FY 2017 ACR PR COMMENTS



BEFORE THEPOSTAL REGULATORY COMMISSIONWASHINGTON, DC 20268-0001Annual Compliance Review, 2020 Docket No. ACR2020PUBLIC REPRESENTATIVE COMMENTSFebruary 1, 2021Kenneth E. RichardsonPublic RepresentativeRichard A. OliverLyudmila Y. BzhilyanskayaLawrence FensterAssisting the Public RepresentativeTABLE OF CONTENTS TOC \o "1-3" \h \z \u I.INTRODUCTION PAGEREF _Toc63087283 \h 1II.service performance PAGEREF _Toc63087284 \h 4A.Introduction PAGEREF _Toc63087285 \h 4B.The COVID-19 Pandemic PAGEREF _Toc63087286 \h 6C.Other Factors Impacting Service Performance PAGEREF _Toc63087287 \h 121.Cost Cutting Initiatives PAGEREF _Toc63087288 \h work Modifications and Realignment of Business Operations PAGEREF _Toc63087289 \h 14D.Service Performance by Mail Class PAGEREF _Toc63087290 \h 171.First-Class Mail PAGEREF _Toc63087291 \h 172.USPS Marketing Mail PAGEREF _Toc63087292 \h 253.Periodicals PAGEREF _Toc63087293 \h 304.Package Services PAGEREF _Toc63087294 \h 335.Special Services PAGEREF _Toc63087295 \h 37E.The Service Performance Outlook for FY 2021 PAGEREF _Toc63087296 \h 40III.CUSTOMER ACCESS AND CUSTOMER SATISFACTION PAGEREF _Toc63087297 \h 43A.Introduction PAGEREF _Toc63087298 \h 43B.Customer Access to Postal Services PAGEREF _Toc63087299 \h 431.Retail Facilities PAGEREF _Toc63087300 \h 432.Post Office Suspensions PAGEREF _Toc63087301 \h 463.Number of Collection Boxes PAGEREF _Toc63087302 \h 494.Wait-Time-in-Line PAGEREF _Toc63087303 \h 51C.Customer Satisfaction PAGEREF _Toc63087304 \h 521.Customer Experience (CX) Composite Index PAGEREF _Toc63087305 \h 53IV.MARKET DOMINANT PRODUCTS PAGEREF _Toc63087306 \h 59A.Introduction PAGEREF _Toc63087307 \h 59B.First-Class Mail PAGEREF _Toc63087308 \h 601.Introduction PAGEREF _Toc63087309 \h 602.Inbound Letter Post PAGEREF _Toc63087310 \h 61C.USPS Marketing Mail PAGEREF _Toc63087311 \h 651.Introduction PAGEREF _Toc63087312 \h 652.Parcels PAGEREF _Toc63087313 \h 663.Flats PAGEREF _Toc63087314 \h 684.Carrier Route PAGEREF _Toc63087315 \h 70D.Periodicals PAGEREF _Toc63087316 \h 73E.Package Services PAGEREF _Toc63087317 \h 761.Introduction PAGEREF _Toc63087318 \h 762.Bound Printed Matter Parcels PAGEREF _Toc63087319 \h 763.Media Mail/Library Mail (MM/LM) PAGEREF _Toc63087320 \h 80F.Special Services PAGEREF _Toc63087321 \h 831.Introduction PAGEREF _Toc63087322 \h 832.Money Orders PAGEREF _Toc63087323 \h 833.International Ancillary Services PAGEREF _Toc63087324 \h 854.Stamp Fulfillment Services (SFS) PAGEREF _Toc63087325 \h 87V.Worksharing PAGEREF _Toc63087326 \h 90A.Introduction PAGEREF _Toc63087327 \h 90B.First-Class Mail PAGEREF _Toc63087328 \h 93C.USPS Marketing Mail PAGEREF _Toc63087329 \h 931.Nonprofit Marketing Mail Parcels PAGEREF _Toc63087330 \h mercial & Nonprofit Marketing Mail Parcels PAGEREF _Toc63087331 \h mercial & Nonprofit CR Letters, Dropshipping DSCF Dropship Letters PAGEREF _Toc63087332 \h 95VI.FLATS AND FLAT-SHAPED PRODUCTS SERVICE AND COST REPORTS PAGEREF _Toc63087333 \h mission Directives and Rules Regarding Flat and Flat-Shaped Products PAGEREF _Toc63087334 \h mission flats directives before FY 2019 PAGEREF _Toc63087335 \h mission flats reporting rules in 39 C.F.R. § 3050.50 PAGEREF _Toc63087336 \h mission flats directives in the FY 2019 ACD PAGEREF _Toc63087337 \h 100B.FY 2020 ACR Report on Flats and Flat-Shaped Products PAGEREF _Toc63087338 \h 1031.Introduction PAGEREF _Toc63087339 \h 1032.FY 2020- Financial report pursuant to § 3050.50(b) PAGEREF _Toc63087340 \h 1043.FY 2020 - Flats service performance report pursuant to §?3050.50(c) PAGEREF _Toc63087341 \h 1124.FY 2020-Flats operationally relevant grouping report pursuant to §?3050.50(d) PAGEREF _Toc63087342 \h 1155.Seven data reports on various operational problem areas pursuant to § 3050.50(e) PAGEREF _Toc63087343 \h 1156.Methodological change reports and trends, changes and reasons for changes in data within the report pursuant to § 3050.50( e)(8)-(9) PAGEREF _Toc63087344 \h 1217.Operational changes and planned initiatives impacting flat-shaped mail reported pursuant to §?3050.50(f) PAGEREF _Toc63087345 \h 1218.Report of data enhancements during the fiscal year impacting measuring, tracking, and/or reporting flat-shaped mail costs reported pursuant to §?3050.50(g) PAGEREF _Toc63087346 \h 125C.Conclusion on Flats and Flat-Shaped Products PAGEREF _Toc63087347 \h PETITIVE PRODUCTS PAGEREF _Toc63087348 \h 129A.Introduction PAGEREF _Toc63087349 \h 129B.Section 3633(a)(1), Prohibition on Cross-Subsidization PAGEREF _Toc63087350 \h 129C.Section 3633(a)(2), Coverage of Attributable Costs PAGEREF _Toc63087351 \h 1301.Introduction PAGEREF _Toc63087352 \h 1302.International Money Transfer Service (IMTS)–Inbound and Outbound PAGEREF _Toc63087353 \h 1313.Inbound Letter Post Small Packets and Bulky Letters PAGEREF _Toc63087354 \h petitive International Registered Mail PAGEREF _Toc63087355 \h 1335.International NSAs PAGEREF _Toc63087356 \h 1346.Domestic NSAs PAGEREF _Toc63087357 \h 135D.Section 3633(a)(3), Coverage of Institutional Costs PAGEREF _Toc63087358 \h 135VIII.CONCLUSION PAGEREF _Toc63087359 \h 136BEFORE THEPOSTAL REGULATORY COMMISSIONWASHINGTON, DC 20268-0001Annual Compliance Review, 2020 Docket No. ACR2020PUBLIC REPRESENTATIVE COMMENTS(February 1, 2021)INTRODUCTIONOn December 29, 2020, the Postal Service filed its Fiscal Year (FY) 2020 Annual Compliance Report (ACR). The purpose of the Postal Service’s FY 2020 ACR is “to demonstrate that all products during the year complied with all applicable requirements of [title 39 of the United States Code].” 39 U.S.C. § 3652(a)(1).On December 30, 2020, the Commission issued a notice establishing this docket and requesting public comments. Pursuant to Order No. 5796, the Public Representative hereby submits Comments on the Postal Service’s FY 2020 ACR.The Public Representative has reviewed the Postal Service’s FY 2020 ACR together with the prior Postal Service ACRs, Commission Annual Compliance Determinations (ACDs) as well recent information requests regarding the FY 2020 ACR. These Comments address compliance matters relating to the Postal Service’s (1) service performance, (2) customer access and customer satisfaction, (3) market dominant products, (4) worksharing, (5) flats and flat-shaped products, and (6) competitive products.Of overriding significance in FY 2020 was the broad impact of the COVID-19 pandemic on all aspects of the Postal Service’s operations during the latter half of the fiscal year. Volumes for most products and rate categories were notably reduced except for parcels and cost coverages generally were reduced. The pandemic also affected Postal Service employee availability with consequent negative service and cost impacts and delayed application of Postal Service initiatives designed to reduce costs, all of which are addressed in these Comments.Section II of these comments addresses the Postal Service’s FY 2020 service performance results. The Public Representative concludes that, in FY 2020, overall service performance declined and many of the Postal Service’s market dominant products failed to comply with FY 2020 percent on-time targets.Section III of these comments addresses the Postal Service’s FY 2019 customer access and customer satisfaction results. The Public Representative concludes that the Postal Service provided the public acceptable customer access and satisfaction; and was able to improve customer access and satisfaction in certain areas, in spite of the difficulties achieving these results in the face of the pandemic.Section IV of these comments addresses the Postal Service’s FY 2019 market dominant statutory requirements, including whether or not products covered their attributable costs. The Public Representative concludes that while there was some improvement in cost coverages on the margins, significant non-compensatory products such as USPS Marketing Mail Flats and Periodicals continued to increase their year-over-year losses.Section V of these comments addresses the Postal Service’s worksharing statutory requirements. The Public Representative focuses on workshare passthroughs that exceeded 100 percent in FY 2020. Based on his analysis, the Public Representative finds that no Commission action is required at this time for those passthroughs exceeding 100 percent. Section VI of these comments addresses Flats and Flats-Shaped products and the Postal Service’s ACR responses to the Commission’s recent rules in § 3050.50 requiring reporting of data to determine the reasons for service failures and high costs of flats operations, particularly operations regarding non-compensatory flats products. The rules also require reports on analyses and measurements of costs as well as reports on management initiatives and their impact on reducing flats costs.Section VII of these comments addresses the Postal Service’s FY 2020 compliance with competitive products’ statutory requirements. Section 3633(a) prohibits the subsidization of competitive products by market dominant products (39 U.S.C. § 3633(a)(1)), requires each competitive product to cover its attributable costs (39 U.S.C. § 3633(a)(2)), and that competitive products collectively cover an appropriate share of the Postal Service’s institutional costs (39 U.S.C. § 3633(a)(3)). See generally 39 U.S.C. §?3633(a). service performanceIntroductionThe Postal Service is required to report annually on the level of service it has provided for each market dominant product in terms of speed of delivery and reliability. 39?U.S.C. §?3652(a)(2)(B)(i). Whether the level of service complies with applicable service standards is determined by comparing the level of service reported in the FY 2020 ACR to service targets established by the Postal Service in its FY 2020 Performance Plan. Based upon this comparison, the Commission makes a determination of whether or not individual market dominant products met their applicable service performance targets. See 39 U.S.C. § 3653(b)(2).Measurement Methodologies and Targets. The methodologies used by the Postal Service to measure service performance for First-Class Mail, Marketing Mail, Periodicals, Package Services, and Special Services in FY 2020 were the same as the methodologies used in FY 2019. The on-time service performance targets for FY 2020 also remained the same as in FY 2019. The use of the same methodologies and performance targets permits comparisons of annual and quarterly performance results that are comparable from year-to-year. 2019 ACD Directives. In its FY 2019 Annual Compliance Determination, the Commission issued a number of directives directed at service performance. The Postal Service’s FY 2020 ACR identifies the FY 2019 ACD directives to which it has responded. A roadmap to the Postal Service’s responses to the FY 2019 directives is provided in Library Reference USPS-FY20-9. The COVID-19 Pandemic. On March 13, 2020, the President issued a national emergency declaration regarding the COVID-19 pandemic. This was approximately two weeks before the end of the Postal Service’s second FY 2020 fiscal quarter. The Postal Service states that the first two quarters of its Fiscal Year 2020 “saw broad improvements in performance.” FY 2020 ACR at 1. It asserts further that it was because of the pandemic that “service performance declined in most categories in the second two quarters and for the year.” Id. The pandemic’s impact on Postal Service operations and its responses are discussed in Section II.B. Other Factors Impacting Service Performance. During FY 2020, other factors also impacted the level of service performance, such as cost cutting initiatives, modifications to the Postal Service’s operational network, and the realignment of its business operations. Those factors were are discussed in Section II.C.Service Performance by Mail Class. Annual on-time service performance results for FY 2020 are presented in tables for each of the Postal Service’s five mail classes—First-Class Mail, Marketing Mail, Periodicals, Package Services, and Special Services. This year, the Public Representative is including additional tables for four of the mail classes (First-Class Mail, Marketing Mail, Periodicals, and Package Services) to show quarterly results that demonstrate differences between the pre-pandemic and pandemic periods. Service performance by mail class is discussed in Section II.D.The Outlook for FY 2021. In FY 2021, the Postal Service will continue its ongoing initiatives to improve service performance both generally and for specific products within each of the five mail classes. It must also address the continuing demands being placed on it by the COVID-19 pandemic. In Section E., the Public Representative lists some of the major factors that can be expected to play important roles in determining whether service performance can be improved in FY 2021. The COVID-19 Pandemic The impact of the COVID-19 pandemic on service performance in FY 2020 is undeniable. The Postal Service asserts that “FY 2020 service performance can best be viewed as a year of two distinct phases: the pre-COVID-19 pandemic period covering PQ-1 and PQ-2 and the COVID-19 period covering PQ-3 and PQ-4.” FY 2020 ACR at 37. The Postal Service characterizes service performance improvements during the first two fiscal quarters as “widespread” and “significant.” FY 2020 ACR at 37-38. Nevertheless, service performance results “declined in most categories in FY 2020 compared to the prior year.” FY 2020 ACR at 38. The extent of those declines can be seen in the tables presented in Section II.D., below. The Postal Service attributes the decline in service performance during the pandemic to its impact on “processing, transportation, retail, and delivery operations….” Id. at 38. The FY 2020 ACR identifies three examples of the pandemic’s impact on those operations are identified in the FY 2020 ACR: employee unavailability, contract transportation constraints, and the massive growth in package volumes. Id. A fourth example, the closure or reduction of business hours at postal retail facilities, is discussed in a response to the Commission’s first information request. Reduced Employee Availability. The Postal Service reports that the pandemic “reduced employee availability nationally and in numerous pockets of hot spots at different times.” Responses to CIR No. 1, Question 1.a. Reduced employee availability at hot spots impacted service performance not only in the affected facilities, but in downstream operations as well. Id. On a national level, mail processing full-time regular employees fell from 76.9 percent in October 2019 (the first quarter of FY 2020) to 68.94 percent in May, 2020 (during the third quarter of FY 2020). Id. Question 1.b. At times, employee availability fell below 50 percent. Id. Lack of carrier availability for completing Final Mile delivery could also adversely impact service performance. Id. Question 1.a.The Postal Service attempted to mitigate employee unavailability by hiring significant numbers of non-career employees. These hires were made possible by Memorandums of Understanding with postal unions which continue in effect until March 31, 2021. Id. Questions 2.a. and 2.c. The Postal Service also attempted to mitigate employee unavailability by “allowing mail processing supervisors to perform employee duties such as forklift operations and operating mail processing equipment. OIG Pandemic Report at 2. The Postal Service states that despite the use of large numbers of newly hired inexperienced employees, “[n]o definitive correlation can be made between the new employees and service performance.” Responses to CIR No. 1, Question 2.b. It nevertheless acknowledges that “[t]he additional non-career employees hired do not have the knowledge, skills and abilities that the regular employees have…and that] on-the-job training is critical.” Id. The Postal Service also expects that “service performance will continue to be impacted by these factors until the pandemic is no longer an impact to employee availability and until new employees can gain sufficient experience in mail processing.” Id. Question 1.d.Contract Transportation Constraints. Constraints on contract transportation arrangements added to the problems presented by the reduced availability of full-time regular Postal employees and reliance upon limited numbers of newly hired inexperienced non-career employees. See id. Question 3. Flight reductions by commercial air carriers reduced capacity normally used to transport mail by air. Id. Question 3.a. Air transport capacity was also reduced by the inability of commercial air carriers to predict passenger volume resulting in weight and volume restrictions on shipments of postal products when passenger volume was under-predicted. Response to CIR No. 1, Question 5.a. The volume restrictions resulted in mail being held for later flights with an increased likelihood of the mail missing Required Delivery Times (RDTs). Id.The loss of commercial air transport put increased strain on surface transportation, the availability of which was adversely affected by the pandemic’s impact on driver availability. Id. Question 3.a. At the same time contract transportation arrangements were being constrained, Priority Mail volume and First-Class Package Service volume experienced significant increases in Q-3 and Q-4 of FY 2020. This surge in Priority Mail and First-Class Package Service volume overwhelmed the Postal Service’s cargo-only suppliers. Id. Together, flight cancellations and delays, surface transportation constraints, and inadequate cargo capacity resulted in mail failing to meet Required Delivery Times. Id. These failures, like reduced employee availability, adversely impacted downstream facilities. Responses to CIR No. 1, Question 3.a. To mitigate constraints on air transportation caused by the loss of commercial air carrier capacity, the Postal Service substituted cargo aircraft for passenger aircraft. See id. Question 3.b. The Postal Service office for commercial air arrangements also conducted weekly evaluations to identify air services that significantly and consistently failed to meet RDTs. Id. Question 5.c. Weekly service performance calls were made to suppliers to discuss and correct performance failures, action plans were developed, and, when necessary, other air service networks were utilized. Id. To mitigate the pandemic’s impact on surface transportation, the Postal Service sought to reduce the number of trips needed to transport mail. Id. Question 4.a. It attempted to do this by ensuring “that all available volume is dispatched on trucks to reduce the number of extra trips that are needed” and by “utilizing its Surface Transfer Center network to maximize the utilization of trips.” Id.Growth in Package Volumes. In its FY 2020 ACR, the Postal Service cites a “massive growth in package volumes” as one of the examples of how the pandemic impacted its ability to meet service performance targets. This surge in Priority Mail and First-Class Package Service volume put a severe strain on the Postal Service’s air transport and surface transport arrangements. Id. Question 3.a. Together, flight cancellations and delays, inadequate air cargo capacity, and surface transportation constraints resulted in mail failing to meet Required Delivery Times. Id. Questions 3.a. and 3.b. A report issued by the Postal Service’s Office of Inspector General also offers insights into how the increase in package volume impacted service performance. On page 11, the report states that “six of the seven P&DCs (processing and distribution centers) reviewed, experienced increases ranging from 6 percent to 57 percent of their package volumes….” OIG Pandemic Report at 11. Package volume was 30 percent higher from March through May 2020 compared to the same period in 2019 and was greater than 2019 holiday peak season volume. Id. at 8. The report explained that “[w]hen employee availability significantly decreases and volume significantly increases as it did during the pandemic, it creates significant mail processing challenges which affects processing and dispatching the mail to delivery units to meet service performance standards…[and that]…[t]hese challenges were reflected in the number of late and extra trips.”The OIG report identifies additional steps taken by Postal Service management to mitigate the increase in packages volumes. Those steps included:Offloading package volumes to various P&DCs throughout the country.Adjusting machine start time to process the increase package volume.Using a flexible workforce, increasing the use of overtime, limiting days off, and using postal support employees to compensate for low employee availability.Allowing mail processing supervisors to perform employee duties such as forklift operations and operating mail processing equipment.OIG Pandemic Report at 12.Limitations on Access to Retail Postal Facilities. The Postal Service reports that “nearly 100 retail offices were closed or operated with reduced hours in FY 2020 because of the pandemic.” Responses to CIR No. 5, Question 5.a. In addition, over 350 alternate access offices were closed or operated with reduced hours at the height of the pandemic. Id. The Postal Service responded by taking the following actions:Prioritizing Express Mail and packages over First-Class Mail and flats when needed.Changing and temporarily adjusting clerk start times.Scheduling regular city letter carrier to maximize office pivoting opportunities.Extending carrier street times and canceling scheduled days off.Establishing temporary delivery points and alternate delivery locations.Redirecting mail to temporary mail receptacles for some businesses and nursing homes.Placing mail on hold at delivery post offices an allowing customer pick up.OIG Pandemic Report at 19.The Postal Service also used memorandums of understanding with its unions to permit:Sharing of postal support employees, City Carrier Assistants, and Rural Carrier Associates with understaffed units.Hiring postal support employees and Temporary Carrier Assistants to replace absent regular clerks and city and rural letter carriers.Expansion of delivery routes.Adjustment of clerk and carrier schedules.Id. at 19-20.Other Factors Impacting Service PerformanceCost Cutting InitiativesIn an October, 2020 Report, the Postal Service Office of Inspector General noted that after his appointment, the Postmaster General implemented the following three operational and organizational changes in July and August 2020:Elimination of late and extra trips to transport mail. This initiative, started in July 10, 2020, was to eliminate all late and extra trips outside of regularly scheduled transportation service.Expedited Street Afternoon Sortation (ESAS): This initiative began as a pilot program at 384 facilities nationwide on July 25, 2020, and was designed to eliminate excessive pre-and post-tour anization Restructure: On August 7, 2020 the Postmaster General announced a reorganization of field operations and headquarters functions to align functions based on core business operations. (See below)In addition to these changes, the Postal Service operations executives outlined 57 initiatives to achieve FY 2021 financial targets and reduce workhours, one of which matched the Postmaster General’s strategies (Late/Extra trips). These operational initiatives were developed to achieve an estimated 64 million workhour savings. Id. at 2.These 57 initiatives included changes from current operations in each function including mail processing, vehicle and maintenance, and post office operations (delivery and retail). They included eliminating pre-tour overtime in city delivery operations, elimination of certain mail processing operations on Saturday, and alignment of clerk workhours to workload. Id.According to the OIG Report, what became one of the most controversial of these initiatives—the removal of mail processing equipment—was in progress, prior to July 2020. Id. However, the pace of the removals was accelerated beginning in June 2020. Id. The OIG also noted that removals of underutilized collection boxes, which occurs each year based on an annual density study, also increased significantly in two of the seven geographic areas of the country during July 2020. Id.The OIG Report was critical of the Postal Service’s actions because, although the Postal Service estimated workhour savings for many of the initiatives, it did not complete a study or analysis of the impact the changes would make on mail service performance prior to implementation and did not pilot test or otherwise consider the impact of the changes even though critical employee availability issues were being felt as pandemic cases rose following the July 4 Holiday weekend. Id.The Report concluded that “The collective results of these initiatives, combined with the ongoing employee availability challenges resulting from the pandemic, have negatively impacted the quality and timeliness of mail delivery nationally.” Id. at 3. The OIG Report concluded that all mail products it reviewed showed significant declines in service performance “beginning in July 2020, directly corresponding to implementation of the operational changes and initiatives.” Id. According to Postal Service officials, the service impacts caused by the operational changes were temporary and would not impact the election mail for the 2020 election. Id. at 4. While acknowledging that service performance had improved as of September 3, 2020 from July lows, the OIG Report pointed out that First-Class Single-Piece mail had only improved to 86.8 percent (7.1 percentage points below the target of 96 percent) and that First-Class Presort had only improved to 88.6 percent (5.7 points below the target of 96 percent). It is unclear what portion of the percentage shortfall from the relevant targets was due to the Postal Service’s cost reduction initiatives and what portion was due to the work Modifications and Realignment of Business OperationsIn addition to its cost cutting initiatives, the Postal Service made at least two potentially significant corporate and operational changes during FY 2020. Both have potential implications for service performance. While these changes were made in FY 2020, their impact will not be felt until FY 2021.First, the Postal Service completed the redesign of its surface network on September 14, 2020—ten days before the end of FY 2020. This change included a realignment of transportation at its eleven existing Surface Transfer Centers (STSs) and the opening of two new STCs. Id.The Postal Service states that the principle planned benefit of the Surface Transfer Center (STC) redesign was a reduction in trips and miles in the network. The Postal Service also notes that the redesign did not significantly impact on-time service performance results for Market Dominant products in FY 2020. They observe that the service performance results for the month of September 2020 were comparable to, or somewhat above, the prior two months. Id.A second change involved the realignment of the Postal Service’s core business operations in three operating units:Retail and Delivery Operations—This unit is focused on accepting and delivering mail and packages efficiently and with a high level of customer satisfaction.Logistics and Processing Operations—This unit is focused on processing and moving mail and packages efficiently to delivery units within determined service merce and Business Solutions—This unit is focused on leveraging Postal Service infrastructure to enable growth.As part of the operational realignment, the Postal Service adjusted its Retail and Delivery Operations areas and districts as well as its logistics and processing Operations regions and divisions. Retail and Delivery Operations now consists of four areas, The Atlantic, Central, Southern and Western-Pacific Retail and Delivery Areas. Logistics and Processing Operations are now contained in two divisions, the Eastern and Western Regions.The Postal Service explains that “[t]he new structure for operations eliminates the different implementation strategies and efficacy from the area structure, and provides direct-to-the-field efficacy and consistency of message and direction.” Responses to CIR No. 1, Question 9.The legacy structure had field support functions self-contained within operations. As a result, there was duplication around support functions as well as lack of focus and line of sight on core business functions. Planning and execution had been decentralized in 7 areas, and 67 districts. In addition, the Postal Service states, all aspects of operations (retail, delivery and processing) were concentrated within the same organizational structure. This new structure allows each of the core business units to focus on excellence within their function. The Postal Service maintains that the newly adopted structure will lead to improved performance and results. Id.The Eastern and Western regions of the Logistics and Processing Operations unit each has 12 divisions. Id. Question 10. The Postal Services explains that having a structure for logistics and processing separate from retail and delivery allows leadership to focus on a single core function to improve strategic planning and execution leading to improved service performance across all mail products. This reorganization was announced only in late FY 2020 and as a result, no nationwide initiatives were developed, implemented and/or supervised by this new operating unit in FY 2020. Id. In the Logistics and Processing Operations unit, the new FY 2020 reorganization plan created a new dedicated Letter/Flat Mail Group whose efforts have been intently focused on strategically stabilizing all letter and flat shape-based products. Although conceptualized somewhat earlier, the unit was not configured, enabled, and fully operational until quarter two of FY 2021. The Postal Service observes that the efforts of this group has been centered on moving away from one unachievable, universal operating plan to creating site-by-site specific achievable operating plans, allowing each facility to inherently become precise, efficient and predictable, thus better meeting the needs of both the network and delivery operations. Id. Question 11.Service Performance by Mail ClassFirst-Class MailDomestic First-Class MailTable II-1.1 presents the annual FY 2020 performance targets and the FY 2016 through FY 2020 percent on-time performance results for domestic First-Class Mail. For FY 2020, on-time results are directly comparable to the results reported in FY 2019. The FY 2020 on-time results for domestic First-Class Mail products are not, however, directly comparable to the results reported for fiscal years prior to FY 2019. This lack of comparability is due to the fact that the Postal Service utilized a different measurement system for domestic First-Class Mail products prior to FY 2019. In FY 2020, all First-Class Mail products failed to meet their on-time targets. Those targets were the same in FY 2020 as in FY 2019. This is the sixth consecutive year the Postal Service failed to meet its domestic First-Class Mail service performance targets. Not only did each product fail to meet its FY 2020 target, it also fell short of the on-time performance levels that were achieved in FY 2019.Table II- 1.1Domestic First-Class Mail FY 2020 Service Performanceand Percent On-Time for FY 2016 through FY 2020First-Class MailFY 2016On-Time (%)FY 2017On-Time (%)FY 2018 On-Time (%)FY 2019 On-Time (%)FY 2020On-Time(%)FY 2020Target(%)Single-Piece Letters/PostcardsTwo-Day95.5 95.594.592.5 92.0 ↓ 96.50Three-To-Five-Day84.886.683.5 81.4 79.7 ↓95.25Presort Letters/PostcardsOvernight96.396.696.2 95.7 94.9 ↓ 96.80Two-Day95.295.895.1 94.3 93.0 ↓96.50Three-To-Five-Day91.993.492.2 92.190.2 ↓ 95.25FlatsOvernight84.584.682.281.5 80.3 ↓ 96.80Two-Day80.682.079.781.5 77.5 ↓ 96.50Three-To-Five-Day70.973.971.076.6 73.4 ↓ 95.25Key:FY 2020 TargetDid Not Meet Target in FY 2020Met Target in FY 2020 Increase from FY 2019 Decrease from FY 2019 Table II-1.2 and Table II-1.3 present more detailed (quarterly) percent on-time performance results for FY 2020. These tables demonstrate pre-pandemic service performance improvements during Q-1 and Q-2 of FY 2020 and a continuing decline in service performance during Q-3 and Q-4 of FY 2020.The results for each quarter include an indication of how the quarterly FY 2020 results compare to the results for the same quarter during FY 2019. The comparison of FY 2020 quarterly results with FY 2019 quarterly results reveals a reversal of the historic trend of lower on-time performance results in Q-1 and Q-2 followed by higher on-time service performance results in Q-3 and Q-4. Had the additional challenges of the pandemic not been presented in FY 2020, annual on-time service performance might have been maintained or, possibly, improved in FY 2020.Table II-1.2Domestic First-Class Mail FY 2020 Service PerformanceAll Products Except Single-Piece and Presort FlatsQ-1 through Q-4 Percent On-TimeFirst-Class MailFY 2020 Q-1On-Time (%)FY 2020 Q-2On-Time (%)FY 2020 Q-3 On-Time (%)FY 2020 Q-4 On-Time (%)FY 2020On-Time(%)FY 2020Target(%)Single-Piece Letters/PostcardsTwo-Day92.3 ↑93.6 ↑93.0 ↓88.9 ↓92.0 ↓ 96.50Three-To-Five-Day78.7 ↑84.2 ↑82.5 ↓73.0 ↓79.7 ↓95.25Presort Letters/PostcardsOvernight94.6 ↑96.1 ↑95.9 ↓93.0 ↓94.9 ↓ 96.80Two-Day93.7 ↑94.6 ↑93.5 ↓ 90.0 ↓93.0 ↓96.50Three-To-Five-Day91.5 ↑92.7 ↑90.9 ↓84.9 ↓90.2 ↓ 95.25FY 2020 TargetDid Not Meet Target in FY 2020Met Target in FY 2020 Increase from FY 2019 Decrease from FY 2019Key:Table II-1.3Domestic First-Class Mail FY 2020 Service PerformanceSingle-Piece and Presort FlatsQ-1 through Q-4 Percent On-TimeFirst-Class MailFY 2020 Q-1On-Time (%)FY 2020 Q-2On-Time (%)FY 2020 Q-3 On-Time (%)FY 2020 Q-4 On-Time (%)FY 2020On-Time(%)FY 2020Target(%)Single-Piece FlatsOvernightN/AN/AN/AN/A-Two-Day80.0 ↑81.6 ↑77.4 ↓73.8 ↓78.5 ↓-Three-To-Five-Day70.9 ↑72.5 ↑66.9 ↓60.3 ↓68.1 ↓-Presort FlatsOvernight81.2 ↑82.8 ↑80.7 ↓76.5 ↓80.3 ↓ -Two-Day80.1 ↑80.7 ↓ 73.9 ↓70.2 ↓76.4 ↓-Three-To-Five-Day78.2 ↑79.7 ↑73.2 ↓67.0 ↓74.7 ↓ -Combined Single-Piece and Presort FlatsOvernightN/AN/AN/AN/A 80.3 ↓ 96.80Two-DayN/AN/AN/AN/A 77.5 ↓ 96.50Three-To-Five-DayN/AN/AN/AN/A 73.4 ↓ 95.25FY 2020 TargetDid Not Meet Target in FY 2020Met Target in FY 2020 Increase from FY 2019 Decrease from FY 2019N/A - NotAvailableKey:The Postal Service emphasizes the improvement it made in on-time service performance during the first two quarters of FY 2020 and points to the significant adverse effects that the pandemic had on service performance. FY 2020 ACR at 38. The improvements during the first two quarters were achieved by operations at Headquarters and in Areas that were using various tools to identify and correct root causes of service failures for FCM and all other mail products. Library Reference USPS-FY20-9 at 6. The Postal Service also points to the realignment of its core business operations during July, 2020. Id. at 6-9. It is clear that the Postal Service made improvements in domestic First-Class Mail service performance during the first two quarters of FY 2020. It also is clear that the COVID-19 pandemic had a significant adverse impact on the Postal Service’s on-time service performance by adversely affecting employee availability and the availability of transportation arrangements. The pandemic also placed added strains on service performance by precipitating a huge increase in the number of packages that the Postal Service was called upon to deliver. These impacts affected postal operations across the board from First Mile, to Processing, to Last Mile. For domestic First-Class Mail service performance to recover during FY 2021, it will be necessary for the Postal Service to continue its pre-pandemic efforts to improve service performance by responding effectively to Commission directives. It will also be necessary for the Postal Service to build upon its FY 2020 efforts to deal with the impacts of the pandemic. Until the pandemic is brought under control, the Postal Service will have to continue to contend with the unavailability of numbers of employees, constrained transportation, and the challenges of increased package volume.International First-Class Mail Table II-2.1 presents the annual FY 2020 performance targets and the FY 2016 through FY 2020 percent on-time performance results for international First-Class Mail. The Postal Service used its International Mail Measurement System to measure service performance throughout the entire FY 2016 through FY 2020 period shown in Table II-2.1. Accordingly, the on-time results for all International First-Class Mail products in FY 2020 are directly comparable to the results reported in FY 2019. In FY 2020, all International First-Class Mail products failed to meet their FY 2020 on-time performance targets. See Table II-2.1. Following declines in FY 2019, service performance declined even further in FY 2020. Id. Outbound Single-Piece First-Class International fell over 20 percent short of its FY 2020 performance target. Id. Inbound Letter Post fell almost 28 percent short of its FY 2020 target. Id.Table II-2.1International First-Class Mail FY 2020 Service Performanceand Percent On-Time for FY 2016 through FY 2020InternationalFirst-Class MailFY 2016On-Time (%)FY 2017On-Time (%)FY 2018On-Time (%)FY 2019 On-Time (%)FY 2020On-Time(%)FY 2020Target (%)Outbound Single-Piece First-Class Mail InternationalTwo-Day90.690.886.3 81.4 76.4 -Three-To-Five-Day84.583.781.5 79.0 70.0 -Combined86.285.983.0 79.7 72.0 94.0Inbound Letter PostTwo-Day88.190.589.3 66.8 72.1 ↑-Three-To-Five-Day77.782.580.3 63.6 62.6 -Combined81.485.583.5 64.8 66.2 ↑94.0FY 2020 TargetDid Not Meet Target in FY 2020Met Target in FY 2020 Increase from FY 2019 Decrease from FY 2019Key:Table II-2.2 presents more detailed (quarterly) percent on-time performance results for FY 2020. The results for each quarter include an indication of how the quarterly FY 2020 results compare to the results for the same quarter during FY 2019. Table II-6.2 demonstrates pre-pandemic service performance in Q-1 improved for Outbound Single-Piece First-Class Mail International, but declined in Q-2. Pre-pandemic service performance for Inbound Letter Post declined in both Q-1 and Q-2. In Q-3 and Q-4, service performance declined for both Outbound Single-Piece First-Class Mail and Inbound Letter Post.Table II-2.2International First-Class Mail FY 2020 Service PerformanceQ-1 through Q-2 Percent On-TimeInternationalFirst-Class MailFY 2020 Q-1On-Time (%)FY 2020 Q-2On-Time (%)FY 2020 Q-3On-Time (%)FY 2020 Q-4 On-Time (%)FY 2020On-Time(%)FY 2020Target (%)Outbound Single-Piece First-Class Mail InternationalTwo-Day75.8 ↑70.9 ↓74.2 ↓84.5 ↑76.4 -Three-To-Five-Day74.6 ↑67.1 ↓58.6 ↓79.6 ↓70.0 -Combined75.0 ↑68.3 ↓63.6 ↓81.1 ↓72.0 94.0Inbound Letter PostTwo-Day77.0 ↓78.5 ↓76.6 ↓68.6 ↓72.1 ↑-Three-To-Five-Day69.6 ↑71.6 ↓ 62.8 ↓53.8 ↓62.6 -Combined72.5 ↓74.3 ↓67.9 ↓59.1 ↓66.2 ↑94.0FY 2020 TargetDid Not Meet Target in FY 2020Met Target in FY 2020 Increase from FY 2019 Decrease from FY 2019Key:The Postal Service points to the improved annual performance results for Two-Day and Combined Inbound Letter Post. It also cites improvement in quarterly service performance results for Inbound Letter Post. By contrast, annual service performance levels for Two-Day, Three-to-Five-Day, and Combined Outbound Single-Piece First-Class Mail International declined compared to FY 2019. See Table II-2.2.With respect to Inbound Letter Post, the Postal Service acknowledges that “[i]n theory, the service performance for both of these two service categories (domestic and international) should be comparable….” Library Reference USPS FY 20-29 at 8. It states that “[c]ommunications are in place with the P&DCs which process and handle the international volumes to correct any delays in this process.” Id. at 8. The Postal Service also discusses four initiatives that it is pursuing “to improve service performance for international services, including Outbound Single-Piece First-Class Mail International and Inbound Letter Post.” Finally, the Postal Service states that it is “comprehensively examining its operations to identify strategies and opportunities to improve both the reliability and predictability of service performance, while also enhancing operational efficiency and effectiveness.” FY 2020 ACR at 39-40. This examination is part of the strategic business plan being developed by the Board of Governors. Id. at 40.Although the Postal Service improved Two-Day and Combined Inbound Letter Post service performance in FY 2020, the percentage of on-time performance remained approximately 22 percent and 28 percent, respectively, short of the FY 2020 performance targets. See Table II-2.2. Improvements are, of course, to be recognized. But they must be viewed in context. With respect to Two-Day service performance at 72.1 percent and Combined Inbound Letter Post service performance at 66.2 percent, it must be acknowledged that much remains to be done to bring this international service performance to acceptable levels. Similarly, the Postal Service asserts that quarterly service performance improvements for Inbound Letter Post is evidence of “the strides the Postal Service was making prior to the pandemic….” FY 2020 ACR at 37. However, as Table II-2.2 shows, the improvement for Inbound Letter Post was limited to the Q-1 improved performance for Three-to-Five-Day Inbound Letter Post. See Table II-2.2. The annual service performance levels for Outbound Single-Piece First-Class Mail International also declined in FY 2020. See Table II-2.1. The decline in Outbound Single-Piece First-Class Mail International has been continuous from FY 2016 through FY 2020. See id. Based on the information presented in the FY 2020 ACR combined with other information and earlier reports, service performance levels for international First-Class Mail require immediate attention in FY 2021. The Postal Service must not only address pre-pandemic deficiencies of long-standing, it must also continue to respond to the added challenges presented by the pandemic.USPS Marketing MailTable II-3.1 presents the annual FY 2020 performance targets and the FY 2016 through 2020 percent on-time performance results for Marketing Mail. For FY 2020, percent on-time results for all Marketing Mail products are directly comparable to the results reported in FY 2019. This is because for FY 2020 the Postal Service utilized the same measurement system for all Marketing Mail products during both FY 2020 and FY 2019.With one exception, the FY 2020 on-time results for Marketing Mail products are not directly comparable to the results reported for fiscal years from FY 2016 to FY 2018 because the Postal Service utilized a different measurement system for Marketing Mail products during those prior fiscal years. See note 22, supra. The exception is USPS Marketing Mail Parcels, which has used the same Product Tracking and Reporting System to measure service performance from FY 2018 through FY 2020. See note 31, supra.Similar to FY 2019, only High Density and Saturation Letters and Parcels met service performance targets, while all other USPS Marking Mail products failed to meet service performance targets in FY 2020. See generally Table II-3.1. FY 2020 on-time service performance for High Density and Saturation Letters increased slightly over its FY 2019 performance. Id. By contrast, service performance for Parcels decreased slightly in FY 2020 even though the FY 2020 performance target was met. Id. Of the remaining products, all of which failed to meet their FY 2020 targets, two products (Letters and Every Door Direct Mail-Retail) showed improvements in on-time service performance. Id. In FY 2020, Marketing Mail Flats sank to a new low of the five-year period to 75.7 percent on-time performance.Table II-3.1USPS Marketing Mail FY 2020 Service Performanceand Percent On-Time for FY 2016 through FY 2020USPS Marketing MailFY 2016On-Time (%)FY 2017On-Time (%)FY 2018 On-Time (%)FY 2019 On-Time (%)FY 2020On-Time (%)FY 2020Target(%)High Density and Saturation Letters94.995.593.0 93.1 93.2 ↑ 91.8High Density and Saturation Flats/Parcels90.090.088.3 89.4 87.5 ↓ 91.8Carrier Route83.991.489.5 90.0 87.8 ↓ 91.8Letters90.191.889.4 89.2 89.8 ↑ 91.8Flats81.480.476.5 77.6 75.7 ↓ 91.8Every Door Direct Mail-Retail75.275.474.4 75.7 77.0 ↑ 91.8Parcels98.398.298.0 97.9 96.7 ↓ 91.8FY 2020 TargetDid Not Meet Target in FY 2020Met Target in FY 2020 Increase from FY 2019 Decrease from FY 2019Key: Table II-3.2 presents more detailed (quarterly) percent on-time performance results for FY 2020. This table demonstrates pre-pandemic service performance improvements during Q-1 and Q-2 of FY 2020 and a continuing decline in service performance during Q-3 and Q-4 of FY 2020.The results for each quarter include an indication of how the quarterly FY 2020 results compare to the results for the same quarter during FY 2019. The comparison of FY 2020 quarterly results with FY 2019 quarterly results reveals a reversal of the historic trend of lower on-time performance results in Q-1 and Q-2 followed by higher on-time service performance results in Q-3 and Q-4. Had FY 2020 not presented the additional challenges of the pandemic and other factors, annual on-time service performance for Marketing Mail might have been maintained or, possibly, improved.Table II-3.2USPS Marketing Mail FY 2020 Service PerformanceQ-1 through Q-4 Percent On-TimeUSPS Marketing MailFY 2020 Q-1On-Time (%)FY 2020 Q-2On-Time (%)FY 2020 Q-3On-Time (%)FY 2020 Q-4On-Time (%)FY 2020On-Time (%)FY 2020Target(%)High Density and Saturation Letters93.7 ↑95.0 ↑94.8 ↓89.5 ↓93.2 ↑ 91.8High Density and Saturation Flats/Parcels88.0 ↑89.3 ↓87.0 ↓86.2 ↓87.5 ↓ 91.8Carrier Route89.9 ↑93.5 ↑84.3 ↓85.7 ↓87.8 ↓ 91.8Letters89.5 ↑92.0 ↑91.3 ↓86.7 ↓89.8 ↑ 91.8Flats78.4 ↑81.9 ↑71.7 ↓72.1 ↓75.7 ↓ 91.8Every Door Direct Mail-Retail75.3 ↑78.0 ↑79.7 ↑74.9 ↓77.0 ↑ 91.8Parcels98.4 ↑98.5 ↑95.7 ↓92.0 ↓96.7 ↓ 91.8FY 2020 TargetDid Not Meet Target in FY 2020Met Target in FY 2020 Increase from FY 2019 Decrease from FY 2019Key: The Postal Service emphasizes the improvement it made in on-time service performance for Marketing Mail during Q-1 and Q-2. Library Reference USPS FY-20-29 at 16. It implicitly identifies the pandemic as the cause of the decline in on-time service performance in the third and fourth quarters of FY 2020 when it states that its “field units worked diligently to balance mail volumes in their facilities with limited employee availability and other impacts of the pandemic.”In its response to a Chairman’s information request, the Postal Service explained that in response to declining Marketing Mail volume and rapidly increasing package volume, field units prioritized the processing and dispatch of mail with limited employee and transportation resources. It stated further that employee unavailability, mail inventory, and limited transportation “impeded their ability to deliver all types of mail within determined service standards.” Id. Finally, the Postal Service suggests that its efforts to prioritize the delivery of Election Mail entered as Marketing Mail in line with First-Class delivery standards may have resulted in non-Election Mail being delivered in line with First-Class Mail delivery standards. Id. Question 22.c.Although the Postal Service made improvements in Marketing Mail service performance during the first two quarters of FY 2020, the COVID-19 pandemic had a significant adverse impact on that service performance. It adversely affected employee availability and the availability of transportation arrangements. It placed added strains on service performance by precipitating a huge increase in the number of packages that the Postal Service was called upon to deliver. These impacts affected postal operations across the board from First Mile, to Processing, to Last Mile. During FY 2020, the Postal Service attempted to address pre-pandemic service issues with some success during the first two quarters of FY 2020 and took action to respond to the immediate crises it faced as the pandemic worsened. The information elicited to date in this proceeding does not permit quantification of the effects of its efforts.For Marketing Mail service performance to recover in FY 2021, it will be necessary for the Postal Service to continue its pre-pandemic efforts and it will also be necessary to build upon its FY 2020 experience in dealing with the impacts of the pandemic. Until the pandemic is brought under control, the Postal Service will have to continue dealing with the unavailability of employees, constrained transportation, and increased package volume.Together, the Postal Service’s continued search for ways to improve service performance, the effective implementation of changes it made in FY 2020, such as its realignment of operations and other system modifications, and new initiatives will be required to reestablish and improve Marketing Mail service performance levels in FY 2021.PeriodicalsTable II-4.1 presents the annual FY 2020 performance targets and the FY 2016 through 2020 percent on-time performance results for Periodicals. For FY 2020 the Postal Service utilized the same Internal Service Performance Measurement System (ISPM) as it did in FY 2019. For that reason, the FY 2020 percent on-time results for Periodicals are directly comparable to the FY 2019 results. The FY 2020 on-time results for Periodicals are not, however, directly comparable to the results reported prior to FY 2019 due to the fact that a different measurement system was used for Periodicals from FY 2016 through FY 2018.In FY 2020, Periodicals again failed to meet their on-time service performance targets. Both In-County and Outside County on-time service performance fell significantly (almost 5 percent) from their respective FY 2019 levels.Table II-4.1Periodicals FY 2020 Service Performanceand Percent On-Time for FY 2016 through FY 2020PeriodicalsFY 2016On-Time (%)FY 2017On-Time (%)FY 2018 On-Time (%)FY 2019 On-Time (%)FY 2020 On-Time (%)FY 2020Target(%)In-County80.185.685.685.780.9 ↓ 91.8Outside County79.785.385.3 85.4 80.7 ↓ 91.8FY 2020 TargetDid Not Meet Target in FY 2020Met Targetin FY 2020 Increase from FY 2019 Decrease from FY 2019Key: Table II-4.2 presents more detailed (quarterly) percent on-time performance results for FY 2020. This table demonstrates pre-pandemic service performance improvements in Q-1 and Q-2 of FY 2020 and a continuing decline in service performance during Q-3 and Q-4 of FY 2020.The results for each quarter include an indication of how the quarterly FY 2020 results compare to the results for the same quarter during FY 2019. The comparison of FY 2020 quarterly results with FY 2019 quarterly results reveals a reversal of the historic trend of lower on-time performance results in Q-1 and Q-2 followed by higher on-time service performance results in Q-3 and Q-4. Had FY 2020 not presented the additional challenges of the pandemic and other factors, annual on-time service performance might have been maintained or, possibly, improved.Table II-4.2Periodicals FY 2020 Service PerformanceQ-1 through Q-4 Percent On-TimePeriodicalsFY 2020 Q-1On-Time (%)FY 2020 Q-2On-Time (%)FY 2020 Q-3On-Time (%)FY 2020 Q-4On-Time (%)FY 2020On-Time (%)FY 2020Target(%)In-County84.8 ↑87.0 ↑76.974.380.9 ↓ 91.8Outside County84.5 ↑86.7 ↑76.674.1 80.7 ↓ 91.8FY 2020 TargetDid Not Meet Target in FY 2020Met Targetin FY 2020 Increase from FY 2019 Decrease from FY 019Key: The Postal Service points to the significant adverse effects that the pandemic had on service performance. Library Reference USPS FY-20-29 at 18-19. It states its commitment “to defining and implementing initiatives that are simple, achievable and that will drive down costs and improve service.” Id. at 19. It also notes that the new organization structure it put in place in July 2020, “places a manager in charge of flats, who is planning for FY 2021 initiatives that will concentrate on flats optimization.” Id. at 18.The problems with Periodicals” service performance continued into FY 2020. Although on-time percentages for Q-1 and Q-2 for both In-County and Outside County showed the same type of improvement demonstrated by other mail products, such as the domestic First-Class Mail products and Marketing Mail products discussed above, that improvement could not be sustained in the face of the pandemic.It is clear that the COVID-19 pandemic had a significant adverse impact on the on-time service performance for periodicals by adversely affecting employee availability and the availability of transportation arrangements. And, again, as was the case with other postal products, the pandemic placed added strains on service performance by precipitating a huge increase in the number of packages that the Postal Service was called upon to deliver which very likely impacted the Postal Service’s ability to maintain service levels for Periodicals. These impacts affected postal operations across the board from First Mile, to Processing, to Last Mile. During FY 2020, the Postal Service attempted to address pre-pandemic service issues with some success during the first two quarters of FY 2020. For Periodicals service performance to recover in FY 2021, it will also be necessary for the Postal Service to continue its pre-pandemic efforts to monitor Periodicals operations and to improve service performance by responding effectively to Commission directives. The initiatives envisioned by the new manager now in charge of flats will hopefully produce positive results during FY 2021. And it will, of course, be necessary for the Postal Service to build upon its FY 2020 experience in dealing with the impacts of the pandemic. Package ServicesTable II-5.1 presents the annual FY 2020 performance targets and the FY 2016 through 2020 percent on-time performance results for Package Services. For FY 2020, percent on-time results for Bound Printed Matter Flats are directly comparable to the results reported in FY 2019. In both FY 2020 and FY 2019, the Postal Service used its internal Product Tracking and Reporting system. Prior to FY 2019, the Postal Service used a different system, its Intelligent Mail Accuracy and Performance system. Consequently, the on-time performance results for FY 2016 through FY 2018 are not directly comparable to the results shown in Table II-5.1 for FY 2019 and FY 2020. By contrast, the FY 2020 on-time performance results for both Bound Printed Matter Parcels and Media Mail/Library Mail are comparable to the results for FY 2016 through FY 2019. Throughout this period, service performance for these products was measured by the Product Tracking and Reporting System.As in FY 2019, only Bound Printed Matter Parcels met its service performance target in FY 2020 with its on-time performance remaining unchanged. See generally Table II-5.1. Bound Printed Matter Flats showed a slight increase in its low on-time performance to only 55.7 percent, but again failed to meet its service performance target by a wide margin. See id. Although service performance for Bound Printed Matter Flats improved slightly, it still fell far short of its FY 2020 on-time target. See id. By contrast, Media Mail/Library Mail not only failed to meet its FY 2020 service performance target, its performance declined significantly to the lowest level in the last five years. See id.Table II-5.1Package Services FY 2020 Service Performanceand Percent On-Time for FY 2016 through FY 2020USPS Marketing MailFY 2016On-Time (%)FY 2017On-Time (%)FY 2018 On-Time (%)FY 2019On-Time (%)FY 2020On-Time(%)FY 2020Target(%)Bound Printed Matter Flats53.656.755.255.2 55.7 ↑ 90.0Bound Printed Matter Parcels99.299.199.098.5 98.5 —90.0Media Mail/Library Mail92.291.089.687.0 80.9 ↓ 90.0FY 2020 TargetDid Not Meet Target in FY 2020Met Targetin FY 2020 Increase from FY 2019 Decrease from FY 2019— No changefrom FY 2019Key: Table II-5.2 presents more detailed (quarterly) percent on-time performance results for FY 2020. This table demonstrates pre-pandemic service performance improvements in Q-1 and Q-2 of FY 2020 and a continuing decline in service performance during Q-3 and Q-4 of FY 2020.The results for each quarter include an indication of how the quarterly FY 2020 results compare to the results for the same quarter during FY 2019. The comparison of FY 2020 quarterly results with FY 2019 quarterly results reveals a reversal of the historic trend of lower on-time performance results in Q-1 and Q-2 followed by lower on-time service performance results in Q-3 and Q-4 for both Bound Printed Matter Flats and Media Mail/Library Mail. Had the additional challenges of the pandemic and other factors not been presented, it appears that annual on-time service performance might have been maintained.Table II-5.2Package Services FY 2020 Service PerformanceQ-1 through Q-4 Percent On-TimeUSPS Marketing MailFY 2020 Q-1On-Time (%)FY 2020 Q-2On-Time (%)FY 2020 Q-3On-Time (%)FY 2020 Q-4On-Time (%)FY 2020On-Time(%)FY 2020Target(%)Bound Printed Matter Flats52.5 ↑61.7 ↑57.3 ↓57.5 ↑55.7 ↑ 90.0Bound Printed Matter Parcels98.9 ↑98.9 ↑98.0 ↓97.9 ↓98.5 —90.0Media Mail/Library Mail87.8 ↑89.3 ↑75.0 ↓75.3 ↓80.9 ↓ 90.0FY 2020 TargetDid Not Meet Target in FY 2020Met Targetin FY 2020 Increase from FY 2019 Decrease from FY 2019— No changefrom FY 2019Key: The Postal Service does not attribute the decline in Package Services’ performance during the third and fourth quarters of FY 2020 to the pandemic. The similarity of the FY 2020 quarterly performance data for Package Services to the FY 2020 quarterly data for other mail classes suggests that Package Services was also adversely impacted by the pandemic. There are, however, obviously other non-pandemic factors at work as evidenced by the on-time performance of both Bound Printed Matter Flats and Media Mail/Library Mail in the years preceding FY 2020. Id. The Postal Service recognizes that much needs to be done to improve service performance for both Bound Printed Matter Flats and Media Mail/Library Mail and it presents a list of actions that it intends to continue or undertake in FY 2021. It notes the realignment of its operations and the appointment of a manager in charge of flats who is expected to plan FY2021 initiatives concentrated on flats optimization. The Postal Service also indicates that the Flat Mailer Industry work team will continue to meet in FY 2021. It further states its intent to “focus on determining strategies for Flats mail to reduce cost, improve efficiency, and improve service. Id. at 23. It is clear that the Postal Service needs to make significant improvements in the service performance for Package Services. In addition to pre-pandemic service problems, the Postal Service must address the ongoing adverse impacts of the pandemic. Special ServicesTable II-6.1 presents the annual FY 2020 performance targets and the FY 2016 through 2020 percent on-time performance results for Special Services. For FY 2020, the Postal Service utilized the same Internal Service Performance Measurement System (ISPM) as it did in FY 2019. With one exception, the FY 2020 on-time results are directly comparable to the results reported for FY 2016 through FY 2020 because the Postal Service utilized the same measurement systems throughout that period. The exception is presented by Green Card Return Receipt, one of the Ancillary Services, for which a different measurement system was utilized beginning in FY 2019. In FY 2019, every Special Services product not exempt from reporting met its service target, except for Post Office Box Service. See Table II-6.1. In FY 2020, only two Special Services products, International Ancillary Services and Money Orders, met their respective targets. Id. Of the three products that failed to meet their target (Ancillary Services, Post Office Box Service, and Stamp Fulfillment Services), the largest decline—over 20 percent—was posted by Stamp Fulfillment Services. IdTable II-6.1Special Services FY 2020 Service Performanceand Percent On-Time for FY 2016 through FY 2020Special ServicesFY 2016On-Time (%)FY 2017On-Time (%)FY 2018 On-Time (%)FY 2019 On-Time (%)FY 2020On-Time(%)FY 2020Target(%)Ancillary Services91.791.591.2 90.9 89.6 ↓90.0International Ancillary Services99.799.799.6 99.8 99.8 —90.0Money Orders99.299.199.3 99.4 93.1 ↓90.0Post Office Box Service89.788.988.2 88.3 88.2 ↓ 90.0Stamp Fulfillment Services99.499.699.7 99.7 79.1 ↓90.0FY 2020 TargetDid Not Meet Target in FY 2020Met Target in FY 2020 Increase from FY 2019 Decrease from FY 2019— No changefrom FY 2019Key:In a library reference accompanying the Postal Service’s FY 2020 ACR, the Postal Service states that all Special Services achieved their established service targets. That statement is incorrect. The same library reference cited by the Postal Service shows that three of the Special Services products (Ancillary Services, Post Office Box Service, and Stamp Fulfillment Services) failed to meet their performance targets. See id at 25. The Postal Service addressed the failure of Post Office Box Service to meet its FY 2020 performance targets by continuing or undertaking a number of actions, some of which will continue into FY 2021. Id. at 27-28. The actions taken in FY 2020 were in response to a Commission directive in the FY 2019 ACD. See 2019 ACD at 135-136. The Public Representative urges the Postal Service to take steps in FY 2021 to improve the service performance of Ancillary Services and Stamp Fulfillment Services as well. The Service Performance Outlook for FY 2021In FY 2021, the COVID-19 pandemic continues to present the Postal Service with serious challenges. The unavailability of employees, contract transportation constraints, elevated parcel volume, and restricted access to postal facilities were all consequences of the pandemic in FY 2020 and threaten to continue in FY 2021. For service to improve, in addition to its ongoing service performance improvement efforts, it will be necessary to build on its FY 2020 efforts to meet the challenges of the pandemic.With respect to employee availability, the Postal Service may continue to need agreement from its unions to hire non-career employees to make up for career employees who become unavailable until the pandemic is brought under control. See Responses to CIR No. 1, Question 2.c. Even as non-career employees gain experience, they will in all likelihood continue to need training. See id. The Postal Service has also recognized the need for training and ongoing service instructions for career employees. See id. Question 5.a. In addition, the efficient and effective management of available employees will be of paramount importance. The Postal Service states that it will rely upon its realigned operating units, the Retail and Delivery Operations unit and the Logistics and Processing Operations unit to manage available employees efficiently and effectively. See id. Question 5.a. (First and Last Mile Operations) and Question 2.e. (Processing Operations). The effectiveness of these realigned units will be of critical importance, a fact that the Postal Service indicates it recognizes. Id. Questions 5.c., 15.c. 16.a, and 16.c. In FY 2020, the pandemic had a major adverse impact on the Postal Service’s air transportation and surface transportation arrangements. Part of that adverse impact was caused by the huge growth in package volume. The threat to such transportation arrangements has continued into FY 2021. The Postal Service plans to continue using cargo aircraft and other alternatives until passenger aircraft become available. Id. Question 4.e. As it continues to monitor the commercial air (CAIR) market, the Postal Service is conducting weekly Service Performance call to correct performance failures with the supplier and, if the failure cannot be corrected in a sufficient time frame, another air network is utilized. Id. Questions 5.d. and 5.e. With respect to surface transportation, the Postal Service completed the redesign of its surface transportation network by realigning 11 existing Surface Transfer Centers (STCs) and opening two new STCs as of September 14, 2020. Response to CHIR No. 1, Question 15.a. The principal benefit expected from these changes is to reduce the number of trips and miles in the network. Id. Question 15.b. The Postal Service also states that it will continue using its upgraded and realigned Network Operations Control Centers (NOCCs) to perform real-time data analysis and communication with its plants regarding issues of transportation. The NOCCs will be expected “to proactively address and mitigate deviation from the processing operations plan and network transportation plan.” Responses to CHIR No. 1, Question 16.a. The NOCCs will seek to do this by means of “new, enhanced, and expanded tools [that] include the Last Mile Diagnostic tool, which provides greater insight into Last Mile failures by location.” FY 2020 ACR at 40.Among the initiatives intended to improve service performance is the establishment of service performance targets for FY 2021 that “realistically reflect [the Postal Service’s] current operating circumstances and its financial condition….” Id. at 39. The establishment of those targets are related to the strategic business plan being developed by the Board of Governors. Id. at 39-40. The Postal Service faces significant challenges as it seeks to weather the impacts of the pandemic and to address long-standing service performance issues. From the information provided in this FY 2020 ACR proceeding, it appears that the Postal Service is planning to address service performance issues seriously. In FY 2021, the Commission, like the Postal Service, should be prepared to devote even more resources to service performance issues.CUSTOMER ACCESS AND CUSTOMER SATISFACTIONIntroductionThe Postal Service must report on customer satisfaction in terms of customer access to postal services and the results of customer experience surveys when fulfilling its requirements under 39 U.S.C. §?3652(a)(2)(B)(ii). See 39 C.F.R. §§ 3055.91 and 3055.92; 39 U.S.C. §?3652(a)(2)(B)(ii).Customer Access to Postal Services Section 3055.91 requires the Postal Service to report annual changes in the number of retail facilities, collection boxes, and Wait-Time-in-Line. See 39 C.F.R. § 3055.91. As part of this reporting, the Postal Service also reports on its progress towards resolving the backlog of suspended post office cases.Retail FacilitiesFor each fiscal year, the Postal Service must provide information on the number of retail facilities at the beginning and end of the fiscal year, as well the number of retail facility closings during the fiscal year. 39 C.F.R. § 3055.91(a)(1)-(3). Postal-managed retail facilities consist of post offices, stations and branches, and carrier annexes. Non-postal-managed retail facilities consist of Contract Postal Units (CPUs), Village Post Offices (VPOs), and Community Post Offices (CPOs). Table III-1 presents the total number of retail facilities in FYs 2019 and 2020 and illustrates the change in the number of retail facilities during FY 2020.Table III-1Retail FacilitiesFY 2019 through FY 2020Facility TypeFY 2019FY 2020Change ABC=B-APost Offices26,36226,3620Classified Stations, Branches &Carrier Annexes4,9604,9688Total Postal-Managed Facilities31,32231,3308Contract Postal Units2,0341,914-120Village Post Offices542450-92Community Post Offices457443-14Total Non-Postal-Managed Facilities3,0332,807-226Total Retail Facilities34,35534,137-218In FY 2020, the total number of retail facilities decreased by 218. See Table III-1. The number of postal-managed facilities increased by 8, while the number of non-postal-managed facilities declined by 484. Id.Previously (as part of Docket No. N2012-1), the Commission recommended that the Postal Service “continue to expand its alternative retail access channels to ensure customers have ready access to essential postal services.” In the past, the Postal Service maintained that non-postal-managed facilities produced “incremental revenue” while providing more convenient access to those communities they served. In FY 2014, the Postal Service reported that there were 2,600 Contract Postal Units, 759 Village Post Offices, and 560 Community Post Offices, adding up to 3,919 non-postal-managed facilities. This year, the number of non-postal-managed facilities declined by 226, a decline of nearly 7.5 percent from FY 2019 to FY 2020. The Public Representative commends the Postal Service for slightly increasing the number of retail facilities it manages, even during the pandemic, because they provide a greater array of services than non-postal-managed facilities. However, the decline in non-postal-managed facilities is concerning because it most likely had a disproportionate affect on rural and remote areas, which are more difficult to serve. The Public Representative presumes that communities most readily served by non-postal-managed facilities had to spend a greater amount of travel time in order to access postal facilities during the pandemic. Expanding access to non-postal-managed facilities remains an important source of customer access while the current pandemic persists and for unforeseen emergencies in the future. Consequently, the Public Representative recommends the Commission request the Postal Service explain whether it remains committed to expanding non-postal-managed facilities as a way to expand retail access to hard-to-serve communities. The Public Representative recommends the Commission request the Postal Service to submit a plan to expand this type of access. This report should discuss specific methods to retain and improve retail access to hard-to-serve communities if the pandemic continues.Post Office SuspensionsFor each fiscal year, the Postal Service must provide information on the number of post office suspensions at the beginning and end of the fiscal year, as well as the number of post offices suspended during the fiscal year. 39?C.F.R.§?3055.91(a)(4)(6). Data provided by the Postal Service show there were 436 Post Offices in suspension at the end of FY 2020, and 200 Post Offices were suspended during FY 2020. Chart III-1 illustrates the number of post offices in suspension at the end of each year from FY 2015 through FY 2020. Chart III-1Post Offices in SuspensionFY 2015 through FY 2020The Postal Service reports that after holding community meetings during the pandemic, it decided to pause “customer-facing activities for the remaining 211 [suspended post offices] until January 2021.” FY 2020 ACR at 62. The Postal Service also reports that it will “reevaluate the status of each of the remaining suspended post offices in 2021 to determine the proper course of action for each of them.” Id. The Public Representative is pleased to learn the Postal Service paused the suspension process until 2021, inasmuch as permanent closings were held in abeyance in areas where the continued presence of the pandemic warrants the opening of suspended Post Offices. However, pausing the suspension process was not accompanied by their opening during the pandemic. The Public Representative maintains there is a high probability that the pandemic has increased the need for more extensive and rapid access to customer-facing Post Offices, and maintains the Postal Service should quickly develop new criteria to determine the impact of the novel coronavirus on customer access based on the probability its impact will continue for several years. Once these criteria are developed and examined, the Postal Service should then restart the suspension, process using these new criteria, as soon as possible.The Public Representative recommends the Commission require the Postal Service to report how the pandemic has impacted the need for retail access to Post Offices in areas served by suspended Post Offices, and to re-start the suspension process using these new criteria as soon as possible. Some of the issues the Report should discuss include: the criteria the Postal Service has used in the past to determine whether to open, permanently close, or retain suspension status for currently suspended Post Offices; the new criteria it will use to determine whether or not to open, permanently close, or retain suspension status for currently suspended Post Offices based on the estimated time the pandemic will continue to affect suspended Post Offices; and how the Postal Service determined these new criteria. Finally, the Commission should also request the Postal Service discuss additional issues it believes are associated with the Postal Service’s universal service mandate.Number of Collection BoxesThe Postal Service must provide, at the national and postal area levels, information on the number of collection boxes available at the beginning and at the end of the fiscal year, as well as the number of collection boxes added and removed during the fiscal year. 39 C.F.R. § 3055.91(c). Table III-2 presents the total number of collection boxes the end of each year since FY 2014, the changes in the number of collection boxes between FY 2018 and FY 2019, as well as the changes between FY?2019 and FY 2020. Table III-2Collection BoxesFY 2014 through FY 2020End of Fiscal YearNo. of Collection BoxesFY 2014156,345FY 2015154,734FY 2016152,267FY 2017146,252FY 2018143,997FY 2019142,300FY 2020140,845Change in Collection Boxes between FY 2018 and FY 2019 (%)-1.18%Change in Collection Boxes between FY 2019 and FY 2020 (%)-1.02%Total Change in Collection Boxes since FY 2014 (%)-9.91%The annual rate of reduction in the number of collection boxes was 1.18 percent from FY 2018 to FY 2019. See Table II.2. In FY 2020, the percentage reduction in the number of collection boxes was only 1.02 percent. See Table III-2. Although not explicitly stated in FY 2020 ACR, the Public Representative assumes that the Postal Service has continued to perform annual density testing of collection boxes in order to ensure that the network is both cost-effective and meets the needs of customers, and will continue to do so into the future, as instructed by the Commission. See FY 2019 ACD at 146. Although customer access to collection boxes remains an important aspect of customer satisfaction, the Public Representative maintains that the 1.02 percent decline in the number of collection boxes reported in FY 2020 is minor. Additionally, the Public Representative acknowledges that the Commission will mitigate any potential concerns over the declining number of boxes by continuing to monitor the number of collection boxes as S of its annual ACR review. Wait-Time-in-LineThe Postal Service must report the average customer Wait-Time-in-Line for retail service for the beginning of the fiscal year and for the end of each successive fiscal quarter at the national and postal area levels. 39 C.F.R. § 3055.91(d). Table III-3 illustrates that while the Postal Service reduced Wait-Time-in-Line between FY 2018 and 2019, Wait-Time-in-Line increased for all regions and nationally between FY 2019 and FY 2020.Table III-3Average Wait-Time-In-LineFY 2017 through FY 2020Postal AreaAverage Wait-Time-in-Line (Minutes : Seconds)FY 2017FY 2018FY 2019FY 2020Change in SecondsFY 2018 to FY 2019FY 2019 to FY 2020Capital Metro2:132:172:192:450:020:26Eastern2:021:531:431:57-0:100:14Great Lakes2:042:002:052:160:050:11Northeast2:202:092:082:12-0:010:04Pacific3:032:102:162:450:060:29Southern2:292:132:052:38-0:080:33Western3:002:302:232:34-0:100:11National2:282:112:082:26-0:030:18Wait-Time-in-Line increased by 18 seconds nationwide in FY 2020 and Wait-Time-in-Line increased substantially more in the Capital Metro, Pacific, and Southern Areas than in other postal areas. See Table III-3. The COVID-19 pandemic is most likely responsible for the increase in Wait-Time-in-Line between FY 2019 and FY 2020, and the Public Representative assumes the pandemic will continue to cause increases during FY 2021. The Postal Service does not discuss this change in its FY 2020 ACR, and so offers no explanation for the increase in Wait-Time-in-Line. Nor does the Postal Service provide plans or timelines to either improve Wait-Time-in-Line, or limit further increases in Wait-Time-In-Line if the pandemic continues. The Public Representative considers Wait-Time-in-Line to be an important component of customer access and satisfaction and recommends the Commission require the Postal Service to develop and file with the Commission a plan that would describe how the Postal Service is going to mitigate the increased Wait-Time-in-Line during the expected time of the pandemic. This filing should specifically describe the steps and resources the Postal Service considers necessary to deploy in order to return Wait-Time-in-Line to the status quo ante.Customer SatisfactionThe PAEA requires the Postal Service to report measures of the degree of customer satisfaction with the service provided for each Market Dominant product. 39?U.S.C. § 3652(a)(2)(B)(ii); 39 C.F.R. § 3055.90. Customer Experience (CX) Composite IndexFor each fiscal year, the Postal Service assesses customer satisfaction using the CX Composite Index, which, in FY 2020, used seven surveys to measure different areas of customer satisfaction. FY?2020 ACR at 44. The collected survey data are then weighted and aggregated to create the CX Composite score. The weights used for each of the seven surveys have remained the same since FY 2018. Id. The seven surveys used to measure customer satisfaction were: (1)Point of Service (POS) — a survey which measures customer satisfaction with the Postal Service’s retail services; (2) — a survey which measures consumer satisfaction with the Postal Services’ “” website.(3)Delivery — a survey which measures satisfaction with various Residential and Small Business Delivery and Post Office characteristics; (4) Business Service Network (BSN) — a survey which measures the satisfaction the 20,000+ largest business customers experienced with regard to the Postal Service’s fulfillment of service issues, answering Questions, and other requests; (5) Business Mail Entry Unit (BMEU) — a survey which measures business satisfaction with customer service received at BMEUs;(6)Customer 360 (C360) — a survey which measures the satisfaction of customers who opened a customer care ticket; and(7) Customer Care Center (CCC) — a survey which measures overall satisfaction with the support all categories of customers receive from the Postal Service. Table III-4 provides the overall satisfaction scores for each survey for FY 2019 and FY 2020, the percentage point change in customer satisfaction from FY 2020, and the weight of each survey in the CX Composite Index.Table III-4CX Weights and Composite Index ScoresFY 2019 and FY 2020NationalFY 2019FY 2020Difference FY 2020 – FY 2019Weight(%)(%)(%)(%)ABC=B-APOS87.7787.46-0.3115.72.9473.410.475.00Delivery80.4080.940.5420.00BSN96.6897.330.6510.00BMEU96.0096.720.7210.00C36037.4540.052.6020.00CCC46.9460.0313.0920.00CX Composite69.0472.403.36100.00As illustrated in Table III-4, the POS score was the only measure of customer satisfaction which declined in FY 2020, albeit by only a small amount. The , Delivery, BSN, and BMEU surveys show small gains. The C360 survey shows modest improvement, and the CCC shows substantial improvement. Overall, the CX Composite measure of overall customer satisfaction shows a modest 3.36 percentage point increase. See Table III-4.The improvement in customer satisfaction survey scores are probably the result of Postal Service initiatives to improve each measure of customer satisfaction. The Postal Service reports a variety of additional measures it implemented, which are related to each area of customer service, e.g., including:improving its website by updating the content, the search engine, the “Help” section, and by providing mobile access (). See FY 2020 ACR at 46; completing a pilot delivery program which improved delivery accuracy (Delivery survey). Id. at 48; implementing a process enabling it to receive comments from large business customers after they received assistance (BSN survey). Id. at 49; providing BMEU customer service representatives with additional training, coaching and job aids (BMEU survey). Id. at 50; implementing a process to send its largest business customers near real-time notifications via email to customer service personnel, as well as to provide additional training (C360 survey). Id. at 51.The Public Representative commends the Postal Service for taking numerous steps to improve customer satisfaction, as discussed above, and achieving an increase in customer satisfaction despite the tremendous challenges posed by the COVID-19 pandemic. FY 2020 ACR at 48-59. Last year most surveys of customer satisfaction either met their corresponding target score or were within (approximately) eight percentage points of reaching the applicable target score, with the exception of the C360 and the CX Composite scores. See Table III-5, Column F, below. The ability of the Postal Service to meet targeted customer service goals improved this year, in spite of the difficulties the Postal Service encountered as a result of the COVID-19 pandemic. For instance, six surveys (POS, , Delivery, BSN, BMEU, CCC) and the CX Composite Index score, were within (approximately) five percentage points of their target scores. The CX Composite score improved approximately three percentage points from FY 2019, even though the CX Composite score failed to meet its target. See Table III-5 below.Table III-5Comparison between the Actual and Target ScoresFY 2019 and FY 2020NationalActual ScoresDifference between Actual ScoresTarget Scores Difference between Actual and Target Scores FY 2019FY 2020FY 2020 – FY 2019FY 2019FY 2020FY 2019FY 2020 ABC=B-ADEF=A-DG=B-E(%)(%)Percentage Points(%)(%)Percentage PointsPercentage PointsPOS87.7787.46-0.3190.4290.42-2.65-2.72.9473.410.4765.0072.587.940.83Delivery80.4080.940.5486.3386.33-5.93-5.39BSN96.6897.330.6596.7396.73-0.050.60BMEU96.0096.720.7295.1396.010.870.71C36037.4540.052.6070.0055.00-32.55-14.95CCC46.9460.0313.0955.0055.00-8.06-5.03CX Composite69.0472.403.3675.7375.75-9.23-3.35The Commission would find it useful to learn whether the Postal Service plans to reduce target scores for FY 2021 (assuming the continuing effect of the pandemic), and/or whether it intends to implement additional measures to improve customer performance. The Postal Service also provides a breakdown of customer satisfaction for the delivery of market dominant products into three customer categories: Residential, Small Business, and Large Business. The Postal Service maintains that FY 2020 results are not comparable to FY 2019 results due to several modifications made to the FY 2020 survey Questions related to the Large Business Panel (LBP) and small business and residential delivery surveys. FY 2020 ACR at 56. Specifically, the Postal Service states that in order to obtain more useful and detailed information, it updated product descriptions, divided questions for several mail products into domestic and international products, and removed Marketing Mail and Periodicals from the residential customer survey because these products are typically sent by business customers. Id. The Postal Service maintains these changes will improve its ability to improve customer service in the future. Id. at 55. The Public Representative agrees the additional questions will improve the Postal Service’s ability to improve customer service in the future, but maintains that it should have retained the Marketing Mail and Periodicals’ questions because they do pertain to the mail recipient’s satisfaction. For example, even though periodicals are sent by periodical mailers, if they are erratically delivered, or delivered late, the mailer and the Postal Service will still obtain information that would help it improve customer satisfaction. Moreover, had the Postal Service retained those questions, it would have been possible to make meaningful comparisons of customer satisfaction across years for market dominant products. The Public Representative recommends the Commission request the Postal Service to reintroduce these Questions in future ACRs. The Public Representative was able to compare customer satisfaction with market dominant products in FY 2018 and FY 2019 in last year’s ACR comments, but the data provided by the Postal Service in its FY 2020 ACR does not allow an accurate measurement of the change in customer satisfaction since FY 2019. The Postal Service’s FY 2020 customer satisfaction percentages for Market Dominant Products are presented in Table III-6.Table III-6 Market Dominant ProductsPercentage of Customers Who Were Either ?“Very Satisfied” or “Mostly Satisfied” in FY 2020Customer CategoryResidentialSmall BusinessLarge Business(%)(%)(%)First-Class Mail (postcards, letters, bills, large envelope)91.4490.0783.09Periodicals (newspapers, magazines)N/A87.2479.43USPS Marketing Mail (advertising, catalogs, non-profit)N/A80.2280.71USPS Retail Ground (lower cost service, surface transportation)89.4388.28N/AMedia Mail (books, CDs, DVDs)86.6085.5978.97Library Mail (schools & libraries 2-8 days)81.6282.5380.29First Class Mail International (postcards, letters, bills, large envelope)85.3082.0588.75Although a direct comparison between customer satisfaction with market dominant products in FY 2020 and FY 2019 cannot be made, the Public Representative concludes that customer satisfaction is at a reasonable level. Because the effects of the pandemic are likely to be felt during much of FY 2021, and possibly into FY 2022, the Public Representative recommends the Commission request the Postal Service to report the measures it plans to implement in order to further improve customer satisfaction scores.MARKET DOMINANT PRODUCTSIntroductionThe Postal Service’s market dominant products are required to cover their attributable costs pursuant to 39 U.S.C. § 3622(c)(2). See 39 U.S.C. § 3622(c)(2). Most of the Postal Service’s market dominant products covered their attributable costs. However, there were eight market dominant products and two special services that failed to cover their attributable costs, and total losses for those products and services were approximately $1.78 billion in FY 2020. Those non-compensatory products/services are presented in Table IV-1. The Public Representative analyzes market dominant product cost coverage on a class-by-class basis.Table IV-1FY 2020 Financial Results for Market DominantProducts and Services with Cost Coverage Below 100 percentProducts and ServicesCost Coverage (%) Loss ($ Million)Unit Loss (cents)First-Class ? Inbound Letter Post87.731.314.3USPS Marketing Mail? Parcels76.515.341.7 Flats63.2781.524.4 Carrier Route96.055.91.1Periodicals, Total:56.9774.619.3 In-County50.549.410.5 Outside County57.0729.620.6Package Services, Total:92.567.111.8 Bound Printed Matter Parcels93.819.17.3 Media and Library Mail79.391.393.3Special Services International Ancillary Services95.31.112.4 Money Orders 97.73.74.8Total loss ($ Million)?1,778?First-Class MailIntroductionWith the exception of Inbound Letter Post, all First-Class Mail products covered their attributable costs in FY 2020. FY 2020 ACR at 6-7. The cost coverage of First-Class Mail class overall continues to be relatively high compared to other classes, and it increased from 195.6 percent in FY 2019 to 198.1 percent in FY 2020. The FY 2020 average unit contribution of First-Class mailpieces was 22.6 cents, which is slightly higher than the FY 2019 unit contribution of 22.4 cents. First-Class Mail products contributed $12.0 billion to the Postal Service’s institutional costs, which is approximately $0.4 billion less than it was in FY 2019 when such contribution was $12.4 billion. The Public Representative, however, observes that among rate categories within the Single-Piece Letters/Postcards product, the cost coverage of Single-Piece Postcards was 99.2 percent, slightly below 100 percent. In addition, the cost coverage of First-Class Mail Flats (a product within the First Class Mail) is 100.0 percent. Id. Although the Public Representative does not question the compliance of First-Class Mail Flats with 39 U.S.C. § 3622(c)(2), he finds it important to note that the product’s cost coverage has decreased since FY 2019 and FY 2018 when it was 112.7 percent and 125.9, respectively. If the declining trend continues, the cost coverage of First-Class Mail Flats might fall below 100 percent, as soon as FY 2021.Inbound Letter PostIn FY 2020, as in the previous years, Inbound Letter Post product did not cover its attributable costs and its cost coverage was 87.7 percent. FY 2020 ACR at 6. See also Chart IV-1. The product’s cost coverage, however, has increased 9.9 percentage points since FY 2019, when it was 78.5 percent. In FY 2020, volume for Inbound Letter Post, compared to FY 2019, decreased drastically from 560.5 million pieces to 219.2 million pieces, or by almost 61 percent. This was primarily due to the transfer of the Inbound E-format Letter Post to the competitive product list in January 2020. In FY 2020, revenue per piece for Inbound Letter Post decreased moderately from $1.07 in FY 2019 to $1.02 (or by 4.6 percent), while cost per piece decreased at a higher pace: from $ 1.36 to $1.16 (or by 14.6 percent). The Public Representative acknowledges the improvement in cost coverage of Inbound Letter Post in FY 2020, which was the highest in the 10-year period. See Chart IV-1. Similarly, a loss of $31.3 million, which Inbound Letter Post experienced in FY 2020, is substantially less than the loss the product experienced in any year between FY 2012 and FY 2019, and is slightly less than the FY 2011 loss. See Chart IV-1. Chart IV-1Financial Results for Inbound Letter Post FY 2011 through FY 2020As in previous ACRs, the Postal Service points out the existence of a “unique pricing regime” which applies to Inbound Letter Post. The Postal Service explains that in FY 2020, it “did not determine the prices for [Market Dominant] Inbound Letter Post.” FY 2020 ACR at 7. Rather, its prices applicable to Inbound Letter Post, were set “according to a Universal Postal Union (UPU) terminal dues formula established by the Universal Postal Convention.” Id. at 7-8. The Postal Service, however, reports a “groundbreaking change” as a result of the continuing collaboration between the Postal Service with other federal entities, namely – “the adoption of self-declared rates for E-format items (generally packets and bulky letters up to 4.4 pounds) beginning in July 2020, with respect to exchanges of E-format items with the United States.” Id. at 8. The Postal Service started to apply the self-declared rates to E-format items that, as noted above, were transferred to the competitive product list in January 2020. Id. n.9. As the Public Representative noted in the ACR comments last year, the cost coverages by country group, for P-Format and G-Format (i.e., letter-shaped and flat-shaped) Inbound Letter Post, exceed their E-Format counterparts. This observation explains the increase in the cost coverage of Inbound Letter Post in FY 2020, after E-format Inbound Letter Post items were transferred to the competitive product list. The Postal Service also provided some additional details about the steps it has taken and will be taking to increase the cost coverage for Inbound Letter Post. However, considering that the Postal Service still relies on UPS rates for Inbound Letter Post, the Public Representative doubts that this product will cover costs, let alone improve its cost coverage in FY 2021. USPS Marketing Mail IntroductionIn FY 2020, the overall cost coverage of the USPS Marketing Mail class overall (including fees) was 129.4 percent, down by almost 10 percentage points from FY 2019 when it was 139.1 percent. The Public Representative notes that USPS Marketing Mail cost coverage has been steadily declining. Specifically, the cost coverage of USPS Marketing Mail was 142.2 percent in FY 2018, 152.7 percent in FY 2017, 158.3 percent in FY 2016, 159.8 percent in FY 2015, and 166.1 percent in FY 2014. Therefore, in the last five years, the cost coverage of USPS Marketing Mail class fell by almost 37 percentage points. This unfortunate trend is due to the continuing failure of two USPS Marketing Mail products (USPS Marketing Mail Flats and USPS Marketing Mail Parcels) to cover their attributable costs as well as the failure of the Carrier Route product to cover its cost for the second consecutive year. Sections IV.C. 2 through IV.C.4 of these comments provide the detailed analysis of the cost coverage of each of these products. ParcelsIn FY 2020, the cost coverage of USPS Marketing Mail Parcels was 76.5 percent, notably up from FY 2019 when the product’s cost coverage was 56.9 percent. This increase in cost coverage is a result of an increase in the product’s unit revenue (by 3.3 percent, from $1.31 to $1.35), coupled with a quite substantial decrease in unit cost (by 23.1 percent, from $2.30 to $1.77). Total loss from USPS Marketing Mail Parcels amounted to $15.3 million in FY 2020, which is a significant improvement compared to FY 2019 and FY 2018, when the product’s loss was $36.6 million and $31.2 million, respectively. Per unit loss decreased by more than fifty percent: from 99.3 cents in FY 2019 to 41.7 cents in FY 2020. The financial results for USPS Marketing Mail Parcels from FY 2012 through FY 2020 are compared in Chart IV-2. The Postal Service confirms its commitment to improve the product’s cost coverage by implementing “above average price increases” and providing “continued efforts to improve efficiency.” FY 2020 ACR at 14. The Postal Service explains that the price increase of 3.9 percent approved in Docket No. R2020-1, contributed to the increase in unit revenue. Chart IV-2Financial Results for USPS Marketing Mail Parcels FY 2012 through FY 2020The Public Representative observes that this Marketing Mail Parcels price increase was far above the average of 1.86 percent. Order No. 5321 at 9. The price increase for USPS Marketing Mail Parcels approved in the next rate case, Docket No. R2021-1, was already 16.791 percent (compared to the average class-level price increase of 1.509 percent) because it was set up in accordance with the Commission’s FY 2019 ACD directives to “increase Parcels prices by at least 2 percentage points above the class average.” The Public Representative hopes that this price increase will help USPS Marketing Mail Parcels cover its costs in FY 2021. FlatsIn FY 2020, the cost coverage of USPS Marketing Mail Flats was 63.2 percent, which is 4.5 percentage points less than in FY 2019, when it was 67.7 percent. The total loss increased by almost 5.0 percent, from $744.3 million in FY 2019 to $781.5 million in FY 2020. In FY 2020, compared to FY 2019, cost-per-piece increased from 60.4 cents to 66.4, or by 9.9 percent. In FY 2020, revenue-per-piece increased at a slower pace than cost-per-piece: from 40.9 cents to 42.0 cents, or by 2.7 percent, which resulted in a lower cost coverage than the last year. The Postal Service reports that the cost coverage shortfall for USPS Marketing Mail Flats has been steadily increasing since FY 2013 and in FY 2020 reached the highest point since FY 2008. FY 2020 ACR at 25. In addition, the FY 2020 cost coverage of USPS Marketing Mail Flats was the lowest since FY 2012. See Chart IV-3.Chart IV-3Financial Results for USPS Marketing Mail FlatsFY 2012 through FY 2020In FY 2020, USPS Marketing Mail Flats volume decreased by approximately 16.2 percent or 619 million pieces, continuing a declining trend. In FY 2019 the product’s volume decreased by 0.3 billion, and in FY 2018 it decreased by 1.4 billion pieces. From FY 2008 to FY 2019, USPS Marketing Mail Flats volume declined from 10.0 billion pieces to 3.2 billion pieces. The Postal Service provides the same explanation for the decline in volumes as it did in its FY 2019 ACR: “[t]he sharp volume decline in Flats, and flat-shaped mailpieces, is the primary reason that mail processing costs continued to rise at a faster rate than wages.” Considering the complexity of issues related to the costs coverage of USPS Marketing Mail Flats, the Public Representative presents a discussion below in Part VI.Carrier RouteThe Postal Service reports that the cost coverage of USPS Marketing Mail Carrier Route was only 96.0 percent in FY 2020, down by 3.7 percentage points from 99.7 percent in FY 2019. FY 2020 ACR at 12, 15. This is the second consecutive year when the USPS Marketing Mail Carrier Route product did not cover its attributable costs, although the product was covering these costs each year in the period between FY 2009 and FY 2018. Id. at 13. Moreover the cost coverage of Carrier Route has been steadily declining since FY 2016 when it was approximately 137.5 percent. Id. In a period of only four years, the cost coverage of Carrier Route declined from 124 percent to 96 percent, while contribution went down from healthy $372 million to a loss of almost $56 million. See Chart IV.4 Chart IV-4 Financial Results for USPS Marketing Mail Carrier Route FY 2017 through FY 2020Although revenue-per-piece increased slightly, from 26.2 cents in FY 2019 to 26.5 cents in FY 2020 (an increase of 1 percent), cost-per-piece increased at a higher pace, from 26.3 cents in FY 2019 to 27.6 cents in FY 2020 (an increase of 4.9 percent). FY 2020 ACR at 13. As it did last year, the Postal Service states that the increase in unit costs (1.3 cents) was driven by higher delivery costs. The 1.0 percent increase in revenue-per-piece was a result of the 1.129 percent price increase approved in Docket No. R2020-1. FY 2020 ACR at 13. The product’s volume was approximately 5.05 billion pieces in FY 2020, down by 1.3 billion pieces (or 20.6 percent) from FY 2019. Id. at 11, 13. The Postal Service asserts that this substantial volume decline was primarily and mostly due to the COVID-19 pandemic. Id. at 13. The Public Representative is concerned with the inability of the USPS Marketing Mail Carrier Route product to cover its costs for the second consecutive year. The Carrier Route product received a below-average price increase in Docket No. R2020-1 because the Postal Service considered “the product’s price elasticity and the value added by catalogs in the mailbox.” However, the Postal Service did not specify the price elasticity for the Carrier Route product. The Public Representative observes that the price elasticity reported by the Postal Service in January 2020 was different for different price categories within the product. The lowest price elasticity was for basic parcels (approximately 0.45 in absolute terms) and the highest price elasticity was for Enhanced Carrier Route basic letters and flats (approximately 0.84 in absolute terms). Id. The Public Representative observes that in the next rate case, Docket No. R2021-1, the Commission approved a price increase for Carrier Route of 3.529 percent - three times higher than the 1.129 price increase approved in Docket No. R2020-1. This price increase approved in Docket No. R2021-1 is also far above the average price increase for USPS Marketing Mail (which was 1.509 percent). Order No. 5757 at 20. The Public Representative hopes that such a substantial price increase for Carrier Route will help ensure this product covers its costs in FY 2021. PeriodicalsOverall, the Periodicals class had a cost coverage of 56.9 percent in FY 2020, a decrease from 64.0 percent in FY 2019 and 67.5 percent in FY 2018. The total loss for the Periodicals class increased by 15.4 percent, from $671.5 million in FY?2019 to $774.6 million in FY 2020. This substantial increase in Periodicals loss is due to both the increase in cost-per-piece by 11.5 percent, from 40.3 cents to 44.9 cents and the decrease in revenue-per-piece by 0.8 percent, from 25.8 cents to 25.6 cents. As was the case in last year’s ACR, the Postal Service reports that the cost coverage of both In-County and Outside County products declined and neither product covered its attributable costs in FY 2020. The Postal Service reports that cost coverage for In-County Periodicals fell from 57.7 percent in FY 2019 to 50.5 percent in FY 2020, and cost coverage of Outside County Periodicals fell from 64.0 percent in FY 2019 to 57.0 percent in FY 2020. FY 2020 ACR at 28. As illustrated in Chart?IV-5, the Periodicals class has consistently failed to cover its attributable costs over the last decade. Additionally, the Public Representative notes that in FY 2020, the cost coverage of Periodicals class was at the lowest point since FY 2011, and total losses were the highest in the period from FY 2011 through FY 2020. See Chart IV-5. The Postal Service reports that since FY 2016, Periodicals unit costs increased by 28 percent and the unit revenues decreased by 5 percent, and both these factors contributed to a steady decrease in Periodicals cost coverage between FY 2016 and FY 2020. The Postal Service explains that the decline in unit revenue is due to “the 13 percent decline in unit weight [which partially results from] the shift of mailers to the use of thinner and lighter paper for publications.” Id. The Postal Service also states that the decline in volumes (by 28 percent between FY 2016 and FY 2020) is largely responsible for the increases in unit costs. Id. The Postal Service discusses its planned efforts to reduce unit costs for Periodicals. The Postal Service points out that such efforts are related to the reduction of “attributable costs for flat-shaped products.” Id. In addition, the Postal Service relies in the possibility of using “additional rate authority” for non-compensatory classes asserting that it “would likely result in sharper increase in unit revenue.” A discussion of the Commission’s directives regarding Periodicals cost coverage and the Postal Service’s plans to address the related issues is provided below in Section VI. Chart IV-5Financial Results for the Periodicals Class FY 2011 through FY 2020Package ServicesIntroductionThe Package Services class had a cost coverage of 92.5 percent in FY 2020, compared to 96.9 percent in FY 2019 and 102.6 percent in FY 2018. This is the second consecutive year when the Package Services class failed to cover its attributable costs. The Postal Service asserts that this decline in Package Services class-level cost coverage was mostly due to a decline in cost coverage of Bound Printed Matter (BPM) Parcels, which did not cover costs in FY 2020. FY 2020 ACR at 30. In addition, as in the previous years, Media Mail/Library Mail (MM/LM) failed to cover costs. Id. at 30.Bound Printed Matter ParcelsIn FY 2020, the cost coverage of BPM Parcels was only 93.8 percent, down by more than 12 percentage points since FY 2019, when the cost coverage was approximately 106 percent. FY 2020 ACR at 30. In the period from FY 2014 through FY 2019, the product’s cost coverage was relatively stable, in the range between 104.6 percent in FY 2016 and 119.1 percent in FY 2015. Chart IV-6 illustrates the financial performance of BPM Parcels in the last four years.Chart IV-6Financial Results for Bound Printed Matter Parcels FY 2017 through FY 2020The Postal Service reports that In FY 2020, the 1.741 percent price increase for BPM Parcels approved in Docket No. R2020-1 lead to an increase in revenue-per-piece from $1.099 in FY 2019 to $1.108 in FY 2020 (or by 0.86 percent). Id. at 31. See also Order No. 5321 at 34. Cost-per-piece, however, increased at much higher pace: by almost 14 percent, from $1.038 cents to $1.181 cents.The Postal Service asserts that the increase in delivery costs was the primary reason for this significant increase in unit costs for BPM Parcels. FY 2020 ACR at 30. A modest increase in unit transportation costs also contributed to the increase in unit costs for BMP Parcels. Id. The Postal Service claims that the reasons for the increase in unit costs for BMP Parcels is that a “significant portion of the change [in the product’s unit costs] can be attributed to three rulemaking dockets” where the Commission approved the modified costing methodology. Responses to CHIR No. 1, Question 14. Table IV-2, below, provides the breakdown of sources of change for BPM Parcels unit costs, as reported by the Postal Service. Id. The Postal Service argues that the observed increase in the product’s unit costs was primarily due to the recent “methodology changes rather than operational conditions”[and that it] “should not be viewed as an occasion to search for new plans or initiative in response.” Id. In addition, the Postal Service appears to confirm that it does not find it “feasible to plan for cost reductions” for BMP Parcels specific products” because “postal operations are generally structured around shape,” and not any individual product. Id. Table IV-2Estimated Impact of the Recent Changes in Costing Methodology on FY 2020 BPM Parcels Unit CostsChange in Unit Costs (cents)Docket No.The Description of the Provided Changes in Costing Methodology(1)(2)(3)10.0RM2020-10The revised methodology for sampling city carriers in the In-Office Cost System (part of the costing methodology for in-office city carrier costs accrued on Regular Routes)2.4RM2019-6The revised cost attribution procedure for city carrier costs accrued on Special Purpose Routes ?1.7RM2020-1Updated inputs into the analysis used for allocation of facility related costs to products0.2Other ReasonsOperational conditions/ other circumstancesTotal Change: 14.4 centsThe Public Representative finds that the below-average price increase of 1.741 percent that BPM Parcels received in FY 2020 was reasonable considering that the product was covering costs in prior years. However, in Docket No. R2021-1, the Postal Service did not propose any price increase for BPM Parcels at all. Order No. 5757 at 36. The Postal Service explained that it attempted “to balance the larger-than average price adjustment to the non-compensatory product of Media Mail/Library Mail under the class-based price cap.” Id. at 71, n.65. Although this argument has some merit, the Public Representative doubts that the delivery or other BPM Parcels costs will go down enough in FY 2021 to allow the product to cover costs. The Postal Service states that it “intends to recommend to the Governors to apply an above-CPI price increase to BPM Parcels to improve its cost coverage and revenue.” FY 2020 ACR at 31. The Public Representative agrees that this action would be appropriate. However, it is unclear whether this price increase could become effective soon enough to result in a positive contribution from BMP Parcels in FY 2021. Media Mail/Library Mail (MM/LM)In FY 2020, the cost coverage of MM/LM was 79.3 percent, 7.8 percentage points higher than in FY 2019 when the cost coverage was 71.5 percent. The product’s cost coverage in FY 2020 is higher than it was in the previous five years. See Chart IV-7. The overall loss was $91.3 million in FY 2020, which is an improvement compared to FY 2019 when the loss was $21.7 million larger, totaling $113.0 million. The Public Representative observes that MM/LM volume increased from 80.1 million pieces in FY 2019 to 97.8 million pieces (by 22.1 percent), most likely as a result of the rise of online learning during the COVID-19 pandemic. Revenue-per-piece increased slightly, from $3.54 to $3.57, and cost-per-piece decreased notably from $4.96 to $4.50. The Postal Service reports that the decline in both unit mail processing costs and unit purchased transportation costs significantly contributed to a the decline in MM/LM unit costs. Responses to CHIR No. 3, Question 5. The Postal Service concludes that “efficiency improvements in processing and purchased transportation” across the Network Distribution Center network led to the sharp reduction in product’s unit costs. Id.Chart IV-7 Financial Results for Media Mail/Library MailFY 2014 through FY 2020In the FY 2019 ACD, the Commission identified MM/LM as a non-compensatory product and acknowledged the Postal Service’s “approach to improve cost coverage through above-average price increases.” F2019 ACD at 66. The Commission directed the Postal Service “to submit a plan outlining how it will increase cost coverage of Media Mail/Library Mail within 90 days of the filing of [the] ACD.” Id. In its response to the Commission’s directive, the Postal Service identified “four ways in which an increase [in product’s cost coverage] might occur.” These include a decrease in accrued costs in operations and activities in which MM/LM is handled, a decrease in the product’s costs or increase in its revenue due to the methodological changes and, finally, an increase in the product’s revenue from rate increases. Id. The Postal Service asserted that a combined effect of the two recent costing methodology changes and one RPW methodology change was expected to “cause a relatively small improvement [of 2 percent or less] in cost coverage going forward.” Id. at 3-4. After concluding it is unlikely that material improvements in the MM/LM cost coverage will come from operational or methodological changes, the Postal Service reported that it would focus on rate increases. Id. at 4. The Public Representative observes that in January 2020, prior to the date of the cited filing, the Postal Service already implemented an above-average price adjustment of 1.993 percent to MM/LM prices. Order No. 5321 at 34. In Docket No. R2021-1 the Commission approved a far above-average price adjustment of 3.579 to MM/LM rates, while the average price increase for Package Services was 1.460 percent. Order No. 5757 at 36. However, because almost all price adjustment authority available for Package Services under the cap was given to MM/LM, another product that also failed to cover costs in FY 2020 (namely, BPM Parcels), did not receive any price adjustments at all. Id. See also Section IV.E.2 above. However, as discussed above, in FY 2020, owing to the efficiency improvements, the MM/LM unit costs decreased substantially. See Responses to CHIR No. 3, Question 5. The Public Representative would encourage the Postal Service to continue the above-average price adjustments for MM/LM in the future, but strive to propose price increases for MM/LM and BPM Parcels so that both products can make improvements in cost coverage. Special ServicesIntroductionThe Postal Service reports that two Special Services did not cover their costs in FY 2020: Money Orders and International Ancillary Services. FY 2020 ACR at 32. However, Stamp Fulfillment Services (SFS), the product that has consistently failed to cover costs in prior years, “covered costs with a healthy margin” this fiscal year. Id. Money OrdersThe cost coverage of Money Orders in FY 2020 was only 97.7 percent. FY 2020 ACR at 33. Consequently, Money Orders product was once again unable to cover its costs, as was the case in FY 2016 – FY 2017. See Chart IV-8. Among the factors that contributed to a decline in cost coverage of Money Orders that the Postal Service lists are the increase in both retail window costs and debit card transaction costs. Id. at 33-34. The Postal Service notes that debit card expenses per Money Order increased substantially and amounted to 18 percent of the attributable costs for Money Orders in FY 2020. Responses to CHIR No. 1, Question 12. The Postal Service notes that shifts in consumer behavior drove, in part, an increase in costs. FY 2020 ACR at 33. Chart IV-8 Financial Results for Money OrdersFY 2016 through FY 2020The Postal Service reports that it manages debit card expenses “to the degree possible, within [its] legal framework,” including the use of “a dynamic routing system from its payment processor to route each transaction to the lowest [possible] cost network.” Responses to CHIR No. 1, Question 12. To improve the cost coverage of Money Orders, the Postal Service initiated the price increase of 3.215 percent in Docket No. R2021-1. Id.; FY 2020 ACR at 34. The Public Representative agrees with the Postal Service that, generally speaking, the price increase approved in Docket No. R2021-1 should improve the cost coverage of Money Orders. FY 2020 ACR at 34. This price increase is more than twice the average class-level price increase of 1.458 percent for Special Services. Order No. 5757 at 40. However, it still appears unclear what aspects of consumer behavior changed in the recent year and whether and how the Postal Service will address the implications resulting from the shifts in consumer behavior if it continues. There are also doubts whether the impact of the price increases on cost coverage would offset the effect of the shifts in consumer behavior. International Ancillary Services IntroductionThe cost coverage of International Ancillary Services was 95.3 percent. FY 2020 ACR at 33. In the FY 2019 ACD, the Commission found that this product covered its attributable cost and was compensatory in FY 2019 although one component of the product, International Registered Mail, was non-compensatory. FY 2019 ACD at 62-63. In its FY 2020 ACR, the Postal Service explains that International Ancillary Services did not cover costs because the same component failed to cover cost again in FY 2020, and another component, Outbound International Return Receipt, was also unable to cover cost. FY 2020 ACR at 34. Inbound International Registered MailIn FY 2020, as in the previous years, Inbound International Registered Mail failed to cover costs. In the FY 2019 ACD, the Commission urged the Postal Service to continue efforts to limit cost increases for International Registered Mail, and to take steps to improve its service performance “in order to receive the full amount of additional revenue under the UPU supplementary remuneration program [, and] work with the Department of State to negotiate higher rates” for the product. FY 2019 ACD at 64. In January 2020, some portion of Inbound International Registered Mail (those associated with Inbound Letter Post Small Packets and Bulky Letters) was transferred to the competitive product list and became a new price category of Competitive International Registered Mail. This year, the Postal Service does not clearly indicate whether it was able to respond to the Commission directives. The Postal Service reports that there was “an increase in costs associated with Inbound International Registered Mail,” and the Public Representative assumes that, to a large extent, it was due to COVID-19 pandemic. FY 2020 ACR at 34. The Public Representative also regrets that the Postal Service was most likely unable to follow the Commission recommendation “to negotiate higher rates for Inbound International Registered Mail at UPU Congress [scheduled for] August 2020 because the UPU Congress was postponed until August 2021 due to COVID-19.Outbound International Return ReceiptOutbound International Return Receipt failed to cover costs in FY 2020, although the product did cover costs in recent years. The Postal Service states that window costs have increased due to “an increase from one IOCS tally in FY 2019 to two IOCS tallies in FY 2020.” FY 2020 ACR at 34. The Postal Service increased the price for Outbound International Return Receipt from $4.10 to $4.15 in January 2020, and in Docket No. R2021-1, the Commission approved the further rate increase to $ 4.25. The Public Representative agrees that this action should improve the cost coverage of Outbound International Return Receipt, but it is not clear whether that price increase will bring the cost coverage to 100 percent. Stamp Fulfillment Services (SFS)This is the first fiscal year when SFS covered its costs, being unable to cover costs in all previous years since the addition of the product to the Mail Classification Schedule in FY 2010. See Chart IV-9. Chart IV-9Financial Results for Stamp Fulfillment ServicesFY 2014 through FY 2020As illustrated by Chart IV-9, the cost coverage of SFS has been increasing every year since FY 2014, except FY 2017. In FY 2020, the cost coverage of SFS increased by 48.2 percentage points and reached 142.7 percent. Although SFS costs increased by $1.4 million, revenues increased approximately three times faster, by $4.2 million. While the COVID-19 pandemic made it difficult for many market dominant products to cover costs, it appeared to improve SFS cost coverage because of the shift in consumer behavior and the resulting migration of stamp purchases “from the retail environment to online and phone orders” in “response to the ongoing pandemic.” FY 2020 ACR at 33. The Postal Service discusses other pandemic-related factors that contributed to the improved cost coverage, including a decline in call center volume that resulted in a decrease in “certain costs associated with call centers.” Responses to CHIR No. 1, Question 11.In its FY 2019 ACD, the Commission urged the Postal Service to continue its efforts to improve cost coverage for SFS, by noting that SFS plays an important role by “providing a mechanism for the centralized ordering of stamps“ and therefore reducing “the costs associated with the retail purchases of stamps.” FY 2019 ACD at 67. Considering the historic upward trend in cost coverage of SFS and the FY 2020 financial results, the Public Representative believes that SFS should cover costs in FY 2021 as well. In addition, in Docket No. R2021-1, the Commission approved the price increase of 1.293 percent for SFS, and this action should also help ensure that SFS continues to cover its cost. Order No. 5757 at 40. WorksharingIntroductionSection 3622(e)(2) directs the Commission to ensure workshare discounts do not exceed the costs avoided by the Postal Service. See 39 U.S.C. § 3622(e)(2). In prior ACDs, the Commission accepted worksharing discounts greater than 100 percent, even when the Postal Service did not provide a statutory exemption justifying the excessive passthrough, provided it proposed to reduce the excessive passthrough by 10 percent or more in the next general rate case for market dominant products. See e.g., FY 2019 ACD at 20-21. This year, the Postal Service justifies excessive passthroughs for which it does not provide a statutory exemption, by referring to the new worksharing requirements recently adopted by the Commission: 39 C.F.R. §§ 3030.280 - 3030.284 and § 3030.286. These new requirements are similar to the Commission’s previous expectation that the Postal Service will reduce excessive passthroughs by at least 10 percent, except that the new rules require the Postal Service to either propose to reduce excessive passthroughs by 20 percent below the existing workshare discount (See §§ 3030.283(c)), or to file for a waiver of the new passthrough requirements of §§ 3030.280 - 3030.284 (See §?3030.286). See also FY 2019 ACD, March 25, 2020, at 22.The Public Representative’s comments focus on seven workshare passthroughs that exceeded 100 percent in FY 2020, and which are discussed by mail class. The seven passthroughs greater than 100 percent this year, and discussed below by the Public Representative, are one First-Class Mail passthrough and six USPS Marketing Mail passthroughs. Table V1, below, shows each excessive passthrough for FY 2020, including any statutory exemption specified by Postal Service. Table IV-1 also shows each products’ corresponding passthrough from FY 2019 ACD and their projected passthrough based on prices approved in Docket No. R2021-1 (the Postal Service’s most recent market dominant rate case). Finally, Table V-1 presents the Public Representative’s conclusions regarding the compliance of the Postal Service’s worksharing discounts with 39 U.S.C. § 3622(e)(2).The Public Representatives concludes that the excessive passthroughs did not comply in FY 2020, but they will comply with 39 U.S.C. § 3622(e)(2) if: (1) the workshare discount was justified pursuant to one of the statutory exceptions provided in 39 U.S.C. §§ 3622(e)(2)(B) or 3622(e)(2)(D), or (2) the Postal Service will address the excessive passthroughs through proposed price changes that will result in a passthrough at or below 100 percent or otherwise request a waiver.Table V-1Excessive Passthroughs withPostal Service Justification of Statutory ExemptionsFY 2019 ACR PassthroughFY 2020 ACRPassthroughDocket No. R2021-1 PassthroughCompliance ActionPR ConclusionPASSTHROUGH%%%ABCDEFIRST CLASS MAILAutomation Mixed AADC LettersMARKETING MAILNonprofit Marketing Mail ParcelsPresortingNDC Machinable ParcelsPre-barcodingMixed NDC Machinable ParcelsMixed NDC Irregular ParcelsCommercial & Nonprofit Marketing Mail ParcelsPresortingNDC Marketing ParcelsPre-barcodingMixed NDC Barcoded Marketing ParcelsCommercial & Nonprofit CR LettersDropshippingDSCF Letters107.564.0131.7131.768.4131.7133.3117.4113.8114.0114.0120.3114.0107.4115.4117.495.395.3157.595.388.9New PRC RulesNew PRC RulesNew RatesNew Rates New PRC RulesNew Rates New RatesNo Action NeededNo Action NeededNo Action NeededNo Action NeededNo Action NeededNo Action NeededNo Action NeededFirst-Class MailWithin First-Class Mail, the Postal Service indicates that the passthrough for Automation Mixed Automation Area Distribution Center (AADC) Letters for FY 2020 was 117.4 percent, approximately 10 percentage points higher than it was last year. FY 2020 ACR at 9. The Postal Service does not provide a statutory justification, or comply with the FY 2020 policy requiring it to either commit to bring the excessive passthrough discount into compliance or reduce it by at least 10 percent in the next market dominant rate case. Rather, the Postal Service proposes to utilize the new regulations, effective this month, to either reduce this passthrough by 20 percent in the next dominant rate case, or file a waiver from this requirement. FY 2020 ACR at 9. In either event, the rules in effect in FY 2020 requiring that it commit to reducing the passthrough by 10 percent in the next rate case or comply with §§3030.283 through 3030.284, and § 3030.286 will be met. As explained above, the Public Representative concludes that the Postal Service does not need not take any further action to reduce this excessive passthrough at this time.USPS Marketing MailNonprofit Marketing Mail ParcelsIn Nonprofit Marketing Mail Parcels, the Postal Service reported passthroughs in excess of 100 percent for the Presorting NDC Machinable Parcels price category as well as the Pre-barcoding Mixed NDC Machinable Parcels and Mixed NDC Marketing Parcels price categories. FY 2020 ACR at 17.Presorting NDC Machinable ParcelsThe Postal Service states this passthrough is 113.4 percent and will become 117.4 percent when Docket No. R2021-1 prices go into effect. Id. The Postal Service does not provide a statutory exemption for this excessive passthrough. Rather it intends to propose in its next market dominant rate case to reduce the passthrough “in compliance with new 39 C.F.R. §§?3030.280 - 3030.284 or seek an appropriate waiver under new § 3030.286.” Id. In either event, the FY 2020 requirement that it commit to reducing the passthrough by 10 percent in the next rate case or comply with §§3030.283 through 3030.284, and § 3030.286 will be met. The Public Representative concludes that no further action is necessary at this time. Pre-barcoding Mixed NDC Machinable Parcels and Mixed NDC Irregular ParcelsThe Postal Service reports a passthrough of 114.0 percent for these worksharing price categories. The Postal Service states that these passthroughs will become 95.3 percent when Docket No. R2021-1 prices go into effect. Id. The Public Representative concludes that no further action is necessary at this time. Commercial & Nonprofit Marketing Mail ParcelsThe Postal Service reports excessive passthroughs for Commercial and Nonprofit Marketing Mail: Presorting NDC Marketing Parcels, and Pre-barcoding Mixed NDC Barcoded Marketing Parcels. Id.Presorting NDC Marketing ParcelsThe Postal Service reports a passthrough of 120.3 percent for this worksharing product. It will become 157.5 percent when Docket No. R2021-1 prices go into effect. Id. While a passthrough of 157.5 percent appears high and difficult to reduce, unpredictable changes in avoided costs, combined with the unpredictable timing of market dominant rate cases can often result in substantial changes in a particular passthrough. For example, the passthrough for this worksharing product was 68.4 percent in FY 2019. See Table V-1 above. The Postal service proposes in the next market dominant rate case to reduce by 20 percent the workshare passthrough or to seek a waiver. FY 2020 ACR at 18. In either event, the rules in effect in FY 2020 requiring that it commit to reducing the passthrough by 10 percent in the next rate case or comply with §§3030.283 through 3030.284, and § 3030.286 will be met. The Public Representative concludes that no further action is necessary at this time. Pre-barcoding Mixed NDC Barcoded Marketing Parcels The Postal Service proposes a 114.0 passsthrough for this worksharing item. However, it will decline to 95.3 percent when Docket No. R2021-1 prices go into effect. Id. The Public Representative concludes that no further action is necessary at this time. Commercial & Nonprofit CR Letters, Dropshipping DSCF Dropship LettersThe Postal Service reports a passthrough of 107.4 for this worksharing item. However, it will decline to 88.9 percent once when Docket No. R2021-1 prices go into effect. Id. at 18. The Public Representative concludes that no further action is necessary at this time.FLATS AND FLAT-SHAPED PRODUCTS SERVICE AND COST REPORTSCommission Directives and Rules Regarding Flat and Flat-Shaped ProductsCommission flats directives before FY 2019The Postal Service’s FY 2020 ACR reports on issues regarding flats and flat-shaped market dominant mail products that were previously highlighted in Chapter 6 in the Commission’s FY 2019 ACD. See FY 2019 ACD at 155-175. Flats cost and service issues have been an area of concern for the Commission for many years. For several years the Commission issued ad hoc directives to remedy non-compensatory rates and service issues for flats and flat-shaped products. Flats Directives in FY 2010 ACD. In the FY 2010 ACD, the Postal Service was directed to increase the cost coverage for flat-shaped Standard Mail through a combination of above-average price adjustments and cost reductions until revenues for the product exceed attributable costs. The Postal Service was also directed to report on operational changes implemented to reduce flats costs and methodology improvements in order to phase out the flats subsidy. See FY 2020 ACR at 21 Since FY 2010, the Postal Service has reported and complied with the required price increases, including for FY 2018, FY 2019, and FY 2020. Id., Table 7 at 22.Flats Directives in FY 2015 ACD. Since FY 2015, the Commission has sought to identify data to develop metrics to measure, track and report flat-shaped market dominant mail products’ cost and service performance information. FY 2019 ACD at 175. The Commission identified several pinch points for analysis defined as “functions where the Postal Service is not operating at maximum efficiency from a cost or service perspective.” FY 2015 ACD at 107, n.194. The Commission further explained the usefulness of pinch points:Although relevant for developing reasonably accurate product costs, the CRA data are not “sufficient to accurately assess the savings achievable through improved operational efficiency.” Periodicals Mail Study at 57. Further, CRA data are not designed to identify the “pinch points,” i.e., functions where the Postal Service is not operating at a maximum efficiency and where operational reality does not match ideal operational design. (Footnote omitted). FY 2015 ACD at 164.Several flat-shaped mail products have continually failed to cover their costs by significant amounts. Numerous attempts to encourage the Postal Service to increase revenue and/or reduce costs to cover attributable costs for flats or flat-shaped mail pieces have not succeeded in reaching that mission Directive in ten-year review decision to increase certain flats rates. More recently, the Commission’s decision in the ten-year review case required the Postal Service to increase flats rates “a minimum of 2 percentage points above the percentage increase for that class.” Commission flats reporting rules in 39 C.F.R. § 3050.50 New Commission rules were finalized March 1, 2019, near the end of the second quarter of FY 2019, requiring additional specific and detailed Postal Service reports related to flat-shaped market dominant mail to be filed with the ACR in order to increase the transparency of cost and service issues and accountability for flats operational initiatives. These requirements appear at 39?C.F.R. § 3050.50 of the Commission’s rules. The rules in § 3050.50 are comprehensive in their coverage and are in addition to some previous directives. The rules were “initiated to facilitate the developments of consistent reporting requirements to measure, track, and report cost and service performance information related to flats and to explore potential enhancements to the Postal Service’s data systems.” (Emphasis added.) The rules require extensive reporting of flats data for measurement and tracking. Significantly, at the time the rules were adopted, the Postal Service already collected the data that the rules now require it to report. The rules do not infringe upon the authority and independence of the Postal Service’s management to undertake specific initiatives or operational changes that are intended to reduce costs or improve service performance. The rules further require reporting of the steps and plans of Postal Service’s management to correct the non-compensatory nature of flats products and to improve their service performance toward target levels.Generally, § 3050.50 requires detailed flats and flat-shaped product information “readily available” that “falls into four categories: (1) analysis of consolidated service and cost data; (2) analysis of costs by operationally relevant groupings; (3) analysis of flats data related to individual pinch points; and (4) analysis to estimate the impact of operational changes on flats service and costs.” The first category requires “volume and costs data for each flat-shaped product. Id. Total costs are to be disaggregated which sum to the total costs by processing, delivery, vehicle service drivers, purchased transportation, window service, and other unit costs. Id. The second category of information involves analyses of data of Labor Distribution Codes (LDC) and the Management Operating Data System (MODS) from the Payroll Hourly Summary Report and Reallocated Trial Balance to provide cost data by individual activities. Id. at 8-9. The third category of information requires a report of “one or two data systems for each pinch point” and an update of the Commission’s ACD analysis in Chapter Six of the ACD. Id. at 9. Six pinch points in the handling process have been identified by the Commission. The pinch points are: Bundle processing, Low productivity on automated equipment, Manuel sorting, Productivity and service issues in allied operations, Increased transportation time and cost, and Last mile/delivery. FY 2019 ACD at 161. For each of six pinch points, an analyses is required of manual processing, FSS processing, volume trends, and a cost and service performance analysis plus a narrative identifying the drivers of changes in these analyses between fiscal years.The fourth category of information in the rule expanded the 2010 ACD directives that originally applied to only Marketing Mail Flats to all flat-shaped mail. It requires reporting of all operational initiatives that affect all flat-shaped mail and requires links of operational initiatives and changes to either specific pinch point metrics or unit costs. Also, a narrative discussing any planned data enhancements is required. Id. at mission flats directives in the FY 2019 ACD FY 2019 ACR compliance. Because the new rules were issued in March, 2019, most management initiatives taken or planned to reduce flats costs or improve performance did not have sufficient time to indicate results for the FY 2019 ACR. Although the new rules required extensive reporting, the Postal Service’s FY 2019 ACR responses and data submissions appeared to comply for the most part with the filing requirements of the new rules and other continuing directives for flats. The Commission’s FY 2019 ACD analysis of the Postal Service’s flats responses to the rules did not find any failure to comply with the regulation’s requirements for narrative reports or data submittals. The Commission’s review of the FY 2019 ACR did not criticize the Postal Service’s efforts at compliance. Nevertheless, there were glaring omissions, admitted by the Postal Service, which continue in the FY 2020 ACR regarding its inability to report the impact of initiatives on specific flats product costs. The Postal Service was also unable to measure the impact on performance of any of its flats initiatives. In many cases, the development of specific plans to reduce certain costs or performance failures were deferred. As a result, many new and recurring directives were included in the FY 2019 ACD.The Commission also added several directives for interim reports due no later than July 15, 2020 on bundle breakage, low productivity, allied operations, and last mile impact. See FY 2015 ACD at 164, 169, 172 and 174, respectively. The interim reports are filed as Library References in Docket No. ACR2019.FY 2019 ACR Service Performance. In FY 2019, no flat-shaped product met its on-time performance target, but a new service measurement system had been implemented in FY 2019 making multi-year comparisons invalid. Id. at 160. Again, the Postal Service could not determine how its initiatives would impact service. Id. at 161. The Commission stated that it will monitor service performance scores in the future. Id. FY 2019 ACR Financials. In FY 2019, flats financial performance continued to deteriorate as volumes tended toward workshared mail and unit costs increased faster than unit revenues. FY?2019 ACD at 155. In FY 2019, four of eight flat-shaped mailpiece products did not cover their costs and no flat-shaped mail product met its service performance target in FY 2019. FY 2019 ACD at 155-156. The FY 2019 ACR reported that the costs of five flat-shaped mail products increased faster than the average unit attributable cost, which was 4.6 percent. Id. at 158. Overall, taking into account flats products with a positive contribution, the total flats contribution was, nevertheless, a loss of $576 million. Id. at 156, Table VI-1 and 160.FY 2019 ACR Operational initiatives. The Postal Service cited its operational initiatives and changes to reduce flat-shaped mail costs, but was “unable to develop specific plans to reduce these unit costs in FY 2019.” Id. The Postal Service could neither identify which initiative contributed to a specific result nor isolate the impact of each initiative. Id. About 20 initiatives or changes for FY 2019 were claimed. A high level headquarters team to implement cost saving measures led by the COO was created in FY 2019 as well as Headquarters and Area Flats Coordinators to manage flats’ projects. FY 2019 ACD at 160. For FY 2020, the Postal Service planned a new FSS Scorecard and the development of Standard Work Instructions for specific activities. Id. FY 2019 ACD directives. The FY 2019 ACD issued additional flats directives to the Postal Service. The Commission emphasized that all recommendations pertaining to flats costs apply equally to Periodicals. FY 2019 ACD, Appendix A at 1. The Commission directed that in the next generally applicable market dominant rate case, the Postal Service must maintain Marketing Mail Flats prices 2 percent above the class average for Marketing Mail. Id. at 2. The Postal Service was directed to document efforts to reduce flats costs per the FY?2010 ACD, and also continue to comply with the Commission’s FY 2015 directive. Id. The Postal Service was required to “explore and implement opportunities to further reduce the unit costs of flat-shaped mail products.” Id. at 3. Overall, the FY 2019 ACD expressed Commission concerns about year-over-year data consistency and the lack of specific plans to reduce costs and improve service of flats and flat-shaped mail products. The Postal Service was encouraged to quantify the impact of its flats initiatives on costs and service. Id. at 175. It is against this backdrop that the Postal Service submitted its FY 2020 report on flat-shaped mail products. FY 2020 ACR Report on Flats and Flat-Shaped ProductsIntroductionFiscal Year 2020 is the first full fiscal year since the adoption of the reporting rules in 39 C.F.R. § 3050.50. The Public Representative has reviewed the applicable library references, particularly Library References USPS-FY20-45 and USPS-FY20-44, and responses to other Commission directives and information requests. As in FY 2019, the Postal Service appears to have complied with most of the requirements that require responses including data, reports and management initiatives regarding current flats services and costs. However, the COVID-19 pandemic disrupted ordinary operations in uncounted areas that clearly affected volumes and manpower availability. The pandemic forestalled the ability of the Postal Service to provide meaningful year-to-year data comparisons or to fully implement planned management initiatives. As a result, potential cost savings or any further estimates of the impacts of ongoing or planned initiatives are not available. On balance, quarters three and four of FY 2020 were an anomaly that hopefully will not be repeated although the first and second quarters of FY 2021 have been and also will continue to be affected by the pandemic. With the availability of vaccines, the impacts may diminish in future quarters so that those four quarters will alone be greatly impacted by the pandemic. Thus, the data gathering and management initiatives have essentially lost at least one full year for gathering normal actionable data and have lost some opportunity to make substantial progress on their attempts for improvement in flats service and costs. Flats service and cost data is provided primarily in response to the requirements spelled out in 39 C.F.R. § 3050.50(b)-(g). The information required by 39 C.F.R. §?3050.50 is listed in six subsections, §?3050.50(b) through (g), and applies to all flat-shaped mail in addition to Marketing Mail Flats that was the focus of the FY 2010 ACD directive. FY 2020 ACR at 23. Most of the required flats information is reported in the following sequence by the Postal Service in Library Reference USPS-FY20-45:Financial report includes data on attributable costs and volumes and narratives pursuant to §?3050.50(b). Service performance is reported pursuant to §3050.50(c). Operational costs are reported pursuant to §3050.50(d). Pinch point reports including narratives pursuant to §3050.50(e).Operational changes pursuant to § 3050.50(f).Data enhancements report pursuant to § 3050.50(g).FY 2020- Financial report pursuant to § 3050.50(b)The financial report applies to all mail products consisting of more than 80 percent flat-shaped mail. §3050.50(b). The report shall include as a minimum the information required by subsections (b)(1) through (b)(13). Subsections (b)(1) and (b)(2) require volume and unit attributable costs for six cost categories: mail processing, delivery, vehicle service driver, purchased transportation, window service and other. In addition, subsections (b)(3) through (b)(7 requirements are: A narrative explaining the methodology to calculate unit attributable costs (b)(3).A list, with workpapers, of flats with the change in average unit attributable costs greater than the average change in total market dominant average unit attributable cost and a plan to reduce the unit costs for the identified product (b)(4). Analysis of volume trends and mail mix changes including unit costs for combined flat-shaped products and methodology used (b)(5)-(6).Analysis of the Flat Sequencing System (FSS) (b)(6).Analysis of manual processing (b)(7). Finally, subsections (b)(8)-(b)(13) require estimates with workpapers of the cost impacts of six pinch points:bundle processing (b)(8)low productivity on automated equipment (b)(9)manual processing (b)(10)allied operations (b)(11)transportation (b)(12)last mile/delivery (b)(13) § 3050.50(b)(1)-(2). (b)(1) volume and attributable costs; (b)(2) unit attributable costs disaggregated into cost categories The financial report filed by the Postal Service indicates that there was a large 16.2 percent decline in Marketing Mail Flats volume between FY 2019 and FY 2020 and a reduction of 20.7 percent in Carrier Route Flats volume over the same period. Total volume reduction for all Marketing Mail flats products and categories was 14.3 percent. FY 2020 ACR, Table 6 at 16. Table VI-1, below, provides volumes for all flats products in FY 2019 and FY 2020.Table VI-1FY 2019 – FY 2020 Market Dominant Flats and Flat-Shaped Products and CategoriesMarket Dominant Flats and Flats-Shaped ProductsVolumeFY 2019(millions)FY 2020(millions)First-Class Mail Flats 1,295 1,205USPS Marketing Mail High Density and Saturation Flats and Parcels11,607 10,427USPS Marketing Mail Carrier Route 6,323 5,048USPS Marketing Mail Flats 3,818 3,199USPS Marketing Mail Every Door Direct Mail Retail 649 530Periodicals In County 499 469Periodicals Outside County 4,135 3,537Package Services Bound Printed Matter Flats 254 211Totals:28,618 24,626In FY 2020, Marketing Mail Flats revenue again failed to cover costs, covering only 63.2 percent of attributable costs, down 4.5 percentage points from FY 2019. FY 2020 ACR at 15. Marketing Mail Carrier Route only covered 96 percent of attributable costs with a loss of $56 million. Id. at 11. Those two Marketing Mail flats, combined, lost a total of $837 million. Id. Periodicals continued its losses, lowering its cost coverage to 50.5 percent for In-County and 57.0 percent for the Outside-County product. Id. at 28, Table 9. Periodicals lost a total of $779 million. Id. at 28. Flats product losses are combined in the Table VI-2 below. It demonstrates the total FY 2020 losses on non-compensatory flats and flat-shaped products were $1,616 million.Table VI-2FY 2020 Financial Results for Flats and Flat-Shaped Products with Losses Marketing Mail and PeriodicalsMarket Dominant Flats Products Cost Coverage (%) Loss ($ Million)Attributable Cost (($ Million)USPS Marketing Mail? Flats 63.27812,124 Carrier Route96.0 561,394Periodicals? In-County50.5 49 100 Outside County57.07301,698Total Loss: ? 1,616?The FY 2020 ACR points to the continued shortfall in Marketing Mail Flats revenue as partly responsible for the product’s losses, stating that the loss increased from FY 2019 to FY 2020 from $741 million to $781 million due to the “large increase in unit cost outstripping the increase in unit revenue.” FY 2020 ACR at 25. The Postal Service cites this as the main reason the processing costs of flat-shaped mail continued to rise faster than wages and that no progress was made in reducing those costs. Id. at 15. Setup activities and breakdown activities are largely invariant to processed volume, so that as volume declines, it leads to higher unit mail processing costs. Id. at 16. Thus, in the last year, AFSM 100 productivity (TPF/workhour) declined by 7 percent and FSS productivity declined by 9 percent. Id. at 16. The Postal Service also claims that co-mailing and shifting of volumes to finer presort levels leaves fewer pieces in Flats and Carrier Route, thus putting pressure on per-piece mail processing costs. Id. The Postal Service filed its Periodicals Pricing Report with the FY 2020 ACR detailing the impacts of price changes resulting from the Docket No. R2020-1 rate changes for Periodicals. The volume of Outside County Periodicals continued to decline. In FY 2020, the Q4 year-over-year volume decline of Outside County Periodicals was 19.3 percent. Id. Also, 13.6 percent of publications (2,189) ceased mailing. The price of sacks has gradually increased to better align prices with costs. Id. at 3. On balance, the net impact of countervailing costs and the degradation of the presort profile of Outside County Periodicals yielding slightly higher unit revenue resulted in a slight improvement in cost coverage. However, that “result is likely not due to the incentives introduced by the R2020-1 price change.” Id. at 7. The Public Representative remains very concerned about the decline in Periodicals volumes and the resulting downward impact on cost coverages. Particular emphasis should be placed on reducing costs of Outside County Periodicals since that product lost $730 million in FY 2020 compared to the $49 million lost in the same period by In County Periodicals. §?3050.50(b)(3) methodology to calculate unit costsIn its FY 2020 ACR, the Postal Service provides the materials constituting the functional unit cost analysis required by §?3050.50(b)(2) to calculate unit costs. The volumes and attributable cost figures are taken from the public version of the CRA. The mail processing, delivery, vehicle service driver, and window service unit costs are taken from the non-operation specific piggyback factor analysis. The purchased transportation unit costs are taken from the public version of the Cost Segments and Components Report. The inframarginal unit costs are taken from the public version of the CRA Expanded workbook filed in USPS-FY20-1. Oher unit costs are the difference between the total attributable unit cost the sum of various unit costs shown in the b2 worksheet. Id., File Part B Narrative.pdf at 1-2.§ 3050.50(b)(4) flats products with average unit costs changes greater than average change in total average unit costsIn FY 2020, the change in total market dominant average unit attributable cost was 4.7 percent. Id. at 2. Seven flat-shaped products each had increases in its average unit attributable cost greater than the percentage change in total market dominant average unit attributable cost. Id. The non-compensatory flats unit attributable costs increased by the following percentages:Carrier Route, 5.0 percent (primarily caused by delivery unit cost increases)USPS Marketing Mail Flats, 9 percent (primarily caused by mail processing cost and purchased transportation cost increase)In-County Periodicals, 10.3 percent (primarily driven by delivery unit cost increase)Outside-County Periodicals, 12.3 percent (primarily driven by delivery unit cost and mail processing unit cost increases).It is significant that all flats products except EDDR had average unit attributable cost increases above the average percentage unit attributable cost for market dominant products. Increased delivery costs are cited as one of the causes of the cost increases for six of those seven flats products. Only Marketing Mail Flats was not primarily affected by delivery cost increases. Three products were affected by an increase in processing costs (First-Class Mail Flats, USPS Marketing Mail Flats, and Outside County Periodicals) while another three benefited from lower processing costs (Carrier Route, In-County Periodicals and Bound Printed Matter Flats). Rather than being affected by processing costs, High Density and Saturation Flats cost increases were attributed to increases in delivery unit costs only. Id. From this, it is fair to conclude that initiatives should focus particularly on reducing the cost of delivering flats.§ 3050.50(b)(5) volume trends and mix changes This section requires a report on volume trends and mix changes in aggregate unit costs from FY 2013 to present for combined flats using present and FY 2013 volumes. It also requires a narrative of drivers of change in volume trends and mix trends and an explanation of the estimation methodology. Overall volume of flat-shaped mailpieces declined from FY 2013 to FY 2020 by 24.6 billion pieces, a compound annual growth rate (CAGR) of -5.2 percent Id. at 10. Marketing Mail Flats lost more pieces then other flats products, but First-Class Mail and Periodicals flats volumes fell at a faster rate. Id. From FY 2013 to FY 2020, First-Class Mail Flats declined by 694 million pieces with a CAGR of -6.3 percent. Id. at 4. Volumes were likely hurt by the COVID-19 pandemic, but were offset partly by Census collection mail. The volume of automated presorted flats shifted toward 3-Digit and 5-Digit mail categories, in part due to mail service providers presorting to finer levels and taking advantage of discounts. Id. at 4-5.Marketing Mail flats volume declined by about 8.2 billion pieces with a negative CAGR of 4.9 percent from FY 2013 to FY 2020. Id. at 5. The decline was led by weakness in the catalog industry and industry mergers removed some duplications. COVID-19 had a significant negative impact on most components of Marketing Mail flats. Id. at 6. Commercial flats volume has decreased much faster than non-profit flats volume. Id. Between FY 2013 and FY 2020, Periodicals volume has declined with a compound annual growth rate of -6.4 percent. Id. at 8. COVID-19 likely had the same impact on Periodicals flats. The volume of Bound Printed Matter, which primarily consists of heavy catalogs, had been steadily increasing from FY 2013 to FY 2016, but has dropped since then with the COVID-19 pandemic being the most recent root cause of the decline. From FY 2013 to FY 2020, that total product’s volume decreased slightly, at the rate of -1.2 percent CAGR. Id. at 9. The Postal Service illustrates the trend of the unit prices for all flats with both actual volumes and constant FY 2013 volumes. Although FY 2020 was the first full year of data under the flats reporting rules, COVID-19 clearly affected the volumes and mix data for the latter half of FY 2020 and will greatly affect the data for the first half of FY 2021, and likely beyond that time period. Nevertheless, the data that is captured can be used as a basis for analyses and initiatives to adjust to volume and mix changes going forward.§ 3050.50(b)(6) drivers of change for FSS operations The trend of declining flats’ volume continued to affect the FSS operations in FY 2020. Several FSS initiatives were not continued due to the effects of the COVID-19 pandemic as discussed below in Section VI.B.7.b. Due to employee availability issues, some sites temporarily suspended mail processing on FSS equipment and processed the volumes on AFSM100 machines instead, and this contributed to the decline in DPS percentage of FSS mail from FY 2019 to FY 2020. Id. at 11-12. As volume increased, normal FSS processing resumed. Id. at 12. The report suggests that FSS processing is now continuing. This should enable the Postal Service to reinstitute some or all of the FSS initiatives that were suspended in FY 2020 and are under review in FY 2021. However, the ACR was filed near the end of in the first quarter of FY 2021 and the pandemic has continued. If the pandemic persists, the FSS operations may be suspended again; further delaying implementation of meaningful FSS initiatives.§ 3050.50(b)(7) drivers of change in Manual operations The Postal Service states that the reason for the decrease in manual flats processing is likely the decline in overall flats volume. It suggests that several initiatives may have contributed to a reduction in manually processed volume. Id. at 12.§ 3050.50(b)(7)–(b)(13)Certain cost calculations for FY 2020 of pinch point operations for flat-shaped products are provided. The percent of total mail processing costs are presented for three pinch points: Bundles at 6 percent, Manual processing at 19.1 percent and Allied operations at 27.5 percent. The three largest impacts of productivity changes on mail processing costs were for FSS (2.7 cents increase, from 14.6 cents to 17.3 cents), for APBS Incoming (4.4 cents increase, from 36.5 cents to 40.8 cents), and for APPS Incoming (5.2 cents increase, from 28.4 cents to 34.6 cents). Id. Tab “Item b9”. The transportation cost share of total attributable costs for flats products was 8 percent and delivery costs constituted 46 percent of total flats attributable costs. Id. Tabs “Item b12” and “item b13”.FY 2020 - Flats service performance report pursuant to §?3050.50(c)Subsection 3050.50(c) requires service performance reports on all mail products consisting of more than 80 percent flat-shaped mail. Subsection (c)(1) requires service performance scores. Subsections §3050.50(c)(2)-(7) require data with workpapers and analyses of the service impact of six pinch points, essentially the same as those required in ?§?3050.50(b), above:Bundle processing (c)(2)Low productivity on automated equipment (c)(3)Manual processing (c)(4)Allied operations (c)(5)Transportation (c)(6)Last mile/delivery (c)(7).The Postal Service did not change any of its “aggressive” market dominant flats product service standards for any class on a nationwide basis in FY 2020. FY 2020 ACR at 36 n.33. Service performance improved in the first half of FY 2020 for all flats products, but that was not sustained in the second half of the year. Id. at 38. In FY 2020, flats service performance was “disappointing” due, in part, to the unfavorable circumstances experienced during the year. Of 12 flat-shaped products on-time percentages fell by more than 4 percent compared to the last year on-time percentages. Id. Table at 3. Some initiatives were ongoing in FY 2020, such as the one to right size flat sorting machine sets, but the unique COVID-19 circumstances limited their benefits and affected the process for implementing change. The Postal Service reported its progress in estimating the service impact of various pinch points on flat-shaped products pursuant to § 3050.50(c)(2)-(c)(7). It characterizes these as timelines. Responsive data is provided for the last mile/delivery impact, (c)(7). For the other five pinch points, it provides, as an alternative provided by the rules, estimated timelines for achieving the ability to provide service impact estimates. The Postal Service states that it needs to develop methodologies to calculate the service impact for each of the other five pinch points: bundle processing, low productivity on automated equipment, manual processing, allied operations, and transportation. The Postal Service’s target for initial development to calculate the service impact of each of these pinch points is quarter 3 of FY 2021, with data aggregation to begin in quarter 1 of FY 2022, first reports in late FY 2022, and finally submittal of the first reports in the first quarter of FY 2023. For the manual pinch point operations there is also a contingency that the reporting is contingent upon implementation of visibility in manual operations where there is an ongoing initiative. Id. at 1-2. The Letter and Flat Planning and Implementation group will use the Informed Visibility (IV) tools to monitor and track performance and develop other tracking tools. Reporting standards will be adjusted to identity the variance of individually planned efficiencies. Given difficulties created by the pandemic, the Public Representative believes that the additional time anticipated to develop new methodologies to measure service impact of the pinch points is not unreasonable. FY 2020-Flats operationally relevant grouping report pursuant to §?3050.50(d)Subsection 3050.50(d) requires a report and analysis of the costs of operationally relevant groupings from FY 2013 to the present, together with a narrative explanation of the methodology used to calculate the cost of the operationally relevant grouping. The Postal Service’s response provides direct labor costs by operational category and total costs for each operation using operation specific piggyback factors. The product of the direct labor costs and the associated piggyback factor provides the total cost for an operational activity. The report indicates total accrued costs for mail processing flats and bundles declined by 7.8 percent in FY 2020 and by 2.8 percent in FY 2019. Manual flats mail processing costs for MODS function 4 and Non-MODS declined by 7.5 percent in FY 2020 and increased 5.7 percent in FY 2019 which appears as an anomaly as previous years had declines in manual flats mail processing costs. Id.Seven data reports on various operational problem areas pursuant to § 3050.50(e)IntroductionPinch point reports are required for operational areas with quarterly and fiscal year data for a minimum of 5 years at the national and facility level. Subsection?3050.50(e) requires the following reports:Bundle Breakage Visibility Reports (e)(1)Mail Processing Variance Reports (e)(2)eFlash Report (e)(3)Work in Process Metrics Report (e)(4)First-Class Mail Root Cause Point Impact Report (e)(5)SVWeb Report (e)(6)Last Mile Impact Report (e)(7)In addition, subsections § 3050.50(e)(8)-(10) require a narrative of the changes made to the underlying data systems during the fiscal year and a discussion of the trends, changes and reasons for any changes in data as well as the closest successors of any discontinued data report.Since FY 2015, six pinch points in operations have been identified as contributing to cost and service issues for flats. The FY 2019 ACD analyzed the six pinch points contributing to cost and service issues for flats and identified the areas where the Postal Service should “focus its resources and/or provide additional reporting in future years.” The FY 2020 ACR reports on the following seven problem areas as required by § 3050.50(e).Bundle Breakage Visibility Reports § 3050.50(e)(1) Bundle processing is a recognized pinch point. While bundles declined in FY 2019, broken bundles increased. In FY 2019, there was no measurable goal for broken bundle reduction. Id. at 162. Data showed that bundle breakage rates vary greatly by facility, but the Postal Service did not know the specific reasons for the different breakage rates among facilities. Id. at 160. A report of the service impact of bundle breakage was not to begin until FY 2022. Id. at 162. The Postal Service planned to study the cause of bundle breakage and cited two initiatives to reduce bundle breakage including changing applicable Standard Work Instructions and the mailer irregularity application. Id. at 162-163. For FY 2020, the Commission recommended the Postal Service estimate the cost that broken bundles add to flats processing costs. It was also recommended that the Postal Service should reduce bundle breakage at 15 facilities where 24 percent of bundle breakage occurred. Id. at 164. The Commission directed the Postal Service to report no later than July 15, 2020, on the status of progress on these recommendations, including quarterly, facility-level bundle breakage reports. Id.During FY 2020, bundle breakage increased slightly for Periodicals and USPS Marketing Mail Flats. Rather than estimate the cost of broken bundles, as directed in the FY 2019 ACD, the FY 2020 ACR reports that the Postal Service continues to study the impacts (i.e., costs and service delays) of bundle breakage and to study the causes and ways to reduce the impact. No initiative is reported to comply with the Commission’s recommendation although the Mailer Irregularity Application on the Surface Visibility (SV) Mobile scanner allows irregularities to be shared with mailers. Id. at 1. Mail Processing Variance Reports § 3050.50(e)(2)The second pinch point discussed in the FY 2019 ACD is low productivity on automated equipment, which the Postal Service reports pursuant to § 3050.50(e)(2) as “Mail Processing Variance Reports.” FY 2020 flats volume and workhours declined; volume was down more than work hours and productivity targets were not achieved. Id. at 1-2. Some progress in productivity may have been made between FY 2017 and FY 2019 when workhours declined more than volume, but reversed again in FY 2020 when “the effects of the pandemic may have been a contributing factor.” Id at 2. Flash Report §30350.50(e)(3) The third pinch point in the FY 2019 ACD is Manual Sorting and in §?3050.50(e)(3) is referred to as the eFlash Report. The FY 2019 ACD recommended that the Postal Service develop accurate methods to track flat-shaped mail that is manually processed. And, that it develop a plan to decrease the number of flats processed manually with a focus on under-performing facilities. A Postal Service report was required to be filed by July 15, 2020. The eFlash Report indicates a “relentless decline” in manual flats sorting largely due to the decline in overall mail volume. Id. at 2. Work in Process (WIP) § 3050.50(e)(4)The fourth pinch point data filed pursuant to § 3050.50(e)(4) is the Work in Process (WIP) Report concerning cycle time - the time spent in mail processing. Insight into allied operations that represented 27 percent of flats cost in FY 2019 is through WIP cycles. A visualization tool called the Grid indicates where plants are experiencing delays. The data is limited due to the unavailability of data in two quarters of FY 2019, but generally cycle times in FY 2020 were worse in more instances than where they improved over FY 2019. The Postal Service notes this is not surprising in view of the pandemic. First-Class Mail Root Cause Point Impact § 3050.50(e)(5) The fifth pinch point report filed pursuant to § 3050.50(e)(5) is the First-Class Mail Root Cause Point Impact report on causes of service failures. The Postal Service states that the Last Mile impact is the highest contributor of delivery failures. Delivery and retail units have been instructed to dispatch collection mail to the processing plants as early as possible. The Postal Service has implemented “process” improvements at delivery and retail units for both first and last mile impacts. Id. It also states “The pandemic drastically impacted and continues to impact transit failures.” Id. It further states that retail and delivery units are working to improve the mail preparation process, but this report does not name any specific initiatives. Id.SVWeb Report (Surface Visibility) §3050.50(e)(6)The sixth pinch point report filed pursuant to § 3050.50(e)(6) is the SVWeb Report and relates to transportation issues such as container departure times and scanning compliance. Id. at 5. The FY 2019 ACD discussed this pinch point as “Increased Transportation Time and Cost.” FY 2019 ACD at 172. The FY 2019 ACD concluded that the Postal Service should develop a plan with achievable goals to reduce the costs associated with transporting flat-shaped mail. Id. at 173.National on-time departure times and arrivals percentage both improved in FY 2020. This was owing, in part, to better management attention to adhering to schedules, but misrouted containers increased due to disruptions by the COVID-10. Nationally, the percentage of on-time departures and on-time arrivals of containers improved significantly between FY 2019 and FY 2020 as a result of, in large part, adhering to schedules. Id. at 6, Table.Last Mile Impact Report § 33050.50(e)(7)The pinch point report filed pursuant to § 3050.50(e)(7) is the last mile impact report. Last Mile refers to the movement of a mailpiece after the final processing operation until delivery. A Last Mile failure is a mail piece that receives its last processing operation on time to meet the Expected Delivery Date, but is delivered later than the delivery standard. The Postal Service assigns the Last Mile indicator (LMI) if the mailpiece passes all processing and First Mile operations, but was not delivered according to its service standard. FY 2019 ACD at 112. A last mile indicator (LMI) score of 1 percent is the Postal Services goal. Id.One of the highest root causes of failures In FY 2019 and FY 2020 for both Single-Piece and Presort First-Class flats mail was Last Mile failure. The FY 2019 ACD noted that reduced unit costs in FY 2019 for City Delivery Carriers-Office Activity altered the upward trend of costs since FY 2013. FY 2019 ACD at 174. The FY 2019 ACD concluded that, in general, these reports indicate that there are two primary reasons for Last Mile failures: failure to follow scanning procedures and/or failure to meet operational clearance targets. Id. at 112. A diagnostic tool is now available to provide visibility of Last Mile impacts at the route level and training on this and other initiatives is ongoing for FY 2021. Id. Proper scanning procedures for clerks and carriers are being emphasized and service performance review is continuing. Id. at 7.Methodological change reports and trends, changes and reasons for changes in data within the report pursuant to § 3050.50( e)(8)-(9)In response to § 3050.50(e)(8), the Postal Service reported a change in its underlying data system methodology for trips-on-time reported pursuant to subsection (e)(6). During the year “operational window limits on departure times were removed,” rather than limiting them to departures between midnight and 0700 and extra trips between 0300 and 0900, making a year to year comparison difficult. Id. at 1. To enable a better comparison, the Postal Service recast the FY 2019 data and concluded that instead of nearly identical percentages of trips-on-time, there was an actual improvement from FY 2019 to FY 2020 in trips-on-time from 76.48 percent to 83.84 percent. Id. Table at 2; see also Reponses to CIR No. 1, Question 19.a. Operational changes and planned initiatives impacting flat-shaped mail reported pursuant to §?3050.50(f)a.Operational changes § 3050.50(f)(1)-(f)(2)The FY 2020 ACR has reported many operational changes and methodology improvements designed to reduce flats cost. It is unable to estimate the financial effects of such changes for FY 2020. FY 2020 ACR at 22-23. The names of the national operational changes and initiatives (collectively “initiatives”) are reported pursuant to 39 C.F.R.?§?3050.50(f). Rule 3050.50(f)(1) requires an identification of the data reported under §?3050.50 that will be impacted by each operational change. Rule 30350.50(f)(2) requires an estimate of the impact of each operational change on the data. The Postal Service has fallen short and continues to fall short in estimating the financial effects of its operational changes or for providing estimated timelines for phasing out the flats subsidies. This deficiency has been an issue since at least FY 2015. There the Commission said: The Postal Service repeatedly indicates that it is “unable to provide an estimate of the financial impacts” of the operational changes intended to improve flats mail processing. Further, the Postal Service states that “[f]or the vast majority of programs the Postal Service has no system in place today to accurately measure the isolated cost impact of a single initiative due to the number of factors impacting costs in a given operation.” (Footnotes omitted). FY 2015 ACD at 164-5.The Postal Service continues to claim that it “cannot, however, determine conclusively whether or how each initiative will affect those metrics.” Library Reference USPS-FY20-45, Rule 3050.50(f) Operational Initiatives Report at 1. Further, it states that it is “unable to provide estimates in response to § 3050.50(f)(2).” Id. But despite the dramatic effects of COVID-19, the Postal Service “tried to initiate and sustain strategies to reduce flats costs and improve service performance.” Id. Library Reference USPS-FY20-45 (f) lists six top categories of initiatives of approximately 19 initiatives that is summarizes. The top six are Equipment right-sizing, Labeling List Comparison/Review, DPS/FSS Analysis Tool Utilization, Development of SWI--Perfect the Process, AFSM Certification, and Combined effect with engineering on experimental/pilot opportunities.The § 3050.50(f) Operational Initiatives Report states that “Many of the initiatives that were in place or scheduled to be put in place for flats processing in FY 2020 did not occur due to the exceptional circumstances created by the pandemic.” Id. at 2. However, of 14 groups of initiatives listed for action in FY 2021, only two, Manual Case Reduction and Mail Entry Initiatives did not move forward in FY 2020. Id. at 7, 8. Several FSS initiatives were not carried out in FY 2020 due to the COVID-19 pandemic such as the FSS Processing Self-Audit checklist, FSS Delivery Point Compression and FSS Software Release. The FSS initiative Labeling List Comparison will continue in FY 2021, but the other FSS initiatives are under review in FY 2021. FY 2020 ACR at 4-5. The Postal Service states that it has a new organization structure that places a manager in charge of flats and who has planned initiatives to concentrate on flats optimization. Id. at 3.b.Timeline for phasing out flats subsidiesThe Postal Service reports that for USPS Marketing Mail Flats, “it is not able to provide an estimated timeline for phasing out the Flats financial subsidy.” The Postal Service states that “unit costs change year to year, and CPI is unpredictable, particularly over the long term.” FY 2020 ACR at 26. This inability to predict when the subsidy will be eliminated is understandable given the increasing level of negative USPS Marketing Mail Flats contributions since 2013. The gap is widening yearly. As shown in Table VI-3, below, since 2008, the shortfall in revenue (negative contribution) for Marketing Mail Flats has increased in every year except 2010, 2012 and 2013. Table VI-3USPS Marketing Mail Flats Cost Coverage ShortfallYear Revenue ($ millions) Cost ($ millions) Shortfall ($ millions) 2008 3,673 3,891 218 2009 2,882 3,497 616 2010 2,592 3,169 577 2011 2,500 3,143 643 2012 2,234 2,762 528 2013 2,138 2,514 376 2014 2,041 2,452 411 2015 2,113 2,633 520 2016 2,380 2,999 618 2017 1,906 2,574 669 2018 1,649 2,403 753 2019 1,562 2,307 744 2020 1,342 2,124 781 For FY 2020, USPS Marketing Mail Flats costs would have needed to be reduced by 36.8 percent to fall to the level of Marketing Mail Flats revenue. Similarly, Periodicals’ two products would have needed to reduce their attributable costs by 43.1 percent to eliminate that subsidy. And, not only is there is no assurance that rates will rise at least as fast as the price level of the products’ costs, the impact of additional rate increases is uncertain at best. In this circumstance, with such a wide coverage gap and fluctuating unit costs, timeline estimates for eliminating the subsidies would be little more than guesses. Report of data enhancements during the fiscal year impacting measuring, tracking, and/or reporting flat-shaped mail costs reported pursuant to §?3050.50(g)Data enhancements during the fiscal year that impact measuring, tracking, and/or reporting flat-shaped mail costs are reported pursuant to § 3050.50(g). At least six costing methodology changes affected flat-shaped mail products in FY 2020 to some extent.Docket No. RM2019-6 (Proposal One) Revised cost attribution procedures for Special Purpose Routes (SPRs).Docket No.RM2019-12 (Proposal Seven) Changed distribution methodology for certain supervisor costs incurred on Sundays and holidays.Docket No. RM2020-1 (Proposal Nine) Updated inputs into analysis for allocation of facility-related costs to products.Docket No. RM2020-7 (Proposal Two) Updated city carrier regular delivery time variabilities based on current volumes.RM2020-6 (Proposal One) Changed RPW methodology to use PC Postage Non-Contract census transactional data to replace ODIS-RPW statistical sampling estimates.RM2020-10 (Proposal Three) Changed in-office sampling methodology for city carriers.Data provided with the § 3050.50(g) report indicate that methodology changes approved in three of the above dockets had a minor impact on flats product costs. The estimated impacts are in the range of between negative $0.003 and positive $0.001 (Docket Nos. RM2019-6, RM2019-12 and RM2020-1). Id. Table 1 at 2, Table 2 at 4 and Table 3 at 5. As for the methodology changes approved in Docket No. RM2020-6, the Postal Service reports they affect the revenue and volume of “one flat-shaped mail category. First-Class Flats, [and changes in volume] would alter reported unit costs.” Id. at 6. The § 3050.50(g) does not, however, indicate what would be the changes in unit cost. The cost impacts on flats product unit costs provided by the other two dockets (Docket Nos. RM2020-7 and RM2020-10) were generally larger, ranging from negative $0.021 for USPS Marketing Flats (Docket No. RM2020-10) to positive $0.058 for Bound Printed Matter Flats Docket No. RM2020-10).The FY 2020 ACR separately details the impact of changes in costing methodology on USPS Marketing Mail Flats rather than for all flats. The unit costs of USPS Marketing Mail Flats reported in the CRA increased from 60.4 cents in FY 2019 to 66.4 cents in FY 2020, an apparent increase of 6.0 cents. FY ACR at 23-24. But if the aggregate estimated impact of the methodology changes had been reported in the unit cost in FY 2019, the applicable starting point for assessing the unit cost increase would have been 2.7 cents lower, or 57.7 cents rather than the 60.4 cents reported in the CRA. Therefore, controlling for the effects of methodological changes, the estimated increase in the unit cost of USPS Marketing Mail Flats between FY 2019 and FY 2020 is 8.7 cents (rather than 6.0 cents). Id. at 24. Based on this information, it is fair to conclude the estimated cost of USPS Marketing Mail Flats increased in FY 2020 by 8.7 cents rather than 6.0 cents and so has moved further in the wrong direction. The impacts on flats costs by the other two dockets were larger; from cost reductions as much as $0.009 in Docket No. RM2020-7 and ranging between an increase of flats product cost of 5.8 cents for Bound Printed Matter Flats and a reduction of 2.8?cents for both of the Periodicals products (Docket No. RM2020-10). Id. at Tables 4 and 5.Conclusion on Flats and Flat-Shaped ProductsOn balance, quarters three and four of FY 2020 were an anomaly that hopefully will not be repeated throughout this year; although the first and second quarters of FY 2021 have been and will also continue to be affected by the pandemic. With the availability of vaccines, the impacts may diminish in future quarters so that those four quarters will alone be greatly affected by the pandemic. Thus, without normal operating conditions for measuring potential improvements in flat-shaped mail service and costs, the data gathering and management initiatives have essentially lost at least one full year of potential progress. Implementation of effective new initiatives and cost saving measures has been and likely will be delayed further throughout FY 2021. There is no question that oversight of flats processing and other handling of flats is necessary. Without being reigned in, costs consistently continue to rise faster than revenue for several significant flats products. The Postal Service’s summary of new initiatives leaves the impression that each initiative may bear fruit and improve the efficiency of flats processing and other handling. Yet, none of the initiatives appears to do more than to enable better management oversight and is not likely to eliminate the larger flats subsidies anytime soon.The initiatives to track costs and measure better on-time performance tend to be practices which, in general, would normally be expected to be present in such an operation. Likely, they will yield only incremental reductions of cost, if any. On the other hand, initiatives are needed. There has been no suggestion that excess costs have been wrung out of the system or, at least, as much as is feasible. It is not yet clear what or when most excess costs can or may be virtually eliminated, if ever, but the new Commission rules help to enable movement toward that goal.Methodological changes serve the purpose of enhancing confidence in cost estimates and point to costs that may be out of line, but they are only a first step in the process of lowering costs. For instance, while methodological changes in cost attribution might reduce the estimated cost of flats processing, they do not represent a real reduction in Postal Service costs. The beans are only being moved around. The reduction of flats costs by methodological changes merely shifts those costs to another product or class. In fact, depending upon the price elasticity of the affected products, the result of the methodological change may lead to a net reduction in Postal Service revenue. None of the other flats product initiatives appears likely to be a game changer of the type needed to reduce significantly flats costs to or below revenue levels. Significant cost reductions are needed to remove the flats subsidy. For instance, as noted above, the non-compensatory USPS Marketing Mail Flats product which had losses of $781 million in FY 2020 needed to reduce its costs by 36.8 percent in order to eliminate the product’s subsidy. Finally, without the ability to identify the impacts on costs of each initiative, the shotgun approach to new initiatives is not likely, in any event, to hit the mark and drive down costs significantly as is necessary. Recent top-level management changes together with reorganization of the Postal Service’s area operations and changing lines of authority hold the most promise for significant longer term cost PETITIVE PRODUCTSIntroductionAs mandated by 39 U.S.C. § 3633(a), the Commission’s regulations in 39 C.F.R. §?3015.7 require that: (1) market dominant products may not subsidize competitive products (39 U.S.C. §?3633(a)(1)); (2) each competitive product must cover its attributable costs (39 U.S.C. §?3633(a)(2)); and (3) competitive products must collectively cover an appropriate share of the Postal Service’s institutional costs (39 U.S.C. § 3633(a)(3)). See 39 U.S.C. § 3633(a); 39 C.F.R. §?3015.7. For the reasons discussed below, the Public Representative concludes that market dominant products did not subsidize competitive products and that competitive products collectively covered at least an appropriate share of institutional costs as set forth in 39 C.F.R. §?3015.7(c). 39 U.S.C. §?3633(a)(1); 39 U.S.C. § 3633(a)(3); 39 C.F.R. §?3015.7. The Public Representative also discusses those competitive products that failed to cover attributable costs. 39 U.S.C. §?3633(a)(2). Section 3633(a)(1), Prohibition on Cross-SubsidizationThe Commission tests for compliance with 39 U.S.C. § 3633(a)(1) by applying the incremental cost test and determining whether the collective cost incurred by all competitive products is less than collective revenue they generate. FY 2020 ACD at 71. As it did in the previous several years, in FY 2020, the Postal Service applies “a single direct estimate of group incremental costs of all competitive products, domestic and international” in order to measure the “incremental costs” portion of the cross-subsidy test. The Postal Service notes that the incremental cost estimate for all competitive products is calculated separately from the incremental cost estimates for domestic products and international products. FY 2020 ACR at 65. Thus, the incremental cost estimate for all competitive products is not the sum of domestic-product estimates and international-product estimates. Id.Using this measure, the Postal Service reports that in FY 2020, the total competitive group incremental costs were approximately $19.427 billion, while the revenue from competitive products was approximately $30.522 billion. Id. Because competitive product group revenues exceeded incremental costs, the Public Representative concludes that the Postal Service’s market dominant products did not subsidize its competitive products in FY 2020.Section 3633(a)(2), Coverage of Attributable CostsIntroduction In FY 2020, a few competitive products that did not cover costs in the previous years did cover cost. These products include International Priority Airmail (the product that did not cover costs in both FY 2018 and FY 2019) and Inbound Competitive Multi-Service Agreements with Foreign Postal Operations 1. In addition, the Commission found that in FY 2019, Royal Mail Group Inbound Air Parcel Post Agreement was not in compliance with 39 U.S.C. §3633(a)(2), but it appears that in FY 2020 that agreement was terminated. See MCS, Section 2515.8.6. Below the Public Representative discusses competitive products that failed to cover their attributable costs in FY 2020. International Money Transfer Service (IMTS)–Inbound and OutboundIn FY 2020, both IMTS products, IMTS–Inbound and IMTS–Outbound, failed to cover costs attributable, and thus the Public Representative finds that these two products did not satisfy 39 U.S.C. § 3633(a)(2). FY 2020 ACR at 69. In FY 2020, as in the last year ACR, the Postal Service contends that “IMTS costing remains subject to variation.” The Postal Service notes that although in FY 2020, IMTS costs were distributed to IMTS-Outbound and IMTS-Inbound based on transaction volume (as approved by the Commission), there were only two IOCS tallies for IMTS: one for the IMTS–Outbound and one for IMTS-Inbound products. FY 2020 ACR at 69. In addition, costs in window services increased. Id. As it relates to IMTS-Inbound, the Postal Service provides the same arguments as the last year, stating that it will “address cost coverage issues with IMTS-Inbound by terminating or modifying IMTS-Inbound agreements.” Id. See also FY 2019 ACR at 67. However, the Postal Service further reports that it has obtained the previously requested delegation of authority from the Department of State to terminate agreements that comprise the IMTS-Inbound product. FY 2020 ACR at 69-70. The Postal Service notes that the “management has [already] sent notices of termination to 11 foreign postal operators”. Id. at 70. The Public Representative finds that the Postal Service has taken the appropriate steps to remedy the cost coverage for IMTS–Inbound. However, if non-compensatory agreements are not terminated in a timely manner, the product’s cost coverage shortfall will most likely continue.The Postal Service did not specifically discuss how it will address the issue of inability of IMTS-Outbound to cover costs. The Public Representative recommends that the Postal Service provide additional information about the actions it plans to implement in order to bring the product into cost coverage compliance.Inbound Letter Post Small Packets and Bulky LettersAs noted in Section IV.B.2 of these comments, E-format Inbound Letter Post items were added to the competitive product list in January 2020. See generally Order No. 4980; Order No. 5372 at 18. That gave an opportunity to the Postal Service to introduce “much higher self-declared rates for the majority of Inbound Letter Post Small Packets and Bulky Letters effective July 1, 2020,” and these rates were in effect in quarter 4 of FY 2020. The Postal Service argues that due to the COVID-19 pandemic and transportation capacity issues, the product’s volume in that time period was not sufficient to “to repair the effects” of the prior quarters for which the default UPU rates were applied. FY 2020 ACR at 67. As a result, Inbound Letter Post Small Packets and Bulky Letters failed to cover costs in FY 2020. Id. The Public Representative notes that the new self-declared prices for Inbound Letter Post Small Packets and Bulky Letters effective January 2021 were approved by the Commission in Order No. 5502. Considering that in FY 2020, the gap between the product’s revenue and costs was relatively small, the Public Representative hopes that the new price will bring the cost coverage of Inbound Letter Post Small Packets and Bulky Letters to at least 100 petitive International Registered Mail The Public Representative observes that in FY 2020, Competitive International Registered Mail did not cover costs because it’s one price category, Inbound Competitive International Registered Mail, failed to cover costs. As noted in Section IV.F.3.b of these comments, the portion of international registered mail associated with Inbound Letter Post Small Packets and Bulky Letters product was transferred from the market dominant to the competitive product list and formed a new price category within Competitive International Registered Mail. The Postal Service reports that in FY 2020, there was an increase in costs associated with Competitive International Registered Mail. FY 2020 ACR at 68. The Postal Service asserts that “[t]he additional payment per item for Inbound Registered Mail [should increase from 1.3 SDR in calendar year 2020] to 1.4 SDR in calendar year 2021, which should help to improve cost coverage.” Id. In addition, the Postal Service argues that a new agreement, which was recently transferred to the competitive product list, should provide another source of contribution for Inbound Registered Mail. The Public Representative is concerned with the failure of the Inbound Competitive International Registered Mail price category to cover its costs, which led to the inability of Competitive International Ancillary Services, as a whole, to cover costs. For the same reason, as well as due to the failure of both International Money Transfer Service products to cover costs, Competitive Special Services overall had a cost coverage below 100 percent in FY 2020. Id. The Public Representative assumes that the reported increase in cost was most likely due to the COVID-19 pandemic, but doubts that this cost will go down in the near future. The Public Representative recommends that the Postal Service provide additional information explaining how it is going to monitor and address the low cost coverage of Inbound Competitive International Registered Mail.International NSAsThe Postal Service reports that in FY 2020, all competitive international NSA categories covered their attributable costs. FY 2020 ACR at 70. The Public Representative, however, disagrees, and observes that one competitive international NSA category, Global Expedited Package Services (GEPS) Contracts, failed to cover costs in FY 2020 due to the failure of GEPS 11 product to cover costs. The Postal Service also reports that 10 contracts failed to cover their costs attributable, but that all such NSAs have already expired. FY 2020 ACR at 70. The Public Representative cannot confirm this claim because the provided data shows that there were 6 individual NSAs that failed to cover costs. The Public Representative would urge the Postal Service to provide the additional information necessary to address the apparent discrepancy. It is important to “continually monitor the financial performance of each contract and take aggressive steps on an ongoing basis to terminate any agreements that are not compensatory.” FY 2019 ACD at 81. Domestic NSAs The Postal Service states that one domestic NSA failed to cover its costs attributable, but this NSA has been terminated. FY 2020 ACR at 66. Thus, the Public Representative finds that no further action is necessary. However, the Postal Service reports that five other NSAs had components that did not cover their attributable costs. Id. If a component fails to cover its costs attributable, it does not necessarily mean that the NSA itself will fail to cover costs. However, the Public Representative is concerned that these agreements could potentially fall out of compliance if the product mix changes in an unfavorable way.Section 3633(a)(3), Coverage of Institutional CostsCompetitive products must cover what the Commission determines to be “an appropriate share of the institutional costs of the Postal Service.” 39 U.S.C. §?3633(a)(3). Pursuant to 39 U.S.C. § 3633(b), the Commission implemented a formula-based approach to calculating the appropriate share. As part of each ACD, the Commission calculates and reports “competitive products’ appropriate share for each upcoming fiscal year using the [established] formula.” Order No. 4963, Attachment A at 2. In the FY 2019 ACD, after applying the formula, the Commission reported the appropriate share for FY 2020 as 8.8 percent. FY 2019 ACD at 87.In FY 2020, the Postal Service’s total institutional costs were $35.986 billion. Applying the 8.8 percent appropriate share “yields a target contribution of $3.167 billion. FY 2020 ACR at 71. Competitive products contributed approximately $11.095 billion to institutional costs or 30.8 percent, substantially more than the required $3.167 billion.” Id. Thus, the Public Representative finds that the requirements of 39 U.S.C. §?3633(a)(3) and 39 C.F.R. §?3015.7(c) were satisfied in FY.CONCLUSIONThe Public Representative respectfully submits the foregoing comments for the Commission’s consideration.Respectfully submitted,Kenneth E. RichardsonPublic RepresentativeRichard A. OliverLyudmila Y. Bzhilyanskaya Lawrence FensterAssisting the Public Representative901 New York Avenue, NW, Suite 200Washington, DC 20268-0001PH: 202-789-6859Email: richardsonke@ ................
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