Change in Rates of General Applicability for a Competitive Product, 6221-6222 [E8-1781]

Agencies

• Postal Service

[Federal Register Volume 73, Number 22 (Friday, February 1, 2008)]
[Notices]
[Pages 6221-6222]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-1781]


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POSTAL SERVICE


Change in Rates of General Applicability for a Competitive 
Product

AGENCY: Postal Service.

ACTION: Notice of a change in rates of general applicability for a 
competitive product.

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SUMMARY: This notice sets forth changes in rates of general 
applicability for a competitive product, specifically the establishment 
of a premium for guaranteed delivery of Express Mail pieces on a Sunday 
or holiday.

EFFECTIVE DATE: March 3, 2008.

FOR FURTHER INFORMATION CONTACT: Daniel J. Foucheaux, Jr., 202-268-
2989.

SUPPLEMENTARY INFORMATION: On January 17, 2008, pursuant to their 
authority under 39 U.S.C. 3632, the Governors of the Postal Service 
established a premium for guaranteed Sunday or holiday delivery of 
Express Mail pieces. The Governors' Decision and the record of 
proceedings in connection with such decision are reprinted below in 
accordance with Sec.  3632(b)(2). Implementing regulations are 
published elsewhere in this issue.

Neva R. Watson,
Attorney, Legislative.

Decision of the Governors of the United States Postal Service on a 
Premium For Express Mail Pieces Guaranteed for Delivery on a Sunday or 
Holiday (Governors' Decision No. 08-2)

January 17, 2008

Statement of Explanation and Justification

    Pursuant to our authority under section 3632 of title 39, as 
amended by the Postal Accountability and Enhancement Act of 2006, we 
establish a premium of $12.50 above the current price for delivery 
of non-manifest Express Mail pieces that are guaranteed for delivery 
on a Sunday or holiday. We have reviewed the attached analysis 
provided by management and have evaluated this change in accordance 
with 39 U.S.C. 3632-3633 and 39 CFR 3015.2, which address changes in 
rates of general applicability for competitive services.
    As indicated in the attached analysis, Express Mail pieces 
guaranteed for delivery on a Sunday or holiday pay the same price as 
pieces guaranteed for Monday through Saturday delivery, even though 
the Postal Service incurs additional costs of $5.50 for such pieces. 
The Postal Service is the only carrier in the highly competitive 
express delivery market that offers delivery on Sundays, as well as 
many holidays. The Postal Service's competitors charge at least 
$12.50 for items that are guaranteed for delivery on Saturday, a day 
on which they do not ordinarily provide delivery. The analysis of 
demand and contribution in the attachment indicates that it is 
likely a $12.50 premium on non-manifest Express Mail pieces 
presented for Sunday or holiday delivery will result in a net gain 
in contribution for both Express Mail service and for competitive 
products as a whole.
    Based on this analysis, we find that this proposal complies with 
39 U.S.C. 3633(a): The fee does not raise an issue of subsidization 
of competitive products by market dominant products (39 U.S.C. 
3633(a)(1)); approving it would have no negative effects on the 
ability of Express Mail to cover its attributable costs (39 U.S.C. 
3633(a)(2)); and it would not negatively effect the ability of 
competitive products as a whole to comply with 39 U.S.C. 3633(a)(3), 
which, as implemented by 39 CFR 3015.7 (c), requires competitive 
products to contribute a minimum of 5.5 percent to the Postal 
Service's total institutional costs. Indeed, the analysis indicates 
that this change should result in increased contribution for the 
Express Mail product, and for competitive products as a whole.

Order

    Effective March 3, 2008, a premium of $12.50 shall be added to 
the price of each non-manifest Express Mail piece that is guaranteed 
for delivery on a Sunday or holiday. We direct the Secretary to have 
this decision published in the Federal Register in accordance with 
39 U.S.C. 3632(b)(2). We also direct management to file with the 
Postal Regulatory Commission appropriate notice of this change.
    By the Governors:
    [GRAPHIC] [TIFF OMITTED] TN01FE08.027
    
Analysis of the Express Mail Sunday/Holiday Premium

    The U.S. Postal Service currently accepts approximately 433,000 
Express Mail pieces per year for Sunday or holiday delivery. A 
Sunday delivery costs the Postal Service $5.50 more than a Monday-
Saturday delivery. A premium for Express Mail pieces committed for 
delivery on Sunday or a holiday is sustainable in the marketplace, 
and would allow the Postal Service to capture additional value 
provided by a unique, premium service. A $12.50 premium will be 
accepted by customers, generate additional contribution for the 
Postal Service, and provide protection from risk.

Price and Service Advantages in the Marketplace

    The Postal Service is the only carrier to offer Sunday delivery, 
as well as delivery on many holidays. Other carriers impose a 
surcharge for Saturday delivery. UPS and FedEx currently charge an 
additional $12.50 for Saturday delivery; DHL charges $15.00. The 
Express Mail Sunday/Holiday premium would be equal to or less than 
what competitors charge for Saturday delivery.
    The $12.50 charge also represents less of a premium over Monday-
Saturday average prices than the surcharge other carriers charge for 
Saturday delivery. A charge of $12.50 represents a 72 percent 
premium over the current average Express Mail price, while the same 
amount adds 81 percent to the average price of an overnight FedEx or 
UPS parcel.

Rationale for the Premium Amount

    $12.50 is a price point at which we can capture substantial 
contribution without diverting customers away from postal services. 
Because the premium represents the value of delivering on a non-
business day and is equal to or lower than what competitors charge 
for a similar service, customers will likely accept a charge at this 
level.
    There may be different demand for Sunday delivery than for other 
days of the week. Although overall Express Mail volume has decreased 
approximately 12 percent since the May 2007 rate change, volume for 
Sunday has actually risen more than 10 percent. Given the small 
volume delivered on Sunday, firm conclusions about elasticity cannot 
be drawn, yet the increase does suggest that Sunday Express Mail 
pieces are less price sensitive than the rest of Express Mail.

[[Page 6222]]

    A $12.50 premium also provides protection in the event that 
Sunday delivery costs do not decrease quickly in response to a 
change in volume. Although there is currently a $5.50 cost 
difference between a Sunday delivery and a Monday-Saturday delivery, 
a reduction in Sunday deliveries may not result in short-term cost 
reductions, as staffing plans cannot be changed immediately, and 
because minimum staffing will need to be maintained. A premium of 
$12.50 provides additional margin to cover those costs.
    Using data from the FY 2007 Cost and Revenue Analysis, and 
elasticities from the Docket No. R2006-1 omnibus rate case, a 
premium of $12.50 on non-manifest Express Mail pieces guaranteed for 
Sunday or holiday delivery will likely yield a pro-forma 
contribution increase between $3.1 million and $3.8 million. This 
increase results from additional revenue generated by the premium 
plus net cost savings from pieces that move out of Sunday delivery. 
Manifest pieces are exempt from the premium because the small number 
of these pieces does not justify changing the manifest system at 
this time.

Analysis of Sunday Delivery Demand and Contribution

    Applying the system-wide Express Mail own-price elasticity 
implies a volume loss of slightly less than 250,000 Express Mail 
pieces; rather than disappear, however, the vast majority of these 
pieces will move into Express Mail guaranteed for Monday (or day 
after holiday) delivery or into Priority Mail. Express Mail pieces 
that move to Monday still increase contribution despite the lack of 
a premium, because of the extra cost of Sunday delivery. 
Contribution from pieces that migrate into Priority Mail will 
decrease only about 78 cents per piece, on average.
    There is some risk to these projections. Assuming that 90 
percent of the volume lost from Express Mail on Sunday will migrate 
to Monday delivery (about two-thirds) or Priority Mail (about 23 
percent), and therefore stay within the Postal system. It will 
provide at least some contribution. It is possible, however, that 
these pieces might either switch to another carrier or disappear 
altogether (for instance, through electronic diversion of bill 
payments). To the extent that this possibility is underestimated, 
the net contribution increase resulting from the premium would be 
overestimated. If no lost volume migrates to Monday delivery, 
contribution gain will nonetheless be about half of the estimate, 
assuming that this Express Mail volume has an own-price elasticity 
of demand equal to or lower than that of Express Mail as a whole. If 
that assumption is not valid, contribution gain from the premium 
will be lower, though the price response would have to be more than 
twice that of the product as a whole before we would be at risk of a 
net loss of contribution.
    These factors support the conclusion that a $12.50 premium on 
non-manifest Express Mail presented for Sunday or holiday delivery 
will result in a net gain in contribution for both Express Mail and 
for competitive products as a whole.

Compliance With Relevant Law

    Because the premium will likely increase contribution for both 
Express Mail and for competitive products as a whole, this new 
premium will not raise an issue of subsidization of competitive 
products by market dominant products, (39 U.S.C. 3633(a)(1)), or 
have a negative effect on the ability of Express Mail to cover its 
attributable costs (39 U.S.C. 3633(a)(2)), or for competitive 
products as a whole to comply with 39 U.S.C. 3633(a)(3), which, as 
implemented by 39 CFR 3015.7 (c), requires competitive products to 
cover a minimum of 5.5 percent to the Postal Service's total 
institutional costs.

Certification of Governors' Vote in the Governors' Decision No. 08-2

    I hereby certify that the following Governors voted by paper 
ballot on adopting Governors' Decision No. 08-2:

Mickey D. Barnett
James H. Bilbray
Carolyn Lewis Gallagher
Louis J. Giuliano
Alan C. Kessler
Thurgood Marshall, Jr.
James C. Miller III
Katherine C. Tobin
Ellen C. Williams
The vote was 9-0 in favor.


    Dated: January 17, 2008.
Wendy A. Hocking,
Secretary of the Board of Governors.
[FR Doc. E8-1781 Filed 1-31-08; 8:45 am]
BILLING CODE 7710-12-P