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US judges back legal cap on USPS presort mail discounts

Tuesday, June 11th, 2013

Judges have backed US postal regulators in ordering the US Postal Service to reduce the excessive discounts it offers for presorted mail.

The US Court of Appeals for the District of Columbia Circuit today dismissed an attempt by USPS to overturn orders from the Postal Regulatory Commission to correct over-large discounts offered for presorted mail.

The regulator had said the discount being offered by USPS was greater than the cost-savings that the presorting activity provided it – thereby breaking US postal law.

However, in two attempts to overturn a Commission order originally issued in 2010, USPS argued that it needed to offer large discounts for bulk mailers to keep them using the mail.

Arguing its case, the Postal Service attempted to suggest that its legal restrictions on mail-sorting (workshare) discounts only apply to single-piece First Class Mail, and that presorted First Class Mail is a different product.

But judges said today that postal legislation limiting the scale of workshare discounts does not refer to specific products, and therefore the wording of the law supports the Commission’s position.

“Iit is clear that, as the Commission concluded, the amount of the discount that the Postal Service may offer for presorting is subject to the statute’s workshare discount limit, and the discount may not exceed the cost that the Postal Service avoids as a result of the presorting,” ruled Circuit Judge Brett Kavanaugh, dismissing the Postal Service petition for a review.

Discounts

The US Postal Service has been offering workshare discounts to private sector companies who presort First Class Mail since 1976. The discounts provide incentive for companies to sort their own mail – or their customers’ mail – if they can do it more cheaply than USPS itself.

However, under US postal law, legal restrictions on the size of workshare discounts are in place to make sure that private companies are not being paid to sort mail if the Postal Service can do it more cost-effectively itself.

The Postal Service is currently under pressure to keep postal rates down – including via workshare discounts – to minimise the ongoing annual decline in First Class Mail volumes, which have reduced by 33% in the last decade. However, if it offers workshare discounts of more than the amount avoided by outsourced presorting activity, USPS would be supporting inefficient sorting work by the private sector.

The 2010 order from the Postal Regulatory Commission concerned a price increase proposal made by USPS in 2009, in which USPS declared that there was a difference between single-piece First Class Mail and presort First Class Mail, and that the statutory cap on workshare discounts did not apply.

When USPS challenged the Commission’s order in court, initially it was dismissed by judges as “unripe”, before the Postal Service came back with a fresh bid to review the order.

Ruling on the second challenge after a hearing in March, Judge Kavanaugh said today that in his opinion, analysis of the relevant law was “extremely simple” and backed the Commission’s ruling.

Source: Post&Parcel/US Court of Appeals

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