PRC Approves Zone 10, Faults Unresponsive USPS

On March 22, the Postal Regulatory Commission approved a Postal Service proposal, filed November 22, 2023, to add a new Zone 10 to the prices for Priority Mail Express, Priority Mail, and USPS Ground Advantage.  The USPS had stated in its filing that, if approved, the new Zone 10 prices would be effective at a future date, but no sooner than July 1, 2024.

The filing

As the PRC summarized the Postal Service’s proposal,

“… The proposed new Zone 10 and associated prices will apply to (1) packages originating in the Lower 48 States and destined to Alaska, Hawaii, or the US Territories (which include Puerto Rico, the US Virgin Islands, and territories in the Pacific, including Guam and American Samoa); (2) packages originating in Alaska and destined to Hawaii or the US Territories; (3) packages originating in Hawaii or a territory in the Pacific Ocean and destined to Alaska, Puerto Rico, or the US Virgin Islands; and (4) packages originating in Puerto Rico or the US Virgin Islands and destined to Alaska, Hawaii, or a territory in the Pacific Ocean.  The proposed Zone 10 does not apply to packages that originate in Alaska, Hawaii, or the US Territories and are destined to the Lower 48 States.”

The proposed prices are 5% higher than those that took effect on January 21.  As the PRC further explained:

“To explain the rationale for its proposal, the Postal Service states that the new Zone 10 and associated prices ‘will better align with the zoning practices of [its] competitors, who currently have separate zones for offshore destinations.’  The Postal Service states that its ‘competitors charge significantly more for shipments from the Lower 48 states to offshore locations than for shipments in the reverse direction.’  The Postal Service also states that its decision to establish Zone 10 is ‘cost-based in nature’ because ‘[t]he cost of transport to offshore locations is higher on average than it is to transport to non-offshore destinations.’  Specifically, the Postal Service explains that there are more limited transportation options to offshore destinations, and the use of air transportation, the mix of air transportation providers, and the need to use higher cost providers all contribute to higher costs.  The Postal Service does not, however, provide specific data and sources demonstrating these cost factors or otherwise demonstrating support for the ‘cost-based’ nature of the new Zone 10 prices. …”

The order

In its order approving the rates, the commission noted that its statutory role is to review proposed USPS prices to ensure their legality, and that it has no authority to reject or alter proposed prices on other grounds, such as the prudence of the underlying policy or the adequacy of the Postal Service’s consideration of related non-statutory issues.

“Despite significant concerns with the policy implications of the proposed changes and the Postal Service’s handling of this proposal, the Commission recognizes that its role in reviewing proposed Competitive product rate and classification changes is extremely limited by law.  The Commission approves the proposed price and classification changes as consistent with applicable law and finds that it has no legal basis to reject the proposed changes.  At the same time, the Commission is concerned that the Postal Service’s proposal does not reflect reasoned consideration of the potential widespread effects of its proposal, is not prudent, and is not consistent with the best interests of all stakeholders.  The Commission strongly encourages the Postal Service and the Governors to give this proposal further consideration and study in light of the overwhelming number of substantive concerns expressed in the record by Postal Service customers and stakeholders before determining whether it is prudent or necessary to establish a new Zone 10 for Priority Mail Express, Priority Mail, and USPS Ground Advantage and implementing new Zone 10 prices.”

The commission had received over two dozen comments, many from Alaska’s federal and state legislators, with all but one (ironically, from the PRC’s “Public Representative”) opposing the USPS proposal.  As the commission noted:

“… The majority of the commenters describe the effects the Postal Service’s proposal would have on individuals living in offshore areas and in Alaska in particular.  Specifically, commenters raise concerns that the creation of Zone 10 would raise prices significantly and reduce shipping options in areas where individuals already face a higher cost of living, fewer delivery and shipping options, less reliable service, and more difficulty accessing certain goods. … Several commenters discuss what they view as the Postal Service’s obligation to serve and its history of serving all Americans at non-discriminatory prices. … Several commenters assert that the Postal Service is a public service, and not a business, and state that the Postal Service is unfairly singling out offshore areas for disparate treatment and contributions to revenue and that it should instead use its market power to ensure fair pricing for all Americans and spread necessary price increases and the costs of service across the entire postal system or receive government subsidies. … Several commenters question whether shipping services to Alaska or other offshore areas are part of a competitive market given the lack of alternatives available. …”


Somewhat uncharacteristically, but just as significantly, the commission devoted about one-third of its order to address matters outside its narrow statutory authority to approve or reject pricing proposals:

“… based on the record before the Commission, the Commission is concerned that the Postal Service’s proposal may not be prudent and that the Postal Service has not given its proposal adequate consideration and study.  Thus, the Commission would be remiss if it did not raise the several concerns it has with the Postal Service’s proposal and approach.

“…The Postal Service also states that it ‘recognizes the possibility that customers or representatives of certain offshore locations may voice concerns regarding the impact of price increases from the establishment of Zone 10 pricing.’ … However, the Postal Service also acknowledges that it did not complete ‘market research, customer impact studies, surveys, focus groups, and/or testing with alternative prices to determine the impacts of adding Zone 10 prices’ and asserts that it ‘did not find it necessary to conduct’ such advance study.

“… The Postal Service’s lack of advance study and research into the effects of its proposal is concerning as is the fact that the Postal Service has deemed such study unnecessary. … Although none of these concerns provides a legally sufficient basis for rejecting the proposal, the Commission is concerned that the Postal Service’s proposal may not be prudent and strongly encourages the Postal Service and the Governors to give this proposal further consideration and study before determining whether to establish a new Zone 10 and implement new Zone 10 prices.

The commission also questioned the lack of support for the Postal Service’s claims of higher costs:

“… [Commenters] allege that the proposal may be an abuse of the Postal Service’s pricing authority if the cost-basis is not substantiated. … Although the Postal Service is correct that disaggregated Zone 10 costs are not necessary to determine the proposed prices’ compliance with [statute], the Commission is concerned that the Postal Service claims its proposal is cost-based but has yet to undertake the effort to disaggregate Zone 10 costs and confirm that its assumption is supported by its available transportation data.  Similar to its failure to undertake advance study and research of the effects of its proposal, the Postal Service’s failure to determine actual Zone 10 transportation costs in advance of its initial filing is concerning. …”

The PRC also addressed the issue of universal service:

“Several commenters assert that the Postal Service has an obligation as a public service and pursuant to its universal service obligation to serve all areas of the country equally and at non-discriminatory prices. … Although the universal service obligation requires that the Postal Service serve all areas of the nation, nothing in current law requires the Postal Service to ensure equal prices for Competitive products across all areas of the United States. …

“The law also contains the more general requirements that the Postal Service ‘provide adequate and efficient postal services at fair and reasonable rates,’ operate ‘as a basic and fundamental service provided to the people . . . to bind the Nation together through the personal, educational, literary, and business correspondence of the people,’ and ‘render postal services to all communities.’  The language of [the statutes] impose clear legal obligations on the Postal Service and its Governors.  However, the Commission does not have enforcement authority over either of those provisions. …”

To some observers, the myopic pursuit of additional revenue through Zone 10 prices without any evaluation of the market response or impact on customers is emblematic of Postmaster General Louis DeJoy arbitrary and high-handed attitude.  Likely aware (and indifferent) that the PRC could do nothing about any issues outside its statutory role, and that the PRC could not require the USPS to give more than passing response to commenters’ concerns, DeJoy saw little reason to not ratchet up prices where USPS competitors may already be charging more. The commission was clearly frustrated that it’s legal charter does not allow it to go beyond the simple numbers when reviewing a postal pricing proposal.  Regardless, the PRC is doing what it can to examine the matter further, and has opened a public inquiry docket accordingly.

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