Effective October 5, 2009 and is applicable beginning September 4, 2009.

FOR FURTHER INFORMATION CONTACT:

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

SUPPLEMENTARY INFORMATION:

Regulatory History, 74 FR 44880 (August 31, 2009).

I. Introduction

II. Background

III. Comments

IV. Commission Analysis

V. Ordering Paragraphs

I. Introduction

The Postal Service requests to add a new Inbound Direct Entry (IDE) contract to the Inbound Direct Entry Contracts with Foreign Postal Administrations product established in Docket No. MC2008-6.^[1] In its filing, the Postal Service also requests to have the instant contract designated as the new baseline agreement for purposes of determining the functional equivalence of future IDE contracts. Id. at 2. For the reasons discussed below, the Commission approves the addition of the instant contract to the Competitive Product List as a new product, Inbound Direct Entry Contracts with Foreign Postal Administrations 1 (referred to hereinafter as IDE 1).

II. Background

On August 21, 2009, the Postal Service filed a notice pursuant to 39 U.S.C. 3633 and 39 CFR 3015.5 announcing that it has entered into an Inbound Direct Entry (IDE) contract with New Zealand Post Limited (NZP), the public postal operator of New Zealand. It states that the NZP agreement is functionally equivalent to previously established IDE contracts filed in Docket Nos. CP2008-14, CP2008-15 and CP2009-41. Id. at 1. The IDE product allows the Postal Service to provide foreign postal administrations with the ability to ship sacks of parcels that are pre-labeled for direct entry into the Postal Service's mailstream in exchange for applicable domestic postage plus a sack handling fee. The core of the service is the sack handling and entry as domestic mail.

The Postal Service also publicly filed a redacted version of the contract, an application for non-public treatment of supporting materials, a certified statement required by 39 CFR 3015(c)(2), a redacted version of the Governors' Decision that authorizes IDE contracts, and a redacted version of the supporting financial information. The contract and supporting financial information were filed under seal.

The Notice states that the instant contract is functionally equivalent to the IDE contracts previously submitted, fits within the Mail Classification Schedule (MCS) language included in Attachment A to Governors' Decision No. 08-6, and should be included within the IDE contracts product. Id. at 2. In Order No. 105, the Commission approved the individual IDE contracts in Docket No. MC2008-6 as functionally equivalent and added the contracts to the Competitive Product List as one product under the IDE classification.^[2]

The Postal Service includes by reference its arguments regarding the functional equivalence to the IDE contracts as indicated in Docket Nos. CP2008-14 and CP2008-15, with three noted exceptions. Notice at 3 (footnote omitted). The instant IDE contract, it claims, resembles the contracts in Docket Nos. CP2008-14 and CP2008-15, except as to the provisions on the term, confidentiality, and payment account details. Id. at 3-4.

The Postal Service maintains that some materials should remain under seal including certain portions of the contract and certified statement required by 39 CFR 3015.5(c)(2), related financial information, portions of the certified statement which contain costs and pricing, as well as the accompanying analyses that provide prices, terms, conditions, and financial projections. Id. at 2-3.

The Postal Service will notify the customer of the effective date of the contact within 30 days after receiving all regulatory approvals. The contract term is 1 year from the effective date, but will be renewed automatically until terminated by the parties.

In Order No. 289, the Commission gave notice of this docket, appointed a Public Representative, and provided the public with an opportunity to comment.^[3]

III. Comments

Comments were filed by the Public Representative.^[4] No other interested persons submitted comments. The Public Representative states that “[e]ach pertinent element of 39 U.S.C. 3632, 3622, and 3642 appears to be met by this contract.” Id. at 1. He also notes that each element of 39 U.S.C. 3633(a) appears to be met by this additional IDE contract. Id. at 5. The pricing, in light of supporting documentation filed under seal, appears adequate and compliant.^[5] Id. The Public Representative concludes that the contract appears to be functionally equivalent to the other contracts within the IDE contract product (MC2008-6) classification, and the contract contains pricing incentives and other provisions beneficial to both the Postal Service and the general public.^[6] Without opposing the proposal to treat the NZP agreement as a new baseline, he does question why a functionally equivalent agreement should create a new baseline. Id. at 4. He underscores that the MCS must retain precision to preclude erosion of accountability and transparency. Id. As a safeguard, he proposes that the Postal Service outline in its future notices of any functionally equivalent agreement material distinctions and similarities. Id.

IV. Commission Analysis

The three main issues in this proceeding are whether the agreement satisfies 39 U.S.C. 3633, and the interrelated issue of whether the instant contract is functionally equivalent with previously filed IDE contracts; and whether it should be classified as a baseline for future IDE contracts.^[7] In reaching its conclusions, the Commission has reviewed the Notice, the agreement and the financial analyses provided under seal, and the Public Representative's comments.

Statutory requirements. The Postal Service contends that the instant agreement and supporting documents filed in this docket establish compliance with the statutory provisions applicable to rates for competitive products (39 U.S.C. 3633). Notice at 2. It asserts that Governors' Decision No. 08-6 supporting this agreement establishes a pricing formula and classification that ensures each contract meets the criteria of 39 U.S.C. 3633 and the regulations promulgated thereunder. It further states that the previously proposed IDE MCS language requires each contract to cover its attributable costs. Id. at 3.

During the review of the Postal Service's financial supporting documentation, the Commission found discrepancies between (a) the supporting financial material, and (b) the contract rate provisions. The financial supporting documentation uses rates in effect prior to the May 11, 2009 increase in prices for market dominant products.^[8] The contract, however, contains the rates currently in effect. Additionally, the contract is based on Priority Mail commercial rates; however, the financial supporting documentation uses Priority Mail retail rates. These discrepancies did not adversely affect cost coverage for the contract. The Commission found these same discrepancies in Docket No. CP2009-41 and highlighted them in Order No. 248.^[9]

Based on the data submitted and its analysis, the Commission finds that the agreement should cover its attributable costs (39 U.S.C. 3633(a)(2)), should not lead to the subsidization of competitive products by market dominant products (39 U.S.C. 3633(a)(1)), and should have a positive effect on competitive products' contribution to institutional costs (39 U.S.C. 3633(a)(3)). Thus, an initial review of the proposed agreement indicates that it comports with the provisions applicable to rates for competitive products.

Functional equivalence/baseline treatment. The Postal Service asserts that the instant contract is functionally equivalent to the IDE contracts filed previously because it shares similar cost and market characteristics, and therefore the contract should be classified as a single product. Notice at 3. The Postal Service notes, however, that the instant contract includes provisions not contained in the earlier IDE contracts. Id. These differences include: (1) Renewal can result automatically, without the parties' mutual agreement; (2) confidentiality duties that comport with the Commission's new confidentiality rules, and are governed in the text of the agreement rather than under an annex; and (3) the payment methods that are comparable to the terms in Docket No. CP2008-15, but not other prior IDE contracts.^[10] Id. at 4.

The Postal Service also requests that the instant contract be considered a new baseline for future functional equivalent comparisons “[b]ecause future IDE Contracts are likely to resemble this contract in form and substance. Notice at 2. The Postal Service also explains that the text of the earlier IDE contracts contain different extension terms, confidentiality, and payment account detail provisions, and it intends to incorporate the new provisions into subsequent IDE contracts. Thus, it expects “future IDE Contracts to resemble the instant contract more closely than those in Docket Nos. CP2008-14 and CP2008-15.” Id. at 4.

In lieu of ruling on the functional equivalence of the instant contract to those previously filed, the Commission concludes, for reasons of accountability and transparency as suggested by the Public Representative, that the more appropriate outcome is to add the instant contract to the Competitive Product List as a new product, IDE 1. In approving the initial IDE contract, it was the Commission's expectation that it would be followed by additional IDE contracts that may exhibit sufficient variation from the initial contract to warrant being classified as a new product, e.g., IDE 2, IDE 3, etc. Given the Postal Service's intent to use the instant contract as a template for future IDE contracts and that it contains provisions not included in the earlier IDE contracts, the Commission will label the instant contract as a new product, IDE 1. To the extent that future IDE contracts with foreign posts are (substantially) based on the instant contract, the Postal Service may seek to have them classified as functionally equivalent. To the extent that such future contracts differ substantially, the Postal Service should file a request, pursuant to 39 CFR 3020.1 et seq., to add a new product to the Competitive Product List.^[11]

Following the current practice, the Postal Service shall identify all significant differences between any new IDE contract and the IDE 1 product. Such differences would include terms and conditions that impose new obligations or new requirements on any party to the contract. In addition, and consistent with the current practice, a redacted copy of Governors' Decision No. 08-6 should be included in the new filing.

V. Ordering Paragraphs

It is ordered:

1. A new subcategory titled “Inbound Direct Entry Contracts with Foreign Postal Administrations” shall be created under the Inbound International category appearing in the Competitive Product list. This subcategory will include all individual Inbound Direct Entry Contracts with Foreign Postal Administrations products.

2. The existing product titled “Inbound Direct Entry Contracts with Foreign Postal Administrations (MC2008-6, CP2008-14 and CP2008-15)” shall appear under the subcategory Inbound Direct Entry Contracts with Foreign Postal Administrations until each of the individual contracts within this product has expired.

3. The IDE contract filed in Docket No. CP2009-62 is added to the Competitive Product List as a new product, “Inbound Direct Entry Contracts with Foreign Postal Administrations 1 (MC2008-6, CP2009-62)” and shall appear under the subcategory Inbound Direct Entry Contracts with Foreign Postal Administrations.

4. The Postal Service shall notify the Commission of the scheduled effective date and termination date and update the Commission if the contract terminates at an earlier date.

5. The Secretary shall arrange for 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.

Judith M. Grady,

Acting 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 Schedule to read as follows:

Appendix A to Subpart A of Part 3020—Mail Classification Schedule

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

Inbound International

Canada Post—United States Postal Service Contractual Bilateral Agreement for Inbound Market Dominant Services

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

2000 Competitive Product List

Express Mail

Express Mail

Outbound International Expedited Services

Inbound International Expedited Services

Inbound International Expedited Services 1 (CP2008-7)

Inbound International Expedited Services 2 (MC2009-10 and CP2009-12)

Priority Mail

Priority Mail

Outbound Priority Mail International

Inbound Air Parcel Post

Royal Mail Group Inbound Air Parcel Post Agreement

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 Contract 3 (MC2009-15 and CP2009-21)

Express Mail Contract 4 (MC2009-34 and CP2009-45)

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

Express Mail & Priority Mail Contract 2 (MC2009-12 and CP2009-14)

Express Mail & Priority Mail Contract 3 (MC2009-13 and CP2009-17)

Express Mail & Priority Mail Contract 4 (MC2009-17 and CP2009-24)

Express Mail & Priority Mail Contract 5 (MC2009-18 and CP2009-25)

Express Mail & Priority Mail Contract 6 (MC2009-31 and CP2009-42)

Express Mail & Priority Mail Contract 7 (MC2009-32 and CP2009-43)

Express Mail & Priority Mail Contract 8 (MC2009-33 and CP2009-44)

Parcel Select & Parcel Return Service Contract 2 (MC2009-40 and CP2009-61)

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)

Priority Mail Contract 5 (MC2009-21 and CP2009-26)

Priority Mail Contract 6 (MC2009-25 and CP2009-30)

Priority Mail Contract 7 (MC2009-25 and CP2009-31)

Priority Mail Contract 8 (MC2009-25 and CP2009-32)

Priority Mail Contract 9 (MC2009-25 and CP2009-33)

Priority Mail Contract 10 (MC2009-25 and CP2009-34)

Priority Mail Contract 11 (MC2009-27 and CP2009-37)

Priority Mail Contract 12 (MC2009-28 and CP2009-38)

Priority Mail Contract 13 (MC2009-29 and CP2009-39)

Priority Mail Contract 14 (MC2009-30 and CP2009-40)

Priority Mail Contract 15 (MC2009-35 and CP2009-54)

Priority Mail Contract 16 (MC2009-36 and CP2009-55)

Priority Mail Contract 17 (MC2009-37 and CP2009-56)

Outbound International

Direct Entry Parcels Contracts

Direct Entry Parcels 1 (MC2009-26 and CP2009-36)

Global Direct Contracts (MC2009-9, CP2009-10, and CP2009-11)

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 Expedited Package Services 2 (CP2009-50)

Global Plus Contracts

Global Plus 1 (CP2008-8, CP2008-46 and CP2009-47)

Global Plus 2 (MC2008-7, CP2008-48 and CP2008-49)

Inbound International

Inbound Direct Entry Contracts with Foreign Postal Administrations

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

Inbound Direct Entry Contracts with Foreign Postal Administrations 1 (MC2008-6 and CP2009-62)

International Business Reply Service Competitive Contract 1 (MC2009-14 and CP2009-20)

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]

Part C—Glossary of Terms and Conditions [Reserved]

Part D—Country Price Lists for International Mail [Reserved]

Footnotes

1.  Notice of United States Postal Service of Filing Functionally Equivalent Inbound Direct Entry Contracts Negotiated Service Agreement, August 21, 2009 (Notice).

2.  See Docket Nos. MC2008-6, CP2008-14 and CP2008-15, Order Concerning Prices Under Inbound Direct Entry Contracts With Certain Foreign Postal Administrations, September 4, 2008, at 8 (Order No. 105).

3.  PRC Order No. 289, Notice and Order Concerning Filing of Functionally Equivalent Inbound Direct Entry Contracts Negotiated Service Agreement, August 25, 2009 (Order No. 289).

4.  Public Representative Comments in Response to United States Postal Service Request to Add Inbound Direct Entry Contract to the Competitive Products List, September 3, 2009 (Public Representative Comments). The Public Representative filed an accompanying Motion of the Public Representative for Late Acceptance of Comments in Response to United States Postal Service Request to Add Inbound Direct Entry Contract to the Competitive Product List, September 3, 2009. The motion is granted.

5.  The Public Representative determines that the Postal Service has provided adequate justification for maintaining confidentiality in this case. Id. at 2. He affirms that his review of the materials filed under seal indicates that the instant contract complies with the pricing formula for IDE contracts.

6.  Id. at 1 and 3. He also concurs that the agreement appears to satisfy costing requirements, but seeks clarity in the process. Id. at 4-5, citing 39 CFR 3020.13(b)(3).

7.  Previously, the Commission found the Inbound Direct Contracts product to be properly classified as a competitive product. See Order No. 105 at 7; see also 36 U.S.C. 3642(d).

8.  See Docket No. R2009-2, Order Approving Revisions in Amended Notice of Market Dominant Price Adjustment, April 9, 2009. The Postal Service filed rates to become effective May 11, 2009.

9.  Docket No. CP2009-41, Order Concerning Filing of Functionally Equivalent Inbound Direct Entry Contracts Negotiated Service Agreement, July 15, 2009 (Order No. 248).

10.  The present contract differs from Docket No. CP2008-14, which did not use the Centralized Trust Account payment method, and Docket No. CP2009-41, which included an annex based on foreign financial regulatory requirements.

11.  As the Commission recently noted in Order No. 290, `[f]uture requests to implement a new baseline agreement should be filed as an MC docket since it will result in adding a new product to the product list and may result in removing a product from the product list.” Docket No. CP2009-50, Order Granting Clarification and Adding Global Expedited Package Services 2 to the Competitive Product List, August 28, 2009 (Order No. 290).