BY MARK JAMISON
On January 26, postage rates are going up — about 6 percent across the board, which means a First Class stamp will go from 46 to 49 cents. But there’s another rate increase going into effect on that day, and it hasn’t gotten much attention.
Three weeks ago, deep in the back of the December 26 issue of Postal Bulletin (on page 69), the Postal Service announced that it was raising the fees on post office boxes at some of its post offices. Depending on the size of the box and the fee group, the new rental prices for a six-month period will range from $16 to $625.
The new fees are within a range previously approved by the Postal Regulatory Commission back in December 2011, so they do not need any additional approval, and the Postal Service simply informed the PRC of the new fees in a letter on December 27.
Raising rates on boxes at just some post offices is actually a relatively recent event. Historically, box rates were considered market-dominant products and subject to rate caps. That changed a couple of years ago, though, when some 6,800 postal facilities were classified as “Competitive Post Offices.” At these offices, the Postal Service could charge higher fees than at its “regular” post offices. The Postal Service also added some service enhancements for these competitive boxes.
The issues surrounding fees for PO boxes are rather arcane, and the story of how the PO boxes at some offices came to be categorized as competitive is not likely to make headlines. But PO boxes are an important part of the postal infrastructure, and what happens to them is inextricably tied to what’s happening to the rest of the Postal Service infrastructure of post offices, processing plants, historic buildings, vehicles, and workforce. To understand the significance of what’s going on with PO boxes, it helps to start with a little history.
From Kappel to PAEA
In June of 1968, the President’s Commission on Postal Organization — the Kappel Commission — issued its report, “Towards Postal Excellence.” Its primary conclusion was that the executive departments of the federal government were “inappropriate” for the Post Office, and it recommended instead that Congress charter Government-owned Corporation to operate the postal service.
The Postal Reorganization Act of 1970 implemented the Kappel Commission’s recommendation. It changed the Post Office Department into the Postal Service while moving it from its status as a cabinet agency to a semi-corporate entity owned by the government.
For the next three decades, mail volumes grew — from 50 billion pieces of First Class mail in 1970 to over 103 billion by 2000 — and so did the workforce — from 550,000 career employees in 1970 to nearly 800,000 in 2000.
Even as the Postal Service was growing, the leadership of the Postal Service, as well many in Congress, were envisioning a downsized Postal Service with a significantly smaller footprint. That was precisely the point of then PMG Jack Potter’s 2002 Transformation Plan.
Potter argued that the appropriate response to encroaching technologies was to treat postal infrastructure as unnecessary and overbuilt industrial capacity. Rather than adapt, modernize, and find alternate uses for valuable postal infrastructure, the Transformation Plan envisioned a future environment that would jettison much of the retail network and shrink the mail processing network by using workshare discounts to transfer much of the work to the private sector.
The 2003 President’s Commission on the Postal Service embraced much of Potter’s vision and went further. In its report, Embracing the Future: Making the Tough Choices to Preserve Universal Mail Service, the commission pushed the idea of a more competitive Postal Service by recommending the division of products between those covered by monopoly provisions and those competing in the marketplace. The report also encouraged the transfer of as much of the Postal Service infrastructure into private sector hands. While not directly recommending privatization, the report clearly encouraged the idea as future goal, conceding that, for the moment, maintaining universal service would be difficult in a totally privatized environment.
The Postal Accountability and Enhancement Act of 2006, following the basic guidelines established by the Presidential Commission, pushed postal services further toward a more private-sector corporate model. Things got another push in 2010 when Patrick Donahoe became Postmaster General. Under his leadership, the Postal Service has continued to shed infrastructure according to the Potter plan. The Postal Service is now finally becoming the kind of corporation envisioned by the Kappel Commission over forty years ago.
Market-dominant and competitive
One the main ways that the PAEA moved the Postal Service towards corporatization was by redefining postal products into two categories: market-dominant and competitive. Market dominant products are essentially those that retained basic monopoly characteristics, like First Class mail. The competitive class consists of products that faced direct private competition, like Priority Mail.
In addition to creating these two classes, the PAEA made it possible, under certain circumstances, to transfer particular products from the market-dominant category to the competitive products category. The Postal Service has made full use of this opportunity, and it has been very active in pursuing requests to shift products to the competitive products list.
Products in the competitive products category must meet certain criteria. They must not be covered by the postal monopolies, and they must not be of general applicability (definitions and explanations are in this PRC proposal, which is currently published in the Federal Register awaiting final approval). In order to assure that competitive products are not subsidized by market dominant products, they must meet their attributable costs and contribute at least 5.5% to institutional costs.
A complete list of postal products and which category they fall under can be found on the PRC website under the Mail Classification Schedule. Basically, the competitive products category contains parcel offerings like Priority Mail, Priority Mail Express, Parcel Select, and Parcel Return Service, as well as several international parcel products and negotiated service agreements.
One of the products the Postal Service seems to have been most anxious to shift from market dominant to competitive has been the post office box. Since 2010 the Postal Service has initiated two dockets seeking to transfer an increasing number of PO boxes to the competitive list. A third docket related to additional services offered to competitive PO box customers was initiated in response to a complaint filed by the CMRA industry (Commercial Mail Receiving Agents, also known as private mailboxes or PMB).
PO Boxes vs. CMRA Boxes
People use PO boxes for various reasons. PO boxes offer security and safety, and in an era when identity theft can be a concern, this can be an important factor for many customers. Another benefit is that traditionally mail has been delivered earlier in the day to PO boxes than mail routes. However, with the advent of POStPlan and the changes in both retail and overall hours, that practice has changed in some rural and suburban areas as box up times have been moved to later in the day.
Many businesses prefer PO boxes because they can use the boxes to separate different functions, for example receipts and payments, from other mail. Home-based businesses often use PO boxes as a way to maintain a business address separate from the home address. In some rural areas route delivery is unavailable, so PO boxes serve as the only means of providing free delivery.
Though PO boxes and CMRAs provide similar service, they are not entirely comparable. CMRAs charge significantly more for box service than the Postal Service. In a 1996 mail classification case, MC96-3, testimony revealed that CMRAs charged from 126% to 345% more than the Postal Service. Generally CMRAs provided additional services to their customers like notification of mail, acceptance of deliveries from non-postal providers like UPS and FedEx, time independent mail forwarding, and office services like fax and copy. CMRAs can give their customers the appearance of having a physical address rather than just a PO box. There are about 10,000 CMRAs across the nation.
Fraud through post office boxes has been a problem over time. Even today there are many businesses and individuals who are wary of doing business or shipping to a post office box. The presence of the Postal Inspection Service makes that less of a risk with boxes administered by the Postal Service. The Postal Service requires both identification and address verification before someone can rent a post office box. The Postal Service does not permit the use of a PO box simply for the purpose of forwarding mail to another location, a way of misleading someone trying to locate a particular person or business.
While CMRAs are governed by an extensive set of regulations that are published in the DMM under section 508, oversight is left up to the local postmaster and can at times be haphazard. Mail delivered to a PO box is overseen by and protected by the Postal Service. CMRAs act, as their name suggests, as receiving agents for their customers.
Overhauling PO box fees in 1997: Docket MC96-3
Prior to the changes wrought by PAEA, the last major overhaul of the PO box rates occurred in the decision arising from MC96-3 (discussion of PO boxes begins on page 46) handed down by the Postal Rate Commission in April of 1997. That decision removed the distinction between offices with city delivery and rural delivery; those with city delivery had paid higher box rates. It reordered the system into five groups, A-E. It raised box rates by about 50%, it examined and rejected a proposal to charge a non-resident fee for box customers who lived outside of the area served by the box section zip, and it created a category of free PO boxes for those who were ineligible for route delivery, thereby satisfying the requirement that every American was entitled to some form of free mail delivery. The decision handed down in MC96-3 evolved into the system in place when PAEA passed — seven fee groups determined by real estate costs and a group known as Class E for free PO box delivery.
The MC96-3 decision is notable for several reasons. The old Postal Rate Commission, precursor of the current Postal Regulatory Commission, had an Office of the Consumer Advocate (OCA). In reading the decision, one is struck by the robust presence of the OCA as opposed to today’s version, known as the Public Representative. As the title implied, the OCA comes across as a direct advocate for the average American consumer. Today’s PR seems much less well defined, with the definition of the “public” being represented seeming to vary depending upon the case and the interpretation of the individual filling the role. Does the PR represent consumers, the mailers, the public in some undefined or unspecified way? It isn’t always clear, but it seemed much more so in the days of the OCA.
One also notices almost immediately that all the information in the docket is open to public inspection. Information like box usage rates — something that has been filed under seal in latter day cases — was made public, as was market research and costing data compiled by the Postal Service. Today a great deal of that information is kept under seal, generally because the Postal Service claims it is of competitive or proprietary business value. There seems to be a clearly defined line when the Postal Service ceased being purely a public service. Its information and data were, as today’s parlance would have it, “open source.”
There’s also a moment when we see that some things haven’t changed much. The opinion discusses a post office box survey that the Postal Survey performed (p. 48 of the PDF, p. 44 of the opinion itself). The Postal Service had polled its 32,346 locations in order to determine box usage rates. It received 29,062 responses of which only 25,591 were considered valid or usable. In a comment in a footnote the Rate Commission noted: “It is somewhat surprising the Service was unable to obtain information from almost 7,000 of its own facilities.”
There are a few other moments throughout the decision that indicate the Postal Service either hadn’t done its homework or perhaps didn’t have full command of the information it was presenting. Looking through other documents in the proceeding, one also sees evidence of what must be an HQ motto, a sort of, “because we said so” mentality that serves as a stand-in for logic or reasoned argument. The same sort of attitude is not uncommon in today’s Postal Service.
Reclassification in 2010: MC2010-20:
In 2010 in docket MC2010-20, the Postal Service requested permission to move PO Boxes in 52 zip codes from the market dominant category to the competitive products category. In itsrequest, the Postal Service indicated, “Based on its ongoing evaluation of the Post Office Box service market, the Postal Service recognizes that Post Office box service faces direct competition by alternate service providers of private mailbox services in many geographic markets. This modest initial proposal involves a few box sections where competitive conditions can be clearly demonstrated.”
The Postal Service went on to say, “Post Office box service now exists only as a market dominant product, simply because it was historically classified as a special service, and all special services were initially made market dominant under section 3621(a) of title 39.” The request went on to cite the mechanism provided by Congress in section 3642 for moving products between categories. The Postal Service indicated that it was “undertaking a comprehensive evaluation of all Post Office box locations and may propose additional transfers if warranted.”
By limiting its request to only a few box sections that were selected by fairly rigid criteria – the sites were all within a half mile of a CMRA, were limited to one per three digit zip code, and were all Fee Group 1 boxes – the Postal Service argued that it didn’t need to provide extensive costing data showing that the proposal met cost coverage and contribution criteria. In what has become an increasingly common practice, the Postal Service filed some of the data related to the request under seal. Whether that was necessary may be questionable since the Postal Service filed the anticipated pricing for the competitive boxes in the public portion of the request, which would have allowed for some estimates of how much additional revenue might be generated.
The request was a classic example of the camel getting his nose under the tent. By asking for a relatively small change, the Postal Service managed to avoid providing extensive cost data. It may have also hoped to avoid garnering much public attention while establishing a precedent for treating PO boxes as competitive requests. If that was the intent, then the Postal Service was at least partially successful.
The request did attract attention from David Popkin and Doug Carlson, two private citizens who have followed the Postal Service for years and have served as effective watchdogs. The docket received a total of 42 comments, 37 of which were from AIM Mail Center franchisees and other CMRAs, all characterized by the PRC as being “essentially the same.” Also commenting were two industry lobbying groups and the Public Representative. (All of the comments can be found here).
The comments from those in the industry focused on issues of competition, primarily expressing concerns that the Postal Service would attempt to offer additional services at its competitive PO box locations that would compete with offerings of the CMRAs. CMRAs generally charge much higher fees for their services but offer services like e-mail notification of mail, a street address (rather than a PO box address), the ability to receive delivery from non-Postal carriers like UPS or FedEx and specialized mail forwarding services. Some CMRAs offer additional business services like fax and copy.
Although the Postal Service request did not include permission for additional services, the CMRAs were concerned that a request to offer such services would be forthcoming if PO box service was shifted into the competitive products category. Also, since the Postal Service request came on the heels of the proposed shift to five-day delivery, the CMRAs expressed concern that they would be at a competitive disadvantage since it was expected that they would lose the ability to deliver on Saturdays while PO boxes serviced by the Postal Service would continue to receive Saturday delivery.
Mr. Popkin and Mr. Carlson opposed the proposal on several grounds. Mr. Popkin challenged the selection criteria, claiming that it was arbitrary. He also pointed out that three of the proposed sections did not meet the criteria established by the Postal Service (these locations were later omitted). He also challenged the non-public treatment of data, most of which was related to PO box usage rates and, according to Mr. Popkin, was available from a number of public sources.
Both gentlemen offered extensive examples designed to cast doubt on whether CMRAs were actually in direct competition with the Postal Service. They argued that the fact that CMRAs charged rates substantially higher than the Postal Service and still found clients even when PO boxes were readily available was an indication that the services were not generally comparable. The Public Representative echoed this concern and developed a technical argument to demonstrate the lack of competitive comparability between PO boxes and the offerings of CMRAs.
In the end, the Commission, in Order No. 473, dismissed the objections raised by the commenters and approved the Postal Service’s request.
Boxes revisited, 2011: MC2011-25:
A year later, in May of 2011, the Postal Service returned to the PRC with a more ambitiousrequest in what became docket MC2011-25. The Postal Service asked to transfer approximately 6,800 box sections to the competitive category. That number represents about 20% of all PO box service locations and 44% of the PO boxes in use.
Just as it had in the earlier docket, the Postal Service suggested that as it “developed its understanding of the mailbox service market” additional locations might be designated for transfer, but that this request “clearly satisfies the applicable statutory criteria.”
The request discussed the competitive nature of the post office box market in the context of the previous year’s decision, arguing that the determination of whether post office boxes met the criteria for being a competitive product had already been settled by the decision in Order No. 473. The Postal Service provided further justification by noting that the non-renewal rate in the 49 box sections that had been transferred in the previous docket had increased from 11% to 31% after the competitive pricing went into effect. This, it was argued, suggested that customers had sufficient alternatives and that the Postal Service would be constrained in raising prices by the competitive nature of the product.
The criteria for designating a box section competitive changed substantially in this request. In this case the Postal Service argued that having a CMRA alternative within a ten to twenty minute traveling distance provided sufficient alternative and competitive service. This was translated into a distance of five miles. The Postal Service hired a contractor to develop a list of CMRAs and PMBs, then mapped populations within five miles of those locations, and finally compiled a list of Postal Service PO box facilities that served those populations. After excluding postal locations that had limited access such as military bases and offices with less than 250 PO boxes, the Postal Service arrived at a list of “about 6800 locations.” That list was included as an Excel spreadsheet with the request (see link above).
In the request from the previous year, many of the comments from CMRAs stressed a concern that the Postal Service would begin offering additional services as part of its switch to competitive PO boxes. Although the main body of the MC2011-25 request did not mention ancillary services, in the Statement of Supporting Justification that accompanied the request, Nan McKenzie, Manager of Retail Services and sponsor of the Postal Service request, mentioned three ancillary services that had been introduced for competitive boxes. These included additional or extended lobby hours, signature on file (a service that allowed a customer to “pre-sign” for accountable items by signing a form), and Baker’s Dozen pricing (a sales incentive the Postal had announced in the January 13, 2011 Postal Bulletin which gave customers thirteen months service for a regular annual payment).
There were only two comments received in the MC2011-25 docket, one by David Popkin and the other by the Public Representative. Both raised many of the same issues that had been raised in the earlier case involving transfer of PO box service to the competitive products list. The PR pointed out that although the current request represented about 20% of PO box locations, it actually represented nearly half of the installed PO boxes the Postal Service administered.
In its final decision the PRC again rejected arguments that PO boxes and the offerings of CMRAs were not comparable. The decision noted the absence of extensive participation by the industry or the public and granted the Postal Service request. The Postal Service had not specified any fee increases in its request, and instead simply indicated that it was preparing a new fee schedule with additional competitive fee groups. Today there are fifteen competitive fee groups in addition to the seven fee groups and Class E group in the market dominant category.
The industry complaint
In March of 2012 a coalition of industry associations, franchise groups, and individual CMRAs filed a complaint with the PRC alleging that the Postal Service had violated PAEA by charging rates that had not been approved by the PRC and by adding services that had not been approved — use of a street address rather than a box number, e-mail notification of mail, and receipt of private carrier packages. The complaint reminded the PRC of the industry’s concerns about the addition of services that had been raised in the original case permitting transfer of PO boxes to the competitive products list stating:
“The Commission approved this request, over the objection of small business commenters. The Commission notes that the Postal Service had indicated that “no change in price orservice is proposed (Order 473 at 8; emphasis added).
The Commission’s order also reviews the opposition to the request and then observes: “The concerns raised by these commenters are not insignificant. They are, however, premature. First, the Postal Service’s proposal is narrowly tailored, involving a limited number of locations and no changes in fees or services. Potential changes in the nature of P.O. Box Service are not before the Commission in this proceeding. If, in the future, the Postal Service proposes to offer ancillary P.O. Box Services, these issues can be raised.” (Order 473 at 9; emphasis added)
That time has now come, and this Complaint raises these issues as foreshadowed by Order 473. The USPS has unilaterally changed its services to these PO Boxes without filing any request before the Commission.”
The issue that the CMRA industry was most upset about was the use of a street address rather than a PO box number. The industry has long chafed at being regulated by the Postal Service, as this post on the AMPC website discusses. Of particular issue was the fact that Postal regulations required CMRAs to use address formats that indicated mail was being received by a box service and was not a business’ or individual’s actual physical address. This requirement, arising out of concerns about fraud, had, in the view of the industry, unnecessarily tainted their offering. The industry objected to the Postal Service now offering a street address option for boxholders, a contradiction of those longstanding regulations.
The industry’s complaint argued that the Postal Service should be required to file a “nature of service” N-case under section 3661 of the statute since the additional services it was offering fundamentally changed the nature of PO box service. The industry also alleged violations of section 3633, specifically that the Postal Service had not demonstrated that the new PO box services met cost coverage requirements, and section 3642, which deals with the transfer of products between the market-dominant and competitive lists and the introduction of new products.
The Postal Service filed a Motion to Dismiss the entire complaint. In its decision the PRC dismissed the nature of service aspect of the complaint, arguing that the level of change was insufficient to justify requiring an N-Case. The PRC then docketed MC2012-26 for the purpose of considering the issues raised regarding cost coverage and whether the Postal Service had improperly introduced a new product.
That docket received a final decision, PRC Order No. 1657, on February 14, 2013. The Commission reviewed the history of the filings in the move from market dominant to competitive, citing two competitive product pricing dockets where the Postal Service mentioned that part of the fees for competitive products would cover enhanced services. The Commission then played the role of Solomon, suggesting that the concerns of the CMRAs were understandable but it was also understandable that the Postal Service considered it unnecessary to file for permission to add the service enhancements since they weren’t new, separately priced products but simply improved operational efficiencies and offerings.
In the end the PRC determined that the PO box enhancements were not new products, and the Commission simply required that language in the mail classification schedule reflect the existence of additional services that may be available for those renting competitive PO boxes.
The greater implications
Lost in all of these filings before the PRC are the greater implications of what the transfer of millions of post office boxes to the competitive product list might mean for the future of the postal network and postal infrastructure. Are post office boxes a quintessential part of a post office or are they merely a product offering that consumers may find useful? This is a question that turns on whether the Postal Service is a public service or simply a delivery provider.
Much time was spent in these dockets arguing about whether PO boxes offered by the Postal Service competed with the CMRAs. In one sense PO boxes do compete with private mailbox services: they provide a locked mail receptacle – actually all CMRAs don’t provide individual receptacles – for a fee. It’s interesting to note that in spite of the supposed competitive advantages the CMRAs claim the Postal Service has, the fact that the Postal Service prices its boxes lower, that it does not pay taxes, and that it regulates CMRAs that the private providers have been able to carve out successful businesses. After all, CMRAs are a relatively late entry into the field, only taking off in the 1970’s. Those getting into the business knew the Postal Service existed and chose to compete on existing terms.
One might think that CMRAs would relish the idea of PO boxes being shifted to the competitive products list. As long as the Postal Service meets the requirements that prevent cross subsidization of competitive PO boxes, the CMRAs should benefit from the higher prices the Postal Service charges for boxes in the competitive category. By shifting PO boxes into the competitive category, the issue of advantages due to exemption from state and local taxes is also ameliorated. PAEA introduced provisions that imputed the cost of taxes into the cost coverage calculations of competitive products making that much less of an issue. Meanwhile the issue of enhanced services seems, for the most part, much ado about very little.
E-mail notification that one has mail in the box seems a small service that would be an inducement for a relatively small segment of the market. Signature on file seems like a no brainer — one of the primary advantages of a PO box is the trust behind the Postal Service, allowing a clerk to sign for a certified letter or insured package based on permission on file seems obvious. The advent of premium forwarding, a service that allows a customer to pay for specialized forwarding, is open to all postal customers, not just boxholders.
Allowing boxholders to receive packages from private carriers has been achieved to a large extent though Parcel Select offerings that make the Postal Service the last mile carrier. One wonders, though, why the Postal Service couldn’t have devised a universal product offering that allowed customers to pay a minimal fee for each package received from a private carrier. After all, it costs the Postal Service very little to accept the package and either place it in a nearby PO box or place a large item on the shelf and a notice in the box.
The one point of contention that the CMRAs might be justified in raising is the use of a street address format that allows a boxholder to give the impression that the mail is being delivered to a home or business rather than to a PO box or a CMRA. The Postal Service has argued for years that the regulation it imposes on CMRAs requiring an address format that indicates the destination is a CMRA exists as a protection against fraud.
If that’s a valid reason, and that seems at least worth considering, then the Postal Service has been at the least inconsistent in determining that this is now something consumers may want. The question still exists as to whether the Postal Service could have offered this “service,” which is no more than a minor regulatory change relating to address formatting, as something that was available to all boxholders.
The real issue is not whether the Postal Service is competing fairly but whether its transfer of millions of PO boxes is a way of shedding infrastructure and shrinking its retail footprint. Testimony in the MC2012-26 case demonstrated that the Postal Service has seen increased nonrenewal rates in box sections that had switched to the competitive category. We don’t have additional figures, but at the time of the docket, less than a year after the bulk of box sections were transferred, the Postal Service had lost 66,000 boxholders in the transferred sections. Those weren’t customers who switched to CMRAs; more likely they were customers who switched to route deliveries.
Will the Postal Service use reduced rates of PO box usage in urban areas as a reason for justifying closure or consolidation of more stations and branches? As discussed in our recent post on Staples, the Postal Service is making an argument, albeit somewhat on the sly, that all means of retail access are equal. In urban and suburban areas, in midsize towns, and in small towns and rural areas, the post office represented something more than a retail counter. It was a contact point with government. It was a place of meeting, congregation, and social exchange. It was a place that recognized that there was something more to mail than just the delivery of letters or packages. The security, sanctity, and universality of mail made a very specific statement.
Should we view the transfer of PO boxes from one arcane category to another as recognition of a changing landscape, or should we apply more scrutiny and see this shift as a step in reducing the availability of Postal services in favor of allowing markets to provide delivery services? I suspect that many, without giving it much thought, will see the latter as preferable. But is it? Are there people who are getting left behind by these decisions?
Michael Sandel, political philosopher from Harvard, asks in his book “What Money Can’t Buy: The Moral Limits of Markets” whether our increasing trend to move from a market economy to a market society isn’t crowding out important social norms. He says, “And so in the end, the question of markets is really a question about how we want to live together. Do we want a society where everything is up for sale? Or are there certain moral and civic goods that markets do not honor and money cannot buy?”
Those questions may not seem to be pertinent to a discussion of whether PO boxes are more appropriately treated as market-dominant products or competitive products. But if we reduce our discussion about postal services in this country to nothing other than those sorts of limited choices, aren’t we ignoring a large portion, the largest portion of what it means to “bind the nation together”? And if this transfer of PO boxes is little more than a cynical attempt to undermine the relevance of post offices, to change them into nothing more than nodes in a retail network then have we missed an important step in our thinking?
[Mark Jamison is a retired postmaster for the US Postal Service. He can be reached at Mij455@gmail.com.]
(Photo credits: Wall of po boxes from Old Bethpage, Long Island, NY; vintage po box; vintage box and boxes in lobby of Schenectady NY post office; boxes in lobby of Charleston SC; mural and boxes in Huntington Park, CA post office; former Fairfield CT post office mural and boxes; bank of boxes from Schenectady NY; boxes in State University Station post office in Raleigh, NC, now closed; boxes in Lemoyne PA post office.)