Electronic Retailer - April 2011 - 51

While the impact of the new rates will vary depending on the product weight and other shipping characteristics of packages mailed by marketers, the average increase in mailing costs could be as high as 40 percent.
and, because of limitations on shipping and handling or shipping and processing charges, affected retailers may wish to consider their options for mitigating the impact of these forthcoming changes. The USPS is, in part, a regulated public utility. Services deemed to have market power are classified as “market dominant” and prices for those products are subject to rate regulation constraints. The Postal Service has more flexibility and control over prices for services deemed “competitive,” although there are still some pricing constraints for those services. By law, services can be transferred from the market dominant to the competitive category if the Postal Service requests the change and the PRC approves. In the March decision, the Commission approved the Postal Service’s request to transfer Standard Mail Parcels with a weight of less than one pound from the market dominant category to the competitive category, after finding the statutory criteria for the transfer had been met. The PRC determined that the Postal Service’s ground shipping market was competitive, noting that competitors hold a 20.8 percent (by volume) and 55 percent (total revenue) share of the under one-pound ground parcel market. The Commission further stated that there was no way for the Postal Service to estimate the volume or revenue impacts and that any pricing power the Postal Service may enjoy in the market was “illusory.” In addition, the PRC accepted the Postal Service’s argument that the transfer would provide some desired advantages by simplifying the contractual arrangements for parcels across all weights, enhancing the Postal Service’s ability to compete in the “Parcel Select” market. Transfer of these parcels to the competitive product list and pricing them to recover costs, the PRC explained, would provide a better opportunity for favorable customized rate contracts or negotiated service agreements. The Commission’s order is subject to the following conditions: • The USPS must file a notice of competitive price adjustment for rates, including lightweight “Parcel Select” parcels, which demonstrates that the rates will satisfy the cost regulations for the competitive products; • The Commission issues an order finding that the proposed competitive price adjustments for Parcel Select rates do, in fact, satisfy the competitive pricing regulations; and • The Standard Mail parcels transfer authorized by the Commission’s order is not effective until the effective date of the competitive price adjustments. There are a number of companies in the private sector engaged in the delivery of parcels but those companies’ rates for these lightweight pieces are generally considerably higher than the Postal Service’s. Even though UPS and FedEx are formidable competitors, neither intervened nor expressed a view in the proceeding. The PRC expressed the opinion that this was partially because increases in the USPS lightweight parcel rates should enhance the compet-

itive position of the Postal Service’s private competitors. In addition, the Commission noted that three of the Postal Service’s 10 largest customers viewed the transfer as favorable and that no other mailer using the product expressed a view about the transfer. The PRC also found no evidence of any concerns from small businesses providing delivery service that would be impacted by the transfer. Nevertheless, the Commission reiterated that the transfer of Standard Mail parcels to the competitive product list does not excuse the Postal Service from meeting its obligation to provide universal service for those parcels, and that reasonably priced package services are particularly important to customers in all relatively isolated areas served by the Postal Service. The Postal Service’s Universal Service Obligation covers all mail matter, not just market dominant products, and requires that rates be fair and reasonable. It also prohibits undue or unreasonable discrimination or preferences by the Postal Service. It is clear from the March decision that the Commission expects its order to result in a substantial increase in the rates for business-to-consumer parcels containing merchandise and weighing less than a pound. While the impact of the new rates will vary depending on the product weight and other shipping characteristics of packages mailed by marketers, the average increase in mailing costs could be as high as 40 percent. The new rates, which must be reviewed and approved by the Commission, could take effect as early as April 17 and will almost certainly be in effect before June 1, 2011. Jeffrey D. Knowles is a partner at Venable LLP and chair of the advertising, marketing and new media group. Contact Knowles at (202) 344-4860 or at jdknowles@venable.com. David M. Levy is a partner in Venable’s postal law practice. Contact Levy at (202) 344-4732 or at dmlevy@Venable.com. 51

April 2011 | electronicRETAILER

Electronic Retailer - April 2011

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