Q&A: Postal Chairman Dan Blair in the Hot Seat

With rates what they are, many catalogers are ready to go postal about rising costs. Dan G. Blair, chairman of the Postal Regulatory Commission, addressed some of their concerns in an exclusive interview with Multichannel Merchant.

Q: How would you describe the PRC’s role in the rate-setting process?
A: Prior to the passage of the Postal Accountability and Enhancement Act (PAEA) in December 2006, the Commission recommended adjustments in postal rates and classification to the Governors of the U.S. Postal Service. The law significantly strengthened the Commission. Our primary responsibility as a regulator is to ensure transparency and accountability of the Postal Service. We are no longer a rate-setting body, but a regulator ensuring that the Postal Service complies with the requirements of the law.

Q: Besides volume, what factors does the PRC consider when differentiating mail classifications during the rate-setting process?
A: Under the PAEA, the Commission must consider several criteria when determining whether different postal offerings should be classified as separate products. For an offering to be a separate product, the Commission must determine that the postal offering has either distinct cost characteristics or distinct market characteristics for which a rate or rates may be reasonably applied. During the rate-setting process, the Commission must also ensure that workshare discounts do not exceed 100% of the cost that the Postal Service avoids as a result of the worksharing activity unless the USPS demonstrates that the discount meets certain statutory criteria.

Q: Catalogs got hit hard with the rate hike last May. How would you explain those exorbitant rate increases for Standard Mail Flats?
A: That increase was considered under the old rules governing rate adjustments under the Postal Reorganization Act, and came after two settled rate cases, in 2001 and 2005. Because of these settled cases, rates were not tracking costs. Thus, between 2000 and 2006, the relationship between rates and costs eroded substantially. This caused the Postal Service to have a higher net revenue from letters than from flats, despite the fact that letters are less expensive to process. To address this, the Commission’s recommended flat rates moved Standard Regular flats toward paying a fairer share. Piece by piece—even under the PRC’s recommended rates—Standard Mail flats do not contribute as much as Standard Mail letters do to the overall cost of the postal system. Under the Commission’s recommended rates, the Postal Service makes roughly 3 cents more from letters than from flats.

Q: With reform, why is it necessary to raise rates every May?
A: The law gives the USPS more flexibility to determine how often to change rates subject to several statutory objectives. The Postal Service expects to implement rate changes for all market dominant classes annually in mid-May. As long as the adjustments are made on a schedule that maintains predictability and stability in rates, the USPS can adjust rates at any time.
Even with the CPI cap under the reform bill, some catalogers are concerned they could still bear the brunt of an increase among Standard Mailers. What should they do? We encourage the public to submit written comments when the Postal Service files a Notice of Price Change. Second, individuals may file complaints if they believe that the Postal Service is not complying with relevant provisions of the law. Third, comments may be submitted seeking redress in connection with the Commission’s Annual Compliance Determination.

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