U.S. Appellate Court Upholds USPS Pricing Against UPS Challenge

A U.S. Appellate Court ruling in Washington DC upheld the U.S. Postal Service’s pricing methodology, knocking down a challenge from UPS that categorized it as unfair and anticompetitive, according to a report in Bloomberg.

The three-judge panel found that the USPS’s transfer of some profits from its monopoly on first-class mail delivery to offset parcel delivery costs did not amount to a subsidy of those operations, which is forbidden under the 2006 Postal Accountability and Enhancement Act. The USPS’s pricing is set by the Postal Regulatory Commission (PRC).

Part of the accountability act requires all direct and indirect costs of USPS’s competitive products to be covered by revenue from that service in order to avoid subsidization. But only a portion of variable costs such as wages are included in the calculation, per the PRC.

The appellate panel found the PRC’s pricing method for competitive services doesn’t run afoul of the accountability act. It also ruled UPS failed to prove that the act requires the PRC to treat all variable costs as attributable to competitive products.

In a statement UPS said the PRC allowed the USPS to attribute too much of its costs to overhead and not enough to its parcel delivery operations, thus understating the true costs of its parcel products. A spokesman said the company has not decided yet on an appeal to the U.S. Supreme Court.

“We asked the PRC to review these costing practices and undertake appropriate changes,” the company said. “Some key recommendations were not implemented. We petitioned the D.C. Circuit Court to compel the PRC to align the cost allocation model with what we believe to be the meaning and intent of current laws. The court chose not to agree. Ultimately UPS is seeking a level playing field among competitors, whether they are a publicly traded company or a government mandated public entity.”

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