In the rulemaking proceeding under review, the PRC expanded the definition of worksharing well beyond work that can be performed by either the Postal Service or a mailer. In so doing, it has created a discount tail that wags the pricing dog. Instead of providing the Postal Service with the pricing flexibility that the PRC itself has said was a principal goal of Congress in enacting the PAEA, the PRC has made the workshare discount the force that drives pricing decisions for one of the Postal Service’s flagship products, Presorted First-Class Mail and, in turn, restricts the Postal Service’s options regarding other First-Class products.

First, the plain language of the PAEA limits workshare discounts to four discrete activities: “the presorting, prebarcoding, handling, or transportation of mail.” 39 U.S.C. § 3622(e)(1). While the PRC has authority to further define those four specified activities, it does not have authority to add to the list of worksharing activities. Nonetheless, that is precisely what it has done in its Order by purporting to regulate, pursuant to its authority under the workshare provisions, “ancillary workshare characteristics” that have nothing to do with work that can be performed by either the mailer or the Postal Service and that do not result in any “avoided costs” for the Postal Service. This Court should set aside the PRC’s conclusion that it has the authority to regulate nonworksharing activities and mail characteristics pursuant to the worksharing provisions of the PAEA because that conclusion is arbitrary, capricious and contrary to the plain language of the PAEA.

Second, the PRC incorrectly concluded that worksharing relationships can exist between and across mail products. By definition, mail products have different cost characteristics, different demand characteristics or both. In contrast, a worksharing relationship between two types of mail is predicated on the notion that the only difference between the two is the costs avoided by a mailer’s worksharing activity. In other words, there is a benchmark type of mail and a workshared variant of that type of mail that costs less for the Postal Service to process. That difference in costs – costs avoided – is reflected in a discount that may not exceed the costs avoided by the worksharing activity. Contrary to the PRC’s Order, a type of mail in one product group cannot serve as the benchmark for a type of mail in another product group because those separate products have different cost or demand characteristics. Thus separate products have cost differentials or pricing differentials that are not related to any of the four specified worksharing activities and do not reflect “costs avoided” by the Postal Service. Moreover, this conclusion undermines the Postal Service’s pricing flexibility as well as other objectives of the PAEA, while the PRC did not identify a single objective of the PAEA that is served by its conclusion. In fact, the PRC suggested that it could exercise its authority under the worksharing provisions of the PAEA without reference to the objectives of the PAEA. In these circumstances, it is clear that the conclusion that worksharing relationships can exist between and across separate mail products is arbitrary, capricious and contrary to the PAEA.

Third, even if a workshare-discount relationship could exist across products, the PRC incorrectly concluded that there is a workshare relationship between Presorted First-Class Mail and Single-Piece First-Class Mail. The evidence in the record does not support the PRC’s conclusion. To the contrary, the evidence strongly suggests that Presorted and Single-Piece First-Class Mail are fundamentally distinct types of mail, and it is inappropriate to benchmark one to the other. According to the PRC, a worksharing relationship exists if benchmark mail is likely to convert in significant numbers to the workshared variant when the discount is provided and if workshared mail is likely to revert to the benchmark type when the discount is withdrawn. The evidence in the record shows that the historic process of conversion from Single-Piece to Presorted First-Class Mail is largely over. Additionally, a presort mailer faced with a price increase due to elimination of the discount is more likely to convert, where possible, to lower cost and less profitable Standard Mail or to leave the mail altogether. Thus the conclusion that a worksharing relationship must be maintained between some unidentified subset of Single-Piece First Class Mail and Presorted First-Class Mail is arbitrary and capricious, and this Court should grant the petition for review.

USPS Brief in PRC Worksharing Litigation

Under section 3622(e) of the Postal Accountability and Enhancement Act of 2006 (PAEA), workshare discounts for market-dominant products are limited to the costs avoided by worksharing. The last time the Postal Service adjusted its rates, it contended that under the PAEA, this limitation only applies below the level of individual products. The Commission established Docket RM2009-3 to solicit public input and develop a full record on issues concerning the proper interpretation, scope, and application of section 3622(e).

Today, the Commission has reaffirmed that the section 3622(e) limitation on the size of workshare discounts applies to discounts between different products, such as Single-Piece and presort First-Class Mail, which serves the same market as a comparable product such as single-piece mail that is not workshared. The Commission concluded that:

• There is a large subset of Single-Piece First-Class mail that serves essentially the same market as presort First-Class Mail, and that a worksharing relationship exists between the two groups;

• The benchmark currently used to measure avoided costs for presort First-Class Mail is obsolete; and
• Because Standard High Density and Standard Saturation Mail serve separate markets, the section 3622(e) limitations on workshare discounts do not apply to the rate relationship between those two categories.

The Commission has also established guidelines to help determine the scope of worksharing activities. The Commission is initiating Docket RM2010-13 to consider proposals to identify appropriate benchmarks to use to measure the costs avoided by worksharing and establish discounts in the future.

Located at 8551 Industrial Drive, Jacksonville, the facility will have the annual capacity to presort more than 40 million pieces of First-Class™ letter mail and Standard-Mail® in its first year of operation. The 40,000-square-foot center will employ approximately 30 people by the end of 2010.

“Our new facility in Jacksonville will serve as an important gateway for Pitney Bowes to offer Florida customers convenient, one-stop presorting of their mail to help optimize deliverability and reduce postage costs,” said Jay Oxton, president, Presort Services, Pitney Bowes. “We are thrilled to join the Jacksonville business community and look forward to working with area customers to meet their mail presorting needs.”

As the nation’s leading mail presorter, Pitney Bowes enables customers to receive significant postage discounts on First-Class™ letters and flats, and Standard Mail®. Pitney Bowes currently handles 14 billion pieces of mail per year through its 37 facilities across the United States.

via New Pitney Bowes Mail Presort Facility to Open in Jacksonville, Florida | Pitney Bowes Newsroom.

Sounds fair to me!

OK, so maybe that won’t work- but neither will going the other way and eliminating workshare discounts. I don’t understand the arguments of people like Bill Burrus, and the readers who posted comments on the BMG story, who claim that big mailers are getting unfair discounts. This may come as a surprise to Bill, but when my electric company sends me my statement, they don’t take up a collection among the shareholders to come up with the postage money. It’s a business expense- the customer pays it- me! So if they can get a few cents off the postage by presorting, it’s to my advantage, too! And the same goes for Aunt Minnie’s subscription to Rolling Stone- take away the discount, and she’s the one who’s going to foot the bill, not Jann Wenner.

So let’s get real about this- the APWU doesn’t like automation discounts because they don’t like automation, not because there’s anything unfair about the discounts. And they don’t like automation for one obvious, and perfectly understandable reason- it costs the APWU members. Notice that I didn’t say it costs jobs- jobs may disappear, but not one person loses his or her job. People who leave aren’t replaced, and in some cases, employees end up having to commute further or work a different shift, but they don’t get laid off. As I pointed out a while back, it’s difficult to work up a lot of sympathy among the general public for people who have ‘jobs for life’, but who may have to work a different shift because of changes in the way mail gets worked. It’s much easier from a PR perspective to rant about evil business tycoons, or the shame of not having a postmark to call your own.

The APWU, and the BMG commenters, are right to argue against unreasonable consolidation proposals, and to try to keep postal work in house. But a scorched earth policy of demonizing the customers who pay their salaries isn’t the way to do it.

“Do we purchase the bicycle fully assembled and ready to ride off the show floor, or do we accept a discount on the price of the bicycle and assemble it ourselves?”

Some Assembly Optional