US Postal Rate Commission approves unprecedented customized pricing agreement
The Postal Rate Commission today gave its approval to the Postal Service’s first Negotiated Service Agreement (NSA). The agreement is between the Postal Service and Capital One Services Inc., the Postal Service’s fourth largest customer and the nation’s largest single producer of first-class mail.
Negotiated service agreements are targeted pricing initiatives designed to encourage greater efficiencies and to take advantage of the Postal Service’s existing pricing flexibility. The Postal Service hopes that agreements of this kind will enable it to take advantage of special situations to improve its profitability. The Commission today approved a Postal Service proposal seen widely as a test of special arrangements with individual large mailers.
“Numerous businesses are expected to seek to negotiate similar agreements,” said Postal Rate Commission Chairman George A. Omas. “And the Commission will begin immediately to develop procedures to expedite this process.”
Under the agreement, for the next three years Capital One Services, Inc. will be eligible for volume discounts if its annual First-Class bulk volume exceeds 1.225 billion pieces. As part of the deal, the Postal Service will avoid the costs of returning undeliverable Capital One First-Class solicitations.
The Postal Service has recorded losses in each of the last three fiscal years. NSAs are designed by the Postal Service to help reduce costs and increase revenue. In its recommendation, the Commission said it is appropriate for the Postal Service to explore methods for improving efficiency through new economically beneficial rate programs.
The agreement offers discounts ranging from three to six cents, increasing as Capital One’s annual volumes increase. To assure that other mailers are not harmed by this arrangement, the Commission imposed a three-year limit on the discounts of $40.6 million.
The Postal Service will avoid 20 cents for every piece it does not have to return. The Service expects to avoid returning approximately 80 million mail pieces per year to Capital One during the course of the NSA.
Some mailers expressed concern that future arrangements of this type could unfairly benefit one mailer over another. In today’s opinion, the Commission emphasized that the Postal Service had committed to extending like discounts to similarly situated mailers.
The Postal Rate Commission is an independent federal agency charged with reviewing all new Postal Service rates. The Postal Service Governors are anticipated to consider the Commission’s opinion in early June.
