October 4, 2012

USPS Risking Quality for Price

The U.S. Postal Service’s plans to eliminate Saturday delivery and to lower its delivery standards could face a significant legal obstacle, according to the Postal Regulatory Commission.

In its advisory opinion last week on USPS’s plan to close nearly half of its mail-processing centers, the commission seemed to side with witnesses who said reducing service standards could run afoul of the Congressionally-imposed price cap on postal rates.

“Two expert witnesses . . . presented persuasive testimony that a relationship exists between price and quality, and that lowering quality is equivalent to raising the price,” wrote Chairman Ruth Goldway in an addendum to the PRC’s document.

Under USPS’s Network Rationalization plan, “Eighty percent of all First-Class Mail . . . will be delayed by at least one day,” Goldway wrote. “Much of 2-day mail will become 3-day mail. Rural and remote communities that already receive slower delivery may be impacted even further when weekend and holiday delays are factored in.”

“If the Postal Service eliminates Saturday delivery, actual days to delivery would increase even more,” Goldway added. Her comment suggests that eliminating Saturday delivery would require Congress to change the price-cap law rather than merely excluding the usual ban on five-day delivery from annual appropriations bills.

Service standards and the price cap are two sides of the same coin. In the words of the PRC, “the price cap sets the ceiling on prices, whereas service standards set a floor on quality of service.”

“The Postal Service addresses the price/quality issue by contending that mailers place little value on speed of delivery,” the PRC wrote. [Tell that to publishers who send daily newspapers through the mail.] “The Postal Service asserts that customers value reliability in terms of predictability and consistency of delivery, and other attributes such as ease of use, convenience, and affordability.” But the commission didn’t seem to buy that argument.

The advisory opinion makes no definitive statement on the legal implications of reducing service because, as Goldway stated, the law governing USPS’s rates “does not provide the Commission explicit guidance to link the price cap directly to service quality.” But the PRC seems inclined to explore the issue further.


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