The Postal Rate Commission last week reccomended in favor of the U.S. Postal Service's proposal for a three-year negotiated service agreement with Bank One Corp., which merged in July with J.P. Morgan Chase & Co., New York.
NSAs are special service and rate arrangements negotiated between the USPS and a mailer or group of mailers. Proponents say NSAs will encourage greater volume by rewarding the postal service's major customers with discounts and premium services. Capital One Services received the first NSA last year.
The USPS filed two NSA cases with the PRC in June seeking three-year tests, one with Discover Financial Services Inc., Riverwoods, IL, a business unit of Morgan Stanley, and the other with Bank One. The PRC's Discover decision was issued Sept. 30, and the USPS Board of Governors accepted it in October. The agreement took effect Nov. 1.
The Bank One case was more complicated as a result of its merger with J.P. Morgan Chase.
As with other PRC decisions, approval is needed from the USPS Board of Governors, which would choose an implementation date.
Under the proposal, Bank One would be eligible for volume discounts of 2.5 cents to 5 cents per piece for the next three years if its annual First-Class bulk volume exceeds 535 million pieces. The discounts rise as volume increases and are higher than those given for automated First-Class letters that are presorted by ZIP code and carrier route.
At certain volume levels, Bank One would receive electronic address corrections from the USPS for properly endorsed First-Class mail solicitations without a fee. In return, Bank One agrees to forgo the physical return of undeliverable mail. Bank One also will update any databases it maintains for solicitation mail.
The NSAs aim to produce a net reduction in the postal service's costs related to handling undeliverable-as-addressed mail as well as reduce postage costs.
The USPS estimates it will benefit by $11.6 million over the life of the Bank One NSA, including: $7.6 million in Address Correction Service cost savings plus $6.9 million in increased contribution due to higher First-Class mail volume, minus $2.9 million in revenue.
Bank One's NSA is based on the two functional elements that are central to the other NSAs: address correction and a declining block rate volume discount. But the PRC said in its filing that the agreements are not identical, and the Bank One NSA includes contracts and terms specific to its situation. For example, it contains an enhanced mergers and acquisitions clause and an annual limit on the mailing of flat-shaped mail.
Melissa Campanelli covers postal issues for DM News.com. To keep up with the latest news subscribe to our free e-mail newsletter DM News Daily by visiting //www.dmnews.com/cgi-bin/newslettersub.cgi