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USPS Inspector General urges Alaska Bypass mail reform

Tuesday, November 29th, 2011

The Inspector General of the US Postal Service has said it is time to make major changes to the Alaska Bypass mail programme.

The programme, which involves shippers in the cities of Anchorage and Fairbanks handing palletised goods directly to airlines for transport into remote locations within Alaska, bypassing the US Mail but with USPS paying the costs, has been losing USPS $73m a year.

In a white paper issued yesterday, the OIG said much has changed since the programme was set up in 1972 to relieve bottlenecks from the mail network in Alaska.

The OIG, an independent agency within USPS, concluded in the study that reforms should be made to the way Bypass mail is priced and costs from the airlines managed.

It said the Bypass programme is essentially a freight service, since it has a 1,000-pound minimum weight requirement for shipments, that effectively subsidises the airlines and benefits a “wide variety of commercial interests in Alaska [rather] than the remote village residents that many believe it is intended to serve”.

The OIG said Alaskan shippers were getting a better service than Priority Mail, but paying only Parcel Post rates, the programme only covers about 29% of its costs.

USPS is restricted to raising prices by the inflation-based price cap, and therefore it cannot pass on higher transport costs from the airlines to its customers.

“The rates the Postal Service pays the airlines are an artifact of a bygone era of price regulation,” said the OIG paper. “By simply passing the costs on to the Postal Service, the Bypass programme removes incentives for the airlines to operate more efficiently or lower their costs.”

The paper also suggested that with USPS picking up the bill, the state of Alaska had little incentive to improve its own transport infrastructure. A $40bn state fund was available to pay for such improvements, it claimed.

Resistance

The OIG noted a steady resistance to changing the system by Alaskans worried about impacts on the cost of living in the state, although it said the programme did not necessarily mean rural residents being offered affordable goods.

Potato chips selling in Anchorage for $4.29 a bag were being priced a $9.99 in more remote areas, despite that item costing only 35 cents to ship there from Anchorage via the Bypass program, said the paper.

Offering suggestions for reform, OIG said USPS should be able to negotiate costs with airlines, and charge customers based on costs incurred. At the very least, it suggested Priority Mail rates would be more appropriate than Parcel Post.

OIG also suggested the state of Alaska should reimburse USPS for losses incurred in what it stated was not “essential” to the Postal Service’s Constitutional mission of binding the nation together.

Another alternative was to remove USPS from the Bypass programme altogether.

“Without at least some of these changes or others, the Postal Service will continue to suffer significant losses on the Alaska Bypass program at a time when it can least afford it,” concluded the OIG white paper.

Alaskan lawmakers have been fighting tooth and nail against attempts to reform the Bypass system.

While Senate postal reform legislations do not currently include reform to the Bypass system, postal reform legislation currently moving through the House of Representatives proposes to make the state of Alaska pay for the service.

Earlier this month, one of Alaska’s US Senators, Lisa Murkowski, revealed that a review she ordered from the Congressional Research Service determined that making the state pay for Bypass mail might breach the US Constitution on the grounds of forcing a state to pay a tax to cover a disproportionate share of costs.

Source: Post&Parcel/OIG

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