PL Statutes Restricting Private Carriage of Mail and their by jolinmilioncherie

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									'93d Congress \         COMMITTEE PRINT                  f COMMITTEE
  1st Session /                                          I PRINT ,r-». 93-5




 STATUTES RESTRICTING PRIVATE CARRIAGE
   OF MAIL AND THEIR ADMINISTRATION



     A REPORT BY THE BOARD OF GOVERNORS
     TO THE PRESIDENT AND THE CONGRESS,
     PURSUANT TO SECTION 7 OF THE POSTAL
             REORGANIZATION ACT




                   COMMITTEE ON
           POST OFFICE AND CIVIL SERVICE
              HOUSE OF REPRESENTATIVES




                            JUNE 29, 1973



  Printed for the use otthe Committee on Post, Office and Civil Service

                  U.S. GOVERNMENT PRINTING OFFICE
 98-0480                  WASHINGTON : 1973
          COMMITTEE OX POST OFFICE AND CIVIL SERVICE
                     THADDEUS J. DULSKI. New York, Oafreion
                 DAVID N. HENDERSON, North Carolina, Vice Chairman
 MORRIS K. TJDALL, Arizona           H. R. GROSS, Iowa
 DOMINICK V. DANIELS, New Jersey     EDWARD J. DERWINSKI, Illinois
'ROBERT N. C. NIX, Pennsylvania      ALBERT W. JOHNSON, Pennsylvania
JAMES M. HANLEY, New York             LAWRENCE J. HOOAN, Maryland
 CHARLES H. WILSON, California       JOHN H. ROUSSELOT, California
 JEROME R. WALDIE, California        ELWOOD HILLIS, Indians
 RICHARD C. WHITE, Tern              WALTER E. POWELL, Ohio
 WILLIAM D. FORD, Michigan           RICHARD W. MALLARY, Vermont
 FRANK J. BRASCO, New York           ANDREW J. HIN.SHAW, California
 WILLIAM (BILL) CLAY, Missouri       L. A. (SKIP) BAFALIS, Florida
 PATRICIA SCHROEDER, Colorado
JOHN JOSEPH MOAKLEY, Massachusetts
 WILLIAM LEHMAN, Florida
                          JOHN II. MARTIN*, Chief Couniel
                   VrcrOK C. SvUoLDO, Staff Director and Couniel
                      WILUAU A. IRVINE, Aublant Staf Director
                      THEODORE J. KAZY, Senior Staff Antitant
                       ROBERT S LOCKHART, Attiilant Couniel
                           Ror C. MUKER, Staf At$ittant
                          FRANOS C. FORTUNE, Coordinator
                          RALFII J. DEVU.V, Staf Aiiitlanl
                                       (H)




                                          7110
                               CONTENTS
                                                                                 P.*ge
Foreword                                       _                          ---     VH
Letter of transmittal   __                __                                       ix
Introduction                                                                        1
Summary analysis                                                                    3
Conclusions and recommendations                                                     9
                                       APPENDICES
A.    The Relevant Law—the Private Express Statutes and Section 7 of the
         Postal Reorganization Act                                                15
B.     I. Interpretations of the Private Express Statutes                         19
               Introduction                                                       19
               Matter sent for                         filing                     19
               Information known'to addressee                                     20
               Auditing material                                                  20
               Examination papers                                                 21
               Evidence of rights; legal papers                                   21
      II. "Restrictions on Transportation of Letters" (POD Publication
             111)...                                                              23
C.    Review of the History of the Private Express Statutes                       55
           Overview                                                               55
           Origins of statutory restrictions on private carriage of' letters:
                European Postal Systems                                            55
                American Postal Systems                                            56
           Statutory restrictions on private carriage of letters in the United
             States                                                               56
           The evolutipn of national postal services                              60
           National postal services and the private express statutes             62
D.   'Postal Monopolies in Other Countries                                        63
           Introduction                                                           63
           Existence of a postal monopoly                                         64
           Scope of the "monopoly                                                 64
           Interpretation of the postal monopoly                                  65
           The enforcement of the postal monopoly                                 65
           Administrative suspension            .                                68
E.    Competition of the Postal Service Related to the Private Express
        Statutes                                                                   69
           Introduction                                                            71
           Independent delivery systems                                            72
           Common carriers:
                Airlines       _                  —               -               76
                Buslines                                                  -       79
                Railroads                                                         80
           Utility companies                                                      80
           Courier services                                                       83
           Observations and conclusions:
                Service                                                            86
                Marketing                                    T_        _           87
                Attitudes in the postal work force                                 88
                Enforcement...                                                     89
F.     I. Economic.Analyses of Economies of Scale                                  93
               Ah.overview                                                         93
               Natural monopoly:
                    General principles                                             93
                    Natural monopoly in letter mail service                        96
               USPS vulnerability to cream skimming:
                    Theoretical analysis                                         107
                    Unrcirnburscd and inadequately reimbursed service costs.      Ill
                    Cream-skimming threats to\Postal Service finances            113




                                            Vila.
                                     IV
                                                                             p»f«
F. II. "Cream-Skimming" Potential                                            119
           Cream skimming and the Postal Service:
               Approach to study:
                    Defining the ventures and the market                     124
                   Selecting potential customers                             124
                    Estimating costs and investment requirements             125
               Findings and conclusions:
                   First class mail very vulnerable                          126
                   Ventures easy to launch                                   127
                    Profit potential high                                    128
                   Significant impact on Postal Service                      129
           Cream skimmer one: Full mail service:
               Description of venture                                         131
               Operating assumptions:
                    Billing by geographic areas                              132
                    Providing bills on assigned days                         132
                    Arranging mail in address sequence                       132
               Orgi-nization and staffing:
                    Field force...                                           134
                    Merging staff                                            134
                    Management and office personnel                          135
               Cost structure and pricing strategy                           135
               Profit outlook:
                    Reducing investment levels and operating costs           137
                    Increasing prices and piece volume                       137
                    Effect of-decreases and increases on profit outlook—     138
           Cream skimmer two: U.S. Postal Service interconnection service:
               Description of venture:
                    Cream skimmer parallels Postal Service operations        142
                    Concessions assumed in venture description               142
               Operating Assumptions and Estimates:
                    Collection                                                144
                    Processing                                                145
                    Transportation                                            147
               Organization and staffing:
                    Collection                                               148
                    Processing                                               148
                    Transportation                                           149
                    Management and office personnel                          149
               Capital requirements:
                    POMP/LSM equipment                                       150
                    Mail transport vehicles                                  151
                    Operating facilities                                     152
                    Receivables                                              152
                    Other start-up and reserves                              152
               Profit outlook                                                153
                                Exhibits
                      I—Metropolitan Washington, D.C. Cream Skim-
                          mer's Market Coverage Area          ,               156
                     II—Fifteen Prime Cream Skimmer Prospects Metro-
                          politan Washington, D.C                             157
                   III—Organization of Washington SMSA Cream
                           Skimmer One                                        158
                    IV—Cream Skimmer One: Underlying Rate and Cost
                           Assumptions Washington SMSA                        159
                     V—Cream Skimmer One: Summary of Operating
                           Costs Washington SM6A                              163
                    VI—Cream Skimmer One; Analysis of Potential
                           Profitability Washington SMSA                      105
                   VII—Analysisof Collection Routes                           166
                  VIII—Carrier Delivery Stations: Metropolitan Wash-
                           ington Cream-Skimmer Market Area                   168
                   IX—Summary Analysis of Transportation Route
                           Structures.,                                      169

                                       711*
F. II. "Cream-Skimming" Potential—Continued
                                 Exhibits                           Page
                    X—Estimated Transportation Stop Time             174
                   XI—Organization of Washington SMSA Cream-
                          Skimming Venture Number 2                  175
                  XII--Cream Skimmer Two: Summary of Operating
                          Costs Washington SMSA        -            176
                 XIII—Cream Skimmer Two: Underlying Rate and Cost
                          Assumptions Metropolitan Washington SMSA. 178
                 XIV—Cream Skimmer Two: Potential Profitability
                          and Return on Investment Computation.,     182
G. Proposed Postal Regulations on Restrictions                       185




                                11,3
                             FOREWORD


   The Postal Reorganization Act of 1970, approved August 12, 1970,
created the U.S. Postal-Service as an independent establishment of the
executive branch of Government. The act vests with the Postal Service,
and with the U.S. Postal Rate Commission, virtual independent au-
thority in the areas of ratemaking, financing, construction and modern-
ization of facilities, and pay and fringe benefits through the process of_
collective bargaining. Previously, under the old Post Office Depart-
ment, decisions in these matters were made by the Congress through
legislation.
   Unchanged, however, under the act, were those provisions of law
which 'restrict the private carriage of letters, Jmown as the Private
Express Statutes. The act, in section 7, states that the Congress finds
that.advancesin communication^, technology, data processing, and the
needs of mail users require a complete study and thorough reevaluation
of the statutory restrictions on the private carriage of'letters. Under
this section, the Board of Governors of the Postal Service was directed
to submit to the President and the Congress, within 2 years, a report
and recommendation-for the modernization of these provision of law.
   This committee print contain^ the report of the Board'of Governors
of the Postal Service, its findings and recommendations.
                   LETTER OF TRANSMITTAL


                                    THE BOARD OF GOVERNORS,
                                    Washington, D.O., June 29, 1973.
Hon. GAEL ALBERT,
Speaker of the House, House of Representatives,
Washington, D.C.
   DEAR MR. SPEAKER: I have the honor of transmitting the Report of
the Board of .Governors to the U.S. Postal Service on the statutes
restricting the private carriage of letters. This report was prepared
in accordance with the requirements of section 7 of the Postal Re-
organization Act.
   We conclude that the statutes restricting the private carriage of
letters.are sound from : both economic and policy points of view. The
Postal Service is required to deliver mail throughout the Nation, at
uniform rates for sealed.letter mail. A single supplier of postal services
can operate at less total cost to the Nation than can multiple sup-
pliers.
   The value of mail service lies in the fact that it is available to every
citizen. Multiple suppliers would almost certainly mean higher prices
and less convenience—factors which would decrease the number of
those to. whom postal service is accessible, whether as senders or
receivers.
   We recommend that the restrictions on private carriage of letters
bo retained so as to preserve the Postal Service's value to all users. To
do otherwise would .permit cream-skimming competition in the most
profitable postal.murkets and \\ould severel}' diminish the capability
of the Postal Service to servo the Nation.
   We understand that thib position imposes upon us the responsibility
to provide service that ourcubtpmers want at prices they are prepared
to .pay. We accept that responsibility.
        Respectfully,
                                          FREDERICK R. KAPPEL,
                                                              Chairman.
                                   (DC)
       RESTRICTIONS ON THE PRIVATE CARRIAGE OF MAIL

            A -REPORT OF THE BOARD OF GOVERNORS OF
              THE UNITED STATES POSTAL SERVICE




                       'INTRODUCTION


 This .report fulfills the requirement of Section 7 of the
'Postal Reorganization Act,, which Calls for a study and
 reeyaluation o£ .the restrictions on the private carriage
of-letters that are contained in Chapter 3'6 of Title 39,
 and in,Sections 1694 - 1696 of Title 18, of the United
 States Code — known collectively as 'the Private Express
 Statutes -.and of the regulations and. administrative
.{practices that have been established thereunder.     Section
 7 -requires the -Board td submit to the President and the
Congress a report, -and recommendation for the modernization
•..of. these provisions .of law and such regulations and jid-
- ininistrative practices.                      .

We have concluded that the 'basic protections .of 7the Private
Express 'Statutes must be retaine.d if this, country is to
continue to have effective, .universal" mail s'ervice reaching
 into every community arid serving, all parts 'of 'the nation;
                                               a,
We do not recommend any change in the current l w .
Existing regulations and administrative practices, however
should be significer.iiy improved.        In the past, administrar
tive decisions on whether .private carriage of mail would
violate the law were largely nade case by case. To inform
the public of the metes and bounds of the Private Express
Statutes, the Post Office Department relied on z- narrative
compendium of past interpretations of individual cases. In
spme areas; these interpretations constituted a very un-
certain guide to the public.      In the future, the Postal
Service will publish a cohesive set of regulations that
will make the applicability of the Private Express Statutes
much more clear and that can be relied on by the public
with^assurance.

This report is deliberately brief.        In our judgment, the
                                  1
case for retaining the existing restrictions on the private
carriage of mail is> so clear that we see no need for ex-
pensive 'elaboration, in .keeoing- with, the mandate of
Section 7 for a "complete study and thorough reevaluation
of the restrictions," however, the Postal Service has
prepared; a number of papers which comprehensively illuminate'
the ^background of this report .and support its conclusions
   •;- ''-    -                       -
and'T.eco.mmendationa..   These papers are appended to the
report, as "follows,:     .




                                7UV
Appendix -A: The Relevant Lav - the Private
               Express Statutes and Section 7 of        ,.
               the Postal Reorganization Act;
                                                      ,*t
Appendix B:    interpretations .of the Private-
               Express .Statutes; "Restrictions
               pn Transportation of Letters" :(P.OD
               Publication lli)v-

Appendix'C: Review of the History, of -the.
               'Private ^Express Statutes;

Appendix D: Postal Monopolies in-Other Countries;

Appendix E: Competition of the Postal .Service-
               Related 'to the ;Pfivate ^Express Statutes?

Appe_ndix F-: Economic Analyses of Economies of
               Sc_ale; "Cre'amTSkimming" Potential;

Appendix G:                                 'h
               Proposed Postal Regulations : o         "•--•
               Restrictions on Private Carriage
              _ of Letters.              -

                         SUMMARY-ANALYSIS


The-Posfcai Reorganization Act provided- the most thorough-
going, change in the structure and powers of 'the postal
establishment ever-enacted, by Congress. Nonetheless, the
new J'osfcal Service is still charged with. -She jsame basic
communications mission:

     The Postal Service shall have as- .its bas.i'c
     function the obligation to provide postal
     services to bind the Na'tion together .through
     the personal, .educational, literary, and
     business correspondence of the people;. It
     shall provide .prompt, reliable, and efficient
     services to .patrons in. all areas and shall
     render postal services to all communities.
     The- 'costs of establishing and' maintaining
     the Postal Service shall not be apportioned
     to impair ,-he overall value 'of such service
     to the people.     (Section 101 (a) of Title 39,
     .''.United States Code.?

Except for limited periods of "local" fates around the
times of the World Wars, the United States has. had, since
18631 a basic postage rate for letter mail that has: not
:
 varied with the -distance traveled. This policy is con-
tinued in the Postal Reorganization Act:

     The Postal Service shall maintain one _or more
     classes of mail for the transmission of letters
      sealed against inspection;    The irate for each-
     such class shall be uniform throughout the
     United States, its territories, and possessions.
     (Section 3623(d) of Title 39, United States Code.)

A prohibition on rates varying with distance creates
competitive opportunities for skimming the cream of those
postal operations that are most attractive from a business
standpoint.   It would make little sense to allow letter
mail competition without simultaneously authorizing
variable rates on letters so that the Postal Service may
compete equitably in the marketplace. But uniform nation-
wide rates for letter mail should not be lightly discarded.
Rates varying with distance would be complicated and con-
fusing for many citizens, would point to increases in regu-
latory red tape, and could lead to untoward political
pressures for changes in zone limits and the like.

The law requires that the Postal Service serve all the nation:

     The Postal Service shall provide a maximum
     degree of effective and regular postal services
     to rural areas, communities, and small towns
     where post offices are not self-sustaining.
     No small post office shall be closed solely
     for operating at a deficit, it being the
     specific intent of the Congress that effective
     postal services be insured to residents of
     both urban and rural communities.   (Section 101(b)
     of Title 39, United States Code.}




                          7.UU
                                6

This is a key requirement — perhaps the key requirement —
if the Postal Service is to discharge its basic function
to "provide prompt, reliable, and efficient services to
patrons in all areas and . . . render postal services
to all communities."   This means that the Postal Service
must serve those areas and customers for which operating
costs are not recoverable under a uniform pricing policy.
If the Private Express Statutes were repealed, private
enterprise, unlike the Postal Service, would be free to
move into the most economically attractive markets while
avoiding markets that are less attractive from a business
standpoint.

In addition, the Act contemplates that the Postal Service
will become virtually self-sufficient and the Service is
committed to achieving this self-sufficiency as soon as
practicable.   Without abandoning the policy of self-
sufficiency and reintroducing massive subsidies, it is
hard to see how the Postal Service could meet rate and
service objectives in the face of cream-skimming competition
against its-.mt.jor product.   Cut abandonment of this policy
would impose an unjustifiable burden of costs on the
tax-paying public and might lead to the erosion of
universal postal service.
 We believe that the 'uniform rate and nationwide service
  requirements are sound.             In addition, the self-sufficiency
 objective provides the discipline essential to more
 effective postal operations. Accordingly, the service
 and financial policies that are righ'tly embodied in
  the Postal Reorganization Act require that the restrictions
 on private letter-mail carriage be maintained.

 The service, rate,, and financial policy provisions of
 the Postal Reorganization Act are not the. .only provisions
 of law tsugporting a continuation of the Statutes.. Congress
  has used its authority, for example, to insure the safety
 of the mails and to protect the public from undesirable
 mail^matter. Constitutional provisions, reinforced by
  statute and regulation, establish the'Sanctity of letters
  "sealed against inspection."            Both from a financial and
 an operating point of view, protecting thje mails and the
 mailing public would be difficult if restrictions were
 relaxed.              Under competition, funds for Inspection Service
 enforcement of postal laws might be severely limited and
 made available strictly in .accordance with a business
 justification, thus eliminating much of the service it
 provides to protect the general public.

 Congress could, of course., impose legal restrictions on
 .private carriers of letters and on those using them,
 similar to those now existing with respect to the Postal
 Service and its customers.             Multiplying the suppliers




',«-'141 <} • 7* • 2
                              8

of mail services, however, would inevitably'create
jurisdictional problems and raise other practical obstacles -
such as the common use of mail boxes - in the way of
effective law enforcement.

There can be no doubt of the advantages of the present
arrangement-in which comprehensive laws are enforced by
Federal law enforcement officials who are intimately
associated with the responsible organization.    The Private
Express Statutes have made the protection of letters more
effective than it otherwise could have been.

International mail reciprocity agreements would also
suffer if the Statutes were relaxed'. Foreign governments
would have the problem of whether to deal with several,
rather than one, originating mail suppliers.    The Postal
Service would remain under the obligation of 'delivering
all incoming international mail with less than total com-
pensation for outgoing first-class snail.

The Postal Service has an immense national value, both as
a network through which the mailer can send material, secur?
in the knowledge that it will arrive at any destination he
chooses, and as the presence of the United States Government
in cities, towns and villages throughout the land. Re-
tention of the Private Express restrictions is essential
to this national system.
               Conclusions and Recommendations


1.   THE PRIVATE EXPRESS STATUTES SHOULD NOT BE RELAXED.

     Postal policy set by Congress supports the continuation
     of the Private Express Statutes. The Postal Service must
     continue to provide prompt, reliable, and efficient
     services to postal customers in all areas.

     Relaxation could well serve some members of the business
     community whose primary financial interests are tied to
     letter mail.    It would ill serve members of a larger
     business and general public community who depend on the
     Postal Service to serve all their mail needs.

     Relaxation would also impose genuine hardships upon those
     people who live in -thinly populated or low income areas,
     areas which private carriers might not serve and in which
     Postal Service capabilities would inevitably decline.

     Economic analysis indicates that retaining the Statutes
     is justified.   The following are among the reasons for
     preserving the existing restrictions:

          a.   Important savings to customers exist in
               having a single supplier of letter-mail
               service.   These savings are realized
               because economies of scale occur as
               volume increases, resulting in a lower
               incremental cost for each additional
               piece of mail processed.
                                 10

          b. Legal restrictions on competition are
              necessary to prevent major erosion
              of these savings ?nd t-c, entire that
              the Postal Service can continue to
              operate in the manner required by law.

2.   THE PRIVATE EXPRESS STATUTES SHOULD NOT BE EXPANDED


     The .Private Express prohibitions have historically
     centered on letter mail. They have been held not to
     extend to the private carriage of periodicals and, un-
     addressed circulars.   Economic analysis indicates that
     retaining prohibitions on the private carriage of
     letters would be sufficient to ensure the continued
     capability of' the Postal Service to meet its national
     service objectives. In these circumstances, extension
     of the monopoly to periodicals or unaddressed circulars -
     which would surely displace existing private enterprises -
     seems unnecessary.

     Looking to the future, the prospective technology enabling
     electronic transmission of written, printed, and pictorial
     matter does not justify broadening the present restrictions
     to cover the electronic transmission of messages.     Although
     the Postal Service may decide to use electronic transmission,
     as well as other new technologies, in carrying out its
     responsibilities to develop efficient services responsive
                               11
     tO' the evolving needs of the nation, restrictions on
     private electronic transmission are not warranted.
     On the other hand, the present restrictions will con-
     tinue to give the Postal Service exclusive rights to
     "hard copy" delivery service, even when such "hard copy"
     is used in or pr >duced by an electronic transmission
     process.

3.   THE RESTRICTIONS OF THE PRIVATE EXPRESS STATUTES
     SHOULD BE SUSPENDED IN CERTAIN INSTANCES.


     The restrictions of the Private Express Statutes should
     be .suspended where there is a definite public need for
     delivery s_eryice that is substantially faster than any
     generally available service which the Postal Service now
     provides. To avoid erosion of the basic protections of
     the Statutes, however, the suspension should be limited
     to two clearly defined categories - intra-company communi-
     cations (which may properly be carried by a company's
     own employees even if there is no suspension) and data
     processing communications. In each case, moreover, the
     communications would come within the scope of the sus-
     pension only if they are so urgent as to require delivery
     within twelve hours or by the start of the next business
     day.   If and when the Postal Service develops a rapid
     transmission service of this kind to the point where it
     is widely available, it should be practicable to revoke
                               12

this suspension without destroying the then existing
business of firms operating under it.    In the mean-
while, the suspension will serve to make lawful a
needed service, by private firms, which is not generally
available from the Postal Service.   Of course the sus-
pension would not imply any slackening of Postal Service
efforts to provide competitive service in this area.

The restrictions should also be suspended for two categories
of material that have long been treated as falling out-
side the definition of "letters" and therefore outside
the reach of the Private Express Statutes - newspapers
and periodicals, and checks and financial instruments.
In the case of checks, exclusion by definition can only
be accomplished by deliberately ignoring the plain meaning
of ordinary   jrds:   a check is a written communication that
meets every test of the meaning of "letter" that has been
used by the Post Office Department in the past and that is
proposed by the Postal Service for the future.   The right
way to avoid disrupting firmly settled commercial practices
for the transmission of checks, without eroding the necessary
protections of the Statutes', is simply to suspend the re-
strictions of the Statutes so as to permit checks to con-
tinue to be transmitted in bulk to financial institutions
by non-postal means. The suspension should likewise cover
financial instruments such as stock certificates, prom-
issory notes, bonds, and other negotiable securities.
                                13

     In the case of newspapers and periodicals,, it is not
     as obvious -hat "letters" are involved. Although
     periodicals entail "messages in writing" and otherwise
     meet the principal tests of what is a "letter" for pur-
     poses of the Private Express Statutes, the Statutes have
     not been enforced against non-postal delivery of maga-
     zines and. newspapers for decades.   Newspapers - and
     periodicals to a lesser extent - are regularly delivered
     outside the mails throughput the country.   The preservation
     of an effective national postal service does not require
     disruption of established non-postal services* in this
     area. Accordingly, to make it clear that existing practices
     need not be disturbed, 'i-he restrictions of the Statutes
     should be suspended for newspapers and periodicals.

4.   REVISED REGULATIONS SHQULH BE ADOPTED.


     The Postal Service, under its existing rule-making authority,
     is proposing a revised set of basic regulations implementing
     the Private Express Statutes.

     The regulations are intended to improve the administration
     of the restrictions by clarifying the definition of "letter"
     and by modifying past administrative practices.    The regu-
     lations should benefit the mailing public significantly
     by making far more clear exactly what is, and is not,
     within the restrictions of the Private Express Statutes.
                         14

The proposed regulations should be published well in
advance of 'their planned adoption, so as to give the
public extensive opportunity to call attention to any
difficulties that they might possibly cause and to
enable the Postal Service to make adjustments if
warranted.
                                                    15

.;'- :••                                  \PPENDlx         A
The Relevant Law -- The Prwate Express Statutes and.Section 7
of. the Po B ta,l Reorganization Acl

           L        GEhft Private .Express Statutes

               ,-                       3.9 U.S. C. §§ 601-606


                      § 601'. Lcttcrg carried out of (he
                         (a) A ic.ltcr may- be carried out of the mails when—
                               (1) it is enclosed,in fin envelope;.
                               (2) the amoma^f-pbstngp-which.would Imvp been ch&rgad on
                            tho.lclter if it had been sent -by mail is paid by. stamps, .or postage
                           meter slumps, on the envelope;
                               (3) the envelope is properly addressed;
                               (4)^110 envelope is so-scaled that-the letter cannot bo taken
                            from it without defacing the envelope;
                               {•5) nny .stomps on the "envelope ore canceled in -ink by the
                           sender; and
                               (6) the dale of tlic letter, of. its transmission or receipt by the
                            currier is endorsed on the envelope in ink.
                         (b) The Postal-'Service may suspend the operation of any part of
                      this section upon any mail route where the public interest requires
                      the suspension.
                      § 602. Foreign Idlers out of the mails
                        •(a) Except ns provided in section 001 of-lhis'lillc,.lhe master of ft
                      vessel 'departing from the United States for foreign _ports may not
                      receive on board or transport nny letter -which originated in tho
                     'United States that—
                              .(1) has not been regularly received from a United'Slalcs post
                            office; or
                               (2) does not rclftto to tho cargo of tho-vesscl.
                         (b) The officer of the port empowered to grant clearances ilmll
                      require from flic-master 01 such a vessel, as a condition of clearance,
                      an oath-that ho docs not have under his caro or control, and will not
                      receive or transport, any letter-contrary to-the provisions of- this
                      section.
                         (c) Except as provided in section 1699 of titlo 18, the master of a
                      vessel arriving:,at a port of the United States carrying loiters not
                      regularly in the mails shall deposit them in tho post office at the port
                      of-arrival:
                      § 603. Searches authorized
                         Tho Postal Service may authorize any officer or employee of the
                      Postal Service to make searches for mail matter transported in viola-
                      tion of law. When the authorised officer has reason to believe that mail-
                      able matter transported contni.y to Jaw may be found therein, ho may
                      open and search any—
                               (1) vehicle passing, or having lately passed; from a p'aco at
                            which there is a post office of tho United Slates;
                               (2) article being, or having lately been, in tho vehicle; or
                               (3) storo or ofhco, other than a dwelling house, used or oc-
                            cupied by a common carrier or transportation company, in v/hich
                            an article may bo contained.




                                                    7.UU
                                        16

  § 604. Seizing and detaining • letters
     An officer or employee of the-Postal Service, performing duties re-
 lated to the inspection of-pcstal matters,». ciistoms officer, or'United
 States marshal or his deputy, may;Gcize at any time, letters and-bags,
 packets, oir parcels containing letters which are Jjcing.carricd-cohtrary
•toJaw-on board any vessel o>pn any .post road^Th^bfficer.or employee
  who,makes'the seizure shall convgy tlift articles seized-.to the hearest
.post office, or', by'direction of thePpsto.1 Service or the Secretary of
 Uio-Treasui'jvrie may detain, them.'until-2 "months after-the-final de-
 terminafcion.of aj5 suits rind proceedings wliicn may' be brought within
 6.jnowths dftcr.this'Pcizure agaihst.any person •for.sending or carryin--
.fhOcletters.
 § 605. 'Searching vessels, for Jlelfers
     ;An pfticer or .employee ftf; .tlic. .Postal Service performing-duties
  related1 to the- inspection pf.£ostal matters, when instructed; by'the
  Postal Seryic? to.make.exnnirnalions rind seizures,,and tiny customs
 officer wiOib.ut special iiistnir.tions -shall search--vessels for letters
  »>liich may be.oirboara; or v]\\fh may have been conveyed contrary to
 law,
  § 60,6; iDispasitipn ;of seized -mail
     •Every: piicVage or .parcel 'seized by an officer or employee of the
 Postal Service,psrfpritiiiig:duties related to'Jhe inspectio_n of postal
 iriattoi-s. a ctisfpmS'Ollicer, .or :Unitcd-'Sta'tcs-marshal or-'his deputies,
 hi wliich-a bUcris nhlaw{t;}]y cp.ncea'cfi, shall be 'forfeited ..to the
  I "lifted States. The>same proceedings ma-jr be iiscd-to enforce forfeit-
 iii-es as aic-ftiitliorizetl--in,.respect of noods, wores. and merchandise
 :fprff-it£G for violation of the revenue Jaws. I/aivs for the benefit and
 pittteciion of,customs ofTicers making seizures for violating'revenue
 |ft!W5rj(i[>ply 'to ofiicors-.asid'employees making seizures ,for violating
'flip .postal laws.



                .18 U.S. C. §§ 1693 - 1699, 1724

:Sec 1G93. Carriage of nuil generally

  Whoever, bcing:conccmcd in carrying the mail, collects, receives, or carries
any letter.or packet, contrary to law, shall be fined not more than J50 or
imprisoned not more than 30 days, or both.

Sec. 1604. Carriage of matter out of mail ever post routei

   Whoever, having charge or control of any conveyance opera ting by land, air,
or water, which regularly performs trips at stated periods on any post route, or
from one place to another between which the mail is regularly carried, carries,
otherwise than in the mail, any letters or packets, except such as relate to some
part of the cargo of such conveyance, or to the current business of the carrier,
or ,10 .some article carried at the same time by the same conveyance, shall,
except as otherwise provided by law, be fined nol more than SSO.

 Sec. 1G35. Carriage of matter out of mail on vessels

   Whoever carries any letter or packet on board any vessel which carrier'the
 mail, otherwise than in such mail, shall, except as otherwise provided by law,
 be,fined not more than $50 or imprisoned not more than 30 days, or both.




                                   7131
                                        17

Sec. 1695. Carriage of matter out of mail on veiselt

  Whoever carries any .letter or packet on board any vessel which carries the
mail, otherwise than in such mail, shall, except as otherwise provided by law,
be fined not more than $50 or imprisoned not more than 30 days, or both.

Sec. 1696. Private express for letters »nd picket:

    (a) Whoever establishes any private express for the conveyance of letters or
 packets, or in any manner causes or provides for the conveyance of the same
 by regular trips or at stated periods over any.post.route which is or may.be
 established by law, or from any city, town, or place to any other city, town, or
.place, between which the mail is regularly carried, shall be fined not more than
 $500 or imprisoned not more than 6 months, or both.
    This section shall not prohibit any person from receiving and delivering to
 the nearest post office, .postal car, or.other,authorized depository for mail
 matter any. mail matter properly stamped.
    (b) Whoever transmits by private express or other unlawful means, or
 delivers to any agent thereof, or deposits at any appointed place, for'the
 purpose of being so transmitted any letter or packet, shall be fined not more
 than $50.
    (c) This chapter shall.not prohibit the conveyance or transmission of letters
 or packets by private hands without compensation, or by special messenger
 employed for the particular occasion only. Whenever more than 25 such letters
 or packets' are conveyed or transmitted by such special messenger, the
 requirements of section 601 of title 39, shall be observed as to each piece.

Sec. 1697. Transportation of persons acting as private express

  Whoever, having charge or control of any conveyance operating by land, air,
or water, knowingly conveys or knowingly permits the conveyance of any
person acting or employed as a private express for the conveyance of letters ory
packets, and actually in possession of the same for the purpose of conveying
them contrarv' f iw, shall be fined not more than $150.

Sec. 1698. Prompt delivery of mail from vessel

   Whoever, having-charge or control of any vessel passing'between ports or
places in the'United States, and arriving at any such port or place where there
is a post office, fails to deliver to the postmaster or at (he post office, within 3
hours after his arrival, if in.thc daytime, and if at night, within 2 hours after
the next sunrise, all letters and packages brought by him or within his power or
control and not relating to the cargo, addressed to or destined for such port or
place, shall be fined not more than SI50.
   For each letter or package so delivered he shall receive 2 cents unless the
 tame is carried under contract.




                                          713^
                                           18

  Sec. 1639. Certification of delivery from vessel'

      No vessel arriving within a port or-collection district of the: United States
   shall be allowed to make entry or break bulk until all letters on board are
  .delivered.to the ncare:'. post*office, except whe_re way.billcd for,discharge at
   other;ports in the 'United States at which the vessel is scheduled .to call and the
   Postal Service'docs not .determine that unreasonable delay-in the .mails will
   occur, and-the. master or other person liaving,.charge 01 control thereof has
   signed and sworn to.the following declaration before the collector or other
   proper customs officer:
      I, A. Bi, master -—, of the —.arriving from —r and now lying in the port
   of     , dcrsolcmny swear (or affirm) that I have to the.bcst ol u> Knowledge
   ind belief delivered to • the post office at ^         every letter and every bag,
   packet, or parcel ?f letters on board tlie said vessel during her last voyage, or in
   my possession-'.or under my power or control, except where waybiiled for
   discharge at other ports in the. United States at which the said vessel is
   scheduled to call and which, the Postal Service has not determined will be
   unreasonably delayed by remaining on board the said vessel for delivery at such
   ports.
      Whoever, being the master or other person having charge or control of such
   vessel, breaks bulk .before he has arranged for such delivery or onward carriage,
   shall be fined not more than $100.


Sec 1724 Postage on mail delivered by foreign vessel:

   Except as otherwise provided by treaty or convention the Postal Service may
require the transportation by any steamship of mail between the United States
and any foreign port" at the compensation fixed under authority of law. Upon
refusal by the master or the corrmander of such steamship or vessel to accept
the mail, when tendered by the Postal Service or its representative, the
collector or other officer of the port empowered to grant clearance, on notice
of the refusal aforesaid, shall withhold clearance, until the collector or other
officer of the port is informed by the Posts! Service or its representative that
the master or commander of the. steamship or vessel has accepted the mail on
that conveyance by his steamship or vessel is no longer-required by the Postal
Service.




 II.    Section 1 of the Postal Reorganization Act

       SEC. 7, Tlie Congress find* that ndvniii-cs in comiiiiinicntioiis tech-
    nology, data |irotr<iainp, mid (lie needs of mail users require a com-
    plete study ,ui(l tiioinii^li n-eialuntion of lliu ie.il rirt ions on the pri-
    vate carriage of Irtiviii and (urkcls cnnUincd in chapter f. of title.'!!),
    I intcd Sl.tc* Code (a« ciinrfc<l l>y >crtion 2 of this Act), mid sections
    IfiOI-t/.SG of lille 18, I'nitcil States Code, ami (lie rei.til.iitions estab-
    lished ami udimiii-fcii'd iiiuU'r these laivs. TlieJIoaitl of Governors of
    the I mteil Stiilcx IW.il St-riire shnll siihmit to the President and
    the Confess uitiijn -i years after tlie ciTectirc date of this section a
    reimrt tnd rci-oiiniu'iidntioii for the niodrTijiziifinii of tliese piorisinns
    of InH-, nnd surh regulations and niliiiinistnitivc practices.




                                     713,3
                                 19

        APPENDIX B—I.   INTERPRETATIONS OP THE PRIVATE
                          EXPRESS STATUTES

          EXAMPLES OF PROBLEMS IN THE INTERPRETATIONS
             GIVEN TO THE PRIVATE EXPRESS STATUTES
INTRODUCTION

Past administration of the Private Express Statutes has been
largely on a case-by-case basis. This process has led to a
number of questionable distinctions between what is prohibited
carriage and what is permissible carriage. The new regula-
tions the Pos'tal Service is suggesting are intended to eli-
minate these distinctions and to provide for possible private
carriage, where the public interest requires such carriage,
through exerciss of the suspension power.
The following are examples of past administrative determinations
that do not appear to make sense in terms of the purposes of
the Private Express Statutes. These examples by no means re-
flect all of the many questionable determinations under the
Statutes, but rather they illustrate the kind of obscure and
even cryptic differentiation between protected and unprotected
materials that is characteristic of those caserby-case dete'—
minations.
The examples chosen are based on distinctions — express or
implied — that would be eliminated under the proposed new
regulations. In each case the distinction not only is hard
to understand, but also i,'iems unrelated to the purpose of the
Private Express Statutes -- the protection of postal revenues
through -the grant to the Postal Service of a monopoly over the
carriage of messages (typically in the form of written docu-
ments) containing'information recorded for a present or future
communicative purpose.
1.   MATTER SENT FOR FILING
Past practice pro/ides uncertain guidance as to treatment of
material sent for filing. Compare
       Old correspondence, records, and any other type
       of matter sent from one office to another for
       filing, storage, or destruction are not "letters"
       since, under the circumstances, there is no pur-
       pose of communicating any. intelligencs to the
       addressee (POD Publication 111, at 13),
with
       ... if matter is sent for the purpose of
       establishing a file of material from which it
       is intended the addressee may at some future




                              7l3'i
                             20

     time take information on which it will then act,
     rely, or refrain from acting, the matter so sent
     will be considered as a "letter." (POD Publi-
     cation 111, at 14.)
The distinctions drawn — or inferrable — from the material
quoted above obviously raise a multitude of questions in
terms of their practical application. Moreover, they make
little sense from the point of view of .the purposes of the
Private Express Statutes. For example, there appears no
good reason why an old letter, sent to a distant office,
should 'have to be carried by mail if it meets the criteria
of the one "test" and not if it meets the criteria of the
other.
Under the proposed regulations, all material sent for filing
would be subject to the prohibitions of the Statutes.
2.   INFORMATION KNOWN TO ADDRESSEE
     POD Publication 111 states:

     As a general matter, once information is in
     the possession of a person it may be assumed
     that material containing only the identical
     information or a portion of it is not sent
     as a communication or letter when forwarded to
     that person unless it is sent to verify the
     previous information. (P. 13.)
The logic of this statement is not overwhelming. The result
apparently reflects the importance that past rulings placed
on information being "live" and "current" in order for it.
to qualify as a letter. But the question of whether infor-
mation is "live" or "current" seems to have nothing to do
with the purposes of the Private Express Statutes.
Moreover, the statement defies understanding, even judged
apart .from the purposes of the Statutes. If, for example,
an exact copy of a letter is not sent for some actual or
potential communicative purpose, then what is it sent for?
Under the proposed regulations, the carriage of copies and
originals will be treated alike as the carriage of letters
for purposes of the Private Express Statutes.
3. AUDITING MATERIAL
Apparently on the theory that "mere" auditing involves no
thinking or communicating but rather consists only in the
rearrangement of known data, POD Publication 111 reflects
the deterrination that material sent for auditing' is, o£
is not, a letter or letters depending on what .is done with
the information at the auditing office.




                              7i3o
                                    21

          When freight bills, invoices . . . and the like,
          aire forwarded for the sole purpose, of having them
          audited internally -on -behalf of the ;sender, they
          are not "letters." Ah audit is for 'ttfe benefit
          of the sender when, the perspn-oT office making
          the audit merely reports'-the results to .the
         .sender and does- not.itself take' any corrective
          action or adjust accounts between -the sender
         -and. addressee or 'make other use either of the
       ~ material forwarded or of the results of .the
-                    (.
         -'audit. ' , p 12.)
    Further language in POD .Publication 111 -suggests that if any
    information is"kept in the auditing office, the auditing
    material sent to it thereby, becomes a letter or letters.
    The'distinctions drawn.make ho sense in terms of the purposes
    of the Private :Express Statutes -- leaving to one side the
    obvious•question whether auditing is any more merely mechanr
    ical than, -for example, filling written orders for merchandise.
    Under the proposed regulations, all auditing information would
    constitute letters, but when rapid audit through data proces-
    sing is a business necessity, privata carriage would be
    authorized under a suspension of the Statutes.
    4. EXAMINATION -PAPERS
    Unfathomable distinctions, similar to those operating- in the
    area, of auditing, are suggested by POD Publication Ill's
    treatment of-examination papers. (p. 14-. j
    Presumably on the theory that grading is merely mechanical,
    POD Publication 111 states that answer papers sent for grading
    are not letters if the scoring agency "does not make use of
    the scores or other information derived from the papers." Yet
    when the papers have been.^graded,'-they would "normally" be
    considered-letters when returned to the sender. This is in
    contrast to the result for auditing information which can be
    returned to the sender:, together with the output of the
    auditor, ..outside the mails, provided the auditor meets the
    requirements' of not retaining, or usihg the information.
    Under .the proposed regulations, all answer papers -- other
    than; «blank forms moving between a supplier and a user —
    would;.be letters.
    •5. EVIDENCE OH" RIGHTS;, LEGAL PAPERS

    Admission-cards, affidavits, election ballotc, checks, .con-
    tracts, deeds; mortgages, insurance policies, stock certi-
    ficates, 'bonds, legal pleadings, and transcripts of records




                                713o
                           22

have all been held administratively not to be letters.
Although the rationales for these holdings are unclear,
they seem to result from the notion that documents rer
fleeting property or other legal rights or used in judicial
proceedings are not letters. The determinations seem uni-
formly unjustified, however, from the standpoint of the
purposes of the Private Express Statutes. Moreover, since
the documents are all intended to serve a communicative
purpose at some time, their exclusion from the definition
of "letter" for the purposes of the Statutes, seems to have
more to do with their value than with their ability to
transmit information.
Under the proposed regulations, all the objects named will
be letters, although some of them — principally checks,
'stock certificates, and bonds —• could still be carried
privately to financial institutions under the suspensions
that are proposed.
                               23


                          APPENDIX B—He




           Restrictions on
       Transportation of Letters
      The Private Express Statutes and Interpretations
                          FIFTH EDITION
                             JULY 1967




       UNITED STATES POST OFFICE DEPARTMENT
           OFFICE OF THE GENERAL COUNSEL




POD Publication 111


    'j»-0« t) i- 73 • t
                             FOREWORD
    Tins is a fifth edition'of the compilation of'the statutes restricting
the tr,anspprtation of letters and tne interpretation placed on them
by tlie Post Office Department. The first three editions were entitled
 "The Private Express Statutes." The present title was used for the
 fourth edition in order to^describe mare accurately the enlarged con-
 tents of the publication.
    The fifth edition reflects opinions and interpretations made,by the
 General Counsel since the fourth edition and replenishes the supply.
    The Private Express Statutes take their name from Title IS, United
 States Code, §1696, and its predecessors which have, since the dixys
of the Articles of Confederation,, prohibited the establishment oi a
 "private express for the conveyance of letters or packets.1'
   Titie 18, United States Code, § 1696, and the other laws discussed
in<this pamphlet,, known collectively as the Private Express Statutes:,
were enacted by Congress under the authority of article I, section, 8,
of .the Constitution and vest'in;the Post Office Department a monopoly
over the transportation of letters for others by regular trips o,r at
stated periods over all post routes. The primary purpose of these laws
 is to safeguard the revenues of the Government derived from th.c
 transportation and delivery of letters for others<by prohibiting com-
 petition with the Post Office Department, in the carriage-of letters by
jperspns seeking to engage in the delivery of letters for compensation.
    Part I of this pamphlet contains the laws-enacted by Congress.
 Part II discusses the application of these-laws and serves to indicate
 the controlling principles followed by the Department in its con-
sideratibn-of problems relating to the interpretation'and enforcement
of these-laws.




                                               TIMOTHY J. MAY,
                                                  General Counsel.
                                         25

                      NOTICE OF REPUBLICATION

This .is a republication, without textual change, except as noted in- the third
paragraph of this notice, of POD Publication 111, Restrictions on Transporta-
tion of Letters, Fifth Edition; July 1967.

The Postal Reorganization Act, August 12, J 970, Public Law 91-375, made
changes in phraseology in the statutes shown in Part I- and also renumbered
sections 901-906 .of Title 39, U.S. Code as sections 601-606 of Title 39, U.S.
Code. These.changes did notalter the substance of these provisions.

 Some of the text in sections 20, 21, and 22, and footnotes 89.94,95, and 2 (on
 pages 20-21) has been marked out and should, be considered to have been
 deleted because'the Postal Service's program foj the airlift of surface first-class
 mail and certain changes.in international .postal conventions have caused.these
;pravisigns to be no longer applicable.


                                                   June 1973.




                                  CONTENTS

                                                                                   Puct
                ..                         --.                                      II
P-A'RT 1. 'Extracts1 from the United StaU>s Code                                      1
           J
     Title ,I8, United -States Code                                      ,            1
            §1(393. Carriage of mail generally.                                       1
           .§10,9.4; Carriage of matter out of mail over postTOutes                   J
           ,§ 1693. CarmgC'of matter out of-maii-pri-vcssels                 _.       1
            § 169.6, Private'fixpress for letters and Jjackets               „        1
            §, J697. Transportation of persons acting as'privale express              2
           £ TG9S. Prompt delivery of mail from vessel                                2
            1 iC'J9. Certification of. delivery'from vessel.                  .-       2
            §175.4. Postage on mail1 delivered foy^foreign vessels                    3
     Title 39,'Unitcd States Code            :             *                          3
            § 901s, Letters parried out of the mail                          _-       3
            § 902. Foreign-Setters out of the.mails                                   4
            ^903. Searches Authorized                                                 4
            § 904. SV.izing^ind detaining fottcrs                            „        4
           i'J 903, Scorching voswls for letters.           ----.                     5
            5-BOG.. Disposition of seized jnail                                      !>
PAUT II. In£orpr«'tations..                            ,       •             .,       0
     A. Gcncrai Statement                ,                                     ,     6
                 •Scfr. 1. Jn General                                                 G
      B, >fattrr Subject to tli(! Monopoly..: ...                                     G
                 .Sec. 2, fa'tlfn and Packets*                         ,              0
                 Sice. 3, '.Letters in General         ^       ,              .'      7



                                     714U
                                      26

IV                               CONTEXTS

            Sec. 4. Samples of Letters                                       7
                 (a) Orders                                                  8
                 (b) Bills and Statements of Accounts                   -    8
                 (c) Reports                                                 8
                 (d) Applications                 -             --           9
            Sec. 5. Samples of Matter Not "Letters"...-.                     9
                 (a) Exact Copies              1                             9
                 (b) Commercial Papers...                                    9
                 (c) Legal Papers and Documents                              9
                 (d) Official Records                           -           10
            Sec. 6. Inter-Office Communications                             10
            Sec. 7. Checks and Drafts                                       11
            Sec. 8. Matter Sent for Auditing or Preparation of Bills        12
            Sec. 9. Information Known to Addressee                      -   13
            Sec. 10. Old Correspondence and Other Matter Sent for Filing,
              St rage, or Destruction      .                                13
            Sec. U. Examination Papers                                      14
            Sec. 12. Manuscript and News Items—                             14
            Sec. 13. Weight and Size-                                       14
PART II. Interpretations—Continued
    C. Prohibited Transportation                                            15
            Sec. 14. Post Routes                                            15
            Sec. 15. Activities Prohibited                                  15
    D. Permissible Carriage-of Letters                                      16
            Sec. 1C. Delivery by Employees; "Current Business"              16
            Sec. 17. Relating Exclusively to Accompanying Shipment          18
            Sec. 18. Private Hands Without Compensation                     19
            Sec. 19. Special Messengers Employed for the Particular Oc-
              casion Only                                                   19
            Sec. 20. Letters on Which Postage Is Paid                       20
            Sec. 21. Delivery to Post Office,                               21
            Sec. 22. After Receipt From the Pose Office                     22
            Sec. 23. Receipts for Goods Delivered, and Deliveries in Con-
              junction With Collections         _                           22
    E. Miscellaneous Problems Related to The Private Express Statutes..     23
            Sec. 24. Drop Letters                                           23
            Sec. 25. Mailing of Letters of Two or More Persons in One
              Envelope                                                      23
            Sec. 26. Restricted Use cf Private Letter Boxes                 24
            Sec. 27. Rates of Postage on Mail Matter                        24
            Sec. 28. Reports of Postmasters; Inquiries                      25
Index                                                                       27




                                       <M 4 i
                                    27




PART I. EXTRACTS FROM THE UNITED STATES CODE


                               TITLE 18
 § 1693. Carriage of mail generally
    Whoever, being concerned in carrying the mail, collects, receives, or
 carries any letter or packet, contrary to law, shall be fined not more
 than $50 or imprisoned not more than thirty days, or both.
 § 1694. Carriage of matter out of mail over post routes
    Whoever, having charge or control of any conveyance operating by
 land, air, or water> which regularly performs trips at stated periods on
 any post route, or from one place to another between which the mail is
 regularly carried, carries, otherwise than in the mail,.any letters or
 packets, except such-as relate to some part of the cargo of such convey-
 ance, or to the current business of the carrier, or to some article carried
 at the same time by the same conveyance, shall, except as otherwise
 provided' by law, be fined not more than $50.
 § 1695. Carriage of matter out of mail on vessels
    Whoever carries any letter or packet on board any vessel which car-
 ries the mail, otherwise than in such mail, shall, except as otherwise
 provided by law, be fined not more than §30 or imprisoned not more
 than thirty days, or both.
 § 1696. Private express for Jotters and packets
    (a) Whoever establishes any private express for the conveyance of
Jotters or packets, or in any manner causes or provides for the convcj -
 ance of the same by regular trips or at stated periods o\er any post
 route which is or may be established by law, or from any city, town,
 or place to any other city, town, or place, between which the mail is
 regularly carried, shall be fined not more than $.;00 or imprisoned not
 more than six months, or both.
    This section shall not prohibit any perbon from receiving and de-
 livering to the nearest post office, postal car, or other authorized
depository for mail matter any mail matter properly stamped.
    (b) Whoevertransi.iits by private express or other unlawful means,
 or delivers to an> agent thereof, or deposits at any appointed place,
                                                                      l
                                     28

2         RESTTRICnONS ON TRANSPORTATION OF LETTERS

for the purpose of being so transmitted any letter or packet, shall-be
fined'not more than §50.
   (c) This chapter shall not prohibit the conveyance or transmission
of letters or packets by private hands without compensation, or by
special messenger employed for the particular occasion, only. When-
ever more than twenty-five such letters or packets are conveyed or
transmitted by such special messenger, the requirements of section 500
of Title 39 shall be observed as to each piece.
§ 1697. Transportation of persons acting as private express
  "Whoever, having charge or control of any conveyance operating by
land, air, or water,-knowingly conveys or knowingly permits^the con-
veyance of an} pei-son acting or employed as a private express for the
conveyance of letters or packets, and actually in. possession of the same
for th° purpose of conveying^them contrary to law, shall be fined not
morethanSloO.
§ 1698. Prompt delivery of mail from vessel
  Whoever, having charge or control of any vessel passing between
ports or places in the United States, and arriving at any such port or
place where there is a post office, fails to deliver to the postmaster or
at the post office, within three hours after his arrival, if in the daytime,
and if at night, within two hours after the next sunrise, all letters
and packages brought by him or withiii his power or control and not
relating to the cargo, addressed to or destined for such port or place,
shall be fined notmore thaa$150.
   For each letter or p.'ickage so delivered he shall receive two cents
unless the same is carried under contract.
§ 1699: Certification of delivery from vessel
   Xo vessel arriving within a port or collectiori.district of the United
Shites shall be allowed to make entry>or break buJk until all letters on
board are delivered to the nearest post office, except where waybilled
for discharge at other ports in the United States at which the vessel
is scheduled to call and the Postmaster General does not determine
that unreasonable delay in 'the mails wilj occur, and the .masU-r or
other person ha-'ing charge or control thereof has signed and sworn to
the following declaration before the collector or other proper customs
officer:
  I, A. 13,, master          .          , of the                   , arriving
from                    , and now lying in the port of                       ,
do solemnly swear (or affirm) that I have to the bust of jny knowledge
and belief delivered to the post office at           .           every letter


                                       714,4
                                   2s)

          RESTRICTIONS OX TRANBP.ORTATJOJf OF LETTERS                   3

and every bag, packet, or parcel of letters on board the said vessel
during her last voyage, or iiviny possession or under my power or con-
trol, except where waybilled for discharge at other portS'in the United
States at which the said vessel-is scheduled to call and which the Post-
master General has not determined will-be unreasonably delayed by
remaining on board the said vessel for delivery at suck-ports.
  Whoever, being the master or other person-having charge or control
of such vessel, breaks bulk before-he has arranged for such delivery
or onward carriage, shall be fined not more than $100.
§ 1724. Postage on mail deliveredibyforeign vessels
  Except as otherwise provided by treaty or convention the Post-
master General may require the?transportation by any steamships of
; i il between the United States and any foreign, port at the compensa-
tion fixed under authority of law. Upon refusal by the master or the
commander of such steamship or vessel to accept the mail} when.:tend:-
ened.by the Postmaster General or his representative, the collector or
other officer of the port empowered to grant clearance, on notice of
the refusal aforesaid, shall withhold clearance until the collector or
other, oflicer of the port is informed by the Postmaster General or his
representative that the master or commander of the steamship or
vessel has accepted the mail or that convevance by his steamship or
vessel is no longer required by the Postmaster General.
                              TITLE 39
§90L Letters carried out of the mail
   (a.) A. letter may 'be carried out of the mails when—
        •( 1) i t is enclosed'in an envelope;
         (J2) the amount of postage which would have been charged on
      the letter if it had been sent by mail is poid by stumps, or postage
      meter stamps, on the envelope;
         (%Y theenvelopeis;properly addressed;
         (-1) the envelope is so seaiud that the letter cannot be taken
      from it without defacing the envelope;
         (5) any stamps on the envelope are canceled in ink by the
      sender;and
         (0) the date of the letter, of its transmission or receipt by the
      carrier is endorsed on the envelope in ink.
   (b) The Pustrn.i.-.ter General may suspend the operation of any part
of this buctiou upon mi} mail route where the public interest require.*
(lie suspension^
                                     30

4          jlESTRICTIOXS OX TRANSPORTATION' OF LETTERS

 §-902. Foreign letters out of the mails
    (;v) Except as provided in section 901 of this title the master of
 a vessel departing from the United States for foreign ports may
 not receive on board or transport any letter which originated in the
 United States that—
          (1) has not been regularly received fronva United States post
       office; or
          (2) does no.t-relate to the crirgo of the vessel.
    (b) The ofliccr of the port empowercU 'to grant clearances, shall
 require Jfrom thp ;in.a'ster of such, a vessel, as a condition of clearance,
 an oath .that, hu does iiot have under his care or control, and will not
 receive or transport, any letter contrary to the provisions of this
 section.
    (c) Except as p ovided in .section 1(599 of title 18j the master of a
 vessel arriving at 'a port of the United States carrying letters not
 regularly in/Hie mails shall deposit them in the Post Office at the
-p6if. of arrival.
 §903. Searches, authorized
   The Postmaster General, by letter of authority filed in the Depart-
 ment, may authorize any postal inspector or other officer of the
 Department to make /searches for mailable matter transported in
 violation of law. When the authorized officer has reason to believe
 that mailablc matter transported contrary to law may be found
 therein, he may open-ami search any—
          (1) vehicle passing, or having lately passed, from a place at
       which there is a post office of the United States;
          (2) article being, or having lately beenj in the vehicle;
          (3) store or oflice, other than a dwelling house, used or occu-
       pied by a common carrier or transportation company, in which
       an article may "be contained.
 § 901. Seizing and detaining letters
    A. postal inspector, customs ofliccr, or United States marshal or his
 deputy, may seize at any time, letters and bags, packets or parcels
 containing letters v,hich,are being,carried contrary to law on board
 any vessel or on any post road. Tin officer who makes the seizure shall
 convey the articles hci/ud to tin: nearest post office; or by direction of
 the Postmaster General or the Secretary of the Treasury, he may
 detain them until t\\o months after the final determination of all suits
 and proceedings \\hHi ma} bu brought \\ithin six months after the
 seizure against any person for wending or carrying the letters.
                                   31

          RESTRICTIONS ON TRANSPORTATION" OK LETTERS                   5

§ 905. Searching vessels for letters
   A postal inspector when instructed by the Postmaster General^ to
make examinations and seizures and any customs officer \\ ithout special
instructions shall search vessels for letters which may be on board,
or which may have been conveyed contrary to law.
§ 906. Disposition of seized mail
   Every package or parcel seized by a postal inspector, customs officer,
or United States marshal or his deputies, in which a letter is unlaw-
fully concealed, shall be forfeited to' the United States. The same
proceedings may be used to enforce forfeitures as are authorized in
respect of goods, -wares, and merchandise forfeited for violation of
tl>e revenue laws. Laws for the benefit and protection of customs
officers making seizures for violating revenue laws apply to officers
making seizures for violating the postal laws.
                                            32




                      PART II. INTERPRETATIONS


                        A. GENERAL STATEMENT
   Sec. 1. In General. The intent of The Private Express Sf'tutes'
is to confer a monopoly, with stated exceptions, on the Post OLce De-
partment over the iransportation of letters for,others. This monopoly
was created prior to the adoption of the Constitution and has existed
with varying provisions continuously in the United States from that
time to the present.2 The types of matter which are subject to the
monopoly are discussed in sections 2'through 13 of this pamphlet. The
types.of transportation which are covered by the statutes are discussed
in sections 11 and 15. Exceptions to the monopoly are discussed in
sections 16 through 23. Sections-'24 through 28 embrace miscellaneous
problems related to The Pi ivate Express Statutes.3
          B. MATTER SUBJECT TO THE MONOPOLY
  Sec. 2. Letters arid Packets. The Private Express Statutes, by
their terms, apply both to letters and to packets. The word "packets"
now has only historical significance. "Packet" as used in The Private
Express Statutes means either a letter consisting of several sheets of
paper or two or more letters under one cover. At> used in The Private
Express Statutes, the word "packet"' does not include a parcel or
bundle of merchandise. For practical purposes, therefore, the Govern-
ment monopoly may:besaid to extend only to "letters."4
  'Theso-and related statutes are found In Title 18, U.S.C., Jf 1093-99 and 1724 ; and m
Title 39, U.S.C., H 901-900.
   'Cnited State* v. Kochatpcrgcr (18GO), 20 Fed; Cas. 803 (Can. No. 15,541), contalm
an-excellent review of the.history of postal monopolies. In that case the court said . No
government has ever organized a system of posts without securing to Itself, to sonic extent,
n monopoly of Die carriage of letters and mallable packets."
  'The Private Express Statutes-are constitutional. Vnitcd-Ktatct v. Hull (1844), 20 Fed.
Cos, 75 (Can. No. 15,281) ; United Ktaten v. Thompnon (18C4), 28'Fed. Cas',- 97 (Ca». No,
10,489) ;and Ex parte Jackton (J877), 90 U.S, 727, 734.
  < Dicight v. Bretctter (1822), 18 Mass. (1 Pick.) 50; United State* v. Chaloncr (1831),
25 Fed, Can. 392 (Cas. No. 14,777) ; Choute.au 4 Valle v. Steamboat St. Anthony (1847),
11 Mo. 228; and Willlamt v. Wclli Fargo Kxprcm & Co. (1010), 177 Fed. 352, all hold onlj
those packet* containing letters to be "packets" as that word in u*cd In these statntex.
The legal officers of the Post Office Department have reached the name conclusion, .Sec
5 Op. Asst. Atty. Gen. P.O.D. 77; 193; 014 ; and C20.




                                            714V
                                               33

              RESTTRICTIOKS ON TRANSPORTATION OF LETTERS                                        7

   Sec. 3. Letters in General. A "letter" is generally defined as a
message in -writing 5 and may be written in English, in a foreign lan-
guage, or in a code. To be written it need not be in handwriting but
may be written c by a system of checking from a list of printed state-
ments, or punching holes, or by point print, or in raised characters
used by the blind.7 Messages transmitted by wire or wireless or elec-
tronically between sender and addressee are not letters since the statutes
apply only to corporeal messages physically carried on post routes.
Except for telegrams, messages so transmitted which are converted
to physical form and are carried over a post road before delivery to
the addressee are letters. A letter ma}r be in a sealed envelope, in an
unsealed envelope, or not in an-envelope at all.8 However, a writing
is not a letter unless addressed to or intended for some particular
person or concern. In addition to communications of a purely personal
nature, the word "letter" includes any matter conveying live, current
information between the sender and the addressee. If the sender ex-
pects or intends the addressee to act, rely, or refrain from acting 9 on
the information, the information is live and current.
   While a distinction is observed for other purposes between letters
and circulars, the term "letters" under the Private Express Statutes
may embrace circulars inasmuch as the term "circular" is defined to
be a printed letter which, according to inteinal evidence, is being sent
to several persons in identical terms.10
  A telegraphic message is not a "letter" n since Congress is deemed
to have impliedly excepted it from the statutes.
  Sec. 4. Samples of Letters. All the forms which letters may lake
cannot be enumerated in tl.is pamphlet. While several general classes
of matter held to fall either within or w ithout the category of "letters"
as used in The Private Express Statutes are noted in this and succeed-
ing paragraphs, the listing of samples does not comprise and is not
   • Cnitcil Stolen v. American Dealers Rcroicr, Inc. 1194.3), D.C.S.D.N.Y. (unre|iort<><l),
Civil 21 ]07. In Cmtcd States v. Thompson (184G), 28 Fed. Cng. 97, 98 (Can. No. 10.4S9),
the court Bald. The word letter had no technical meaning, but mu»t be iinilcrt>tuuil In tlic
fentm In which It wax generally understood among businessmen."
  • Pricked matter, 6 Op, Sol. P.O.D. 307.
   " PuncliKl'tahuhtlns cards, 7 Op. Sol. P.O.D. «22 , 8 1.1. 382 tfirxt opinion, , 0 id. No, 474.
Code, 9 Id, No. 502. Sticker, 0 ld..No. 504,
  •A paper folded Ir. the form-of a Ic.tcr, United States v, Hromtcy (J851), 53 U.S. 87.
   • 7 Op. Sol. P.O.D, -I9C, at 498,
   " "The term 'circular' IB defined to 'be a printed letter, which, according to Internal
evidence. In being rent In Identical-tern™ to several pcrnonn. A circular Khall-not lose Its
character an 8uch, when the date and the name of the nddrn»»ec and of th«: ncndcr nhnll
be written therein, nor by the correction of mere typographical f.rrorn In writing." Title
<*9, U.S.C., BCC. 4451, 8 Op. Sol. P.O.D. 272. "A ncnlcd circular la, tor all purposes
affecting the poiital offices, * letter." The Louisiana Lottery Caien (I884>, 20 FVil. B2r», 02».
  » 9 Op, Sol, P.O.D, No, 518.



                                                 714(5
8            RESTRICTIONS OX TRANSPORTATION" OF LETTERS

intended to comprise, every type of matter which would fall either
within or without the scope of these statutes. The suggestion is made
that, if there is doubt as to any proposed shipment, a specific ruling
bo sought from the General Counsel or appropriate Regional Counsel.
    (a) Orders. Among merchants an order to a wholesale dealer for
merchandise is a common subject of correspondence. It is doubted
whether any other subject can be named on which more letters are
written and forwarded in the mails. Orders for merchandise to be
filled by the recipient are letters for purposes of The Private Express
statutes.12 Orders are also "letters" when forwarded by a salesman or
a store to the main office to be filled.13 Orders include requisitions from
one department of a business house on another department.
   (b) Bills and Statements of Account. Bills and statements of ac-
count are '"letters" when sent by a business concern or other person
selling goods or rendering service to its customers." In addition to
store accounts, this class of matter includes premium notices,10 water
bills,10.. ad bank statements.17 Receipts and receipted statements of ac-
count mo likewise "letters" when sent from a creditor to the debtor.18
   (c) L'eports. Reports arc "letters" when sent from the person, office,
or firm making the report to the person, office, firm, or Governmental
agency to whom the report is made.19 Examples of such reports are:
        Income of other tax returns; -°
        Proofs of loss filed by an insured under an insurance policy 21
        Reports of insurance agents to their company's home offices re-
      garding policy lapses or regarding health of an applicant for in-
      surance; 22 and
  '• A*, to orders, see United State* \. liromJcy, cited tupra; 2 Op. Aict. Attj. Gch. P.O.D.
333': S Op. Sol. P.O.D. 181; S Id. 301; 8 id. 391 (second opinion) : 8 Id. -120; nnd 8 Id.
400. "A bill Is a common form of curre»i>vndcncc anil constitutes a considerable number, of
the 'letters' handled by the postal establishment." C Op. Sol. P.O.D. 373, 380.
  " 9 Op. Sol. P.O.D. No. 000.
   " See 5 Op. Asst. Gen. P.O.D. 102; C Op. So!. P.O.D. 453; 7 Id. 309 ; 8 Id. 410; and 8 Id.
500.
  " Premium notices. 8 Op. Sol. P.O.D, 199.
  " Water bills, 8 Op. Sol. P.O.D, 390 (second opinion).
  " Bank statements, 8 Op. Sol. 188 (second opinion).
  11
     Hecelpts, see 3 Op. Asst. Ally. Gen. P.O.D. 359; 8 Op. Sol. P.O.D. 199; and 8 Id. 424.
Tax receipts, 8 Op. Sol. P.O.D. 424.. An executed pension Toucher sent by beneficiary to
the United States held to be a letter ercn though acknowledged before a notary. Z Op. Asst.
Ally. Gen. P.O.D, 350,
   "Reports, 0 Op. Sol. P.O.D. 362; 8 Id. 210 (first opinion) , 8 id. 202; and 8 Id. 458
(second opinion).
  "Income tax returns, 8 Op, .Sol. P.O.D, 407 (first opinion). Same as to cotton glnners'
monthly return* and reports to the Collector of Internal Rereniic. 8 Op. Sol. P.O.D. 406
(second opinion). Also tax reports by taxpayer to a state taxing commission, 8 Op. .Sol.
P.O.D. 400 (firstopinion).
  " Proofs of loss, 8 pp. Sol. P.O.D. 402,
  " Insurance agcnti' reports, 8 Op. Sol. P.O.D, 402; 8 Id. 191; and 8 Id. 498.
                                                35

               RESTRICTIONS ON TRANSPORTATION OF LETTERS                                         9

           Monthly and weekly reports, of business transactions made'to
        a central officer3
     (d) Applications. An application transmitted from an applicant
 to the person or Governmental agency to-whom it is made is generally
 a "letter," since the normal function of an application is to transmit
 information concerning the applicant upon which the person to whom
 it is addresed is expected to rely.21 Examples are:
          Applications for drivers' licenses and^ automobile licenses, and
        other permits;.25
          Applications for loans;:G and
          Contest entries."
    Sec. 5. Samples of Matter Not Letters. This section names
 various types of matter not considered-to be "letters:" Other types of
 material not considered to be "letters'1 are discussed in sections 6
 through li
     («) Exact Lopics of, the items forwarded to the same addressee,
 without the addition of any other information not appearing on the
 originals.24
     (If) Commercial Papers. Matters in this class are valued as evidence
 of-rights of-the holder rather than-for any information they may carry
 when shipped from one person to another. This group includes con-
 tracts, stock certificates, promissory notes, bonds and other negotiable
 securities, insurance policies, title policies, abstracts of title, mort-
 gages, deeds, leabes, and articles of incorporation/ 9 As to checks and
 drafts, see section 7.
    (c) Legal Papers and Documents. This class of matter consists of
    a
       Honoris of hiii-tnc<it transactions. !} Op. Ast,t. Atty. Gen. P.O.D. ISS; C Op. Sol. P.O.D.
 •<00 I first opinion) : S Id. 200: 8 Id. 454 : nml S Id. 498.
    •>S Op. Sol. P.O.D. 391 (first opinion) , and 8 Id; 424. However, a formal application
 to a quasi-judicial tribunal I« not a letter. See note 30 on page 10.
    »S Op. Sol. P.O.D. 391 (first opinion) ; and 9 Id. No. 449.
    » 8 Op. Sol. P.O.D. 424.
    ^0 Op. Sol. P.O.D. No. 4C7,
    =» 9 Op. Sol. P.O.D. No. 4C5. Copy of Insurance policy. S Op. Sol. P.O.D. 191; and 8 Id 498.
    M
       Executed leases, S Op. Sol, P.O.D, 197 (second opinion). Contra, 0 Op. Sol. P.O.D. 373.
 Insurance policies. 8 Op. Sol, P.O.D, 199 , S Id. 424 . 8 Id. 402 , and 8 Id. 49S. Abstracts of
 title 8 Op. Sol. P.O.D. 340 (second opinion) , and 8 id. 424. Mortgages. 2 Op. Asst. Atty Gen.
 P.O.D. 2 (first opinion) : 7 Op, Sol. P O.D, 391 : and 8 Id. 124. Deeds, 2 Op. Assist. Alty.
 Gen. P.O.D, 2 (first opinion) ; 7 Op. Sol. P.O.D. 391; and 8 Id. 424. Notes, 8 Op. Sol. P.O D.
 424, Contracts. 2 Op. Aunt. Atty. Gen. P.O.D, 2 (first opinion) ; and 7 Op. Sol. P.O.D, 301.
 Evidences of title or debt, 2 Op. Asst. Atty, Gf.n. P.O.D, 2 (first opinion) ; and 7 Op. Sol.
 P.O.D, 391, Rut a contract form used ntt an offer of a contract IH n letter. Sec 9 Op. Sol.
•P.O.D, No, 450.




                                           71J50
                                                   36

10             RESTRICTIONS ON TRANSPORTATION OF LETTERS

 papers and documents intended for use in lawsuits or formal quasi-
 judicial proceedings, orders of court, and the like.30
    (d) Official Records, sucli as the following, are likewise not "let-
ters"; birth and death certificates, election ballots and tally sheets,
lists of registration of voters, and certificates to practice certain
professions.31
    Although a letter may be written by use of any of the various tj'pes
of symbols or characters mentioned in section 3, a message must con-
sist of a word or a berieb of \\ordb. Messages traiibinitted by wire, wire-
 less, or electronically between bender and addressee are not letters.
 See section 3. A picture or other visual representation of a physical
thing, actual or projected, would not be a "letter." Examples are draw-
ings, blueprints, maps, and plat surveys.31
   Other miscellaneous articles which are not letters are catalogs (ex-
rept a& .stated in section G), directories, unaddressed advertising hand-
bills or circulars,33 and'telegrams (see section 3).
   Sec. 6. Interoffice Communications. Tho same rules apply to de-
termine whether matters sent between the various branches of a con-
cern are "letters" as apply in other cases.31
   It may be abbiimed that, in general, any written or printed matter
.sent between ofllccb of a concern ib sent because it conveys to the ad-
dressee office liie, current information upon which the latter is ex-
pected to ;ict, rely, or refrain from acting.35
   The following types of matter which are commonly sent between
offices are "letters":
        Requibitioiib which are orders from one department to another
      department uithin the bame organization. As to orders geneially,
      see section'}.
  "Judicial ;md <IU.T,| judicial records. 0 Op, Sol. P.O.D. No. -181; and 0 Id. No. 475.
Pleadings, ilcp<>»IUv»t, aflldarltH, And brief*. 2 Op, Ast,t. Att>-. Gen. I'.O.D. 2 (first opinion) ,
" Op. Sal. I'.O.D, 391, and 0 Id. N'o. 481. But ah attorney's opinion on a point of law Kent
to Ills client would be a letter, 9 Op, Sol. I'.O.D. No, 480. Executions. United Stoic* v.
Chuloncr US31). 25 Ked. Can. 392 (Cos, No. 14,777).
   " IJallot-s, 9 Op, Sol. P.O.D, No. 460. Ginncrs 1 exemption certificate. H Id. 40C. CertlflLJtw
of tax xaleH, 2 Op. .Uxt. Ally. Gen. I'.O.D. 2 (first opinion;. .Similarly, school dlplor..as arc
consldered'notito he "letters."
   " Drawing, f, Op. Sol. P.O.D. 3G8 (first opinion). Blueprint*. 9 Id, No. 455. Maps, 7 IJ.
C22; and 8 Id. 308, Tracings. 8 Id. 3C8 (fir/it opinion).
   " Cat.il.jpi. f> Op, S«I. T'.O.D. 425 iflr^t opinion). Li.adJrvxKPiI li.-ndl)llls or circulars, ft Id.
425 tflrxt uplnloiif. Circular* nrc gunbldcred tu tic unn>lilrv»<ril even tliuugli atcumpanled t>f
nddreKBpd envelopes In wiilcli the; are expected t» be plarvd. 9 Op Sol. P.O.D. No, -172.
Trade neni-p.ipprx Ji>'i vll:'T pul>llcatl'jnfl conulnlng »pr>Iull/.»] ni'«». 9 Op, Sol, P.O.D. N».
4U8, 9 Id, No, 4fi9 , n;;>l 'J Id. No. 1«0, lilank furniH. 8 Id. Isl . and ft Id. 210 (flrHt opinion).
  «7 Op. Sol, I'.O.H. 92, 8 Id. 128 lurond opinion) ; H Id. 215, 8 Id, 401 , II id. No, .154.;
and 9 Id, 500, A lirfti-r »f Im-tructliin Ix'twccn ufl|i.i-i>, 5 Op. A<«t. Altj. Oen, P.O.D, 193,
  "2 Op, A>"-t. A l t j . (ji-o. P.O.fJ. ?.?,:',. ami 6 Op. S«I P.O.I) 00«!. 'Mnltnr HPI.( to ri'inwt
nppr'iFnl »f /uti-m, >• )>1 202. ltf)>"rK 0 i.J, 400 ififKt «plnl>/i>) , K Id. 200. ai.<l h M 21 <5
(flwtr opinion).


                                                 7ibi
                                                 37

              .RESTRICTIONS ON TRANSPORTATION1 OF LETTERS                                         11

           All types of matter forwarded from a branch store to the.main
        oflico which are used to supply information upon which charges
        and credits to the branch store or oflice are made, or which are
        used to verify the accuracy of items in the accounts between the
        main office and the branch office or store.36
           Retail price lists, catalogs, bulletins, and notices sent to advise
        a store or branch, oflice of the price the latter should charge its
        customers or to advise the latter of discounts, market quotations,
        and-the like.37
. The following are illustrative of some types of material sent between
 ofiic'es o f an organization-which are~not "letters":
           Carbon copy of .a letter previously sent to the same addressee
        if it contains no information not in the orig'nal. See section 9.
           Matter sent for filing or storage only and which it is not in-
        tended the recipient will use for its own benefit. See section 10.
           Matter sent for auditing to determine whether charges and
        credits are correct when the results of the audit are not used to
        adjust accounts \\ithin the organization, but are merely reported
        to the sender for the lattcr's action. See secf ion 8.
           Data sent to a. central office upon which customers' bills are
        prepared if the data are returned to the bender and no part of the
        information is retained by-the central office. See section $.
    Sec. 7. Checks .and Drafts. Bank checks in their ordinary form
 containing only the names,of the drawer, payee, bank upon which
 drawn, amount of monej and date of issue are not "letters" within
 the meaning oftli.it \\ ord a> it is used in The Pri \ ale Express: Statutes,
 and hence ma^ be com~e\i:d by pi'.ate express without v iolating said
statutes.38 Clifi ks- issued'b> creameries'I o farmer-producers frequently
bear on_ their faoj, or are accompanied by. .statements showing the
 basis 'for computation of the amount of the checks, e.g., the weight,
butterfat conl-ent> bacterial count, deductions for hauling, and the
like. So long'aa none of the information is extraneous to the check itself,
 these statement* may accompany, or appear on, a check being trans-
 mitted by a <-ontraU hauler or otherwise ouUicle the mails without
either the «:liw;k or statement being subject to payment of postage.
   "7 Op Sol P.O.D. 4 9 0 n t 4 0 8 ; 8 Id. 181 ;8 Id.. 200; 8 !d. 284 ; 8 Id. 341; 8 Id. 451 ; 8 Id.
 •101 l»ccond opinion) : 8 Id. 407'; and 8 Id. 505,
   »', .i.-ellKti. 8 Op. Sol, I'.O.D, 181; and 8 Id, 40L (nccond opinion),
    »»8-Oji. Sol. I'.O.U. 43C (second opinion) ,* 8 Id, 43S, Payroll cIiccltH, 0 Id. Xo. 4,'jg,*
!> Id. No. 459.* iContra, Cnltctl (State* v, American Dcalcri Service Inc. (1943),
D.C S.U.X,Y. (unreportcil). Civil 21-107),
   •.Statemcnti* In dKC\»l->n* a» t» pcrmUnlblc i,uUtl',n» on milk checks arc ohiolctc because
of change In flrnt paragraph In section.
                                              38

 12           RESTRICTION'S ON TRANSPORTATION OF LETTERS

 See section If. Of course,-a similar statement sent by such carrier,
 but not.accompanying the check, would be a letter on which postage
must be paid in accordance with section 20.
    Banks may forward all kinds of checks, notes, and drafts deposited
 with them to other banks for collection or payment outside the mails
 without the payment of postage/0 All canceled checks and drafts
 may also be returned to the drawer outside the mails without the pay-
 ment of .postage/1 In both cases the information placed on the instru-
 ment for the benefit of the payee does not convey a message either to
 the bank tp which forwarded or to the drawer.
    As to bank statements and letters of instruction accompanying
checks, notes, and drafts, soi section 17.
   Sec. 8. ..Matter Sent for Auditing or Preparation of Bills. When
 freight bills, invoices, paid bills, sales slips, receipts, records of receipts
and disbursements, and the like, are forwarded for the sole purpose of
having them audited internally on behalf of (he sender, they are not
 "letters.'' An audit is for the benefit, of the sender when the person or
office making the audit merely reports the result to the bender and docs
not itself take any correcti\e action or adjust accounts between the
sender and addressee or make other use either of the material for-
warded or of the results of the audit/5 Invoices, sales slips, and public
utility meter books and readings, and the like, which are sent by lo>*al
offices of a company to the central office for the sole purpose of pre-
paring customers' statements therefrom for the branch offices, are not
letters if-no other use is made or action taken b} the central office upon
the information contained therein, and no part of the data therein is
retained by the central office for its action or for its bookkeeping rec-
ords/3 Jn that case such items may be forwarded to the central office 4 I
and returned to the local office *' by express or other means outside the
mails without the payment of postage, and the'Customers' statements
may also be sent by similar means to the local office- for delivery/11 The
mailing of the bills to the customers by the central office on behalf of the
local office would nut cause the invoices, sales slips, or meter books to be
considered ''letters" when sent to the central office. The same principles
    « 8 Op, Sol. J'.pxP. 137,
    «S Op. Sol, P.6.D, 34C Isecond opinion),
   « pp. Sol, I'.O.JX 391 ; 8 Id, 3-JI; 8 1<I. 497 ; 9 Id. Nn. 44S; ai.d 9 Id. N», -171.
   •" Where "an envelope carrying all accounting data prepared at the central billing point"
.in forwarded to tin branch office but Immediate!) sent back to the central office by m.ill for
'use as a.permantnt-accounllnp record, tlie Information i>o transmitted I* regarded as lining
 been retained by tlie central office, 9 Op, Scl. P.O.IX No/49.'!.
   " 8 Op. Sol. r.p.D, 410: 8 Id. 447 -, fi 1-1. C I S ; anil 9 Id. No. 400.
    •f 8 Op. Sol, P.b.D, 410 ; and 8 Id. 447,
   •« S Op. Sol, I'.O.D. 447,
                                             39

             RESTRICTION'S ON TRANSPORTATION OF LETTERS                                     13

 also apply to the forwarding to and.return by an independent book-
 keeping firm of similar matter where such firm prepares accounting
 journals and ledgers-for its customers, or to a forwarding for the per-
 formance of purely mechanical work such as photostating or for math-
-enatical .computation."
   If the central office takes.corrective action, adjusts accounts, or makes
 use, either in a personal way or to effect the conduct of relations be-
 tween the sending and the central offices, of any information either in
 the material forwarded, or in the results of the auditing, the billing
 process, mechanical work, or mathematical computation, the material
 sent to the central office is a "letter."<8
    The foregoing principles also apply to independent computer and
 bookkeeping centers performing functions identical to the central office
 function described above.
   -Sec. 9. Information Known to Addressee. As a general mutter,
 once information is in the possession of a person it may be assumed
 that material containing only the identical information or a portion
 of it is not sent as a communication or letter when forwarded-to-that
 person unless it is sent to verify the previous* information.'9 Thus,
 whea original letters are sent by mail and: the necessary action is taken
 upon the same by the recipient,-thea duplicate copies may be sent to
 the same addressee outside the mails-without the payment of postage.50
 It is not necessary that the form be identical so long as the informa-
 tion is, in 'fact, the same.61 Of course, any material information upon
 which the addressee may act, rely, or refrain from acting, not contained
 in the original, would make the copy an individual letter to the
 addressee.
    Sec. 10. Old Correspondence and Other Matters Sent for .Filing,
 Storage, or Destruction. Old correspondence, records, and any other
 type of matter sent from, one office to another for filing, storage, or
 destruction are not '^letters" since, under those cirrum?' UK., , tlicre is
 no purpose of communicating any intelligence to the addressee,52
   " 0 Op. Sol. P.O.D. No. 513; am? 0 Id. No. 517.
   " Use not confined to auditing, 1 Op. Sol. P.O.D. 490: fi-Id. 200: 8 id. 497: nnd 0 Id.
No. 5JO. Also, generally. se« 8 Op. Sol. P.O.D. 410; 8 Id. 447 ; 8 Id. 000.; and 9 Id. No. 490.
   " 9 Op, Sol. P.01D, No. 405, As to matter sent for verification of account*, etc., cec
flection* 6 nnd 8.
   «• 8 Op, Sol. P.O.D, 148 : * id. 451 ;:jihd 8 Id. 401. But a carbon copy would-be a "letter"
when (tent to one other than the nddrissce. 6 Op, Sot. P.O.D 000: and 8 Id. 215.
   "8 Op, Sol. P.O.D, }48; 8 Id. 190', und- ? Id, 210 (first opinion). But where tlie mme
Information Is Bent ln<two or more forms at the came time, that portion of tlip matcrfal
from wlilcb the addrex^ec I» expected to oh tain the Information for his own use will be
regarded ns tho "letter,' although It purport* to be a^copy rather than the original. 9-Op
Sol. P.O.D. No. 503.
   "7 Op, Sol, P.O.D. 391; and 7 !4. 400. For flllng, 6Jd. 600; 7'Jd. 34fl (Kccond opinion) ;
8 Id. 200; and 8 Id. 460.                        '                                -
14          RESTRICTION ON TRANSPORTATION OF LETTERS

However, if matter is sent for the purpose of establishing a file of
material from which it is intended the addressee may at some future
time take information on which it will then act, rely, or refrain from
acting, the matter so sent will be considered as a "letter."M
   Sec. 11. Examination Papers. The answer papers of an examina-
tion given to test the knowledge or intelligence of students or other
groups are often sent to a central scoring agency, which scores and
returns the papers or reports the grades to the school or institution
administering the examination. Such examination papers forwarded
under those circumstances for scoring are not regarded as "letters"
provided the scoring agency does no't make use of the scores or other
information derived from the papers." Examination papers with
scores marked on them would normally be considered "letters" when
returned to flic school or>perfcon who prei loudly-transmitted them for
scoring, or when forwarded to a third person who may be expected to
take action based on the results of the examination.
   When, after such elimination papers are scored, the papers are to
 bo forwarded or the scores recorded to a third person, the papers are
"letters'1 while they are transmitted for scoring. The same is true
 when the central scoring agency is to make other use of the papers or
scores derived from them, such as to determine the relative standing
of all persons taking the same examination at various places. Under
these circumstances the central scoring agency has a. direct interest
 in the opinion of the examinee as to the correct answers to the ques-
tions posed.
    Sec. 12. Manuscript and News Items. Such manuscript as is in-
 tended for publication when not accompanied by any matter in the
nature of personal correspondence, and mere news matter prepared
 by the correspondents of the press for the columns of their publica-
 tions, are not "letters." Likewise, news matter to be used for the pur-
 pose of radio broadcasting is not a "letter," M
    Sec. 13. Weight and Size. By their terms The Private Express
 Statutes make no distinction between items of vario.is weights, A
 single letter would not. except in the most unusual circumstance,
 exceed the weight limit for mail matter. Even though a letter may
 exwil the weight limit, it is nevertheless ;t letter for purposes of The
 Private Express Statutes and is *ubject to the postal monopoly un-
  a
     T'nc for "Ktntlntlcal" purposes held not to malic matter n "letter," 8 Op, Sol, P.O.D.
200 Llren«f ntubs held not to be "letters," cren though the DHi>K office fi<rnl»licii Informa-
tion runtnlni-d «n 'lie ntub» to member*" of the public upon specific requcnt. 0 Op, Sol. I'.O.D.
No, 489 ; nnd 0 1<I, No, 492,
  " 0 Op, fiol. P.O.D No, 408,
  " 8 Op, .Sol. P.O.D, •(CO ; 8 Id, 480 (first opinion) ; and 9 Id. No, 497.
             RESTRICTIONS ON TRANSPORTATION OF LETTERS                                     15

less it is physically impossible to break the letter down into several
shipments.8e

                 C. PROHIBITED TRANSPORTATION
   Sec. 14. Post Routes. The term "post routes" as used in The Pri-
vate Express Statutes means all routes on which mails of the United
States are carried, and includes post roads as defined in Title 39,
United States Code. That section is asiollows:
     § 6105. Establishment of post roads
        The following are post roads—
             (1) the waters of the United States, during the time the.
          mail is carried thereon;
             (2) railroads or parts of railroads and air routes in op-
          eration ;
             (3) canals, during the lime the mail is carried thereon;
             (4) public roads, highways, and toll roads during the time
          the mail is carried thereon; and
             (5) tatter-cariier routes established for the collection and
          delivery of mail.
When mail is delivered to the offices within a building, the corridors
of the building are post routes. It should be noted that the prohibition
applies not only to the transportation of letters, over post routes, but
also their transportation between towns or other places between which
the mails are regularly carried; thu» such transportation is covered by
The Private Express Statutes whether it occurs over a post route or
over a parallel route. The streets of a to\\n for whicli.rcgular lelivery
service has not been established are not post routes, end letters origi-
nating there may be delivered in that town over sach streets by any
method without the payment of postage.57
  Sec. 15. Activities Prohibited. Title 18, U.S.C., section 1G96,
prohibits the e=. .iblinhment of a private express for the conveyance
of letters and prohibits.as well any proviy r> for their conveyance by
   "Cf, S Op. Sol. I'.O.D. 401, holdlnc a postal card which "was nonmallablc except under
cover to be subject to The Private Express Statutcx since "In any event >. ich cards are
acceptable In the malls when under (xvcr. Sec, also 9 Op. Sol. P.O.D. No. 491 an to lottery
matter,
   " In United State* v. Ramon (1883), 18 Fed. 590, L.lar.kham v, flrctham (1883), 10 F«l.
C09; and United State* v. American Dealer* Service, Inc. (1943), D.C.S.D.N.Y. (unre-
porUidl, Civil 21-107, tho pout routed Involved In the violations of The TrlvnU Expr"«8
Statute* were city «tre<'tj<. To the name effect soo 3 Op, Arst, Atty. (Jon. P.O.D. H7.
Corridors of n building In which mall In delivered are post routcx, r, Op. Sol. P,0 L       nt
.'(SI. Strcetii of towns without mall delivery nre n»t pwt r.>iiU-». 14 Op. Atty. Oen. 152 at
153; and 8 Op, So), P,O,t>, 484, The Private Bxiirf-Ks Sututc» nj-ply to airmail YouteH wholly
or partly within the United-'8; itcn. 0 Op, Hoi, P.O.D, No. 482; and 0 Id, No. 484.



                                              ?JLbu
                                              42

16           RESTRICTIONS ON TRANSPORTATION OF LETTERS

regular trips or at stated periods. This section is directed at .the estab-
lishment of any business which-has-for one o£ its purposes the carriage
of letters over a particular route *8 and the establishment of any system
for the regular carriage of letters for others.5'
   Title 18, U.S.C., section 1G94, prohibits, with stated exceptions,
the carrying of letters aboard any vehicle, plane, vessel, or other-con-
vey uacb which engages in regular trips over post roads. The regularity
need, not be in the movement of the particular vehicle or other con
veyance. It is sufficient if there are regular trips and on the occasion in
question the regular trip is performed by the vehicle or other convey
ance carrying the letter. If a cacuer operates regular trips over a-post
route uoihg different \ ehicles on different trips, the prohibition applies
even though it is not kno-yn in advance which of the various vehicles
will I i> used on a particular day. "Regularity" as used in the statute is
not confined to an absolutely fixed schedule, but includes situations in
which trips, are ni.idi- with sufficient frequency that third persons have
reason to believe letters delivered to the carrier will reach their desti-
nation within an appointed time.80

           D. PERMISSIBLE CARRIAGE OF LETTERS
  Sec. 16. Delivery by Employees; "Current Business;" Title 18,
U.S.C., section lG9i, exempts letters which u-late to "the current busi-
ness of the carrier." Such letters are letters written by or addressed
to officers or employees of the carrier on the business of the carrier;
that is, sent by or addressed to officers of fhe carrier in their capacities
   u ••• • • if Thompson had established an express, of which one at the purposes was the
earning lit letters over such a route, l.c wns guilty of a violation of the law, and was
liable to n penult; for each letter proved to have been so carried. It «uo nui necessary,
In order to constitute the offence, that the carrying of letter? eL» u ,u «>. iuc sole business
of thp express, • • '." United States v. ThompMn \_in-tn), 28 Fed. Cue. 97, at 08 (Cos.
No. 16.480).
   "A group o! merchant* mny not establsh a Joint ugency fpr the delivery of their
ndvprtl-lj.s Jtttcr. & Oi-. S.,1. P.O.D. 173. An Independent service for the delivery of bills Is
prohibited l»> thc'-o statutes. 7 Op. Sol, V.O.i), 309. A contract trucking Mcrvlce may not
lanf»ll> I'l'tmit ai* cmi>lu>>:e of a customer to ride a truck on one of'Its regular runs for the
purpoi* of conveying letters for lilo employer. 8 Op. Sol. P.O.D. 434.
   **' T» coimtUute ri'»;ularlt> It Is not CMxentlal th.it the minute or hour of the ilepnr'ures
of tii« n.i»i-ngr.rH «Uould be ulnays the saue. Provision for a delivery dally, onci;, £wlce, or
thrice, as the case may be, orer the streets of the city, wherever wanted. Is u provision for
a delivery by regular trips and at stated periods,' Untied State* v. Kaanan (1883), 18
Fed. r>HO. .192. "An near the flrst uf the month as practical 1 Is within the term 'stated
perlodn." G Op. Bui. P.O.D, 461. The operation of a pneumatic tube system violates The
Prlmli! Kx|>rex8 Surutcs under ft method of operation by which letters are'dispatched
whcnevpr they nrn tendered rather than on a definite schedule. 3 Op, Asst. Atty, Geu.
P.O.D, 137,




                                                 ?JLb
                                             43

             RESTRICTIONS OX TRANSPORTATION OF LETTERS                                    17

as such officers or employees."1 Since a letter, to be within this -exemp-
tion, must be sent by an officer or employee in his capacity as aucli,
letters forwarded on union business b} such officers or member* of a
union or an employees' association to other oflicers or members of that
organization would not be within this exemption even though the
senders and the addressees are also employees of the carrier.*2
   Any business of the carrier is deemed to be its current business when
it conies up in such a way as to call for a current communication."
Except in the special bituation discussed in section 23, this exemption
does not apply to letters forwarded by a party not an officer or em-
ployee of the carrier to another person also not an officer or employee
of the carrier, even though the contents of the letters concern the
carrier.61
   A city, county, or public utility company, or any other private
individual or firm may u-e its regular salaried employees to
deliver or receive its own letters.'"' Moreover, a regular salaried em-
ployee may be hired to act exclusnelj as a messenger to carry his
employer's letters between offices, but the use of an independent con-
tractor who makes regular trips between any two points on a post
route is not permissible.1"5 In general, if the person is an employee,
he w ill share in all of the privileges enjoyed by other regular employees
such as annual lea\ e priv ileges and .vorkmen's compensation insurance.
   Accordingly, a carrier may convey its own letters to another carrier
or company to the point of connection with the latter, and the addressee
carrier or company may then carry them to any point on its lines.01
However, the ownership of one carrier by another does not entitle
either to carry letters not sent by or addressed to it outside the mails
  « 28 Op. Atty. Gen >'&' ; 4 Op. Asst. Atty. Gen. P.O.D, 300; 7 Op. Sol. P.O.D. 490 ; and
9 Op. Sol. P.O.D. No. 4S5. Paid bills forwarded by the person receiving pa>ment In order
to advise the creditor thnt payment has been received are letters ot the forwarder rather
than the debtor. 0 Op. Sol, P.O.D, No. 534.
  « 29 Op. Atty. Gen. 418 ; 6 Op. Sol. P.O.D, 372; and G Id. 397.
  a
      28 Op. Atty, Gen. 537,
  " "It thus appears that the purpose uf Congress In Introducing this clau-c was to permit
n carrier to transport free outside the malls lt» own messages within the terms of tiie <>i<ln
Ion of Attorney General Harmon, and It wax nut the Intention of Congress to revolutionize
the then existing law and practice by permitting free tranopurtatlon of letters And packet*
belonging to railroads or pnrxonii other than the carrier even though ouch letter- ur lucki'in
might 'relate to the current business of the carrier.'" 28 Op, Atty. Gen. 537, at 541,
  * C Op. Sol, P.O.D. 203 ; 0 Id. 301 , 7 id. 300 ; 8 Id, 151, and 8 Id. 491 (reconil opinion)
I>tter» addressed to employer, 9 Op, Sol. P,0,D. No. 514,
  « 0 Op. Sol. P.O.D, 512 ; 9 Id, No, 451; 9 Id. No, 452.; and !) Id. No. 459,
  <!
     21 Op, Atty, Gen. 394. Jitters In custody of an express company and carried In express
company railroad cnr arc transported by the express company rather than the railroad
company operating the train, 9 Op, Sol. P.O.D, No, 509, Sec, nJs-o, 3 Op, Ak*t. Atty Geji
P.O.D, HO,




                                            Vlba
18               RESTRICTIONS ON TRAXSPORTATiO.N -OF LETTERS

for the other without the rpayment of postage.05 'JChe different units
of a railroad system or other system of carriers as long as they are
separate, independent operating units arej with resj>.ect to XheJPrivate
Express Statutes, "third parties'* to each other andi consequently, are
not considered5 a single carrier for the purpose of this exemption.00
An association of railroads may not transmit its .letters outside :the
mails o\er its members' roads because those letters^d'o not Jbelong to
the carrier concerned, but to a separate entity, the association.70
   Where, however, two concerns are engaged iitthe joint operation-of .a
business, that is, they share directly the revenues and expenses of the
enterprise and the enterprisers operated by joint employees,_either of
the concerns may carry the Jetters of that enterprise.71 However, if
the revenues and expenses are not shared between the two concerns,
letters on the business of the enterprise would riot be considered the
letters of the concern not sharing in the revenues and-expenses/1
   "Where one railway company or other carrier leases the:p.roperty of
.another, either at an annual rental'on under a profit-sharing f«.rrange-
ment, the trains or other vehicles operated;by the lessee may carry the
lessee's letters but,not those of .the lessor.. Nor may the; lessor carry on
other lines operated by it the letters of: the lessee;7*
  Sec. 17..Relating Exclusively to Accompanying Shipment. Title.
18, U:S^C., section 1694, .permits a carrier to transport letters which
relate exclusively to some part of the cargo of -the same conveyance
or to some article carried at the same time by the same conveyance.
This exemption permits a carrier to convey, without the payment of
postage, letters such as invoices, bills of lading, shippers' bills, way
bills, freight bills, and the like, when they accompany shipments to
which they exclusively relate."
  Live, current information in a letter extraneous to the shipment it
accompanies takes it out of the exemption for letters which relate to
some article cr.rried at the same time.75 It was the intention of
Congress in framing the statute to allow a letter to be sent accompany-
   ** United Ktatet v. Southern Pacific (1028), 20 F. (2<J) 433; (J Op. Sol, P.O.D, 325;
,and 6 Id, 382.
   "28 Op. Atty, Oen. 537.
   * 28 Op. M(y. Gen. 537 ; C Op. Sol. P.O.D. 641; »nd 3 Id. 485 (second opinion). HoTfcrer,
 where the service of two companion Is no pooled that trains arc Jointly operatedjby both
 rondo, j'/lters of either company may be conveyed In such trains, 7-'Op, Sol. P.O,D. 05J;
 and 7 U. C52,
   " United Slotci v, Erie Railroad Co. (1015), 235 U.S. 513,
     « 7 dp. Soi, r.'.o,n, 3oo.
   " 1 Op, Axgt. Atty, Gen. P.O.D, 910; and 2 Id, 415,
   " Invoice, 8 Op Sol. P.O.D. 340 (second opinion). Bills of lading and freight bills, 8 Id,
 1
2 ).'! (second opinion).
   '» United Stolen v. United Htctc* Etpreti Co. (1809), 28 Fed, CM. 352 (Ceo, No, 16,002) ;
<ind 8 Op, Sol, P.O.D. 188 (second opinion).



                                               716
               RESTRICTIONS ON" TRANSPORTATION OF LETTERS                                                19

ing any article of property, prux ided it relates merely to the article of
property sent and does not concern any other subject.™ For example,
a letter of transmittal containing instructions relative to delivery of
drafts and checks, the return of unpaid items, and the action to be
taken relative to protest^is not ^permissible enclosure with checks and
drafts sent between banks for collection.'7 Likewise, a bank statement
showing deposits and depositor's balance does not relate exclusuely to
thevcanceled cheeks it accompanies and therefore is not a permissible
enclosure.76 IIow&..er, a statement may be sent accompanyitig money
and securities if it really constitutes an invoice of the money and
securities it accompanies.7'
   Sec. 18. Private Hands Without Compensation. Title 18, IJ.S.C.
section 1696, exempts the transmission of letters by private hands
w ithout compensation. A person or firm-engaged in transportation of
goods or..peraons for I lire cannot be considered "private hands without
compensation";go and the phrase quoted" denotes transportation of a
letter which does not take place in/the course of business of the person
or firm carrying the letter.81
   Sec..J9. Special Messengers Employed-for the Particular Occa-
sion Only. Title 18, U:SiC., section 1696, permits the use of a special
messenger employed for the particular occasion only to transmit let-
ters when not more than. 25'letters are inxolvcd. A special, ruessenger is
j. person, who, at the request-of-either the sender or the addressee otthe
letter, .-picks up the letter from the sender's'home or place'of business
      ~*2 Op. Asst. Att>. Gen. P.O.D. 700. The follonini; have been held to relate exclusively io
  the shipment, ' This pti.,knKe i.s shipped pahl due to the Mnnll amount of the C.O.D.' 0 Op.
. Sul. P.O.D. N«. 479. Llbt of names it persons In a picture, 9 Id. No. BOO. The followlng;have
  ,'iccn licit! not to rel.ite exclusive!} . ' Invoice to DC m.illcd within five days." 9 Op. Sol. P.O.D.
 '\i. 479. With sampiat of oil..a letter describing the oil and the vehicle-In which It was
  UMxI. 0 Op. Sol. P.O.D. No. Ib8. AA Invoice marked to inform recipient- about another »hlj>
  ruent, 0 Op. Sol. P.O.D. No. 503. 'With ft sample of oil fur anftl}»l», Infvrmatlun rcKardliig
  the rchlcle in --.?:!ilch the s/umplc was-uscd, 0 Op. Sol. P.O.D. No. 48S.
      «'8 Op. So!. P.O.D. 43S, 8 Id. 487 ^second opinion) ; and !) Id. No. 487.
      " ROp, Sol. P.O.D. 183.(second opinion).
      "Chouttijv A Valle-:. JS(eamboiit Kt. Anthony (1847J, II Mo. 22(5, Dialffht v. Rrcicitcr
   (1&22J, 18 Mnss. (1 Pic!:.) 50, 8 Op. Sol. P.O.D. 188. second opinion) ; nml 9 Id. No. 4N7,
      « lit U-Mtcil State* V. Thompwn V 184C) ( 28 Fed. C«». 97, at 98 '.Can. No, 10,489), the
  couf.t- ruled tli',:i exemption 'did out authorize the defendant to Chtabllnh an expr«9H tut
   (ho u.rr>lnR.ur letters In conncitlori with, or n» a.part of MA business of a merchandise
  express ,ilthuut;h no ch.irg« wax made for letters as>njch." In 21'Op, Atty. Oen. 301, 401,
  th,itolriccr'.helil:that neither common cnrrter» ' imr their emplo><:>;.i, while engjy.il In their
  biihlnenfl, con ho connldcrcd n» 'private handK' under this t>ec(lon," See, aluo, 9 Op. Sol,
 -I'.O.D. N'n, 459.
      " In 8 f)p. Sol. P.O.D. 136 (necontl oplnlonj It WHM held that inaHmuch n* cuntract h.iulTs
  »l milk woold not tarry sUiU-menu from tho, r.r"am>-r> to the furm;r» unlexx th^y vn-tt
  pai.J for li.iiilln^ the milk, the h/tiilerx would not be r<:£.irdi:i| .vt luiull.jj; Htali mi'/iti- without
  ffiinpcnHutlpo ' To Hi? Mmc effect Sec, nldO, 8 On, Sol. P.Q P Jft5, S id. 201, nnd 8 Id, .131,
  Tho ;>am>: 'ivIJii.*, ^ upplli.able even thougti KUti 7 .^^-^rohlblm nny dlTvr«n'.c In i»mpnn J
   tlon IK-IWB^II <:«"<•» Jo wh!. h ordcrit ilettr-t»; nre carried HI.>l thx.se catut in wjjlili they nti-
   not. 8 Op, Sol. 1'iO.D. 353,
20             RESTRICTIONS ON TRANSPORTATION -OF LETTERS

and carries it to the addressee's home or place of business. The trans-
mission is considered io be by special messenger for the particular
 occasion only, even though the request for the service is made to the
messenger's regular employer and the particular messenger is selected
 by that employer rath°r than the sender or the addressee.82 On the
other hand, a practice v, hereby letters are .picked up by one messenger
 and taken to a central office for delivery by another would preclude
both the messenger picking up the letter and the messenger delivering
 the letter to the addressee from being considered a "special messen-
ger." S3 The words "for the particular occasion only" restrict the per-
mission granted under this section to isolated instances of using a
messenger service in which there is no regularity in use by the sender
or addressee of the particular messenger or the organization by which
he is employed.81 A messenger or a carrier operating regularly be-
tween fixed points is not a "special messenger." 85
   Sec. ,20. Letters on Which Postage Is Paid. Letters may be car-
ried by an individual, express company, or any other person £C outside
the mails to any point within or \\ ithout the United States,ST provided
appropriate .postage is p.iid and certain other conditions contained
in Title .39, U.S.C., section 90 L are followed. The conditions con-
tainedin ihat section are:
   (a) Each letter must be placed in a separate sealed Government
stamped envelope or other sealed envelope bearing adhesive postage
stamps or a postage meter indicia.88
   (b) The amount of postage indicated by the stamp or meter indicia
must be the same as would have been required had (he letter been sent
through the mails. If the letter is onrried by nir^ tlte^postago must bo
in the cttino nmoun(> cis would have boon required had tho letter been
      air- mail ^ f.»44l- directed to a foreign country the appropriate
    « • • • >H( summoned a messenger from the American District Company, and sent the
 mcwnger on his ov.n particular errand.' That I* an example of the conveyance of letteri
 by 'special messenger employed fur the particular occasion only.' " L'nited State* \. Kntnon
 (.1883), 18 Fed. 590, at 591.
    "The collection of letters In ft central office and the delivery of them where delherlen
 are made dull; uver the HreeU nhercvcr inch lctter» nre directed, cunxtltntc* a business fur
 a delivery ]>) >pgular'trlpH and at ktnted Intcrvnls. United Ktalet v. Eamnn, tiipra, and 0
 Op, Sol. P,0,D, 373, at .",79,
    "SOp. Sol, P.O \ J85.
    » Lnitcd State* . Thompmm U840), 28 Fed. Cas. 97 (Can. No. 10,489) ; and 2J Op. Ally.
 Gen. 391, See als., 4 Op. Atty Ocn, 159 , 3 Op. Asst. Atty. Ccn. P.O.D, 140 ; and 8 Op. Sol.
 P,0,D,410,
    "Bxpreno company, 1 Op, Anst Atty. On, P.O.D, 474. Moll carrying vc8»el)i, 1 Id. .'ill.
 Private carrier, 7 Op. Sol.I'.O.D. 131,
  • "Directed to furdgn destination^ 1 Op, Mat. Atty, Gen. P.O.D, 081 , nnd 9 Op. Sol.
.P.O.D. No, 483.
    " The nerider, n»t the itiWrowei1, mnxt Jilncc the letter In an envelope, 8 Op, Sol. P.O.D.
 301. Kni-h |nl(cr mimt he In .1 n |i.ir.ite eitvclupe, 8 Id. 391 tufcunil uplnlon) , 8 Id. 3112 , .ind
 h Id. 420. J!nt if .1 »nli'»m'iii iiciidi* orilvrx to h)» home uffu-n t<ir fllMiK,'. order* of nvvor.il
           i would he only onn letter, 9 Op. Sol. P.O.D. No, 501,
                                                4:7



              RESTRICTIONS ON' TRANSPORTATION OF LETTERS                                         21

 international rate must be paid.80 -Since matter in scaled envelopes is
 classified as first-class mail, and since letters carried pursuant to this
 section must be in sealed envelopes, the proper rate of postage is the
 first-class (or airmail) rate." However, the amount of postage need
 not include registry or insurance fees even if the letter is privately
 insured.92
     (c) If adhesive postage stamps are used, they must be canceled
 with ink by the sender.
     (d) The sender must write the date of the letter on the envelope,
 or the person carrying it must write on the envelope the date he re-
 ceived the letter.
     (e) The name and address of the person for whom the letter is
 intended must be written on the envelope.
    Letters which the sender is entitled to send through the mails with-
 out a charge for postage may be sent in a similar manner outside the
 mails without the payment of postage.93 An example of euch letters
 ia mail of certain diplomatic and eonoular offlcei-a of 'Other Nations."
 However, if the free mailing .privilege docs not extend to air mail)
•then such lcttci'3 must bear the appropriate tiir mail postage if cent
by nip cxprcsc."
    The requirements of Title 39, U.S.C., section 901, .ire regarded as
being met if a Government stamped postal card is used, even though
the card is not enclosed in an envelope, provided it is properly dated
aiul addressed as prescribed above.9" In all other ca.-es there must be
exact compliance with the conditions prescribed in this section.97
    Sec. 21. Delivery to Post Office. Under Title IS, U.S.C., section
 1G9C. it is punu=sibJe>to establish a service for collecting letters from
 firms or individuals for deliver} to a post office. Such letters, how-
ever, must bear th^ proper postage for transmission through the
mails from the point of origin l and, if they arc earned 'to the post.
•office by air, they iniiaL bent' postage tit the nil-- until rule.2 As to "drop
letters," sec sect ion 2-i.
  •".I OIL S«l. P O.D. Xo, 4S3.
  " fl Op, Siil. P.O/D. Xo. 477.
  " cr, o Oj>, sr;. P.O.D, xo, 470.
  13
        C(. 0 Op. »ol. I'.O.D, Xo. 47K,
    "flfl'.E.O.' MgJS. Ali.n lo»ofri.(«iFf|<n;.fn>ft liy.Hin [.f.ttnl tf.rrlno pifruinnt In (mutt r,t
(.Ilif-r Intnrnntlr.nnl ngrnnnmnlr, 0 Op, fcV.I, P.O.O, .Vo.-.tCit.
    '':(> 0[>. fi.il. P.O.D. Xo. IW.
    <" !> Op, Sol, P.O.D. Xo, SOS,
   " 7 Op, Sol, I'.O.D. 131,
     »2 Op, Aunt, A t i ) . O'cn, P.O.D, 700, 2 Id, 820; 3 Id. CO. t Id. 53C; 7 Op. Sol. I'.O.D.
CCO : and S Id, 420.
  ~rKrrti ]i'tux^QjijH>nA\c! Htilppe<l \>y nlf ciprcm t>>t Inter dcpoxlt In the mallgjniut.hii.ir
InillvliJunl [ii..mgp"nt HIP TttTTmMUjj^- n Qp. Snl PX5,IX_Xa_4fi!>r frrOic'mmi; effect, S Id
358. Huneri-r. advertlHlnK lettirii or <;«»'" " ^r^"~r(^rrntt>f nlr -Tjtrrmfivrnr from the
point of il-fttnii(tf[i fnr^t-rrminir m fhf malls without the payment of «r
                          o. 507,
                                           48

22          RESTRICTIONS ON TRANSPORTATION OF LETTERS

    Sec. 2". After Reciipt From the Post OflSce. In a similar manner
 The 'Private Express Statutes permit the establishment of a service
of collecting .for the addressees letters received at the post office, pro-
 vided the letters remain unopened.3 Letters received through the
 mails at one office of a firm may be forwarded by ourfuoo means outside
 (he mails without the payment of additional postage so long as they
 remain unopened. Likewise, letters addressed to one firm in care of
another, such as in the case of letters addressed to a program sponsor
 or advertiser in care of a radio station, and delivered through the
mails to the firm in whose care addressed, may be forwarded by surface
means outside the mails to the firm for whom they are intended pro-
-vided the letters remain unopened.'
   If, in any of the cases mentioned above, the letters aro forwarded
by air express or air freight) sufficient additional postage must be
 placed on cqoh piece of mail- to bring jho total postage on that piace
 up to the air-mail rate. Moreover, if the letters are opened before
they are forwarded, the forwarding of the opened letters would be
considered a new shipment of the matter, and such forwarding will
be regarded as the transmission of letters if they are forwarded for
the purpose of cor..eying to the L'Him.ue addressee live, current
 information upon which he may act, rely, or refrain from acting.
    Sec; 23. Receipts for Goods Delivered and Deliveries in Conjunc-
 tion With Collections. The conveyance by a carrier of receipts for
 goods delivered by it when carried for its own protection is not re-
garded as transportation for another. In that circumstance the carrier
conveys the receipts on its own behalf:5
    Similarly, persons actually engaged in collecting accounts for others
may carry statements of accounts which are to be collected. The pur-
 pose of the transportation of the statement is not to get (.lie- informa-
tion on the statement into the hands of the debtor, but to establish the
authority of the collector to receive payment and to furnish a receipt
 to the debtor upon payment.'
    Sue section 1 as to receipts ami atate.iiunU of account transmitted
 for other purposes.
  ' 2 Op. Amt. Atty. Gen. P.O.D, 700 ; and 9 Op. Sol. P.O.D, No. 494.
  • S Op. Sol. P.O.D. 432.
  '1,'nitcd State* v. Thompt'tn U84C), 2S Fed, Ois. 97 iCns, No. lf!.499» , nn-1 9 Op. Sol,
P.O.D. No. 4C2.
  • 9 Op. Sol. P.O.D, No. 449.
                                           49

            RESTRICTION'S ON TRANSPORTATION OF LETTERS                                23

  E. MISCELLANEOUS PROBLEMS RELATED TO THE
           PRIVATE EXPRESS STATUTES
   Sec. 24. Drop Letters. Title 39, U.S.C.. provides in part:
     "§ 4251 (d) Drop letters are letters—
        (1) mailed for local delivery at post offices where letter carrier
     service is not established; and
        (2) neither collected nor delivered b}- rural or star route
     carriers."
   "§ 4253(a) (1) * * * The rate of postage * * *
        (1) on drop letters is three cents for each ounce or fraction of
     an ounce: * * *''
   The use of the drop-letter rate, is, in effect,.also restricted by The
Private Express Statutes. Except when forwarded to the person,
firm, or office for whom they have been prepared in order that the
latter may mail the same on its own behalf, letters forwarded from
one town to another for ultimate mailing are "letters" for purposes
of The Private Express Statutes.7 The transmission of such letters
Is subject to the same prohibition w hich are'applicable to the forward-
ing of other letters.8
   Sec. 25. Mailing of Letters of Two or More Persons in one
Envelope. It is not permissible for two or more persons or firms to
establish a system or plan to reduce the amount of postage they pay,
by assorting, grouping, and mailing in one envelope their bills, state-
ments of account, or other letters to be forwarded to one customer.
It is likewise objectionable for a person acting as the agent of two or
more persons or firms to assort, gioup, and mail in o.ie em elope the
bills, statements of account, or other letters of thfoe concerns to a
mutual customer. Such a system would be a priviie express inasmuch
as it would perform the functions of an express, i.e., the consolidation
of several small shipments into a larger single shipment. Moreover,
the mailing sen ice would assume the character of a rival po^t ofiice
Contrary to the intention of Congress in establishing a postal mo-
nopoly.9
   As indicated in section 4, applications for automobile, drhers', and
other licenses are "letters" when forwarded for the purpose of he-
curing a license. The application of each individual or company con-
stitutes a separate letter. Applications of various persons may not be
grouped and mailed in one package by a-person who acts as the agent
  * 3 Op. Aist. Mtj. Gen. P.O.D. CO; 5 Id. 53C; and 9 id, Xo, 4(M.
  'Sec sections Mi nnd IS an to prohibited carriage of letter*, and section* If- to 23 an
to exceptions iron, the prohibitions when the full rate of pout ace IB pnld.
  •8 Op, Sol. P.O.D. 180,
                                             50

24:          RESTRICTIONS ON TRANSPORTATION OF LETTERS

or representative of the different individual applicants, and who re-
ceives compensation therefor, unless the package is endorsed1 on the
outside to show the number of persons whose separate applications
are enclosed arid sufficient stamps are affixed to the package to cover the
postage for each of the applications of each person, so that the postal
service will receive the same revenue as it would have-received if the
applications of each person were mailed separately.?0 However, agents
of the licensing authority who are authorized to receive applications
on behalf of that authority may 'forward the various applications re-
ceived by them to any other office in bulk and pay the same postage
oiv.the weight of the shipment they would pay if sent by mail.
   In such a case the- applications are not forwarded on behalf of the
several applicants, but on behalf of the forwarder.11 No two firms
which are distinct entities may send their letters in one envelope even
though they are affiliated or joint]y owned.12
   Sec. 26. ttestricted Use of Private Letter Boxes. Every private
letter box or other receptable intended or used^for the receipt or de-
livery of mail matter on any city-delivery route, rural delivery, or
other mail route, shall be used exclusively for the.reception of matter
regularly in the mails and may not be uted by other persons for the
delhery of messages or other mailable matter such as statements of
accounts, circulars, sales bills, or other like matter I 3 without the pay-
ment of lawful postage.11 However, a letter slot in a door is not a
"box or other receptacle" and the prohibition does not apply to such
slots.
  Sec. 27. Rates of Postage on Mail Matter. The determination of
whether a particular type of matter is a "letter" for purposes of The
Prnate Express Statutes has no-bearing on the determination of
whether the same matter is first-, second-, third-, or fourth- (parcel
post) clasb matter when it is carried b} the pofctal service. The classi-
  "S 0|>. Sol. P.O.D, 391 (first opinion). Autornolillc licenses, 0 Op. Sol. P.O.D, No. flI2.
Hunting and fis>ulng licenses, applications fur gn» refund*, and tax returns, 0 Op. Sol.
P.O.D, No. 515.
  " 9 Op. Sol, P.O.D. No, 515; and 9 Id. No, 512.
  " 8 Op, Sol, P,0,D, 410; and 9 Id. No, 453, However, wjicrc two companies actually
operate a» one with the same officcH, officer*, and empluj<;»•», they tvuiild nut be regarded as
separate entitles, 9 Op, SoK P.O.D, No, 48U,
  "Ilie prohibition applies to un»tamped advertising matter whether such matter In placed
In a spring holder attached to the letter box or placed on top, behind, or Inside the box,
8 Op. So!, P.O.D, 404 (second opinion),
  11
     ' Whoever knowingly and willfully deposits any-mallahlc matter such .is statements
of accounts circulars, sale bills, or other IILc matter, on which no postage has been paid,
la any letter box established, approved, or accepted by the Postmaster General for the
receipt or deliver; of mail matter on any mall route wltl; Intent to avoid payment of lawful
pontage ther<on, (ball for each such 6ff«n»e be fined hot more ll'an $SOO." Tltfe'18, U.S.C.,
»«c. 1725,
                                          51

            RESTRICTIONS ON TRANSPORTATION OF LETTERS                                25

 fication of matter in the mails is governed by statutes15 entirely dif-
 ferent from The Private Express Statutes. Completely different prin-
 ciples apply to the determination of the .proper classifications, and
separate regulations and instructions have been issued with respect
 to the determination of the proper clasbification of matter sent through
 the mails.16 It follows that some matters which are "letters'' for pur-
 poses of The- Private Express Statutes may be entitled to transmis-
sion through the mails at the rate of postage applicable to third- or
fourth-class matteri, while other such "letters" must bear postage at
the first-class rate. The same is true of matters which are not "letters"
for purposes of The Private Express Statutes.17
   Inquiries to the Department concerning the proper classification
of, or rate of postage applicable to, matter carried in the mails should
be directed to the Classification and Special Sen ices Division, Bureau
of Operations. As to inquiries concerning The Private Express Stat-
utes, see section 28.
   Sec. 28. Reports of Postmasters; Inquiries, inquiries of mem-
bers of the public to the Department regarding The Private Express
Statutes should be directed to the General Counsel or appropriate
Regional Counsel.
   Whenever a postmaster or other officer of the Postal Service re-
ceives information or has good reason to believe that letters are il-
legally brought to or sent from any city, town, landing, station, or
place, whether by steamboat, railroad. pri\ate carrier for hire, or
any other mode of conveyance, or in any way in violation of law, he
shall immediately report such violation to the proper inspector in
charge with all the facts concerning it in his possession. If in doubt
whether matter comes within the classification of letters or whether
it may be lawfully transported-and delivered other than by the Post
Office Department unless ;postage is affixed, samples, or a complete
description of the matter, should be submitted to the General Counsel
or appropn^fe Regional Counsel for a ruling.
  "Title 39. U.S.C. sections 4002, 4058, 4231, 4232, 4381-57. 4305-69, 4451. 443:;. 4551.
4552, nml 45551 39 U.S. Code (App,) 247.
  "Subch. 130. Pofttdl Manunl.
  i;
     80p,Sol.P.O,D.272.




                                       7lfJu
                                          52

                                     INDEX
                           (Numbers refer to pages)
 Accounting journal, 13                      Copies of letters, 13
 Advertising circulars, 10, note 33          Current business, 16
               s handbills, 10, note 33      Data for preparation of bills, 11, 12
 Air express, 21, note 2                     "Dead" correspondence, 13
 Air routes, 16                              Death certificates, 10
 Applications, 0,24                        .Deeds, 9
 Articles of incorporation, P                Deliveries and collections, 22
 Attorney's opinion, 10, note 30             Delivery of letters to post office, 21
 Auditing, 12                                Destruction, matter sent for, -13
 Automobile license applications,.0, 24      Diplomas, 10, note 31
 Ballots, 10                                 Diplomatic mail, 21
 Bank statements, 8,11,19                    Directories, 10
 Bill collectors, 22                         Discount notices, 11
 Bills, 8'                                  -Drafts, 11
 JJills of lading, 18                        Drawings, 10
 Birth Certificates, 10                      Drivers' license applications, 9, 23
 Blueprints, 10                              Drop letters, 23
 Bonds, 9.- -                                Election ballots, 10
 Bulletins. 11                               Employees, 16
 Cancellation of postage. 21                 Entries, contest, 9
 Cancelled checks, 12                        Evidences of title or debt, 9, note 29
 Catalogs, 11;                               Examination papers, 14
 Checks, 11                                .'Filing, matter sent for, 13
 Circular, 7..10                           •Filing and storage, 11, 13
                                           :
•Certificates:                              First-class matter, 24
       birth and death, 1Q                   Fourth-class matter, 54
       to practice, 10                      Free mailing, 21
-Cities without letter-carrier               Freight bills, 18
   service, 15                              Government officers' letters, 21
 Classification of mail, 24                 Grouping letters, 23.
 Commercial papers, 9                        Handbills, 10, note 33
 Communications between offices, 10          Highways, 15
 Congressional letters, 21                   Income tax returns, 8.
 Consolidation of letters, 23                incorporation, articles of, 9
 Consular mail, 21                           Independent carriers, 18
 Contest entries, 9                          Information known to addressee, 13
 Contract haulers, 19, note 81               Instructions, 10, note 34
 Contracts, 9                                Insurance:
 Conveyances, 15, 1C                              agents' reports, 8
 Copies, 11,13                                    policies, 9
26




                                      7lb"<
                                        53

                                       INDEX                                  27
Interoffice communications, 10             Plat surveys, 10
Invoice copies, 12                         Po-tage. 20
Invoices, 18                               Postage meter indicia, 20
Joint employees. IS                       •Postage paid, 20, 21
Joint mailing, 23                          Postal cards. 10, note 50,21
Joint operations, IS                       Post roads, 15
Judicial records. 10. note 30              Post routes, 15
Leased railway line, IS                   .Premium notices, 8
Leases, 9                                  Preparation of bills, 12
Legal papers, 9                            PriceJists.il
Letter boxes, 24                           Private express, 15
Letter carrier routes, 15                  Private hands,.19
Letter carrier service, absent. 16         Promissory notus, 9
Letter of Transmittal, 1C                  Proofs of loss. '8, note 21
Letters, G, 7, S                           Publications; 10, note 33
Letters, delivery to post office, 23       Public roads, 15
Letter slots, 24                           Public utility meter books, 12
License applications, 0,23                 Quasi-judicial records, 10, note 30
License stubs, 14. note 53                 Railroads, IS
Lists of registration of;voters, 10        Receipt of letters from post office. 22
Loan applications, 9                       Receipts, 8, 22
Mail receptacles, 24                       Registration of voters' lists, 10
Manuscripts 14                             Regularity, 1C
Maps, 10                                   Regular trips, 16
Market quotations, 11                      Relating to accompanying shipment, IS
Mathematical computations,-13              Reports, 8
Mechanical processing, 13                  Reports of business transactions, 9
Meter books, 12                            Requisitions, 10
Metercd postage, 20                        Returns, income and other taxes, 8
Meter readings, 12                         .Sales slips, 12
Milkchecks.il                            • Second-class matter, 24
Mortgages, 9                               Separate postage. 24
Negotiable securities, 9                   Shippers' bills, 18
News items, 14                             Size of letters,14,24
Newspapers, 10, note 33                    Special messengers, 19
Notices, 11                                Stated periods, 16
Notices, premium, 8                        Statements:
Official mail, 21                               accompanying check, 11
Official records, 10                            of accounts, 8,23
Old correspondence, 13                     "Statistical purposes," 14, note 53
Opinion, attorney's, 10, note 30           Stock certificates, 9
Orders, 8                                  Storage, 13
Orders of court. 10                        Streets, 15
Packets, C                                 Tabulating cards, 7, note 7
Payment o£ postage, 20                     Tally sheets, 10
Permit applications, 0, 23                 Tax returns, 8
Photostating, 13                           Test (Examination) papers. 14
Pictures, 10                               Third-class matter, 24
Piano, JO                                  Title policies, 9




                                  ?ifcitt
                                       54


28                                   INDEX

Towns without letter-carrier service, 15    Vessel,. 1C
Tracings, 10, note 32                       Voters' lists, 10
Trade newspapers and publications, 10,      Water bills, S>
  note 33                                   Water-routes, 15
Transmitta! letter, 19                      Waybills, IS
Transportation for hire, 19                 Weight of letters. 23
Unaddressed advertising, 10                :Wire or wireless transmissions, 7, 10
Vehicles, 16                                Without compensation, 19




                                    716;*
                              00


 APPENDIX C-rREVIEW 0? THE HISTORY OP THE PRIVATE
                     EXPRESS STATUTES
 I. OVERVIEW


      Early in our history, when mail service was limited
      and erratic, restrictions on private carriage of
      letters were necessary to the creation of a stable,
      functioning postal system. In .the United States, as
      elsewhere, the postal system was fir^t important as
      a char.hel for official government communications.
      Later, it was used as a taxing mechanism to produce
      general revenues for the Governrsr.t. Precluding
      private competition was seen as necessary to fulfill
      both these pbjectives.
      As the nation developed, the postal system changed
      and expanded to become the basic communications net-
      work by providing universal, inexpensive and prompt
      postal services.
      The Private Express Statutes helped create conditions
      in which the basic postal network could'dev.elop. While
      the precise nature of the justification for restricting
      private competition has varied over the years, the basic
      need to provide a secure economic foundation for the
      Federal postaJ system is still a compelling reason for
      generally preventing private lettor-mail competition.

II.   ORIGINS OF STATLTORY RESTRICTIONS ON
      PRIVATE CARRIAGE OF LETTERS


      A. European Postal Systems
         Government monopoly over the carriage of correspon-
         dence beg?n its development in the days of the
         absolute .mbnarchs of Europe, who, exercising
         their plenary power over public affairs, en-
         gaged carriers on a regular basis to transport
         official correspondence among the courts by
         use of established way stations. Prior to
         1700, the practice of granting patents or
         monopolies for mail carriage to individual
         favorites was widespread. Between 1700 and
         174P, the governments of Great Britain, France,
         Norway and Denmark, Russia, Portugal, Prussia,
         and several Italian city-states assumed control
         of the existing private systems or established
         new services for carrying official correspondence.
          These systerrs provided the regular communications
          necessary for the transaction cf government




                             7JLVU
                              56

         business during a period when there was no
         pressing naed for nationwide communication
         outside of government and commerce. Subse-
         quently, the systems were opened to the public
         and were often used as a means of taxation and
         censorship during wartime. Today, European
         governments still maintain tight control over
         letter mail' transmission.

     B. American Postal.Systems
         In colonial times, postal services were furnished
         erratically,, as both government-sponsored'posts and
         private individuals and organizations struggled to
         luaintain communications with the mothe- country and
         to establish communications among the scattered
         settlements. These conditions persisted in spite
         of British statutes enacting -a government monopoly
         over the carriage of letters iind packets;
         The first real promise for a stable- colonial postal
         system occured with a 1692 grant of a twenty-one-
         year patent to Thomas Neale, intended to enable him
         to establish a postal service throughout all the
         colonies. While a number of colonies cooperated
         with Neale's efforts to establish service between,
         colonies, they preferred to retain the revenues
         from mail originating and terminating within their
         own borders. Neale's failure to obtain rights over
         such intra-colonial mail service doomed his operation
         'ts failure. He died bankrupt in 1'699.
         During the Revolution, the Continental Congress
         authorized the establishment of an official 1postal
         service, whose primary task was to keep open the
         channels of military communication. Devaluation of
         the Continental currency and excessive use 'of the
         franking privilege undermined the financial
         stability of -'this system, as did the early refusal
         of the Congress to assert authority over intra-
         colonial posts. Efforts to assert this authority
         toward the end of the war were largely ineffective.

III. STATUTORY RESTRICTIONS ON PRIVATE CARRIAGE
     OF LETTERS IN THE UNITED STATES


     By the time John Hancock, with a flourish, set his hand
     to the Declaration of Independence, the tradition of
     a government monopoly over the carriage of cor-




                          7171
respondence was already well established in the lives
of the people. The new Government's effort to create
suitable means of implementing the monopoly, like
that of the British before it, has been a concihuing
process. In its course, both the scope of the
monopoly and its effectiveness have varied, but the
substantive core has endured unchanged. The carriage
of letters has historically been the exclusive
business of the Government.
. The Articles of Confederation gave Congress' "sole
 and exclusive power" to establish and maintain post
 offices and post roads "throughout" the states, not
 merely between them. In the comprehensive- Ordinance
 for Regulating the Post Office of the United States
 of America, adopted in 1782, the Continental. Congr.ess
 prohibited paid private carriage of "letters,
 packets or other dispatches" by all persons except
 messengers sent on "any private affair" ,ahd persons
 "sent officially on public service." Where the
 "general post-office" did not provide service,, private
 carriage, with the consent of the Postmaster General;
 was declared unaffected by the Ordinance's restrictions
 until government service was begun.
.Probably to side-step arguments over the division of
power between state and federal governments, the quoted
language .from the Articles was omitted in the Con-
stitution which took effect in 1789, and replaced
with the more general power "To establish Post Offices
end post roads." The postal monopoly function was
continued unchanged by the new Government and then
reestablished in the first comprehensive postal act
of f.he new Congress, adopted in 1792. Together with
its -successor statutes and *the regulations and de-
cisions '.interpreting them, the monopoly has continued
to the present day with only peripheral changes. The
Statutes have repeatedly been held constitutional by
the 'courts.
In the Act of 1792, Congress prohibited the private
carriage of "letters and packets 'other than newsr
papers* and provided a single exception for carriage
by "special messenger." By 1810, two additional ex-
ceptions were added — one for letters sent to persons
to whom was sent a "packet or bundle" traveling on the
same conveyance as the letter, and a second for letters
sent to £he owners of the mail-carrying, conveyance and
relating to it; In-addition, the penalty for violations
was reduced from $200 to $50. Restrictions on private
carriage survived in this form until the first major
revision- of ail. postal laws in 1825.




                        717*
                         58

Postal rates during the early 1800's were high.
Postage from Boston to Washington for a single sheet
folded over, sealed, and addressed, would have bought
five dozen eggsv four pounds of butter, or two bushels
of potatoes, and the postage for two or three sheets
doubled or tripled. Despite high rates and erratic
enforcement of the restrictions, the monopoly main- .
tained enough demand to sustain a fifty-.percent rate
increase for tax tpurposes during the War of 1812 arid,
later, to finance1 the almost explosive expansion
toward the postal goal articulated by John C. Calhoun:
"Let us conquer space!"
This period of operating success did .not last. From
1820 through 1824, postal revenues increased three
percent while the ccsts of transportation increased
28 percent. Mount-ing deficits brought protest from
the press, the appointment of a new Postmaster
General, and the first substantive revision of
the monopoly, tne :Act of 3825.
The 1825 Act retained the special messenger and, in
modified form, the cargo exceptions of 1810 and esta-
blished as violators not only the owners of offending
vehicles, but also the persons "having charge" of them.
For the first time, there was no specific exemption of
newspapers. By an apparent oversight, however, the
list of prohibited means of carriage omitted carriage
by foot or horse-post — still the basic means of
transportation. The Act was amended to include them
two years later.
Although rates continued to be high, reckless management,
combined with President Jackson's thorough exercise
of the spoils system, caused even greater postal de-
ficits. Despite signific.-nt (and expensive) service
improvements with the coming of the railroads, and
a subsequent cutting of salaries and curtailing of
wilderness services, both postal volume and revenues
declined between 1340 and 1844,. Frequently, imaginative
entrepreneurs, encouraged by I igh postage rates, sent
agents carrying letters, as passengers, without the
knowledge of the railroad. The courts pointed .out that
this practice was lawful.
On March 3, 1845, Congress responded to widespread
evasions and to conffsion over the 1825 newspaper
exemption by passing a new act. The structure and
most of the substance of this act remain to this <Jay.
In the first official use of the term, it was made
                         59

unlawful to establish any "private ex- ess" for the
conveyance of "letters, -.packets or packages of
letters, or other mail" except newspapers, magazines,
pamphlets, and periodicals. Both senders of material
in violation and persons knowingly carrying an
offender in the act of violation were made offenders,
together with offenders under the old statute, which
remained in effect.
The new act proved so successful in controlling unlawful
private carriage that merchants and businessmen
complained of its stifling effect on commerce, es-
pecially in places where mail service was hoi provided.
As a result, in 1852, Congress passed a statute per-
mitting private carriage outside the mails if postage
were prepaid and the letters cated and sealed.
Over time, the 1845 statute was not wholly adaptable
to postal service improvements. Expansion of city
delivery service after 1851 opened a loophole, since
the statutes were held, in 1860, not to prohibit
private carriage within cities. The problem was remedied
ten years later by yet another act, paving the way for
free city delivery in 1863, and the solution was con-
firmed by the recodification of 1872, which extended
protection to "iny post route which is 'or may be es-
tablished."
In 1879, Congress provided an exception for private
carriage of stamped letters being delivered to a
post, office and, in 1909,, added an exception for
letters relating to the current business of the carrier.
The latter provision officially sanctioned long-stdi.iing
administrative interpretations and practices.
Also in 1909, penalties of imprisonment were added for
some violations when the substantive provisions of the
Private Express Statutes were placed in the new criminal
code. This change was the last significant Congressional
action. From then on, the history of the Statutes has
largely evolved through the Post Office Department's
exercise of administrative jurisdiction for their
interpretation.
                              60

IV.   THE EVOLUTION OF NATIONAL. POSTAL


      The most exciting chapter in postal history embraces
      'the response of the postal 'system to the geographic
      expansion of the pepple. From colonial 'times through
      the turn of this century, when posts in Alaska and
      Hawaii were established' and tied in to the national
      network, the history, of postal service has been inex-
      tricably bound up with the movement of the people,
      first to the settlements along the East Coast, then
      westward. In the early days, the postal link — far
      more than any other — .bound the scattered settlements
      together.
      George Washington was acutely aware of the need
      to establish communications with those on the
      frontier. "These settlers are on a pivot and the
      touch of a feather would 'turn them away . : . .
      Let us bind these people to us with a chain that
      can never be broken."
      And so they were bound, through a system stressing
      the carriag'e .of letters, packets-, news slips, and
      other small items. The core of the system was the
      letter and all the mail carried was light-weight,
      since carriage was so often by men on foot or on
      horseback.
      News- slips, not 'bulky newspapers, were carried.
      Packets heavier than three pounds were not acceptable
      as late as July 1845. Parcel 'post itself was a late-
      comer, and was established by Congress on January 1,
      1913, when the existing weight limit was increased
      to eleven pounds. Parcel post was "with the money-
      order service and the postal savings system, a ser-
      vice incidental to the mail-service, called into ex-
      istence at the will of the people, as a convenient
      facility which would be maintained at reasonable cost
      in connection with the postal establishment,"
      according to Daniel C. Roper, First Assistant Post-
      master General from 19i3 to 1916.
      George Washington's original charge that the postal
      system bind the frontier .settlements .with the older,
      more established portions of tha country was accepted
      by the Pos_ Office,, though it strained the ingenuity
      o£ postal officials and taxed their financial re-
      sources to do so. The carriage of mail moved from
      man on foot and on horseback, to coach, steamboat,
      arid railroad.




                         *•> I '-1 ..
                          / 1 / t)
                         61

In 1863, Congress established a uniform rate of
three csnts per half ounce for letter mail, regardless
of distance carried, thereby eliminating the previous
ten-cent transcontinental rate. While losing money
on some services, the Post Office Department gained
funds from others to help defray the costs of serving
remote areas.
While dramatic and costly changes were taking place
in the long-haul transportation of mail between dis-
tant locations in the country, other profound service
innovations were also bringing postal services closer
to the people.
The free delivery of letters is commonly taken for
granted, but free delivery was not always the rule
and its advent signaled a great change in the general
nature of postal services. In 1863, city delivery
service was inaugurated and, in 1915, village delivery
was established for certain areas served by third-
class offices that could not qualify fpr> ;ity 'delivery.
The nxsst profound change, however, canu   th the
launching of rural free delivery in 1896. The impact
of -free delivery service in rural areas, particularly
coming at a time when half the nation lived there,
cannot be overestimated. Not only did the service
provide an improved -channel for personal and educational
communications, it also encouraged the development
of the mail order industry, which did a great deal
to improve life in remote areas and to strengthen
the nation's economy.
In 1890, Postmaster General John Wanamaker -- the
notably successful Philadelphia businessman who
brought a new commitment to the Post Office Depart-
ment to faster, safer, and more frequent mail ser-
vice — drew attention to the basic conflict between
financing the postal service and serving all the
nation:
    "There are mail routes of thousands of
     miles in the new States and thinly
     settled parts of the older country where
     every mile entails a certain loss to the
     ^Department; but the priceless privilege
     of communication by post is maintained
     though every other channel of intercourse
     is -closed . i ."
The conflict remains today.
                            62

V.   NATIONAL POSTAL SERVICES AND
     THE PRIVATE EXPRESS STATUTES


     As each new service was established by the Post
     Office Department during the period of national
     expansion, the Private Express Statutes were amended
     or reinterpreted as necessary to protect the services.
     The postal system and those it served prospered.
     The existence of the Statutes made it possible
     to maintain volume and revenue while providing
     communications for settlers in out-of-the-way
     places, typically before any other government
     services reached them. The restrictions served,
     not narrowly to make postal services indispensable by
     making them exclusive, but broadly to facilitate
     service improvements that guaranteed the support
     of the people for the Post Office and made the
     prospect of competing unattractive.
     Nurtured financially by the economic protections
     contained in the Private Express Statutes, general
     service .innovations — including the institution of
     free delivery services and the uniform rate for
     letter mail — completed the metamorphosis in postal
     services: universal, inexpensive, prompt, and safe
     postal services had become part of the way of life
     of the American people.




                             717V
                            63

APPENDIX D—   POSTAL MONOPOLIES
              •IN OTHER COUNTRIES




 INTRODUCTION


This is a report of the results of a survey of
governmental postal monopolies and the private
carriage of mail in other countries. The survey
was part of a comprehensive study of the Private
Express Statutes, which generally confer ah ex-
clusive right on the United States .Postal Service
to carry "letters or packets." The study was
undertaken under Section 7 of the 'Postal Reorgani-
zation Act, which requires a "complete study"
and "thorough reevaluation" of the Private Express
Statutes and the regulations and administrative
practices pursuant to these •Statutes, i/ The purpose
of the survey was to obtain information froip
similar nations concerning their laws, regulations,
and administrative practices on the same subject.
The survey was based on questionnaires sent to the
postal administrations of ten nations which are
sentative of developed nations whose social systems

I/Section 7 provides:
  "The Congress finds that advances in communications
  technology, data processing, and the needs of mail
  users require a, complete study and thorough re-
  evaluation of the restrictions on tho private
  carriage of letters and packets contained in
  chapter 6 of title 39, United States Code (as
  enacted by section 2 of this Act), and sections
  1694-1696 of title 18,United States Code, and
  the regulations- established and administered under
  these laws. The Board of Governors of the United
  States Postal Service shall submit to the President
  and the Congress within 2 years after tho effective
  date of this tsection a report and recommendation
  for the modernization of these provisions of la'w,
  and such regulations and administrative practices."
  84. Stat. 783, 39 U.S.C. 601 note.




                            717(5
                               64

    arc compatible with free enterprise.U Excluded as
    unrepresentative were those countries such as the Soviet
    Union which do not generally permit free enterprise.
    Also excluded as unrepresentative were the developing
    countries, whose limited transportation networks and
    relatively low mail volume are such that private economic
    competition with the governmental postal system could
    not, as a practical matter, be supported on a significant
    scale.
    The questionnaires sought information on the following
    topics:
    (1) whether the countries established a legal monopoly;
    (2) if so, what the general scope of the monopoly was;
    (3) who was responsible for resolving questions of
        interpretation of the scope of the monopoly;
    (4) whether the monopoly could be suspended administratively;
        and
    (5) the modes of enforcement of the monopoly.
    The information obtained is summarized below.
    The clear general finding is that the United States
    is basically similar to the other countries in respect
    to its postal monopoly.

 I. EXISTENCE OF A POSTAL MONOPOLY
    In all ten countries, the government has a legal monopoly
    for postal communications.

II. SCOPE OF THE MONOPOLY

    in general, postal monopolies of the ten countries cover
    at least the transportation of letters and packets.
    In all countries, as in the United States, the monopoly
    is not limited to domestic mail, but extends to international
    mail as well. In all the countries except Canada and
    Israel the administration of the postal system is also
    responsible for the administration of telecommunication
    services.



      The first ouestionnaire was sent in April, 1971, and a
      follow-up questionnaire was sent in November, 1972. The
      ten countries responding were: Canida, Denmark, France,
      Great Britain; India, Israel, Italy, Japan, Republic
      of.South Africa, and West Germany.
                                 65

       In the countries surveyed, the definition of the scope
       6~f the monopoly was subject to some variations. Many
       pf the definitional concepts, however, are similar to
       those reflected in the administration of the postal
       monopoly in the United States. In general, the definition
       was very broad. The ten countries were polled as to
       several items in which interest is often expressed in
       the United States. The results of the poll are shown
       in Figure 1.
       In some of the countries the broad scope of the monopoly
       is achiev t3 in a different way than through a broad
       definition'of the term "letter," as in the United States.
       Denmark and Israel, for example, depend exclusively
       upon the manner in which the item is prepared for transportation
       to determine whether the item falls within the monopoly.
       If the item is placed within an envelope or a packet
       and is addressed, it falls within the monopoly, regard-
       less of the contents. Similarly, France treats all
       matter as being within the monopoly if it is sent in
       a sealed envelope or wrapper and does not weigh more
       than one kilogram (a little more than two pounds).
       Generally, the administration of the monopoly laws is
       characterized by the existen e of certain special purpose
       exceptions for the private carriage of mail outside
       the governmental postal system. The exceptions are shown
       in Figure 2. Many of these exceptions correspond to
       exceptions which exist in the administration of the
       postal monopoly in the United States.

III.   INTERPRETATION OF THE POSTAL MONOPOLY


       As in the United States, each national postal administration
       was principally responsible for the interpretation of
       the postal monopoly laws. Generally, official postal
       administration interpretations have beer, sufficient
       to settle disputes, and court cases — as in the United
       States— have~been rare.

 IV.   THE ENFORCEMENT OF THE POSTAL MONOPOLY


       Generally, violations of the postal monopoly carry criminal
       or civil pe-i»lties in the countries canvassed. Recourse
       to such penalties seems rare, however. Several of the
       countries reported that they exercised the power to
                                          66

                                     FIGURE 1

                             SftMPUES CF ITEMS'COVERED BY
                                OTHER POSTAL M3JOPOLIES




                                                  '<     0    ><
                                                         §    si

Bank Checks (Live)    yes           yes    yes                                  yes

Bank Checks (Ltead)                        yes                                  yes

Bulk Negotiable
 Instruments                        yes    yes                                 yes

Advertising Hatter          yes1 yes1 yes1             yes1        yes2        yes2

Periodical
 Publications               yes1 yes1                  yes1

Books                       yes1 yes1                  yes1

Nan-Written
matter such as                                                            yes
records or sound                                                          to
                            yes     yes                yes                tapes yes


    Yes, if included in envelope or.packet, or sent as a letter, or addressed,
    or sealed.
2
    Yes, if Correspondence, i.e., person-to-person contiunications.
                                         67

                                        FIGURE 2
                         EXCEPTIONS FOR PRIVKTE CARRIAGE IN
                                  OTHER COUNTRIES




   EXCEPTIONS

If carried by self
or friend, or servant
or errployee of sender
exclusively for deli-
very of correspondence            yes     yes      yes   yes   yes         yes
If carried by casual
express service of
other than employee
or servant                 yes            yes      yes   yes   yes
If they are legal
documents                  yes                     yes   yes   yes         yes
If carried with goods
and property, and to
be delivered with
such goods, if not
for profit or gain         yes                     yes   yes   yes         yes   yes
If carried by owner
of ship or aircraft
 (not cpnuon carrier)
if net! for profit or
not within postal
area                       yes                     yes         yes
If'postage is paid                yes                                yes
If licensed or per-
mission granted by
the Postaaster
General or Minister               yes              yes         yes               yes
                                 68

     resolve disputes administratively by compromising with
     violators for payments of postage lost on violations.
     All ten countries reported a low incidence of violations —
     ranging from none to five per year. Few countries reported
     problems in administering the laws, but about half reported
     an increase in violations over the last five years.
     In Canada and Great Britain, the increase was attributed
     to upheaval caused by labor disputes, a lessening of
     service, and tariff increases. Canada, which has no
     emergency power to suspend the postal monopoly,, indicated
     that during labor strikes their customers nevertheless
     found other means of satisfying their postal communications
     needs.

V.   ADMINISTRATIVE SUSPENSION


     In half of the countries, the monopoly can be suspended
     by administrative action when the public interest requires
     a suspension. In some, the suspension power is limited
     to "emergencies" or "times of great public need." In
     others, the power is broader. In all countries having
     a suspension, pcwsr, the power is vested in the xastal
     agency, as in the United States, except in Italy., where
     the President has the suspension power..
                        69




APPENDIX E—COMPETITION OP THE POSTAL SERVICE
   RELATED TO THE PRIVATE EXPRESS STATUTES


                 F O R E W O R D

This report reflects conditions as they existed on
June 30, 1972. It does not reflect action taken
subsequently by the Postal Service with respect to
certain parties mentioned herein, -or indicate com-
pliance .with the Private Express Statutes secured
from- certain of thos »r parties.




                             May 25, 1973




                       718/i
                                 70

STUDY OBJECTIVE:

       To what extent are Postal Service competitors
       now in clear violation of existing statutes?
METHODOLOGY:

       Investigation and report by Postal inspection
       Service.
GENERAL CHARACTER AND FORMAT OF RESULTS EXPECTED FROM.
STUDY:

       Reporting identity of Postal Service com-
       petitors discovered incident to investigations
       of alleged Private Express Statutes violations.
       Estimating, to the extent feasible—volume
       (pieces,, revenue) lost due to their activities.


           P_ E.'R T I N E N   S T A T U T E S

                    United States Code

                          Title 18
Sections
1693         Carriage of mail generally
1694         Carriage of matter out of mail over post routes
1695         Carriage of matter out of mail on vessels
1696         Private expresr. for letters and packets
1697         Transportation of persons acting as private express
1698         Prompt delivery of mail from vessel
1699         Certification of delivery from vessel
1724         Postage on mail delivered by foreign vessels
1725         Restricted use of private letter boxes


                          Title 39
Sections
 601       '-.Tetters carried out of the mail
 602       .,«£, reign letters out of the mails
 603         Searches authorized
 604         Seizing and detaining letters
 605         Searching vessels for letters
 606         Disposition of seized mail
                                         71

 INTRODUCTION


 Long-standing postal policy has been to seek voluntary
 compliance with the Private 'Express Statutes as opposed
 to criminal prosecution, for two principal reasons:
             (a) There has been only one reported successful
                 prosecution in this century. —' (See page 19.)
             (b) Postal Service management has attempted to
                  avoid ill feeling on the part of violators,
                  the vast majority of whom are not willful
                  and intentional ones. Consequently, In-
                  spection Service investigations have been
                  geared to a policy for identifying alleged
                ' violators, acquainting them with the ap-
                  plicable statutes and rulings, and obtaining
                  voluntary discontinuance if at all possible.
 This study was undertaken using Inspection Service man-
 power as it was available during the regular investigative
 program. Inspectors completed 119 investigations involving
 possible private express violations during fiscal year
 1972. In 31 of those cases the operators were found to be
 violating the statutes i.. varying degrees and voluntarily
 discontinued the practice. There are 134 cases now out-
 standing.
 Private firms offering services competitive to the Postal
 Service are so numerous an accurate projection of the losses
 of mail volume and revenue attributable to them on a nation-
 wide basis is not feasible. It is even less feasible to
 estimate accurately the portion of their carriage which may
 be violative of the Statutes. An-unknown number of similar
 firms do not buy listings in the Yellow Pages. It is
 reasonable to assume that there may well be at least 2,000
 such enterprises in operation in the United States -today.
 This report will discuss and analyze competitors—especially
 those found to have violated the statutes—in these four
 broad categories:
                     Independent Delivery Systems                 '
                     Common Carriers
                     Utility Companies
                     Courier Services
 The "Observations and Conclusions" which follow those dis-
 cussions are expected to 'be the most useful elements of
 this report.

 y U.S.         v Sou .hern Pacific Co., 29 F. 2d 433 (1928).




•in <n<i t> • 71 - F..
                                         718tj
                              72

II. INDEPENDENT DELIVERY SYSTEMS


   The Postal Service function most familiar to the public
   is its daily mail delivery to homes and business places.
   The sorting, dispatching, intercity transportation and
   routing effort w iich precede it are understood vaguely,
   if at all. This gives rise at times to the notion that
   almost anyone can establish a private delivery service
   and profitably operate at prices below those of .the Postal
   Service. Articles which have appeared in newspapers re-
   garding the entry of independent delivery agencies into
   their communities have been written in such a >y as to
   fortify that notion.
   As postal rates increase, the enticements to establish or
    to patronize private delivery services multiply. Many
   entrepreneurs launch their ventures with little or no
   prior experience, inadequate capital and no appreciable
    understanding of the Private Express Statutes. Such an
   •environment is ideal for unscrupulous opportunists to
    sell area franchises or "carrier" routes in so-called
    national systems which exist largely OP, paper only.
   Inspectors, therefore, have been giving equal attention to
   the possibilities of mail fraud (Title 18, United States
   Code, Section 1341) as well as to private express viola-
   tions, when inquiring into these promotions. Fraud, when
   found in the independent delivery schemes, most often in-
   volves the following misrepresentations:
         (a) The "System" is backed by a well-financed
             and carefully managed central headquarters,
             experienced and well prepared to give advice
             and instruction to franchisees.
         (b) "National accounts" will be furnished by
             the home office, assuring franchisees and
             route owners a steady income which they can
             augment with the business they will obtain
             locally.
         (c) Individual carriers will earn large sums for
             working only about four hours a day. The
             promises in this respect vary greatly, and
             have ranged as high as $12,000 per year.
    In certain of the cases- investigated it was found there
    had been no efforts to develop customers for the delivery
    service, and no actual deliveries were ever made.




                              7187
                             73

In non« of the investigations was any evidence found that
the "Independent Delivery System" provided an intercity
transportation and exchange network among its branches.
Investigations of 56 private delivery services have been
concluded or carried to a point warranting their inclusion
in the following analysis. The 56 independents were found
in 22 states, as follows:
  Arizona       2   Illinois         2   New York       1
  California    3   Indiana          4   North Carolina 1
  Colorado      1   Massachusetts    2   Ohio           1
  Connecticut   1   Michigan         3   Pennsylvania   5
  Florida       2   Minnesota       3    Texas          8
  Georgia       1   Missouri        4    Washington     7
  Idaho         1   Montana         2    Wisconsin      1
                    New Jersey      1
The types of enterprises were:
                Proprietorships      8
                Partnerships         4
                Corporations        41
                Churches             2
                Other                1
The "other" was simply a scheme to sell territory franchises
and delivery routes as quickly as possible and ,flee with
the proceeds, without intention to establish service.
Only local delivery service was offered by 27 operators,
while the remainder planned delivery in two or more com-
munities.
As of the date of most recent investigation, the operators
had been in business an average of 9.4 months, the oldest
having begun his present enterprise in January 1968.
No prior related business experience was reported with
respect to operators of 36 jf the schemes, while at least
one officer of the remaining 20 had some background of
related activities. This is based on a very liberal in-
terpretation, crediting experience as a route salesman
for 'anther independent, Army Postal 'Service, etc. Eleven
with backgrounds likely to aid in their new ventures had
operated weekly newspapers, shoppers' guides, handbill
passing, agencies, advertising, printing and marketing
services or delivery service for a telegraph company;
                          74


Figure 1.

              ANALYSIS OF
     56 INDEPENDENT DELIVERY FIRMS

                         NO                       YES

PRIOR RELATED
BUSINESS
EXPERIENCE




                          64%            9% 27%
PROFITABLE
OPERATION
                    36                   5i$£

                                    11%            89%
COMPLIANCE
WITH PRIVATE                                                   50
EXPRESS STATUTES

                                   34%        66%
CONTINUING
IN BUSINESS
                          19                             .37

                                   34%        66%
FREEDOM FROM
MISREPRESENTATION
                         19                              37

                                   22%            78%
FREEDOM FROM
KNOWN CRIMINALS               12                              44
IN MANAGEMENT




                          71BJ
                               /o

 Only 38 of the 56 independents had actually begun making
 deliveries. Of t;iose, 1'i had made rnqre than 1,000 de-
 liveries -each, and the rest had made a total of only
 5,098. For. this study., a delivery is considered to be
 one complete handling of an entire "mailing" for a single
 customer on one occasion.

The reports indicate only six operators have vie? ated the
Private Express Statutes, with the Postal Service revenue
loss-estimated at only aboit 51,000. This is .probably belovf
the trut figure; but there is little doubt the operators
generally intend to handle only unaddressed advertising
matter, with several aspiring to deliver magazines and
.catalogues, using address lists provided by the publishers.
   Fifteen of the operations are 'believed to be moderately
   profitable; Thirty-six are considered to be unprofitable,
   and insufficient information is available to make a
,. judgment regarding the other five.
Nineteen of the .operations have been discontinued, after
being in business an average'Of 5.3 hionths. Losses to
investors in those and one other which is still operating
are estimated to total $3,286,100, or an average of
                                              2.0,.0
$164,305 per promotion. Losses rar.ge fro'in $ . 1 0 , 0 0 for
the investors in a large operation in southern California
to $1,600 thus far suffered by a small venture in, Arizona
(still functioning).

 The reasons for discontinuance are irifcresting:
          Prosecution for .fraud                  3
          Flight from prosecution                 2:
          Order of Sec'y of^State                 1 (Missouri-)
          Questioning by Postal Inspectors       .4
          Voluntary Abandonment (Failure)        -9
Misrepresentations are known to have existed, or, arc
strongly suspected, in 19 operations of. which ei.qht are still,
functioning.

Of the nineteen operations known or strongly suspected as
involving misrepresentations, all:but one involved 'the
selling of area franchises or delivery routes. Five other
schemes which involved .such sales are net now considered
as having involved false representations.

Known criminals figured priminciitly in the operation of
four parent.compani.es and tight" of their branches, or in
a total of 12 of tha 56 promotions analyzed here.
                               76

 An Inspection Service investigation resulted. in indictment
 by a Federal Grand Jury at Dallas, Texas of 'Kenneth Consaul,
LproRpter 'oi the Pioneer Postal Service. The indictment set
 forth xn some detail the elements of that schema, which.
 caused a loss, of more than a half-mil-lion dollars to

 Civil litigation .arose against another pxiyate de) ;yery
 v.<jency in. 1C7),, when the Independent Postal Systea ,ci
 America advertised it would deliver individually addressed.1
 Christeas cards. She National Association of .Letter
 Carriers brought suit in the United States pistrJct Court
 for ihe^W^stern District of Oklahoma to enjoin IPSA from
.making sucb deliveries. A- .permanent injunction was granted
 on "Oucember 15, 1571.2/ ^

,00'MSJMJ. CARRIERS
    ~




     All map.or domestic ^airlines now offer a sroall parcel .
     service.,oh a schedule^ flight basis. This service
    .'generally permits thu shipment oC any parcel not
    .Exceeding 50 pounds and 30 inches in any dimension on
     ? scheduled flight. The parcel must be taken to the
     airport 30 minutes"prior to flight time, is transported
     with passenger baggage, and is available at the rer
     ceiving airport shortly after arrival .of the flight.
     Inter-flight and inter-line service is- not offered.
     Cost and responsibility for notifying addresees is *-.he
     responsibility of the sender, the minimum charge .for
     transporting the parcel ranges from $20 to $'60..
     Post.al inspector^ made 43 test inquiries to airline
     employees throughput the country, which disclosed
     potential customers are usually advised this service
     is excellent for salesmen's orders, reports, business
     correspondence, price lists, and other items whicfi
     would be r.uled,. by the Postal Service to be "letters."
     in August 1971, an officer of a large, airline per-
     mitted: .limited) inspection of invoices reflecting
     contents of package shipped via their small parcel
     .service. Definitive .descriptions are not required
     arid some items are merely reflected as cartons ;br

     ~    Subsequent to original issuance ,pf this .r.eport,
          Corisaul entered a guilty plea (oh August 14, 1972).,
          and Was sentenced to 13 months in federal prison
          (oh September IS, 1972).
          Subsequent to original issuance of this report, the
          injunction was affirmed by the Tenth Circuit Court
          of Appeals on December 6, 1572.




                            71Ui
boxes. The following items listed in the records
mny have been in violation of the Private Express
Statutes:
              Letter
              Chscks and Contracts
              Computer Forms
              Daily Summaries
              Documents
              IBM Records
              IBM Cards
              Papers
              Proposals
              Reports
As the Statutes have been interpreter, it may be
necessary to determine the use the s'ender intends
the addressee to make of the material shipped to re-
solve whether a violation exists. Therefore, the
above items could not be positively classed as
"letters" within the provisions of the Private Ex-
press Statutes unless they were examined, or the
senders or addressees were interviewed. Airline
records do not fully identify senders and addressees
and interviews have not been conducted.
The above examples of matter shipped via small parcel
service are included among many items obviously not
in violation, such as machine parts, etc.
Because accurate information as to contents-of parcels
shipped is .not available, the percentage of airline
small parcel service in actual violation of Private
Express Statutes has -not been ascertained. An indi-
cation of the current traffic volume may be taken
from the aforementioned large airline, which derives
over $18,000 per month revenue from this business.
Official Air Freight Small Package-Tariff No. SP-6
was issued by Airline Tariff Publishers, Inc.,
February 3," 1972, subject to. regulations of the Civil
Aeronautics Board. It appl n,s to 13 major air
carriers.
Separate similar tariffs have been published by three
other airlines. Rule No. 25, "Shipments Not Acceptable"
contains no mention of "Mail" or "Letter." Official
Air Transport Restricted Articles Tariff No. 6-D, to
which it rerers, also contains no reference to "Mail."




                     7ilJ^
                        7S

Test inquiries were made to offices of certain airlines
which began offering express parcel service within
recent months. Airline counter clerks, and in some
instances supervisors, were asked what could be carried
via the "Priority Parcel Service." In no instance did
an airline employee rule out any sort of business
papers for carriage in the express parcel service. In
fact, statements by the airlines' representatives con-
tactad, including supervisors, clearly encouraged
the inclusion of any and all such papers, without regard
to their character. Examples follow:
    in four cities the only items restricted were
    said to oe live animals, flowers, and fruits.
    Letters, bids, salesmen's orders and weekly
    r-eports, business correspondence, and retail
    price lists were all declared acceptable.
    At another terminal, "anything can be sent,
    up to 50 pounds. There is no need to put
    postage on the parcels."
   At a major midwest terminal, virtually anything
   may be sent, so long as it is not explosive or
   extremely fragile, does not exceed $500 in value,
   weighs no more than 50 pounds, and does not
   exceed 30 inches in length, width, or depth.
   A large mail order firm sends bills or merchan-
   dise orders every week from one metropolitan
   area to another via air parcel express.
Inquiries at eight more cities produced similar re-
sponses from airlines' representatives.
Investigation indicated airline personnel generally
were not familiar with the Private Express Statutes
and did not consider them in setting up tariffs for
this service.
Results of these inquiries were brought to attention
of the Postal Service Law Department, and a letter was
sent by General Counsel Louis A. Cox t-o presidents o£
the airlines known to offer small parcel express seivice,
soliciting their cooperation in informing their em-
ployees of the restrictions on transportation of letters
and taking such other steps as may be necessary to
reduce the likelihood of violations. Replies thus far
received indicate a willingness on the part of the
chief officers of these carriers to assist in elimina-
ting the problem.
   This service by airlines is in Cirect competition
   with Express Mail Service recently offered by the
   Postal Service and is heavily advertised and pro-
   moted. While the Postal Service offers optional
   pick-up and delivery, the airport-to-airport service
   is quite similar in both plans. Pamphlets dis-
   tributed by several airlines promoting their parcel
   express services were found to contain languagt
   which might encourage readers to use those services
   for shipments violating the Private Express Statutes.
   No worthwhile estimate of total revenue lost by the
   Postal Service can be constructed. No basis has been
   established for collections of postage from individual
   airlines or users of their parcel express service to
   the present time.
   United parcel Service's "Blue Label" plan and REA's
   Air Express provide carriage of parcels by air. There
   is no evidence at hand that either company accepts
   matter in violation of'the Private Express Statutes.
E. Bus Lines
   A parcel service is offered by bus lines or the basis
   of a uniform tariff, interline service, and a consoli-
   dated listing of rates and stations. As In the case of
   airlines, customers must send and receive parcels at
   passenger terminals. The bus parcel service is widely
   used for shipments of less than 300 miles. Over
   greater distances the transit time is substantially
   longer than for air parcel express, but it is shorter
   than for parcel post.
   Data available at the Interstate Commerce Commission,
   admittedly based largely 'upon estimates, indicates
   that approximately 36 million express packages were
   carried by bus lines regulated by that agency in
   calendar year 1971. About 90% of- them were handled
   by two major intercity systems. Inquiry to two state
   regulatory agencies revealed that they, compile no data
   whatever on parcels carried by intrastate bus lines.
   However, there is believed to be a substantial and
   steady parcel traffic on all such lines except in
   commuter service.
   Northeastern Express Tariff Mo. A-603-C was issued
   April 19, 1971 by the National Bus Traffic Association.
   Section B, Rule No. V - "Mail," states that letters
   carried by bus must have postage affixed in the amount
   which would be charged if carried in the U.S. Mail.
   Similar language has appeared in the bus line tariffs
   for: years.




                          71'J/i
                                 80

           Isolated situations have been discovered in which bus
           parcel service was being used in violation of the
           Private Express Statutes.

           An investigation in Texas revealed that a grocery
           chain, an oilfield supply company, an auto accessory,
           chain, a radio station, a life insurance company, a
           specialty food company, a tax consultant chain and
           another firm had been forvarding letters without
           postage via two intercity bus lines. All those in-
           volved readily agreed to begin at once to place their
           mailings in the Postal Service or affix proper postage
           to them when sent by other means. The estimated
           annual revenue thus retrieved was $7,005.

           The current investigative program is considered
           capable of disclosing and correcting abuses of bus
           parcel service which violate the Statutes and cause
           loss of Postal revenue. As stated above, such abuses
           are isolated occurrences, and are not being encouraged
           by the carriers. It is not possible to formulate a
           realistic estimate of the yplume in pieces or the
           dollars of revenue lost na<._bnwide.

      C.   Railroads

           There is only one Inspection Service investigation
           currently under way concerning possible -violations of
           the Private Express Statutes by railroad companies.
           The investigation is not completed and a violation
           has not yet been established.


IV.   PUBLIC UTILITIES


      Utilities, particularly .those supplying electricity and gas,
      in the course of reading their own meters and feeding the
      'results to accounting departments for preparation of cus-
      tomers' bills, produce mail which is uniform, of high
      volume and arranged in sequence by addresses. Some of them
      have been delivering their own bills for many years, and
      in the recent period of rising postal rates others have
      begun doing so experimentally. Bills addressed to cus-
      tomers in remote areas of course ^continue to be deposited
      in the V. S. Mail.

      The Postal Service--position consistently has been that
      a company may deliver its own letters without payment
      of postage if the work is done by regular employees,
                               81

enjoying the same benefits of vacation, insurance,
pension, et cetera as other personnel.
A discussion of bill delivery by utilities follows:

A. A publicljr-bwned utility in California has been
   delivering its own bills since 1927. Its em-
   ployees formerly delivered all such bills; but at
   present they deliver residential bills bi-monthly,
   while commercial ones are delivered by the Postal
   Service monthly. Approximately 15,000 bills are
   hand delivered monthly by three municipal civil
   service employees, reportedly earning from $2.96
   to $3.95 per hour, including fringe benefits.
   These employees average 104 deliveries per hour
   tor a prime cost p_er unit of slightly over 3*, a
   saving of almost 5* or $750 per month under the
   cost of delivtiy by the Postal Service. The loss
   in Postal revenue is in excess ot $12,-.000 per
   month.
B-.   An electric company in Virginia has used company    -—
      employees to deliver bills to approximately 90,000
      customers since Postal rates increased from 6<- to
      8* per delivery. The individual responsible for
      initiating the project states he has responsibility
      for preparing approximately 12 million customer
      bills annually and has plans to extend company de-
      liveries to 430,000 customers monthly. He pro-
      poses to use 35 employees to deliver 5 million bills
      annually at a computed saving of $200,000 under
      the cost of -Postal Service delivery, projecting an
      annual loss of postal revenue of approximately
      $400,000. This has not yet gone into effect.
C.    A second municipally owned.utility in California has
      employed part-time hourly rate personnel to daliver
      bills to approximately 4,900 customers. These em-
      ployees did not .enjoy all the usual benefits accorded
      other personnel. General Counsel Louis- A. 'cox there-
      fore advised the utility by letter that the deliveries
      appeared to violate the Private Express Statutes;
      and that unless the practice were voluntarily dis-
      continued or regular employees were used, steps would
      be taken to obtain judicial enforcement of the Statutes.
      A response from the utility contending that its de-
      liveries do meet the Postal Service standard is now
         e^ stuSy-




                              71%
                           82

D. A gas utility in New England uses company em-
   ployees to hand deliver approximately 700 to 800
   bills daily and also nails 14,000 to 15,000 bills
   on a daily basis. It announced plans to hire
   additional summer temporary employees to replace
   vacation and military leave of regular employees,
   including those assigned to delivery of bills.
   These temporary emplo"ees were to be selected
   among grown children c employees and minority
   group college students, to be paid on an hourly
   basis, working as needd-. They would enjoy the
   same status of all new employees during a proba-
   tionary period, but would not be expected ever to
   become regular employees. For this reason General
   Counsel Cox notified the company its plan appeared
   to violate the Statutes, and the Postal Service
   was prepared to request the Department of Justice
   to seek an injunction aqainst such delivery of bills
   by the gas company. A response by the
   utility defending the status of summer delivery
   personnel is now under study.
E. A gas company in a large midwestern city uses dis-
   advantaged inner-city high school students to deliver
   bills in central, heavily populated areas. This
   program was approved by the Postal Service Regional
   Counsel on May 2, 1969 as not in violation of
   Private Express Statutes. It is reported by the
   utility to cost substantially more than deliveries
   by the Postal Service but is referred to by the com-
   pany as a community service project.
F. A utility in a large southern city uses college
   students on a regular 20-hour-a-week basis to effect
   delivery of an unknown number of utility bills.
   These students enjoy the benefits of regular em-
   ployees and written approval was given the plan in
   the early 1940's by the Office of the Solicitor, Post
   Office Department.
G. A gas and electric company serving an eastern sea-
   board metropolis conducted an experiment June 21 to
   September 10, 1971, using six regular full-time em-
   ployees to deliver bills to customerr residing within
   an area accessible via public mass transportation.
   The city has an unusually large number of residential
   areas in which door-to-door deliveries may be made
   very rapidly. The test resulted in a determination
   of cost including supervision, transportation, related
   overhead and dclivcryneri's salaries ranging from




                                71U7
                                S3

         $102.50 to $14.1.00 per week, at $0.0538 per bill.
         The Postal Service charge for delivery of these
         bills, which are enclosed, in envelopes, would be
         $0.08. The company distributed at least 175 copies
         of its test- results to other power companies.
         The preceding examples are spread from coast to coast
         and indicate utility bills can generally be delivered
         by company employees at less cost than delivery by
         mail, especially in heavily populated areas.

V.   COURIER SERVICES


     The largest daily volume of "letters" carried outside the
     mails without payment of postage is likely handled by
     courier companies. Part.of that volume is exempt from
     the Private Express Statutes because it is conveyed by
     "special messengers employed for the particular occasion
     only" (Title 18, U.S. Code, Section 1696). There are
     undoubtedly many situations in which such service, initiated
     in compliance, with .Sectioi 1696, has proved to be so con-
     venient that it has -been continued on a more or less regular
     schedule and thus is now in violation of ths Statute.
     Other courier service is used daily and in large volume with-
     out violation of the Statutes, to transport and deliver
     commercial papers, legal papers and documents, official
     records, checks and drafts, and matter sent for auditing
     or preparation of bills. Situations no doubt exist here
     also in which, once the avenue of communication has been
     established, the users transmit prohibited matter along
     with permissible items.
     Xri addition to the practical problems of detecting such
     violations and enforcing the Statutes, there may be serious
     equitable considerations. Primary among these is whether
     a postal service is offered which is comparable 'to that of
     the courier in terms of convenience, celerity, certainty
     and cost. The answer has been negative in numerous investi-
     gations. The extent to which the Postal Service can improve
     that comparison; by. the recently announced restoration of
     late collections and innovations such as Express Mail Ser-
     vice, remains to be seen.
     One large courier corporation specializes in transporting
     checks and other commercial paper between banks, claiming
     daily contact with Federal Reserve units and 8,000 of their
     tributary institutions. 'This business was formerly enjoyec
                             84

by the Postal Service; but it is claimed the courier's
faster delivery pays for itselL by reducing "float time,"
which increases banks' interest earnings and aids in
eliminating opportunities for check kiting.
Many large «.-• >rporations outside- the field of banking are
regular customers of the courier, which offers expedited
delivery service, usually overnight, for priority items
such as blood samples, spare parts, payroll records,
stock brokerage data, computer printouts, contracts, bids
and legal briefs.
A fleet of aircraft, courier vehicles, armored cars and
over 6,000 employees produce gross annual revenue for the
courier estimated to be in excess of 60 million dollars.
The' company has acquired several smaller similar firms
and extended its operations geographically.
In April, 1971 a lumber company engaged a, courier to convey
correspondence on a regular basis between its plants in
two southern communities. Investigation resulted in a
decision by the sender to continue using the service but
to affix proper postage to the items so carried. The
reason given for employment of the courier initially was
discontinuance by the Postal Service of a late mail dis-
patch and consequent failure to provide next-day delivery.
Similar explanations have been furnished by other users of
courier services, the.most frequent one being complaint of
discontinuance of evening collections by -the Postal Service.
Beginning in 1968, a. midwest grocery chain with 45 stores
arranged for a courier company to transport business
machine cards, cash sales tickets, cash register'tapes,
accounts payable and weekly reports from each of the stores
to its main office. This matter was ruled to be "letters"
transported in violation of the Private Express Statutes,
by the Post Office Department's General Counsel. The
diversion of mail to the courier resulted in estimated lost
postal revenue of over $j.0,000 annually. ' When interviewed
by Postal Inspectors, officers of both the grocery chain
and the'courier company refused to discontinue the service
or to pay postage on the matter transported. The courier
offered to pay all expenses incurred by its client in any
legal action brought by the Postal Service and stated it
wished to make this a test case.
This and certain other similar situations are being reviewed
by the Law Department in-close collaboration witri the in-
spection Service, to determine appropriate future courses
of action.
                          85

A recent investigation in Florida established that a
major auto insurance company employs a courier to convey
"letters" among its offices and branches in that state.
This is said to be done in accordance with instruction'
in an insurance company operating manual, which has not
yet been seen by the Inspection Service. Almost simul"-
taneously, an investigation in California has produced
an opinion from the law department of another major auto
insurance company, advising and instructing its offices
and branches that it is unlawful for them to employ a
courier service for the same purpose.
An investigation in the midwest revealed that a courier
has been transporting sales reports, "lay-away" orders,
bank deposit slips, local weather reports and other data,
all of which are used by a department store chain to
evaluate individual store performance as well as to conduct
daily business. For another chain, the courier has been
conveying employee time sheets, used not only to prepare
payrolls but to-credit tax, retirement and bond deductions,
and accumulate data ,for annual reports. "Change-of Status"
notices which accompany the time sheets report changes in
salary rates, promotions and terminations. The courier
also carries to and from a bank and its data processor in
an adjoining state certain -docunents which, like the c;her
items described in .this, paragraph, have been ruled by the
Postal Service Law Department to be "letters." ,Further
reports are awaited, indicating whether the firms involved
will comply with the Statutes.
Many smaller couriers are operating. One provides air
service between branch banks in the southwest and their
home office. It was determined that portions of the
material so carried were in violation of the Statutes, and
the bank was so informed by letter. Through its counsel,
the bank replied that it does not agree it is in violation,
raised a question of constitutionality of Private Express
Statutes, and asserted it would welcome a court test of
both these issues.
Couriers, in summary, present these characteristics:
     The large ones 'are well financed, organized
     and equipped,, and operate profitably.
     They can provide a faster, more convenient
     service than the Postal Service under some
     circumstances. Future development and
     expansion of Express Mail Service may over-
     come those advantages.
                               86

         They have an established clientele among
         financial institutions, transporting items
         permissible under the Statutes.
         Their legitimate business is being augmented
         by carriage of prohibited matter.
         Certain couriers, and'certain o£ their customers,
         stand in open defiance of the Private Express
         Statutes and our efforts to force compliance.

OBSERVATIONS AND CONCLUSIONS


Investigations in fiscal year 1972 did not identify all the
"competitors" violating the Private Express Statutes, or
determine th'e total loss in pieces of mail or revenue. For
the reasons explained in preceding sections, developing such
information was impracticable. A realistic guess based
upon facts now available is that annual postal revenue loss
due to private express violations currently may be between
20 and 30 million dollars.
Facts developed in the investigations have provoked the
thoughts expressed below, some of which have of course been
advanced by others in the Postal Service.
A. .Service
   The violations which warrant greatest concern are those
   stimulated by the desire for better service, as demon-
   strated by the courier services—not by cost consider-
   ations, as supposed by the operators of independent
   delivery systems. However, both the quality and cost
   of United States Postal Service are subjects difficult
   to separate from questions relating to enforcement of
   the Private Express Statutes.
   The single service deficiency most often cited by
   customers who have diverted their letters to couriers
   is the absence of late collections. These are now
   being restored in some areas.
   Hide area collections, coupled with rapid distribution
   and dispatch for delivery early the next morning
   within a radius of about 200 miles, have become the
   basis for transfer of business from the Postal Service
   to couriers by food, drug and department store chain
   operators. Their payroll, pricing, accounting, inven-
   tory and supply processes are benefited so much by the
   overnight service that cost becomes secondary. Many
   of the items so carried are unquestionably "letters"
   within the meaning of the Statute.
                                 -87

    The Postal 'Service must weigh several possible courses
    of action, including:
              (1) Provide equal -or better service through
                  new systems or expansion of present
                  ones such as Express Mail.
              (2) Waive application of the Private Express
                  Statutes where a service clearly superior
                  to that offered by the Postal Service is
                  'being utilized.
              (3) Insisc upon strict prosecutive enforcement
                  of the Statutes regardless of comparative
                  quality of services.
    Service incentives should be .provided whenever feasible,
    to assis.*-- in achieving Postal Service objectives:
              Customers whose mail volume is large, and who
              are willing either to mail early in the day or
              presort should be given collection service
              directly from their plants or offices.
              Presorted mail should be protected against
              unnecessary handlings, so that it will be
              .accorded first dispatch and delivery and
              advanced substantially ahead of "raw" mail
              whenever possible.
              High volume mail incoming to a customer
              whose operation continues through the night
              she aid be delivered after regular hours if
              he in turn will make his outgoing mail
              available early in the. day.
              All of the services performed by '"competitors"
              probably could be duplicated or bettered by
              the Postal Service at equal or lower costs
              if management decided to do so.
    The view has been expressed that existing services can
    be improved simultaneously with the development of new
    products, and in some instances this is undoubtedly
    true. However, the preservation of our exclusive
    rights of carrias J can be best justified if performance
    levels for existing services are raised substantially.
B. Marketing
    Regulatory commicc. .">ns have granted certain latitude
    to public utilities, enabling them to offer incentive




  '> • i) •
                             88

    rates to customers who are regular high-volume users,
    especially those whose consumption continues during
    "off-peak" hours. Considerat ,6ns should be given to
    changes in rates, fees and the mail classification
    schedule which will facilitate the offering of similar
    incentives for 'large volume, presorted, conveniently
    presented mailings by customers such as the ones dis-
    cussed below.
   Utility companies, unlike the users of courier ser-
   vices, are motivated to deliver the*" own bills solely
   by consideration of cost. The uniformity, volume and
   arrangement in address sequence of utility bills
   accounts for the companies' decision to perform their
   own deliveries, and the resulting savings. The Postal
   Service could do it just as quickly and profitably at a
   cost comparing favorably to that of the utilities, while
   affording the companies convenience of mail boxes and
   protection of mail laws. There is little doubt a sub-
   stantial share of this business would return to the
   Postal Service.
C. attitudes in the Postal Work Force
   An injunction suit by the National Association of Letter
   Carriers against the Independent Postal System of
   America was mentioned briefly in Section II of this
   report.
   The letter carriers' union (or some of its local lodges
   and members) has been active also in efforts to curb
   private delivery systems by means of ordinances intro-
   duced in city councils of at least four municipalities.
   Commonly referred to as "anti-littering laws," the
   proposed statutes will prohibit delivery of unrequested
   advertising material by any private agency to any
   residence or place of business which has posted a
   sticker saying, "No Solicitors," "No Advertising," "No
   Plastic Bags," "No Peddlers or Agents," or other
   similar language. Where an ordinance is enacted, the
   scickers will be supplied without charge to all who
   post them.
   "An open Ifetter to the Citizens of Springfield (MO),"
   was sent by a letter carrier condemning private delivery
   systems. It dwelt upon the dangers of plastic bags to
   small children, the possible invitation to burglars
   presented by bags not removed from doorknobs, the
   littering issue and the cream-skimming character of
   private delivery plans.
                             89

   These -'examples are 'believed- to reflect accurately, the
   currer_, vocal disapproval; of "competitor's" by certain
   postal employees'^ particularly letter carriers, it must
   of course be recognized that postal workers individually
   and in groups are entitled to express themselves con-
   cerning their work. Such activities are cause for some
   concern to the Postal Service, however, because they
   miy easily become the basis for two false assumptions:
        (1) Postal management is using the em-
            ployees as "cat's paws" to harass
            competitors.
        (2) Employees have been obliged to "carry
            the ball" against competitors because
            the Postal Service has defaulted on its
            obligation to do so.
D. Enforcement
   The experience of the inspection Service in enforcing
   the Private Express Statutes was- described in a 19671
   article by the then Chief Postal Inspector-, including
   the following comments:
        "This subject has been of prime concern to this
        Bureau for many years. An intensive review has
        been made of our past handling >of the problem.
        Our records show that great study and attention
        was given, especially in the decade of the 1930s.
        It -is interesting to note that the same con-
        ditions that prevail today existed then. The
        factors that dictated .ultimate decisions then
        offer a useful guide for current consideration.
       "In that period, widespread violations were
       indicated by truckers, business, railway express
       aqencies, telegraph companies, state and local
       governmental bodies, creameries, merchants and
       other businesses. The Bureau authorized ex-
       tensive drives that piled work on the even then
       burdensome workload* of inspectors. Postal
       Bulletin notices -were published regularly
       soliciting the cooperation of postmasters and
       employees. We issued informational circulars
       in great numbers at various times to postmasters,
       cstar route contractors, railroads, life insurance
       companies, banks, Federal agencies, automobile
       dealers, motor groups, notaries public and others,
       to educate them about the Statutes.
                          90

    "Some of the almost yearly campaigns yielded
    goou--results bat .oh the-shole they did not come
    up Vp--expectations. The findings showed
    many violations were due to lick of •khow-
    ledge and requirements of the law, or .mis-
    understandings of what constituted letters;
    Tne investigations usually resulted in
    agreements to comply by the smaller senders,
    but the larger corporations invariably raised
    objections, and with a few exceptions fre-
    quently resisted openly. The transporting
    agencies, other than star route contractors,
    then, as now, continued to be problems."

In the era to which the foregoing quotation refers,
a few fairly large voluntary settlements were
obtained from violators. However, in the period
1936 - 1939, recoveries amounted to< less than $100,000
per year. Several cases were presented for criminal
prosecution. United States Attorneys declined some
of them, and in others the courts interpreted the law
broadly in favor of the defendants.
The situation as described above is essentially un-
changed in 1972. Pressures from rising postal rates
and the mandate in Section 7 of the Postal Reorganization
Act have made the search for lasting solutions more
urgent.
Fact situations suggesting violations of the Private
Express Statutes are discovered by Inspectors, by
postal £i«ld personnel and by members of the Law
Department. Often it becomes necessary that an In-
spector secure specimens of matter carried outside the
mail without payment of postage, interview senders and
addressees to determine the true nature and use of
such matter and submit the specimens with a report
and request for an opinion. The Law Department must
then carefully analyze the material submitted, and
determine if the message (s> in question fall within
the definition-, of a "letter" as set forth in Postal
Service Publication 111, "Restrictions on Transportation
of Letters," Part II, Section 3. It is not unusual to
find that further information must be obtained from
the field before an opinion can be rendered. Resolutions
of -such matters sometimes require a considerable
period of time, during which many other similar questions
develop and require attention. Nevertheless, this time-
consuming procedure is believed to be-superior to an
                        91

arrangement which.would cause final, but perhaps con-
tradictory, opinions to be rendered in the field,
especially where 'firms operating nation-wide are
concerned and technical questions are raised.
The process employs three authoritative sources:
     (a) the laws
     (b) the reported cases (court decisions)
     (c) the body of previously rendered
         opinions (General Counsel).
It was probably inevitable that in the passage of
time Postal Service opinions have become voluminous
and complex. An example of the technical distinctions
made is found in a recent opinion. A mail order
company encloses invoices in parcels with its mer-
chandise, some of which are sent via United Parcel
Service. The invoices often contain a message indicating
to the addressee that the item has been shipped by
request of a third party. The opinion holds that if
the addressee already knew the third party caused the
goods to be shipped the message is not a "letter";
but if he did hot know, it is a "letter." This opinion
is consistent with the officTal definition of a "letter";
but the fine distinction made iis not one which could
be expected to be understood or concurred In by average
citizens, or even to be looked upon with sympathy by
a court if -it were tested.
The convenience of postal customers and the effective-
ness of the ''nspection Service in enforcement of the
Private Express Statutes would be benefited by a new
regulation, embodying in simplest possible terms the
definition of a "letter" and other provisions of those
Statutes. Such a regulations should be welcomed by
major mailers, whose day-to-day application of it could
aid measurably in reducing the number of violations
occurring.
                                93

                            APPENDIX F
            I. ECONOMIC ANALYSES OF ECONOMIES OF SCALE

 I.   AN OVERVIEW


      Economic justification of the Private Express Statutes
      must be in terms of their value to the public wel-
      fare. This paper will show that the statutes are needed
      (a) to provide the public with mail services of any
      given quality and extent at the lowest possible aggregate
      cost and (b) to comply with the statutory requirement
      for a universally available letter-mail service at
      reasonable and uniform rates.

      Evidence in support of these two elements of the economic
      justification of the 'Private Express Statutes involves
      discussion of the technology characteristics of the
      letter-mail service — regardless of who supplies that
      service — and of certain features of the way the Postal
      Service must operate. The technology characteristics
      are known as "natural monopoly." The special features
      affecting the Service make it particularly vulnerable to
      competition, especially to the kind known as "cream
      skimming." In the case of a natural monopoly, a single
      supplier has the potential for supplying any given market
      at lower aggregate cost than two or more suppliers. Ex-
      tensive cream skimming would both add to the number of
      suppliers-— thus increasing aggregate costs — and erode
      OSPS financial resources for achieving public purposes.

      The remainder cf this paper is devoted to analyzing the
      natural monopoly and cream skimming concepts and to
      demonstrating their applicability to the USPS situation.


II.   NATURAL MONOPOLY

      A.   General Principles

           A natural monopoly is "natural" in two respects.
           First, unit costs tend >to decline with increasing
           volume, and this tendency is strong enough over a
           sufficient range of volumes to make supply of any
           given market always cheaper in the aggregate when
           there is a single supplier than when there are more
           suppliers. Second, because of the cost advantage
           of the firm with the largest volume, smaller firms
           can survive only if the dominant firm finds taking
           advantage of its cost advantage is impractical. Such
           survival of smaller firms, however, tends to have the
           economic effect of division of the market among some
           number of firms, each of which, in effect, enjoys a
           monopoly of its market share.
It is important to note that the technology charac-
teristics referred to in the concept of natural
monopoly comprise all known ways of producing the
product under consideration, not just the technology
used by the dominant firm. In addition, the product
must Be defined to include all variations of the product
that are fairly close substitutes for one another.
Clearly, if these conditions do not exist, it is not
certain that the dominant firm will have a cost
advantage.
A frequently cited specification for natural monopoly
is that the tendency for long-run unit costs (which
include investment) to decline with increasing volume
 (frequently referred to as "economies of scale"
must be a decline in unit costs of small increments
in volume over all volumes up to 100 percent of the
market. This specification is sufficient to ensure
that, at any given volume of its business, a dominant
firm can add volume at lower incremental cost than
can any smaller-volume firm, i/ This sufficient con-
dition is not, however, a necessary one. It is
possible for the dominant firm to have a lower in-
cremental cost of added business than any other firm
even at a starting volume where incremental costs
of added business are rising. Figure 1, where the
unit ccsts of small increments in volume are given
the name "marginal costs," may clarify the point.
The soJ id line shows marginal costs that decline over
the entire range of potential volume; the dotted re-
placement of part of the solid line shows a small rise
in marginal cost near 100 percent of total volume;
It is clear, in the case of the continously declining
marginal cost curve, that an increment in business
of a firm with more than 50 percent of the market can
always be supplied at lower added cost than the
same size of increment to business of a smaller
firm. With the particular dotted replacement of the
last piece of the marginal cost curve, however,
although marginal costs of the dominant firm start
to rise before 100 percent of market volume is
reached, they do not rise .enough to be as high as
the marginal cost of any other' firm that could
be supplying the share of the market not taken by
the dominant firm. It follows that the common speci-
fication of natural monopoly as requiring continuously
declining marginal costs is stricter than necessary.


   In a weaker kind of natural monopoly, -the incremental
   cost of added business for a larger rirm need be no
   lower than for a smaller firm but its average cost
   for all volume must be lower.
                              95

                   FIGURE 1

              MARGINAL COST BEHAVIOR
           FROM ZERO TO 100 PERCENT OF
                   TOTAL MARKET



Marginal
 cost




                        50               100 Percent of
                                             total volume
                                             o£ market
                        96

   In the analysis of letter service, evidence will be
   offered to show that this stricter-than-n^cessary
   condition is met.
   One last clarification of the concept f generally
   declining marginal costs with increasing volume may
   be worth making. The increasing volume must be an
   increasing share of fixed market, as in Figure 1.
   A rise in volume associated with an increase in total
   size of the market need not be associated with any
   tendency of marginal costs to decline.
   For example, the market for electric power may ex-
   pand beyond the capacity of hydroelectric sites so
   that more expensive kinds of generation are needed.
   The rising marginal costs of generating power will
   not interfere with any economies in having only one
   supplier of transmission services.
   In the case of communications (e.g., telephone and
   mail service).,, increasing complexity of the network
   with a. growing number of customers to be served
   may increase marginal costs (e.g., increase the amount
   of sorting a letter needs as the possible number of
   destinations increases) without making it any cheaper
   to divide up the work among several suppliers of
   •service.
B. Natural Monopoly in .Letter Hail.Service
   The empirical determination of whether pr .not an
   industry has a natural monopoly technology essenti-
   ally involves construction for the industry of a
   cost curve, such as shown in Figure 1. The curve
   must reflect the cost behavior of existing or
   potential firms in that industry. This is easier
   said-'than done.
        This general test is difficult to apply
        with precision, largely for methodological
        reasons. Results are not readily observable
        from postal statistics. Moreover, the es-
        tablished postal system has existed for years
        without alternatives available for examination.
        Finally, the underlying technology for letter-
        mail service is rapidly, changing and has not
        settled down to the point where simple measure-
        ments of improvement can be made.
   Practically insurmountable difficulties of technique
   and concept in econometric analysis of statistical
                        97

data prevent construction of a cost curve like that
of Figure 1. Dea'ing successfully with the issues of
principle to recognize whether or net a natural monopoly
exists requires heavy reliance on engineering judgment.
Some of this judgment requires no professional
training or detailed knowledge of postal operations.
Only common sense is needed to establish, for example,
that it is cheaper to have one letter carrier de-
livering mail in a block of one-family houses than
to have two '(just aj it is cheaper for electric or gas
utility firms to have only one meter reader and
one transmission line for gas or. for electric ,ppwer.)
More informed judgments are needed to design a separate
least-cost mail processing system to serve a given
geographic area at each of several alternative volumes,
and then to compare the average unit costs of the al-
ternative systems when each is assumed to have the
volume for which it was designed. Of course, even in
the letter carrier case, expertise will be required
to estimate how much advantage there is in having only
one carrier, even though no expertise is required to
establish that it is cheaper to have only one.
The evidence to be presented on natural monopoly in
postal service is of the engineering kind just des-
cribed. Some will require little or no expertise,
as in the case of the cost advantage of having only
one letter carrier for a block. Other evidence will
involve considerably more expert judgment for complete
evaluation.
Letter carrier out-of-office cost, which is
clearly more economical when there is a single
supplier of letter service, accounted fcr about
21 percent of accrued costs of the entire Postal
Service for all classes of mail in fiscal 1972. U
The other major cost functions are transportation
and handling at post offices. These are discussed
individually below and (to take account of cost
interactions) in combination.
To the extent that the Postal Service relies on trans-
portation companies that combine its mail with other
shipments, generally on schedules not set by Postal
Service needs, the transportation cost advantage of
having the Postal Service hold the entire letter mail

£/
     $9,642 million of total accrued costs and $2,019
     million of the city and rural regular carrier
     costs for street time.




                              Cl JL
                     98

market is small. The cost of flying or trucking a
given quantity' of letters in one vehicle does not
depend on whether there is more than one shipper,
although tha unit costs at terminals are likely to
be higher for small shipments per firm.
The principal advantages of scale economies apply *io
in-house and contract transportation, in vehicles or
trains running on mail schedules, with mail the only
cargo. Generally, larger shipments can be handled
with -the same size of vehicle or train crew as smaller
shipments and with vehicle acquisition and operating
costs"that rise less than proportionately with size
of payload. Where a practical limit is reached on
vehicle or train size, there are advantages in beinq
able to have more frequent shipment schedules. Mail
that is ready for shipment need not wait so long, and
the work flow at originating and destinating post
offices can be made more regular, with consequent
cost savings.
Postal Service transportation costs amounted to S613
million in FY 72 (compared to $2,019 million for
letter carriers). About $130 million of the $613
million is allocated to the mail classes that in-
cluded all mail affected by the Private Express
Statutes, and little other mail. Those classes are
airmail, first class, third class, and U.S. Government.
Available statistical data are not well suited to
 accurate determination of the relative proportions
 of kinds of transportation that would and- would not
 involve substantial economies of scale. Existing
 data suggest that cargo on passenger airline flights,
 which involves negligible economies of scale, forms
 the bulk of transportation costs for both airmail
-and first-class letters. There is also significant
 use-of star routes, which are truck routes
 scheduled under contracts of truckers with the Postal
 Service to meet service needs and which, generally,
 carry roail a,s the ortly. cargo. Economies of scale
 are Jarge for mail carried on stai; routes. Third-
 class letters make little use of'airlift, and rely
 nearly entirely on railroad service and star routes
 for intercity transportation. The railroad service
 includes an increasing proportion of long-distance
 trains carrying only mail cars and, so, has charac-
 teristics of star routes for purposes of analyzing
 economies of scale. It may be concluded tfu-t there
 are minor economies of scale in transportation of
 first-class mail' and significant economies in trans-
 portation of third-class mail.
                          99

In recent years, .the P^.-tal Service has begun to
use air taxis where "09alar airline service has been
unavailable. If airline passenger traffic does not
grow so fast as airplane sizes grow, curtailments of
airline schedules will become necessary. This would
increase the Postal Service use of specialized carriers,
including air taxis, as replacements for the airline
p=csenger flights. This would slightly increase the
economies of scale in transportation of first-class
letters.
Although the transportation cost per letter-mile does
not appear very sensitive to the number of letters,
small volume can increase the transportation cost per
letter by raising the number of miles a letter must
be carried. This happens when there is insufficient
volume in a single post office to achieve economies
of scale in mail processing without using extra
transportation to concentrate the processing of
available mail at a few large post offices. If pro-
ce-sing at post offices has significant economies of
sea z, they are worth achieving even at the expense
of some extra transportation cost £or concentrating
mail, because processing at post offices is respon-
sible for the bulk .of. letter-^mail cost. 57
The advance of technology is currently increasing
the volume required at a single facility for pro-
cessing at the least unit cost. Until recently,
the handling of letter mail was essentially as
-follows:
       A sack of mail was opened and
       dumped at a mail preparation
       center. The letter mail was
       manually separated' from pacv-
       ages and other mail. Then, the
       postage stamp was cancelled by
       hand and the mail was put in trays
       on a cart, for pushing to the
       next wprk station. There, a clerk
     . ^woulU- piek.-up--'har.dfuls of letters.
       He would sort them, by destination,
       to 77 pigeon holes corresponding to
       77 geographic areas.
      The mail to some destinations might
      then be sorted, in the same way, to
      even more narrowly defined geo-
      graphic areas. With completion of

37
     $2.18 billion of the FY. 1972 total of $3.18 billion.
                     100

     all sorting, which would be in several
     stages where 77 separations were not
     enough, the mail- would tie taken from
     each final pigeon hole and put into
     a sack labled -in the same way as the
     pigeon hole. Sacks would be put into
     the hand-propelled trucks and taken
     to appropriate points on the loading
     platform. There, mail handlers would
     carry the individual sacks into vans
     for transportation.
Doubling the volume simply doubled the number of
people needed to do each of these tasks. This is
still the cheapest way, to- handle very small voluaes
''

With the •investment: of funds in hew plants and
equipment, it is now possible to reap economies
of scale from increases in volume. As volume
increases, hand-propelled trucks can be re-
placed, at lower cost, by a conveyor-belt system.
Advanced materials-handling equipment can be used
to separate letter mail, mechanically, from larger
or bulkier kinds of mail to be separately processed.
Other materials-handling equipment can expedite truck
loading and unloading. There is equipment that
will automatically stack piles of mail and speed it
through a machine that senses where the postage stamp
is, and then cancels it. A hierarchy of sorting
equipment is available, corresponding to different
savings in per-piece operating cost and different
volume and investment requirements. The most expen-
sive machines provide the lowest total sorting cost
per piece, provided there is sufficient voluir.e to
make the high cost per machine a low cost per letter.
The least costly sorting machine now in use is a
single-position -(one operator) letter sorter. The
machine .passes one letter at a time before the
operator at an adjustable speed, and the operator
directs it to an appropriate bin by pressing several
keys at his console. If there is more volume, it
pays to have a multi-position machine of tlij same
kind. The multi-position machine is, of course,
more expensive, but it costs lass per operating position.
The maintenance cost per operator position is also
 less. .Both kinds of machine permit an operator to
 sort mail about -twice as rapidly as a manual sort,
and th'fcy, permit: the maximum of 77 manual sort
•separations to 'be increased to over 200. This
reduces the number of times a single letter
                       101

must be sorted. With still more volume of .the right
kinds of mail, it becomes worthwhile to replace the
manually operated sorting machine with a machine that
can read the address and direct the letter to the
proper bin automatically.
All of the. foregoing kinds of equipment exist, 'and
are being deployed in the larger post offices. As-
sociated with this deployment has been a reorganization
of mail routing, to concentrate processing in those
larger offices. When a small post office sends its
originating mail to a larger-office for processing,
the transportation to the larger office takes time
and money. The savings in faster and lower-cost
handling, however, have proven sufficient to postal
system designers to justify the added transportation
burden.
New technology has thus expanded significantly the
scale of operation required to obtain least-cost
processing. With even more volume going through
the system, a larger number of pQst offices would
be .able to use the best present technology econo-
mically. Transportation for the sake of concen-
tration would then, become even less a burden and
'further service improvement would become possible.
The Postal Service is now testing an 'advanced handling
system that needs sijnificantly greater volume in a
single post office to be economically -feasible. Pre-
sent .plans :for this system require a further concentra-
tion of handling to achieve economically large volumes
at offices using the techno! /ry. At present, mail
needs several stages of sorting; at each of-which an
operator or a machine must read the address and route
it to a pigeon hole or bin. The new .system,
being tested at.,Cincinnati, first codes suitably
printed address information, using an electronic
reader, an a machine language that, at later-stage
sortings, can be read more rapidly and less expen-
sively than can ordinary print. The system also pro-
vides for computer-assisted, machinery that se-
quences a carrier'£ mail and .reduces his required in-
office time.
The new technology, used in such a way as to minimize
costs, under expected equipment concepts would require
nearly all mail processing to be concentrated in about
123 strategically located-nail-processing, centers-
                        102

However, because of national s.rvice considerations,
present plans call for a higher-than-minimum pro-
cessing cost operation with about 179 centers. This
is so because the added transportation rear"red for
a smaller number of centers, though bearable . ith
respect to costs, would take too much time. Under
the' compromise, some of the proposed centers will
have too little volume to justify use of some of
the most advanced equipment, particularly the ma-
chine that reads and codes addresses.
 The conclusions about the number of processing
 center's and how they should be equipped were arrived
 at with the aid of a complex computer model ,that used
•.detailed information about current mail
 flows and transportation capabilities, econometric
 analysis and judgment to project future mail flows,
 likely transportation potentials, and engineering
 judgment (based partly on experiments with similar
 equipment in Cincinnati) on the time and cost effi-
 ciency of various combinations of equipment con-
 figurations under alternative conditions of kinds
 of mail, volumes, arrival times, and dispatch dead-
 lines. This model was later used to explore the
 cost implications of departures from projected volumes
 with no change in either service standards or in con-
 ditions hot subject to Postal Service control.
Table 1. shows the model estimate of any one center
if there were uniform percentage reductions in
volume of all kinds of mail but no change in any
other uncontrollable conditions. Equipment con-
figurations are considered controllable, and are
optimized in order to minimize unit costs for each
alternative mail volume. The table is calculated
for three alternative volume levels: the typical
level actually projected for 1980, a level half
that size, and a level one quarter that size. (The
last may also be considered as that of a competitor
who knows no better way to process the assumed
smaller volume.)
A first point to note- about Table 1 is that, in the
100-percent volume alternative, principal equipment
items have a daily labor cost equal to about three-
tenths of operating costs. The work is no longer
labor-intensive in comparison with work in other
American industries. Second, with 50 percent of
projected volume, there are increases both in unit
labor cost and unit equipment cost. When the volume
                                103

                               TABLE 1


                       A TYPICAL MAIL CENTER'S
                   DAILY LABOR AND EQUIPMENT COSTS
                      W ALTERNATIVE PERCENTAGES
                  OF ACTUALLY PROJECTED 1980 VOLUME
                        (thousands of dollars)




                                       Percent of 1980 Volume

   Type of Cost                  100            .50            25

ABSOLUTE COST

  Principal equipirent;            N
    Investment                 $ 5,b?0         $ 3,602        $ 1,665
    Daily interest and
    amortization                        3.15           1.93         0.89
  Daily labor                           7.36           4.17         2.73


DAILY COST PER UNIT OF
VOLUME I/

  Principal equipment                   3.15           3.86          3.56
  Labor                                 7.36           8.34         10.92
  Total:
    Thousands of dollars               10.51          12.24         14.48
    Percent change from 1980            0               +16           +38




    100 percent of the 1980 projection is assumed
    to be one unit of volume.
                       104

gets as low as 25 percent, equipment in the most
efficient configuration tends to be replaced so
extensively with labor that, despite the increase
in total cost per unit of volume, the equipment cost
per unit of volume declines.
The last line of the table suggests that a 50 percent
loss of volume would have a significant though not
catastrophic effect on unit costs-, but that the still
higher unit costs of smaller competitors (e.g.,
those having as little as 25 percent of the total
market) would raise costs to the public quite sub-
stantially. For example, if the Postal Service Had
half the market with the rest shared equally by two
competitors, the public would have to pay 27 percent
more for the same postal service.
There has also been another use of a computer model
to explore cost implications on the processing net-
work as a whole; in the event of a uniform decline
in mail volume of all kinds at all originating points.
It was more 'sophisticated in that it permitted
variation not only in the equipment configurations
of each mail center,-but also in controllable trans-
portation schedules (e.g., star routes) and. location
of centers, while requiring average service standards
to remain essentially unchanged. The model was less
sophisticated in that it was able to cover only
operating costs. Table 2 gives the result of a simu-
lation using this model.
The table shows that the increase in unit operating
costs for distribution were moderate for a one-third
loss in volume, but that moderate increase was.
associated with a quite substantial percentage
increase in platform costs and an even more sub-
stantial percentage increase in transportation
costs. The resultant 13-percent increase in total
operating^cost per unit compares reasonably well with
the 16-percent increase given by the previously
mentioned model for .labor and equipment cost per
unit in the event of a 50-percent loss of volume.
Although a T3-percent increase in average unit
cost has been described here as moderate, this
should not be understood to mean that the cost in-
crease per unit of any volume that might be shifted
to a competitor would be moderate. If a one-third
reduction in Postal Service volume implies a 13-
percent increase in average costs of the Postal
                                   -105

                               TABLE 2


                      PREFERENTIAL MAIL NETWORK
                           OPERATING COSTS
                      At 100 and 67 PERCENT OF
                       PROJECTED 1980 VOLUME 1
                                             2fay
                   (thousands of dollars per 3ay)




     KIND                  ABSOLUTE          PER UNIT OF VOLUME
      OF              100%          67%    100%       67%    PERCENT
     COST            VOLUME      VOLUME   VOLUME    VOLUME   INCREASE

Transportation       $   816   $    661   $   816   $   987     +21


Platform                 197        181       197       270     +37

Distribution          2,698     1,979      2,698    2,954       + 9.5

    TOTAL            $3,711    $2,821     $3,711    4,211       +13




I/ 100 percent of the 1980 projection is 'assumed
   to be one unit of volume.
                                106

       Service, the implication is as though the Postal Service
       volume had two components: any two-thirds of the
       volume having a unit cost of 113 percent of the
       100-percent average, and a remaining one-third
       having a unit cost of 74 percent of the 100-percent
       average, [(since 100 = (2/3)113 + (1/3)74)]. If the
       one-third of the total volume having a unit cost at
       74 percent of the base were to become the only
       business of a competitor, his unit cost would rise
       from 74 percent to more than 113 percent. The fore-
       going, of course, assumes that the competitor 'has
       access to no better technology than the Postal Service.
       Table 1, then, also, suggests unit costs would rise
       to more than 138 percent under similar competitive
       technology.
       Not all of the difference in cost per unit of the
       diverted one-third of the market volume would be
       observed in price differences between the Postal
       Service and its competitor. The competitor might
       have a smaller or larger mark-up than the Postal
       Service or some of the increase in postal cost
       might be borne by Postal Service customers for the
       two-thirds volume remaining with the Service. From
       Table 2, those customers would have to pay for a
       13-percent increase in average unit costs of letter
       mail. In addition, they would have to assume larger
       shares of any fixed costs of the Postal Service not
       included in the average unit cost of letter mail.
       Effects of competition are discussed in more detail
       in the next section.

III.   USPS VULNERABILITY TO CREAM SKIMMING


       It has just been established that diversion of a fraction
       of Postal Service letter-mail business would involve large
       increases in costs the public must bear per unit of
       business diverted. Some of the increased cost would be
       borne by customers staying with the Postal Service, but
       the Service would retain a cost advantage over any com-
       petitor not having access to a superior technology. This
       raises the question of how a competitor could survive.
       The survivability and effects of competition unde.r con-
       ditions of natural monopoly are discussed below. The
       discussion starts with a purely logical, or theoretical,
                               107

     analysis of survivability and effects of competition under
     alternative circumstances, continues with empirical analysis
     of the circumstances that actually exist for letter-mail
     service, and reaches the conclusion that the Postal Service
     and the public as a whole face serious dangers from re-
     moval of legal restrictions on letter mail competition
     with the Postal Service.

A.   Theoretical Analysis
     Economists have long recognized that a firm with a near-
     monopoly of some market, but with a perceived need to
     price according to simple, published formulas of great
     generality, will not make the general changes in published
     prices that would be required to prevent a small competitor
     from underpricing the dominant firm in a restricted segment
     of the market. Thus, a natural monopoly not supported
     by legal prohibitions of competition does not guarantee
     retention of 100 percent of the narket. The classic,
     though far from unique case, is that of competition
     of smaller competitors with U.S. Steel Corporation
     during the period of the latter's domination of the
     steel industry. The dominant company used a simple
     delivered pricing formula of price at Pittsburgh plus
     freight to destination — even for steel that might
     be produced by the company at locations other than
     Pittsburgh. When smaller companies underpriced the
     dominant company at a few delivery points far from
     Pittsburgh, it did not pay for the dominant company
     to meet the competition with reductions of its own
     prices. To do so would have been to abandon a total
     pricing system it considered profitable in order to
     recapture a very small amount of lost business. This
     is the general situation known as "price leadership."
     The price leader is frequently said to "hold an
     umbrella" over the rest of the industry. The situation
     does not require use of a "basing point" price formula
     such as existed in the steel industry; any kind of
     standard pricing formula or rigid product classi-
     fication system applies as well.
     In the long run, more small competitors may appear, and
     some of the small competitors may grow, as also happened
     in the steel industry. Management of the dominant
     company may anticipate this long-run effect and still
     base its decisions on the shorter-run advantages of
     letting the competition live.

     The dominant firm, if it is a government agency, may
     have costs of public service activities that must be
     paid for by revenues from profitable activities. Then,
     if maintaining equality between total revenues and total




                            fc'i"
                           108

costs requires the government agency to price some of
its products well above their costs, potential competitors
may see opportunities for profit in producing those pro-
ducts even where their costs for the business they capture
exceed what the government agency would save by corres-
pondingly reducing its activity.
Small competitors will always try to specialize in those
products for which they have the lowest unit costs in
relation to the price umbrella established by the
dominant firm. It is reasonable to expect that those
products will frequently be the ones on which the dominant
firm has been making the largest profits. In such cases,
the competition of the small competitor is known as
"cream skimming."
Another kind of weakening of the competitive advantage of
having lower unit costs may come from the actions of a
regulatory aut.iority. In regulated industries, the firms
with cost advantages are frequently prevented by regu-'
latory action from setting their prices low enough to
ruin the least efficient competitors. Here, the
appearance of competition is maintained, but not the
advantages of minimizing the cost to the public of the
                                             :
output of the industry.
Small competitors .Tiay also survive if some of the buyers
in the market — even a vety small-minority - think,
rightly or wrongly, that the small f inns'of'er a sig-
nificantly different product, f/or if some .buyers
prefer, as a matter of principle, to deal with small or
local firms. Any perceived difference in the non-price
advantages of buying from one of the sellers in an in-
dustry weakens the effectiveness of price competition
and, so, reduces the significance of any cost advantage
the dominant firm of the industry may have.
In summary, natural monopoly is insufficient to prevent
the appearance arid survival of small competitors in either
of two broad classes of cases: (a) where the dominant
firm is not in a position to bring its cost advantage to
bear with price reductions and (b) where the products
of the dominant firm and of some of its competitors
appear sufficiently different to some buyers to reduce
I/
     To some buyers, even the salesman's personality may
     be acted on as a characteristic of the product.




                       7222
                         109

the effectiveness of any price reductions that the
dominant firm may use. Both are important in evaluation
of the social benefit implications of permitting com-
petition in a technological situation considered to be
natural monopoly.
In analysis of the (a) class of situations, most would
agree that, for any given volume of output, society gains
by production of that output in the cheapest possible
way. Those who would disagree would do so on the basis
of wanting to take account of who gains and who loses
with each alternative; they would not want to rely
simply on a net dollar value of gain or loss. Unless
demand for the product is not affected by the price
reductions associated with more competition, the issue
will not be simply how to produce a given volume in the
cheapest possible way. Price reductions sufficient to
increase the size of the market significantly, however,
will occur only if the dominant firm tries to limit its
losses of business by price reductions; otherwise, the
small firms would merely shade the dominant firm's
original prices and divert customers already in the market.
Suppose that the dominant firm starts as an unregulated
monopoly that makes high profits by pricing well above
the incremental unit cost of taking on more business. The
appearance of competition may force the price down to
where there is a 50 percent increase in the number of
units of output the market will take. The dominant
firm would have the technical capability to supply the
expanded market at a lower total cost than that existing
when the market is hared. This technical ability, how-
ever, would be irrelevant, because the absence of the
competition would imply the smaller volume associated
with unregulated monopoly.
Conceivably, the competition may generate price reductions
that add not only to the total volume absorbed by the
market, but even to the volume supplied by the dominant
firm. In the latter case, the average unit costs of
the dominant firm may have a decline despite the diversion
of some customers to the new competitors. It may be seen
that competition may reduce total cost of providing
the service per unit of service provided as well as in-
creasing the number of people who can buy the service,
where the dominant firm starts by being an unregulated
monopolist. Both of these results are likely to be
socially advantageous.
The conclusions are different where the dominant firm
starts as a regulated monopoly, constrained to earn no
more than a stipulated rate of return on defined invest-
ment. If the regulatory commission operates effectively,




                     7*23
                         no
it prices each product of the monopoly at the level where,
taking account of market conditions, the set of price
levels achieved is that which provides for the best
combination of outputs of different products and services
that is feasible in the light of the market and cost
conditions facing the firm. Allowing competition for
certain of the products may generate price reductions
that would not otherwise occur, but the regulated company
would have to make good the lost net revenue by raising
other prices and allowing the volumes of the products
affected by the price increases to fall. The new mix of
volumes would have to be less desirable than the old if
the old is originally correctly determined by the regu-
latory authority to be optimal.
Of course, the disadvantage of the revised volume mix
generated by competition would not be so clear where the
regulatory commission would not consider optimization of
the volume mix as a principal regulatory function. For
example, the volume mix generated by pricing, at so-
called "fully distributed cost" could be so far from
optimal that diversion of much of the market even to
higher-cost competitors could conceivably lead to better
utilization of national resources. In general, though,
use of competition to overcome the harmful effects of
poor regulation -would be an inefficient remedy.

The arguments cited above do not apply well where compe-
tition is bringing essentially iiew products that serve
to enlarge substantially the market for the total class
of product. The decision of the Federal Communications
Commission (FCC) in Docket IC2CS provides a classic
illustration of the difficulties. The case dealt with
applications of certain carriers to provide specialized
data transmission services along voice circuit routes
of American Telephone and Telegraph Company (ATST) that
AT&T was already using to provide data transmission ser-
vices as well as voice services. ATST opposed the granting
cf licenses on grounds that the specialized carriers
sought to provide service only along the most profitable
routes, skimming the cream o£ AT&T data transmission
business. The FCC rejected the cream-skimming argument
of ATST on the ground that the proposed competitive
services were more than just cream skimming. The services
to 'be provided by the competitors and the proposed method
of pricing appeared different enough not only to divert
some of AT&T's customers, but also greatly to expand
the market to include subscribers that ATST would not
reach in the absence of the competition. The FCC stated
an unwil/lingness to deprive the public of the benefits
of access to a new technology having this potential.




                     7224
                               Ill
     The FCC took account of the ATST price inflexibility
     created by previous FCC rate decisions and announced
     toward the end of the decision that it would reconsider
     the previous pricing rule to the extent that ATST found
     the rule an impediment to competitive pricing. In a
     sense, therefore, the FCC was accepting regulation of
     itself by competition.

     It can be seen that each case of natural monopoly must
     be analyzed individually to determine whether buttressing
     it by legal restrictions on competition is in the public
     interest. The public interest is represented by cost
     and volume. It may also be seen that the argument
     considers only the effects on the publ'ic, not the fairness
     to the dominant firm or would-be competitors.
     The fairness argument is frequently invoked in terms such
     as the following. If a new firm wants to compete for
     business of a regulated monopoly, it should plan to take
     a fair share of the less profitable business along with
     the more profitable business it seeks. The FCC pointed
     out in Docket 16258 that anybody starting a new business —
     even an established firm entering a new area — will start
     with service only to the market segments considered most
     likely to be profitable and that requiring a new com-
     petitor to compete for every kind of business handled by
     the regulated monopoly would amount to forbidding all com-
     petition. The FCC could have gone further to note that
     the least profitable parts of a total market are likely
     to be the ones nost plagued by insufficient volume for
     reasonable economies of scale and 'that to further subdivide
     such markets would be absurd. Thus, the issue of "fairness"
     is irrelevant, and will not be used in the analysis of
     specific letter-mail circumstances that follows.
B.   Unrejjnbursed and Inadequately Reimbursed Service Costs

     A substantial fraction of Postal Service costs are for
     services that cannot be charged for in any practical way
     to those wanting the service. Easily identifiable
     items of this kind for FY 72 included $1.3 billion of
     city carrier street time other than stopping for de-
     liveries, $0.5 billion of the fixed portion of rural de-
     livery routes, and $0.3 billion for window service. The^e
     costs are exclusive of supervision. Additional costs,
     not identifiable with either individual or grouped
     reimbursable services,- include enforcement of Federal
     laws prohibiting certain uses of the mails and dealings
     with Congress and the Postal Rate Commission. Other
     activities for which there is.no, or inadequate, reim-
     bursement by beneficiaries tofccovered by authorized re-
     imbursement from the FcderoWTteasury. Included are free
                          112

mail for the blind and' di   >-ences between normal rates
by customary pricing rules, i-/ reduced rates for certain
services designated by law. 'Reduced pricing is being
phased over five years for some services and over ten years
for other services; for still other services, there is no
provision In the law for any end to the preferences.
The Congressional subsidy for "public service" (such as
maintenance of post offices that have insufficient volume
to be considered self-sustaining) is set at 10 percent of
FY 71 postal costs ($0.9 billion) through 1979, followed
by declines of 'one percent per year until FY 84 when the
figure reaches 5 percent. The subsidy may stay at 5 percent
indefinitely or be reduced or eliminated after 1984 if
the Postal Service finds that the authorized amounts "are
no longer required." The revenue forgone subsidy was $0.4
billion in FY 72.

It is conceivable that Congress will not always appro-
priate what has been authorized and that much of what
i;ill be appropriated as percentages of total FY 71 costs
will be in dollars of declining purchasing power. More-
over, the Postal Service may reduce the percentage after
1984. The appropriation for revenue forgone on
preferential-rate services is less critical to
postal finances, because most of the need for that
appropriation will be phased out during the next 10
years and because the Postal Service is considered to
have authority to remove any rate preference for which
the Congressional appropriation may not be made.

Billions of dollars probably remain after Congressional
appropriations in service costs that are not paid by
those served. Competitors taking over portions of the
Postal Service letter-mail volume would have much lesser
need than the Service for costs of the kinds involved.
They would have no costs at all of enforcing laws against
improper use of the mails. Since (as will be shown)
they would do business primarily with larger mailers,
they would Have negligible "window service" costs per
unit of volume. Although they would have carrier de-
livery costs, the most likely, kinds of competition
would not provide for daily carrier delivery to all
households and offices.

In summary, the Postal Service's status as a Federal
organization gives it major cost burdens that competitors
would largely avoid. Most of these cost burdens must be
assumed by users of reimbursable services and some of
the burdens, for which Congressional appropriations are
authorized, could ultimately turn out to be responsi-
bilities of Postal Service customers as well. Any




                   7226
                                    113

          major shift of letter-mail volume to competitors of the
          Postal Service would add to the rate burdens of those
          who continue to be customers of the Service.
          The Postal Service has a further competitive disadvant-
          age, of still unknown extent, in distribution of over-
          head cost burdens among classes of mail. A private
          firm allocates such" burdens as price components of pro-
          duct classes in the ways considered to be least damaging
          to the firm. The Postal Service may have obligations to
          consider, specifical-ly, the interests of customers and
          of the public as a whole, even where they oppose Postal
          financial interests. In the first rate case before the
          Postal Rate Commission, R 71-1, the Postal Rate Commis-
          sion was equivocal. It pointed out the difficulty of
          determining "social value" of a 'kind of mail service, and
*•        it cited the Senate report on the Postal Reorganization
1
          Act as saying that Congress was better qualified to
          make such judgments than the Postal Service or any re-
          gulatory commission. The Commission went on, however, to
          cite the same Senate report as enjoining it to be alert
          to the importance of preferential rates. It cited
          passages in the legislation itself (83622(b)(4) and
           1 1 (a) } as support for the stated policy of alertness
          |0
          "to guard against the impairment of mail services which
          make informational, cultural and educational contributions
          to society." To the extent that the Postal Service may
          ultimately distribute overhead cost burdens with partial
          use of non-business criteria, ability to compete with
          private firms not handicapped in this way will be impaired.

     C.   Cream-Skimming Threats to Postal Service Finances
          The Postal Service operates under the handicap of having
          to publish a nationwide classification of services. It
          also must publish formulas for pricing within each classi-
          fication under conditions-where a particular rate covers
          services with a wide range of costs. Within the category
          of letter mail,, costs may depend on shape, weight, dis-
          tance traveled, how postage is paid, how it is obtained
          from the mailer, how it has to be delivered, the way ad-
          dresses are recorded oh the envelopes, the degree and
          density of presorting by the mailer, the demographic
          characteristics of the destination area, the'productivity
          of labor in the areas where the mail must be processed,
          the a\'ailability of scheduled^trandfc&rtation between
          origin and destination points, 'trdjjtjc conditions adjacent
          to post offices of origin and destination, and a host of
          other factors. A classification proceeding now in progress
          before the Potal Rate Commission involves Postal
          Service proposals for a discount applicable to a minimum
                            M4:



presort standard and surcharges applicable to mail
having dimensions unsuitable for machine processing. No
practical classification system, however, can prevent
each postaje rate from covering services with a considerable
range of unit costs. For some detailed categories of
services, therefore, the Postal Service prices have to
be .well above corresponding costs. This laaves room
for cream skimming, even by higher-cost competitors.
A major opportunity for cream skimming lies in the
legal requirement for the Postal Service to charge first-
class letter mail postage at rates that do not change
with distance. Obviously, the rate for local mail must .
therefore be based partly on an inter-city transportation
cost not generated by that mail.
   More important, though less obvious, it must be based
   partly oh handling costs hot generated' by that mail.
   A local letter, if deposited in a box marked for local
   mail only, by-passes significant sorting operations.
   A nonlocal letter is likely to be sent for sorting
   to a nearby sectional center, from there to the state
   distribution center of the- destination locality, and
   from there to .a -post office that can sort to carrier
   route. At each point, sacks of mail iiaye to be m-
   loaded, emptied from sacks, sorted, pu£ .back in sacks,
   and reloaded!'. The direct labor cost, only,, of .this
   additional handling as about onerhalf cent, according
  ''£6 .-official testimony in MC7J.1 on costs .that can be
.- iypl'd'ed. by mailer presorting.
:Maciu.hability of the mail, if it is not ^presoFtea/ is
 also ,of great importance. Eabor cos - of' mail sorted
.oh Optical Character Recognition sorters Has been estir
.mated at $0.0019 per .piece get .sort; on sorting machinery
where the address must be read and the letter directed
 to an appropriate bin by a .keying, system, the corres-
 ponding cost has been estimated, at 50.0036; and,, at ccm-
gletely manual cases, vhere the number of separations is
more limited, the cc      .as been estimated at $6'.QO_S7.
 Since the bulk of cc     incurred at post offices is
 sorting cost; the nachinabili-ty of letter-size mail is
of great importance.
The foregoing estimates are national averages, ?here
are large, variations from one ppat office to another.
It is clear, however, that mailers using the same general
Teinds of -processes as the Postal Service, would find it
advantageous to specialize in local mail that is either
presorted by nailers or highly machinable, and the
prospects are better forfche-competitor in geographic
areas where conditions are favorable -for high labor pro-
ductivity..
                          115

The Postal Service already must endure two kinds of cream
.skimming under the Private Express Statutes as now
drawn: (a) operations of private mail services in de-
livering communications not considered letters under
the .Private Express Statutes; and (b) use by large mailers
of their own personnel to deliver communications that -are
defined as letters under the Statutes. The former kinds
o.f communications .are .uhaddressed' advertising materials;
the latter are mostly .bills' of-public utility corporations.
The recent general' increase in .postage fates appears to
have accelerated the growth,of these two kinds of cream
skimming.
'•>''"                      •
 Private firms delivering unaddressed advertising- matcr-als
 generally charge '(according to data that may be outdated
 in some cases) one or two cents less than the Postal Ser-
 vice minimum rate of about five cents per piece of mail.
 They also claim, in sorae cases, to guarantee delivery on
 the date specified by the customer, but -they.'handle local
 mailings almost exclusively. Pr.esumab)y., their unit
 costs are somewhat .below the rates charged. During FY 72,
 Postal Service costs estimated as attributable to all
 bulk-rate third-class mail (which includes nonlocal as
 well «s local mail and pieces paying surcharges -above
 minimum rates for extra weight) were 2.'9 cents -per piece.
 Probably, therefore, Postal Service costs for the kinds
 of communications delivered by the private firms were
 lower .than those firms costs. Within these lower costs,
 the Postal Service is likely, also, to have provided
 better compensation,'to its employees, since the private
 firms tended to rely heavily oh-housewives, students, and
 .other part-time employees with..relatively low bargaining
 power. The- gain to Jailers who use the private services
xi£ probably- less than the loss to Postal 'Service >cusr
 tpmers, who must pay rates high enough to make up for
 the net revenue lost to the Postal Service in the di-
 version of volume.
Thcrn is a similar net loss to the public associated
with self-delivery of bills by public utility finr.s.
.Press releases .by some of those firms estimate costs
per bill as about 5 cents, compared with the Postal
 Service minimum rates of 3 cents for letters and 6 qents
 for cards. In, ?Y 72, the attributable cost-per Goycrn-
stient. postal card was 1.8 cents; per private post card,
2.0 cents; and' p.er first-class letcer or parcel of
average dimensions and distance, 4.8 cents (with ah
averageft;0 cents of -revenue per piece,. The .average
pie.ce weighs slightly bv«r one ounce.)




                      7229
                          116

 There are no official figures yielding unit costs for
 the kind of letters mailed by public utilities to cus-
 tomers, but the cost may reasonably be considered as
 closer to the costs for post cards than to the average
 cost for all letters and sealed parcels. As in the case
•of unaddressed circulars, any gain to customers and stock-
 holders of the cream sk'mmer is less than the loss to
 those who remain Postal Service customers.
Removal of private express restrictions on competition
would add to the Postal Service losses of local mail
volume having desirable characteristics.
An obvious expansion of cream-skimming opportunities
would be associated with establishment of private systems
to combine bill deliveries for all public utility firms
within metropolitan areas. After coordination of billing
cycles of gas, electric, and telephone companies, a pri-
vate firm could have a delivery crew making one delivery
per month in each of about 20 neighborhoods into which
the metropolitan area could be divided. Department stores
and other large local mailers having monthly mailing
cycles might also contribute to the volume for each
monthly visit to each neighborhood. The following document
details, a potential operation of this sort in Washington,
p.C. The operation could clearly be profitable even
though the cream skimmer, unless able to use labor paid
at substandard rates, would have higher costs per letter.
The foregoing kind of cream-skimming operation avoids
most of the Postal Service advantage of having a carrier
delivery system that is not chargeable to individual
categories of mail. The method of avoidance is to limit
delivery work to one delivery per month in each neighbor-
hood. The deliverers of unaddressed advertising do not
avoid the postal delivery advantage, but they make up for
that by avoiding all mail sorting and sequencing prior
to delivery.
Conceivably, a modification of the Statutes could
permit competition in all phases of letter-mail service
except carrier delivery, which would be reserved for
the Postal Service. Associated w-'th such a relaxation
of restrictions on competition would presumably be a
requirement for the Postal Service to provide its com-
petitors with carrier delivery "interconnections" in
much the same way that ATST is required to provide long
distance interconnections to independent telephone com-
panies. For such a situation, the following document
also describes a potential cream-skimming operation in
which the cream skimmer would collect presorted or highly
machinable mail from large local mailers and deliver
the mail to destination Postal Service offices sorted




                           7230
                          117

by Postal Service carrier route in time for next-day
delivery by the Postal Service.- Such a firm would be
 able to charge prices well below the 8-cent normal
.postage of Postal Service, or the proposed discount
 postage of 7.5 cents, even with a carrier delivery
 charge by the Postal Service of as much as 3.5 cents
 per letter delivered in bundles presorted to carrier
 route. As 'before, unless favored with access to labor
 accepting substandard wage rates, the firm's unit costs
would exceed those of the Postal Service.
Any projection of the potential loss of Postal Service
business from the kinds of cream-skimming operations
discussed in the cream-skimming report is, of course,
theoretical - no such company exists.

The evidence presented, however, suggests that losses
of postal revenues in the hundreds of millions of
dollars, from just the two operations considered, are
plausible. The dangers are clearly greater when it is
considered that relaxation of the Private Express Statutes
would provide an incentive for promoters to use their
ingenuity to generate other financially sound cream-
skimming ideas. In addition, there can be losses of
Postal Service business to unsound business projects
in which the proprietor avoids financial failure only
by access to under-priced labor (e.g., his own and that
of his family). Since the business lost by the Postal
Service would tend to be kinds for which net revenue per
dollar of sales are now relatively high, losses of letter
mail revenues in the hundreds of millions of dollars
would require significant price increases, and these
price increases might well generate additional losses
of physical volume.
The Postal Service would undoubtedly survive cream
skimming on the scale that seems plausible from the pro-
jected operations. The Congressional intent of making
first-class rates uniform with respect to distance and
the type of origin and destination, however, would be
frustrated. These mailers patronizing the cream skimmers
would pay less and Postal Service rates would, of
necessity, go up. The total postage :paid by customers
of the Postal Service and the cream skimmers combined
would rise; and since letter-mail volume, especially
in first class, has little sensitivity to price, there
could be little offsetting benefit in expanded availability
of marketable service.




                       7231
                                       119

       APPENDIX P-rll-. "CREAM-SKIMMING" POT£HTIAL

Executive Summary

CREAM SKIMMING:
THE THREAT OF PRIVATE SECTOR
COMPETITION FOR FIRST CLASS MAIL


      The Private Express Statutes Task Force has recently been considering
 whether the United States Postal Service should recommend changes in the
 Private Express Statutes. As part of this undertaking, the Task Force sought
 to determine whether, in the event the Statutes were abandoned or relaxed,
 the Postal Service might lose some of its most profitable letter mail volume
 to private "postal service" ventures that would target on serving the.most
 profitable segments of the mail market. The diversion of such high-margin
 volume (or "cream") has been termed "cream skimming. "

      McKinsey t Company was asked to help the Task Force assess whether
 cream skimming was a practical threat. As described in their report,
 Cream Skimming: The Threat of Private Sector Competition for First Class
 Mail, they conducted a brief study to determine: (1) would private ventures
 that might be set up in competition with the United States Postal Service be
 feasible and profitable; and (2) what impact might such ventures have on the
 Postal Service in terms of lost volume and revenue. This executive summary
 briefly discusses the major findings from that work and provides a short
 description of the analytical approach used.

 SUMMARY OF
 MAJOR FINDINGS
     Three principal findings resulted from the analysis of potential cream-
 skimming opportunities:

        f Local mail involving business transactions appears to be the most
          attractive market segment for potential cream-skimming competition
          to the Postal Service for^reasons of operating simplicity and low
          processing cost. The small number of centrally located business
          mailers that generate large volumes of bills and financial statements
          for local delivery represent a highly desirable client base for a creair
          skimmer. In addition, by focusing on these business mailers - e.g.,
          banks, department stores, and utility companies - a private postal
          venture could simplify both customer development and mail collection
          operations. Also, since such mailers frequently have their own
          preceding and presorting capability, cream skimmers could save
          significantly on processing operations.




                                         7232
                                         120

        ? Cream skimming enterprises could be highly attractive to enter-
           preneurs. A business entrepreneur wishing to launch a cream-
           skimming venture would likely be able to obtain the relatively
           modest amount of capital needed to start the venture. The analyses
          •.show that an entrepreneur can achieve highly attractive levels of
           profitability for himself and offer significant savings to his clients.
           For example, in the '.wo simulated ventures described in the report:
                  - The-first venture could earn a minimum of 18 percent
                    return on investment (after-tax earnings as a percent
                    of long-term debt plus equity) while offering its cus-
                    tomers an average 43 percent reduction in their
                    First Class mail postage.
                  - The second venture could give the enterpreneur a
                    20 percent return on investment while offering
                    its customers a 28 percent reduction in total
                    postage costs.
        r
            . Cream skimmers would divert substantial Flrat Class mail volume
              from the Postal Service. The analysis indicates that the Postal
              Service could lose about 4. 7 billion pieces-arid S420 million in
              revenues'annually ortra nationwide basis to cream skimmers of the
              type described in the report. This projection should not be consi-
              dered an estimate of the maximum possible diversion, however.
              Cream skimmers would have considerable flexibility in expanding
              their operations to handle different First Class mail volumes -
              e.g., major oil company billing, local retail stores. Competitors
              of the Postal Service are currently delivering only Third Class mail,
              which is undoubtedly less profitable than First Class transaction
              mail - and arc apparently achieving an attractive return. A cream
              skimmer could add such advertising mail to his deliveries at
              almost no additional costs and then undercut both the Postal Service
              and the private delivery firms now in existence. Thus, the 'Postal
              Service could lose even more volume and revenue to cream skimmers
              than projected in the analysis.

     In summary, the report concludes that, in relaxing the Private Express
Statutes, the Postal Service would face the threat that attractive segments of
its market would be diverted to private corporations launching postal service
cream-skimming ventures.




                                        7233
                                      121

APPROACH TO AND
CONDUCT OF STUDY
     To develop the conclusion stated above, the study created two private enter-
prises, on paper, that might be launched should relaxation of the Private Express
Statutes allow competition with the Postal Service. This approach was taken
since no comparable real-ventures now exist, current competitors of the'Postal
Service handle mail that is not covered by the Private Express Statutes (e. g.,
par.ccls.and advertising circulars).

     The two descriptive models of possible private enterprises are characterized
as follows:

        T The first offers a complete range of services from collection to
          final delivery. The corporation is constructed so that it is almost
          entirely a manual operation, therefore, it can be started and operated
          with only a modest financial investment.

        T The second venture competes with only three phases of Postal Service
          operations - collection, processing, and transportation. It
          interconnects with the Postal Servi e carrier dclivcry^network for
          the final sequencing and delivery of mail. This venture is'assumed
          to make use of advanced letter sorting equipment and other mechani-
          zation to improve the productivity of its labor force; therefore, it
          requires a greater initial investment than the first venture.

      To develop these descriptive'models, data was obtained from several
sources - including information jn the Postal Service's own operations and some
real potential customers. The Washington, D. C. metropolitan area was chosen
 as the base of operations for the two enterprises. It offered a representative
and manageable arban location where the validity of the findings could be more
easily tested. Customer nrofilcs and volumes, cost data, and operating details
\vcrc described for that market.

    The results of this analysis, including data, assumptions, and conclusions,
have beer thoroughly reviewed by members of the Private Express Task Force
and other knowledgeable Postal Service personnel.


    The complete cream-skimming report-reviews.the background of the study
and Contains, the detailed models and .profitability analyses of the tw.o cream-
skimming operations described al)ov«. The report io organised into three
chapters. a» follows:




                                    7234
                           122

J Chapter One - Cream Skimming and the Postal Service

J Chapter Two - Cream Skimmer One: Full Mail Service

t Chapter Three - Cream Skimmer Two: U.S. Postal Service Intercon-
  nection Service.




                                       April Z, 1973




                          7235
                                      123

                1 - CREAM SKIMMING AND THE POSTAL SERVICE


     Cream skimming is the competitive strategy of focusing efiorts on only
the low-cost, high-profit market segments of a business that is dominated
by one or a few firms. It is apt to occur when the prices of products or
services in a market segment are out of line with costs - e.g., the price
charged may be an "average" price designed to cover a range of higher
costs of operating in some market segments and lower costs of operating in
others.

     The operation of the United States Postal Service appears to offer signif-
icant opportunities for competitive cream skimming. Postage rates for some
classes (e. g., First Class) and subclasses of mail are required by law to.be
average prices, geared to the average cost of providing service nationwide in
both rural and urban areas. Yet the actual unit cost of service in each area
differs with mail density (i. e., with the volume of pieces and geographic con-
centration of destinations). Costs per piece are lower in high-density urban
market areas than in less dense areas, they are also lower for items delivered
locally than for those sent out of town.

     The hypothesis has been advanced that abandonment or substantive relaxa-
tion of the Private Express Statutes prohibitions will expose the Postal Service
to cream-skimming inroads from private competitors. This cream skimming
will most likely happen in high-delivery-density urban areas where the margin
between postal costs and postage rates is greatest and where it would, therefore,
be easier than in other areas to undercut Postal Service postage rates and siphon
off substantial volume. It is reasoned that the volume losses in these low-unit-
cost, high-unit-margin areas will raise the average cost of Postal Service
service elsewhere and, thus, under the breakeven mandate of the Postal Reor-
ganization Act, create pressure for higher Postal Service postage rates. Rate
increases will, in turn, open the Postal Service to more cream skimming,
beginning the cycle all over again. Finally, it is concluded that the inevitable
result of this chain of events will be an aggregate increase in the cost of pro-
viding the nation with the same level and quality of postal services it now has.

APPROACH TO STUDY
     To determine whether relatively large-scale private enterprises could be
operated at an attractive profit while offering mailers a significant postage
saving, we developed models of two private postal ventures. The following
paragraphs briefly dcscribc'how we set up the models and developed the data
for the study.




                                 7236
   •>»-!)« r, - 1-1 - |0
                                      124

     Defining the Ventures
     And the Market
     The two ventures have this in common: they handle only local First Class
mail for customers, under contract, who mail in quantity within a.circumscribed,
densely-populated area. The first venture offers complete, though specialized,
postal service to its customers, including mail collection, manual orocessing,
local transportation, and,home or office delivery. We have structured the
venture so that it is almost entirely nonmechanized and, therefore, .t can be
started up and operated with a modest financial investment. The second venture
offers only three services - collection, processing, and transportation to carrier
delivery stations where the cream skimmer interconnects with the Postal Service
carrier network for final home or office delivery. We have assumed that it
makes use of advanced letter sorting * qaipment and other mechanization to
improve the productivity of the work force. Therefore, the second venture
requires a greater start-up investment than the first.

    In both cases, the market chosen for the cream skimmers is the Washington,
B.C. Standard Metropolitan S atistical Area (SMSA), minus its two most sparsely
populated counties, Loudoun and Prince William.in Virginia. For analytic
purposes, this was found to be manageable and representative. The cream
skimmer's market encompasses over 900,000 possible stops, including house-
holds and business enterprises (Exhibit I).

    Selecting
    Potential Customers
     Considering the services cream-skimming ventures might have to offer
and the objective of focusing on mail with the highest margin between total
handling cost and Postal Service postage, we determined that primary sales
prospects were mailers having these characteristics:

        S High-delivery volume within the selected market area. This ensures
          the venture the highest gross sales revenue per client served and
          allows it to restrict its client base to a few large mailers, thus
          reducing administrative and operating complexity.

        J Use of First Class mail. If a prospective client uses First Class mail,
          three factors make him potentially receptive to the cream skimmer's
          sales approach. The 8 cent per ounce First Class rate: (1) is relatively
          high compared to those of other Postal Service classes, (2) offers no
          "discount" for the shorter than average local distance involved, and
          (3) varies directly with the weight of the piece mailed. The cream
          skimmer, thus, can exploit a maximum spread between its actual
          operating costs and the rate it can charge tor service (i.e., some
          price below the Postal Service rate otherwise paid by the mailer).




                                   7237
                                        125

        I Superior presorting and/or preceding capability. A superior pre-
          sorting capability allows the cream skimmer to hold the additional
          presorting costs it has to incur to complete j. .eparation of the mail
          for final delivery to a minimum; superior preceding capability makes
          it possible for the cream skimmer to introduce the most advanced
          presorting equipment.
        r
            j Regular and predictable mailing-schedules. This enables the venture
              to make the best use of its mechanical and manpower resources and
              helps assure a high return on investment.
        r
            j Proximity to venture's mail processing center. Where this is true,
              the cream skimmer can receive or collect mail frequently, thereby
              ensuring better service and avoiding high collection costs.

     We identified three categories of mailers that meet those requirements:
(I) utilities (telephone, electricity, gas), (2) local retailers with extensive credit
card operations, and (3) commercial banks. Within those broad categories, we
selected for our analysis 15 specific enterprises operating in the Washington,
D. C. SMSA (Exhibit II).

    Estimating Costs and
    Investment Requirements
     To cost out the ventures, we isolated each specific clement of cost and then
developed estimates using the best sources available. Sortatton costs per
piece, for example, are based on the Postal Service work load analyses; wage
and benefit levels for administrative employees are based on latest survey data
available from the Bureau of Labor Statistics -1970. Labor rates were checked
for consistency with special industrial engineering studies of sortation rates
and cost?.

    As for capital needs, postal operations in general require low levels of
inves'.ment per dollar of revenue. In estimating the requirements of the
ventures, we relied on figures from major equipment manufacturers, banks
and finance companies, and Postal Service so"rccs.

FINDINGS AND CONCLUSIONS
    The major findings a:.d conclusions of our analysis of the two hypothetical
ventures arc these:

        *j local First Class transaction rpai.1 v/ouH) be very vulnerable to
           diversion from the Postal Service tonatlstream to »fcam skimmers.




                                       7238
                                     126

        ? Both ventures are easy to launch.

        J Both have a high profit potential.

        T Either type of venture, operating nationwide, could divert at least 4. 7
          billion pieces of First Class mail from the Postal Service for an
          estimated annual revenue loss of as much as $420 million.

The following paragraphs briefly examine each point.

    First Class Mail
    Very Vulnerable
     The quantity of First Class mail sent by mailers in our analysis makes
postage expenditures a big item in their .operating budgets. In exploring key
issues with these customers, we did not allude to the possibility of a cream-
skimming venture, believing that unwise and premature. We did, however,
discuss flexibility of billing cycles, ability to introduce bar/half-bar-coding,
present mailing practices, and other factors, to test the judgments and estimates
we had made. During these interviews; we were aware that mailers had a
keen interest in cutting postage costs and determined that they would be both
able and willing to collaborate in an effort to reduce their postage bills.

     Other evidence confirms the vulnerability of First Class mail to cream
skimming. A number of utility companies undertake self-delivery of bills
locally at estimated total costs per p.ece significantly below th Postal Service
rate of 8 cents. * Also, Postal Service cost analyses attest to the high "profita-
bility" of local mail compared with nonlocal mail. For example:

        J The 1969 Revenue and Cost Analysis Report distinguished local from
          nonlocal First Class mail in terms of ' dcmonstrably related" or
          attributable costs. Local First Class mail was reported to have a
          3. 3 cent attributable cost per piece while nonlocal mail had an equi-
          valent cost of 4 cents per piece, or 21 percent higher.

        5 The Review and Evaluation Division recently analyzed the attributable
          cost of local versus nonlocal letter mail as part of its analysis of
          possible presort discounts for First Class mailers. The study identi-
          fied 1. 84 cents as the total direct labor cost of processing local letter
          mail compared to 2.40 cents (30 percent greater) for nonlocal mail.


    * - Virginia Electric Power Company (VEPCO) in Washington, P. C. alleges
        a total delivery cost of 4 to 5 cents per piece.




                                     7239
                                       127

    Ventures Easy
    To Launch
     It can be argued that cream skimming is feasible if investment require-
ments are not so substantial and operations not so complex that the/ preclude
successful start-up of at least one local enterprise. Under this assumption,
both ventures-are easy to launch.

     The first venture, analyzed in Chapter Two of this report, has been con-
structed so that it requires no fixed investment. Almost'all of the business
mailers who are clients of the venture not only presort their mail to the cream
skimmer's delivery area but arrange it in the sequence tne carrier uses to
deliver it. Venture personnel need only manually merge the incoming mail by
carrier route and, thus, no sortation equipment is needed. In addition, the
venture avoids the expense of maintaining a large deli-ery group by segmenting
the city into twenty areas and'covering each only once a month.

     As constructed, the second cream-skimming enterprise would require an
estimated ir cstment of $850,000 in sortation equipment, delivery vehicles, and
other assets.- Investment levels of this magnitude are not likely to be a barrier
to entry. Moreover, start-up of the venture would be aided by a number of
factors:

        f Sortation equipment available. Assuming that the Postal Service,
          in relaxing the Private Express Statutes prohibitions, also relaxes
          its right to bar others from using sortation equipment designed by
          private manufacturers under Postal Service contract, the venture
          would have highly regarded equipment manufacturers at hand to
          supply a complete range of existing equipment.

        J Delivery vehicles easy to secure. The delivery vehicles used in the
          venture would be ordinary vans and small trucks available through
          a number of dealers in every-major metropolitan area.

         5 -Sources of investment funds readily available. Since commercial
           .banks are one oCihe prime ^rospectK for the crsam skimmer, they
           may also fee prime jourcet-pf loan fundst Even 'though the second
            cream-.sktpimer is .relatively capital-intensive, firm contractj with
           well-established loral businesses, cot-pled with provision, oi service
            Uncommercial banks that tf_reasonably certain .of saving fncm
           Substantial postage cost, should encourage Iocal ; b4nks to provide
   "-.-.  -3ie<!dc<i capital.  ..'       ; ~f       ~^.        ' '                ;
                                       128

    Profit
    Potential High
     Both enterprises are profitable at pricing levels believed to be highly
attractive to client prospects.

     The first venture provides full mail service at cost (4.4 cents per,piece)
to.those large utility mailers who are the foundation of.thu enterprise. Other
mailers are charged cost plus 10 percent, or 4.8 cents per piece. Thus,
mailers save between 40 and 45 percent per piece over the basic First Class rate
of 8 cents. Using this pricing strategy, the first ve>-h"-e earns $48, 500 per year
in after-tax profits, for a 2. 5 percent return on sales (ROS). Because of the very
low investment requirements, this ROS results in a return on equity (ROE)-of
32 percent and a return on total investment (equity plus long-term debt, or ROI)|
of about 18 percent. All of these-returns can be substantially improved by in-
creasing charges to customers, increasing productivity, or reducing required
investment levels.

      Because the second venture requires a much greater investment than the
first, it has been assumed that the minimum acceptable ROI should be at least
as high as the first - i.e., 20 percent. Following this assumption, the uecond
cream skimmer charges mailers 2.3 cents per piece. Added to this is 3.5 cents,
which the Postal Service might charge for carrier sequencing anj final'delivery; *
Thus, the mailer's total cost per piece is 5.8 cents, a 28 percent saving,over
the 8-cent First Class mail rate. For the cream-skimmer's clients, this
reduction in postage.charges translates into significant annual.cost savings.
The largest client - a utility company - will save $275,000 a year and the
smallest - a bank - about $15,000 a year. For mailftrs whose avcragjr postage
is higher than the minimum 8 cents (e.g., banks and credit card operations),
the average savings will be even greater. lAv.erage tflyen.ue gi»r piece of First
Class mail in Postal Fiscal Year IPFY) 1972.was 3.95 cents.** Thus,, .» 5,.S cent
total cream- skimmer charge rep-ej.ants a 3i percent saving over tht average.}
Using thin set of assumptions, the^sero.nd crcarr^skirnmer earns a.net profit,
after'taxes of 3155,000 annually.      _           .                     _^.


    ' - We have a*3.irned that jtheiPostal Service would change 3. 5 cents ner pitcc
        to deliver Jiiail sorted to carrier coute «nd*carri«r delivery statlof-a. See
        page 3-3 fog more complete explanatio'n-6f basis for 3.5. cent per.piece .-.
        charge.           , , . . . ' -      -•C '    _ "                      ,'':
   ** - Tojat revenue of $4, 379 miUlpn divided by tctal PFV..1972. First Clasz
        mail pi. .c volume of 48, 93.3-uiUion equal" 8..$$ cents average per gipco
        revenue.                      -                ,""._-,     _    -        _
                                        129

     Significant .Impact
     On Postal Service
      The impact of cream skimming on the Postal Service would be substantial.
 In the analyses presented in Chapters Z and 3, the twp cream skimmers hanHle
•an annual volume of local First Clasi mail ranging between 43 million and
 53 m;llion pieces. It is believed that both ventures could, with little effort,
 increase those.figures to 80 million pieces annually. At an 8.95 cents
 average per piece postage, this represents a.revenue loss of $7. 16 million in
Washington, D.C. alone.

     Projecting-that loss-nationwide, similar cream skimmers could be assumed
to enter the 115 largest Standard Metropolitan;St?tisticai Areas, areas where
estimated piece volume would be sufficient to employ a 1.0-man minimum
delivery crew on a full-time basis. Revenue loss to the Postal Service in those
markets would be $316 million annually. Were operations,like those of the
first cream skimmer established in the 300 largest markets in the United
States, the potential revenue loss to the Postal Service would be about:$377
million annually.

      Based on Postal Service data, the loss could be evsh higher. According
 to the 1969 Revenue and Cost Analysis Report, locaT First Class mail accoui>*s
 for 30 percent of all-First Class mail pieces, and'40 percent* of all/mail is
 "transaction" mail - bills, statements, and : the like, which would'be more
.attractive to cream skimmers than local correspondence>m'ail. Using/these
 data, it can be estimated that, of the '49 billion picc.es .of First Class mail the
 Postal Service handled in PfY-1972, about 14.7 billion wore local'maii and, of
 that, a.bout 5. 9 billion;piecos were transaction mail. ** .{f-cream skimmers
 cap.turcd 50.-percent of'that market, they could divert.2. 9 billion pieces of
 $260L^nillM>a 'leom the Postal -Service, tf they caplurep 80 percent, they could
 divert 4, 7 billion pieces or about $4.2.0 -million. *»*


    * - A.J). Little market research reported in the Kappel Commission report.
                                                      . ^               " -
   ** - McKmsey I- Company calculation based on indicated Postal Service data.
     v - Jttsh<5_cld be noted'that tjie <40 percent, factor used above actually denotes
         the percentage of all mail, not just local'letter mi-1, tha^-.ig transaction
         mail. The percentage of local mail that is alsc- transaction fcfil nviy
         quite possibly be grcater^than 40 percent; if this is so, the. potenfixl
         picgs^and revenue Iosse«ivvg|ven.ab6ve are-jnderjitatcd.              -v
  *** - McKinsey.Jt Company «etimat<vs,_ Assumes that major transact^
        mailer«-lbanks, utility companies, etc.') account for between 50 and 80.
     ^..percent of such local mail and t{>at cresrh skimmers coulrf attract
       "ihe majority of their..
                                          130

  ..captured 50 percent of that'market, they coulchdiyert '£.. 9 billioivpieces'or
,, $260AmilUon frorri.the Postal Service, it they captured 80 percent, they could
    divert*4. 7 billion pieces or-about-$420 million.*


        In summary, -it is believed that private firms could,provide efficient.postal
   services at^significantly'lowsfc ' postage' costs to selected hlgh-volume'maiters
   of local First Class letters. The ease of-entry-apd profitability that;character T
   ize such-competitive.postal services^are sufficient; in our view, to attract
   entrepreneurs should the Private Express Statutes be.abandoned or-subs tar.tivelv
   relaxed-. -If the cream-skimming ventures analyzed here existed across;the.' \,
   country, the revenue loss the Postal-Service could be more than $400 million
   annually in local First ClasTtransaction mail alone.

       In the nextlwo chapters, the two creim skimmers analyzed for this
   study a-.e described. Includediare supporting data, calcuations, and estimates
   used.inireaching/the gerieraLconclusioris just presented.




                     ,.!' Company estimates. Assuraes that major transiactioh
       ..- njaileri (banks;_jitility compares, etc.) account for bvitv/uen 50 and
          .E£) percent of such Ic'cal mail and that cream skimmers could attract
        " the majority of them.                      - _ ••- : :•
                                                                             131

            ,         ;              -               CREAM SKIMMER"ONE: FULL MAIL SERV£CS
                                                   2 -.CREAM SKIMMER ONE; FULL MAIL SERVICE
     -y         ;   '.               .'             ,.•       . . . . .      .           .   -




                                this chapter describes a private vcntureMo deliver mail door-to-dcor
                           in'the Washington, D.,C. metropolitan arei (Exhibit'I). It'coyers thise
    ,- "                 ' topics:

                      '- '                -?' .Description,of the venture

    ";•;.                        • ;-~ : ^'Operating assumptions

:                                         S Organiia.tipn and staffing

                                              5 \Cost structure anJ pricing strategy.'
                                 %
V                            -                S Profit outlook.

        ^"-.•DESCRIPTION
     ' > ~ O F VENTTOE
_.                             Cream skimmer one delivers mont.ly bills and statements (transaction mail)
                          to the customers of. four utility companies and five.retail charge card businesses
                          (Exhibit II), The venture.'? c .stomers presort their mail by geographic area
                          and arrange it by carrier-delivery sequence, the cream skimmer then merges
                          all.mail received so .that'.cach carrier's batch is ready for delivery. On ; the
                          following business .day, carriers collect their mail, drive to their routes in
                          their own cars, .and-delivef the mail dooi-to-aoor. Although they are expected
                          to do their-own staging, route supervisors arrange for staging, facilities when
                          made necessary by,,parking,or other problems. Undeliverablc as addressed
                          mail is returned to the customer.

                          OPERATING-ASSUMPTIONS
                               This jycnture ass.utr.es that-the customers of. cream skimmer one are
                          sufficiently/motivated by. the potential postage savings to cooperate with the
            _..           venture'h'/:

                                          I. U.sing-a billing system that.dividcs customers into twenty geographic

                                                                        .
                                          2
                    .;•--.- •'-'"'            - Providing, Mils-on a'sBifne'd days

                                     . 3. Arranging mail in the. address sequence designated by the cream
                                          skimmer.
                                      132

    Billing By
    Geographic Areas
    At present, many large firms smooth their monthly billing activity by
processing and mailing a portion of their bills each day. Although the assign-
ment of a customer to a billing date (or billing cycle) is often an arbitrary
decision, at least one utility mailer told us that he bills by geographic areas
corresponding to meter reading schedules.

    Providing Bills
    On Assigned Days
     Since the venture sets certain days for delivery in each geographic area,
the client must gear his billing system to conform. This may require a mailer
to reassign all, or most, of his customers to new billing dates. Interviews
with utilities indicate this presents almost no programming problems, credit card
operations, however, may have to make more extensive adjustments. The
difficulties of program modification will, of course, vary with the complexity
of the customer billing system and should not be underestimated. But it is
worth the effort. Even six to eight man-weeks of reprogramming, at a one-
time cost* of $6,000 to $8,000, can easily be justified by the savings a mailer
stands to gain from using the monthly delivery service. If, for example, he
is billing 100,000 customers a month and saving 3 to 4 cents per bill, he can
recover the one-time cost in two to three months.

    Arranging:Ma I in
    Address Sequence
     Utilities and most credit card clients can easily prepare their mail in the
address sequence designated by the cream skimmer. Each bill is assigned a
number consistent with the walk sequence of the routes and then bills arc
printed in that sequence. Thus, they can be sorted into walk sequence by a
single additional computer routine. Based on published sorting speeds and
processing costs of an IBM 360 model 40 computer, <"> the extra monthly cost
of sorting 100,000 bills will be no more than $90, or less than $0.001 per bill.

     The problem is simpler for credit card companies (and banks) that must
sort invoices (or cancelled checks) and merge them with the appropriate


    •' - IBM's top programmers can be hired on a per diem of less than $200.
   •-•' - Many of the potential customers may have bigger, and perhaps newer,
          equipment with better cost/performance characteristics than the
          360/40. For example, the cost per bill on 360 model 50 would be
          less than one-half that of the model 40.




                                     7245
                                          133

statements before inserting them into envelopes. * Electronic sortation to
carrier route only, or in carrier walk sequence, would involve a costly over-
haul or a so-called "country club" billing system. The same thing can be
accomplished by mechanical sortation devices (e.g., 100-position L-SM). Even
with a purely manual system, the cost of sorting to carrier walk sequence is
not prohibitive. For the cream skimmer's carrier routes, it is less than 2 cents
per bill (using the Postal Service productivity and pay rates), and thus does not
appear to preclude country club billcr's participation in the venture. In Washing-
ton, for instance, Central Charge Service could save a minimum of $60,000 per
year (or more than 15 percent) in total postage costs even though it uses only
manual sortation to walk-sequence its statements.**

     Given this level of customer cooperation, the venture needs only a modest
"merging" or sortation capability to combine the carrier walk-sequenced mail
of its several customers before delivery.

     The possibility that a customer (because of computer breakdown or other
delay) may not have his bills ready on time and thus "miss his turn" for
delivery is .ever present, of course. In actual practice, companies usually
have adequate service centers and other back-up facilities they can turn to;
moreover, they can-allow for such contingencies by advancing their cycle
at the outset and by having an inventory of one or more days worth of-bills
always ready. To project itself, however, the delivery venture could negotiate
a penalty clause in its contract requiring full payment-even though the customer's
bills are not ready on.time. (The customer, in turn, could obtain delivery by
sending such bills via First'Class-mail using the Postal-Service, as its'ba.ck~yp-
service.)
                                                                   u       .   .        ••'.<./.

ORGANIZATION                                                                       .".-" :.
ANDiSTAFFING                                              "                        -':". • • • ' r.
        To implement this operating approach, cream akiirupcr, one i« organized
into:

             A field force of-y9 <arrjers,- !0 substitutes, and' 10 fleM
             supervisors


        * - "fhou^h not included Jn this analysis, banks arc.a major potential
            source of addUibnalivj»'.\irnet.rc?5rany local delivery firm.
   ** - During our fieldwork, we noticed that credit car<5 companies are
        tending.to replace country clue billing with 'descriptive" billing.
        Thin trend could.probably be accelerated if gjch companion found
        they could save more than 3 cents per piece over First Class
                                         134

         f A merging staff of 18

         5 A management and administrative staff of 8 (Exhibit III).

 How these staffing needs were determined is discussed below.

      Field Force
      The field fores delivers mail to its final destination - local homes and
 offices. The most important variable in determining field staffing (and cost)
 is stops per man (i. e., the number of households or businesses on an average
 daily route). These have been estimated at 457 per man per day by:

         1. Taking the average actual deliveries per day (357) shown in a
            recent nationwide sample survey of Postal Service city delivery
            carrier routes*

         2. Multiplying this average by 0. 8 to deflate it; to account for the fact
            that the venture's carriers will not be so familiar with their routes
            as Postal Service personnel and must sustain a pace over eight
            hours rather than five

         3. Multiplying the product of (1) x (2) by 1.6 to reflect the additional
            60 percent of time in the delivery day.

 The result is a conservative estimate. Since it is a key building block in other
.estimates, it therefore ensures that all additional cost estimates are also
 conservative.

      -As JSxhtbit I shows, there are 902, 900 households and businesses to which
  monthly deliveries will be made. Dividing these by 457 stops and then by 20
  delivery days each month, we find that the venture needs 99 carriers each
  working, day. To .provide for sickness, contingencies, and supervision, we
  have added substitute, carriers and supervisors - each on the basis of one per
- 10 carriers .{rounding to full men).

     'McrgingiStaff
      The, Important variable in dctcrrmniiig sortation or mcrgi ng staffing
 (and cost) is sorts per hour. Sorts have been estimated at 1, 500 per man by:


     .*•» Source: Deliver'-/, Cost Information survey conducted at'the Postal Service
          in-December, 1971.




                                       •7247
                                       1'35

        1. Taking a Postal Service estimated .rate of 30 pieces..per minute
           for casing of route-sequenced letter mail*

       2. Multiplying this by 50 minutes per hour to deflate the result, thus
          allowing for breaks and scheme changes.

IVith an average of about 180, 500 pieces of mail per day, 121 hours of sortation
are required. It is estimated, howover, that each merger staff employee will
sortonly 7.5;hours per day (allowing 0.5 hours for set-up). Thus, 16 full-time
employees wilrbe required. To provide for contingencies and supervision,
one substitute and a me'ger supervisor (who can also-substitute as required)
have been added.

    Management and
    Office .Personnel
   . The venture's proprietor will do the general management-.and promotional
work. Operations'will be managed ; by two men, .a. manager and an assistant
manager, who direct the field supervisors and^thdmerger staff. Secretarial,
administrative, and payroll activities will require five employees, one'Glass B
and one Class C secretary, and one Class A and two Class B accounting clerks,
(from job descriptions in BLS Area Wage Survey. 1972 for the Washington, D. C.
area).

COST STRUCTURE AND
PRICING STRATEGY
    .The costs of operating a venture ol the sca.e just described are detailed
in Exhibits .TV and V and highlighted as follows:
                                                                      Cost
                                     Annual        Percentage      Per.Piece
    Field-delivery      .         $1,518,'187        80,4%            3. 5£
    Spjrtation                       2I3,.3S7        11.3             O.S
   -^General and administrative      156,911          8.3             0.4
                  TOTAL           $1.888,455        100.0%            4.4£


    * - Source: Delivery Services Department. This estimate is for "live" mail.
        To be conservative, it has been used in describing the venture. However,
        maiL.sorted by the venture,will be computer-generated and'thus more
      • legible and physicially homogenous than .typical live mail. Because ven-
        ture sortation employees will be casing carrier walV.-sequenced mail,
        their rate could even double the 30-p.er-minute estimate.




                              7248
                                         13B

       Based or. <a .per piece cxwt of 4.4 cents and a profit margin objective of
 10 percent o,er piuce, the price chargeu for delivering a piece of mail could
be o.et.Jit 4.3 cents. As part of .tts strategy, however, cream skimmer one
 is. going to include volume discounts in its cost structure. Utility companies
and otherJiigh-voUime, regular customers will always be guaranteed preferred
 rates. Rates.for other mailers may be higher than 4.8 cents (based on projected
higher-than-avptagp1 promotion and overhead costs)., but they wlil still be
.Significantly below-Jhost charged by the Postal Service. Cream, skimmer one
may-even predict retroactive rate reductions^to its customers if further volume
 increases reduce unit costs in. laioz periods. Actual per piece prices charged
vustomers under such a promotional or incentive pricing acherpe couiJ probably,
 range from 3 to 6 -..>:n,ts - well below the current 8-cent b.asic Postal Servu<; rate
for First Class mail.

      It would appear that this pricing strategy could attract the customers
described earlier. Moreover, the prices seerrt to DC low enough to induce them
to modify their billing systems to meet L.t venture's operating-icquircments.
 Though the barriers to Competitive entry are negligible, the low prices - plus
the. contracted loyalty of a core of utility and other large mailers - make it
unlikely that others will try to.enter this form;of private delivery.

      Exhibits IV and V contain no provision for depreciation charges since the
 venture has virtually no fixed investment, the only asset requiring long-term
"jCunds?is working capital.

PROFIT .Q.UTfcQOK
  ;.  Given the venture's cost pattern and present Postal-Service rates, the
 profit possibilities ate. attractive. If utilities, ar* priced at breakeven (4.4 cents
-ger piecel;.a.nd c4her customers at cost plus a 10 percent profit, the venture
 can realize-about $48, 500 per year after taxes. Assuming total.capitalization
 oi $300, 000 ^approximately two months' expenses! and a 1.1 debt-equity rajtio,/
 this represents, a 32, 3 percent return on the $150,000 in equity required to
 operate the concern (Exhibit VIj. Comparing-this return with the 1970 average
 for all U.S. manufacturing - '1. 5 percent - indicates that the venture is quite
successful. Moreover, the venture .could significantly'imnj-ovc this return by
 reducing investment levels and operating costs or increasing prices and piece
volume.


       -. Assumes that f i r m contracts with customers arc uscd-to support data.




                                            7249
                                       137

    Reducing Investment
    Levels and Operating Costs
     The venture could reduce investment by requiring payment more promptly
than the 30 to 60 days allowed in this analysis. The Postal Service now requires
payme.it at or before the time of mailing. Private postal companies are also
paid promptly. As Mr. Gerald J. Billings, President of the Pacific Postal
System, stated: "How are we paid? Instantly. If we are not delivering on
a regular weekly basis for aniaccount, the payment is received prior to delivery.
Our regular customer's payment is scheduled so that the charges for the last
delivery are received prior to the next deliveries. "*

     Besides requiring more prompt payment, the venture can reduce invest-
ment by other means - for example, factoring receivables. This option would
bring some added costs (10 to 15 percent of the value of the receivables)
however, and thus lower profits if delivery rates were not raised slightly.

     The venture can reduce operating expenses by paying lower wages than
those used in this analysis (for example, by hiring housewives and retired
postal employees, who customarily command.a lower rate). Also, as noted
earlier, the sorting and delivery estimates used in the model are very conser-
vative, should productivity be raised above the levels given, the venture could
deliver the same piece volume with less manpower, yielding higher profits
per piece.

    Increasing Prices
    And Piece Volume
     Once the enterprise has developed a track record of delivery security,
promptness, and reliability, it should have no trouble in raising prices. The
prices used in this model offer utility companies and others savings of 40 to 45
percent over the Postal Service 8-cent rate, the savings would be even more
substantial with a postage rate increase.

    The venture can easily increase its volume by:

       f Expanding the number of "First Class" customers - for example, by
         adding such mailers as commercial banku (who generate monthly
         statements and cancelled checks) and savings banks (quarterly
         statements)


    - - Source; "Private Postal Sff's^jfccif Qrow Offering Saturated Coverage, "
        speech by Gerald J. Billings, President, Pacific Postal System.




                                   7250
                                      138

        y Taking on saturation and other types of Third Class deliveries, 'such
          as advertising circulars. (An estimated 50 to 60 private delivery
          organizations now prosper delivering mail matter not covered by
          the Private Express Statutes including Third Class matter. Pacific
          Postal System is one example. It charges its clients about 2. 5 cents
          per piece compared with a minimum Third Class Bulk mail rate of
          4.8 cents.*)

Because stop time on a route docs not v a r y proportionately to volume, increasing
piece volume would not necessarily increase costs and could have a substantial
impact on venture profits.

    Effect on Decreases and
    Increases on Profit Outlook
     Possible reduction in investment requirements or operating costs, as well
as possible increases in prices and volume, can have a dramatic impact on the
profitability of the enterprise. For example:

       5 A 20 percent reduction in total invested capital would rai c return
         on equity (ROE) from 32. 3 to 40. 3 percent.

        J A 5 percent reduction in total expenses would raise annual after-tax
          profits from $48, 500 to $74, 300 and ROE from 32. 3 to 62. 9 percent.

        5 A 10 percent increase in pricing would raise after-tax profits from
          $48, 500 to $144, 300 per year and ROE from 32. 3 to 96. 2 percent.

       r A 10 percent increase in volume would raise after-tax profits from
         $48,500 to $135,900 per year and ROE from 32.3 to 90.6 percent.

Accomplishing all four objectives would increase annual after-tax profits
from $48,500 to $242,000 and ROE from 32.3 to 201.7 percent.



    In summary, it seems clear that a private postal venture - receiving,
merging, and delivering machine-generated and largely presorted/'prcscqucnt-cd
mail of major local mailers - can be undertaken in Washington, D. C. and in
similar metropolitan areas. Based on the model developed here, an average
revenue per piece of 4. 55 cents and a cost per piece of 4.4 cents will give an



      - Source. Report on current competition prepared by the Postal Service
        Inspection Division for Private Express Statutes Task Force.




                                      7251
                                     139

entrepreneur more than a 30 percent annual return on his modest equity invest-
ment and offer his customers a savings of more than 40:percent in postage costs.
            ^
     It also seems clear that a venture like the on<* described can expand or
contract its operations to handle virtually any piece volume level efficiently.
It need only employ more or fewer sorters to sort and sequence the mail and
more or fewer delivery meii to deliver it. Certainly, as volume grows larger,
operating complexities will also increase, requiring more skilled and more
numerous managers and staff personnel. However, what remains unclear is
the exact point where operating complexities would cause the venture's costs
and rates to increase to levels approximating those of the Postal Service.

     The vol me potential of cream skimmers could be larger than the projec-
tions we have made, since a number of factors keep the cost jf cream-skimming
operations below those of the Postal Service and would allow the cream skimmer
to continue to offer its services at lower rates than the Postal Service. For
instance:

       5 As long as the cream skimmer focuses on locally generated intra-
         city mail, it-will avoid the significant additional costs and operating
         complexities that the Postal Service experiences in handling inter-city
         mail including transportation and extra ^ortation.

       5 As long &s the cream skimrr.er focuses on machine-generated mail
         (e.g., transaction riiail), it can avoid higher sortihg^costs by
         requiring the mailer to share the sortation burden.

       T As long as the cream skimmer focuses on mail with regular.and
         predictable volumes, it can avoid the additional costs the Postal
         Service must incur to ensure that it always has a reservoir of
         manpower and equipment.

      On th^ basis of these observations, it can be argued that, should the Private
Express Statutes be abandoned or relaxed to legalize cream-skimming compe-
tition in letter mail, virtually all local letter mail generated by volume mailers
can be diverted from the Postal Service mailstrcam. Estimating the maximum
"limit" to this potential volume is outside the purview of this study. -Some idea,
of it may be cotter by estimating how much local, centrally generated, transa'c- ;n
tion mail cream skimmers might eventually capture. 'Jsing Postal Service data,
it is calculated that abo'it 5. 9 billion pieces of such mar. were generated in




                                     1232
                                       140

 PYF-1972. At 8. 95 cents average postage per piere, total transaction
mail volume in 1972 was-S525 million. Assuming a potential cream-skimmer
penetration of from 50 to 80 percent, the Postal Service could incur a revenue
loss of between $263 million and $420 million-.annually. Furthermore, assuming
that about half of this revenue represented a contribution to institutional costs,"*
and using as a base the Postal Service PFY-1972 deficit of $175 million, the
loss could increase the annual postal deficit by $210 million or 120 percent.




     1 - Total First Class mail volume of 48,033> million, multiplied by 30 percent
         local mail (Source: i969 Revenue and Cost Analysis Report. Note:
         1.969 is the last yea; that these data were included in the RCA Report)
         and the result multiplied by 40 percent transaction mail (Source:
         A..D. Little research in support of the Kappel Commission.Report.
         Note: The calculation assumes that the 40 percent-factor applies
         net u nly *o all mail volume, as stated in.the source, but also applies to
         local letter volume,)
     2- Source: FFY-1972 Revenue and Cost Analysis Report.
     3- Source: McKinscy fc Company estimates.
    4- Source; 1969 Fcvenuc and Cost Analysis data for contribution to
       institutional coi;ts of local First Class mail..




                                       7253
                                                          141

                            CREAM SKIMMER. TWO:            INTERCONNECTION SERVICE

                                      3 - CREAM SKIM\tER TWO:

                        U.S. POSTAL SERVICE INTERCONNECTION SERVICE


           Cream*skimmer one in Chapter 2 competed with the ,Pastal. Service in-at!
      phases o£ opcraHbn - from-collecjUon to final delivery - and,was almost entirely
      manual. Crjtam skimmer two has .been constructed to compete with'the postal
      Service, in only three operations - collection, processing, and:transportation
      to local postal stations for Postal Service carrier delivery, under an assump-
     tion of high mechanization.

          With the characteristics just described, cr.eam skimmer two could represent
     the kind of venture that might.be established if the Private JCxpress Statutes
     restrictions, on .private carriage were restricted^to only certain functions -
     6.g., carrier sequencing and delivery of mail - but hot to others - e.,g., col-
     lection, processing,, .and transportation. The purpose of this chapter is.to . _.
     present analyses concerning.-whether such a venture could be feasible and'
     profitable. As in the previous chapter, the venture is assumed ito operate in the
     Xashingteh, D.C. ,5MSA. The discussion is.'in five parts:

'- V,         .V? .Description of the venture
      ^      \_
                  J Operating-assumptions and estimates

''          \     $ Organization and'Staffing
           ••X--- <-  ?'.   "      -. " ' "
          X -.v r    >"t ..       _•'..>                       "-"
          ••- - i. Capital requirements .                  -              •    -                    .

                  r
                      i Profit outlook - both fpr the crean^.skimmer and the clients, it swerves.

S^DESCRiPTION-OF                        -^ '                  : , '.
                                                     :
  THE VENTURE                             '      .       - ~• . ' . ; '
           Cream.^kimmer two is presumed to have contracts with 15 mailer customer*.
      (See Exhii;Jt II for potential customer nirr.eo.) Throughout the day, the venture
      receives mail from its clients at the venture s central processing facility. In
      addition, onc.e » day, between 7;00.jt. m. and SiOSjvm., the venture pickc up
      mail fron-x each customer with t*o 'bntt "o^'A-lrucks. During the two shifts
      between S;OC-;a.m, and midnight, the-thjtl is unloaded; sorted by, delivery
      post offic«. : and carrier route, and ; bu,tdled,and sacked at the processing facility.
      Between midnight and 8:00 a. m., all mail is- tranoported to the 89 carriei;
                                                 •142 '

delivery post offices n.the cr.eam skimmer's 1 market area. Ther.e, the'Posta.l
Service assu'mea.responsibility fat-carrier delivery.
                 • • ' •*. r<<
                       -       '     ^ l : > -, .-' . . .• f, . -» • . <      •    • , . .,
      This operating cycle clos-ely parallels-that of'the. Postal Service in the
ithree services it performs — collection, processing, and transportation. And";
because the CLream'S.kimmer is-'rclieying^tte Postal Service of the icsponsibiltty
 to provide certain, services to a significant-number. P£ mailer users, v/e have
 assumed that the .Postal-Service will.make Certain concessions to tlie^.cream
                                                                                            ;
 skimmer. Thesc-two poihts.ajb disojissed beiov/,.                               .
                                                                                                          4
                             *'*~'        _ - *' '   '*   i.       "   '.        '   " '   ~; '   '            -'""'•
^                       •            ' ' ' * " ' . ' •    \~   '            ~r                        >       -'
     Gream Skimmer Parallels            ' x'  .' •' , ,  " •              "    • - :-
     Postal Service Operatiorts;-i                             .        •          •"
                '  ^—:TTT  '•   ~ ,        •
     During its operating cyv-le, thfc cfftam skimmer performs:fof its customers:

         1. All the collection-services, the Postal Service normally undertakes in
            receiving mail at a\post office anri-ih picking^ up mail from public
            mailboxes (or at thc:,mailer'^ facilities-or other-places). Cream
            skimmer two.both receives and! collects maijl-from its-mailer customers;

        2. All the processing'the Postal'Service do.cs in^the post office of'entry
           and.in trans it:.pos'.t offices until'the. mail teaches the'final delivery post
           office. The only "processing" function'presumed under-continued
           protectioivby the Private .Expr.ese Statutes is the final sequencing
           the letter carrier performs bifore-startir-g out on his delivery route.

      . 3. All transportation the-Postal'Sitrvice.performs except delivery. The
           transportation pattern for intra-city mail is movement from post
           office of-entry to Sectional Center Tacility (SCF) to delivery jpost
           office. Cream skirnrh,er two relieves the Postal Service of its trahs-
           portatioa-job by trans porting iall of the client's mail to the delivery
           post office.

     Concessions Assumed
     In Venture Description
    Since the operation of the cream-skimmer allows the Postal Service to avoid
costs normally incurred for collection, processing, and transportation, the model
assumes that the Postal Service will grant some concessions.

    The first important concession assumed is that the Postal Service wi'l offer
cream skimmers a discount. To qy<ilify, the private venture is expected to per-
iorm the,operations described above - including bundling the mail by carrier




                                              7255
LV ^




    „_. and .bringing it tq the daiiveryfusi office^ .h.fore.pve.r, Ihe delivery must bq
          at hoilrs convenient- to'fheP.o^lai (Service.- i.;cj., .prior-to the--CirrjL«'s;^r>"iv.-al.
          It has'been^ay'ujTiCG.the Postal ;Ser,vict, '.iouldise^upfa spcEiAi-ciassiftcftion-'Oi
          srubclassificati&sJt'> accotiuftodaje this -jn&fi, andy/ouW,g^ant tne cr,usin skirhrr.er
          ^significant discount off't&e.rcgufar Plrsi Clajjs-mail ra.lj:,           ,                     .
  :_ ' : ---'     . '>.'•.'•' .-             -v '--..'. •-"-•• M" "' •'-.>''      ~?      '•-.'••- ^.' \i
                For purposes •o^tUis:anal.js59j- the.rate^ia* been.s^t.jit 3. 5 cents piiripiece
          to jcoyex the asjeumf.d average tqlil'cost fsttrioutablf^pli.iB ingtit.utionalj^of\-e.e- . ^ .


          '^ it i8(.gpssibl^.;that a rate such »s thts-may be .inconsistent-with the/fJnaL'
        .pricing^lrategy .adopted by the PastaJ. Servic^ should itieyp-r be faced -wi' a
         ser.vicd-interconnecUf(n, .rate and, classification problem like the. one presented
       _;her,J^.rFor example, the Rp/'JaijService,tray argue thpt. ^e reto should' coyer. N
         hot onlY'.the ave^aRe cost^pei; \picce-of'the specific Cervices provided-.but should
         cqniributeitp'Jthe overhead and operating costs, the. Postal S.efvyce must inr-ur
         lo makfe'its-.carr»cr seguehcing and. delivery opejra.tion viable. The 3. 5-ierit'rate
         is .ase.umed to include sorni; ma.rgin-fqr-thal v purpose; jjut-in actual1 rate could/
         b e s e f considerably higher ^han.,3. 5 cents. - , ,        ^               . . . .

              ..The impact of ATiLgher rate on the cream-skimming- operation-would -be
         small since.ppiStage-Cystfli are-passed on direc.tly fo }he custoiticr: Of._course,
         if''the .rates w.^re-npt set high,enough so'that-thert was'ho economic, advantage
       , to the. customer to. use the cj-fam-skimmln^ ^serv ces, the attractiveness of this
         venturC'WOti[dT)e,'16st. However, the analysis sho.ws that the-ventur^could
         attract^usiness^efVenlf'the-Postal Service charged ?? mush'as 5 5 tents per
         piece^pr'theiib.cal^deljvery'service.'       ,      •

              3csides-ihe rate assumptions first dlscu'Ssed, four operating assumptions
         are• impliritih;thc analysis:^'




              * - To our knowledge, there is no definitive analysip'r^-'' available that
                  directly.addresses the actual average total cost of-.scquer.ctng and delivery
                  of'First Clabs lett r inail. Further, it^was beyond (he.»cop.« of tbi?
                  project to.attempt to develop-one. Yet, aomc eutimj.te was necilcd:/<tr
                  tasting-the broader issue of.c.cmpetiltve cream ski:r(fniHg based «n.
                  interconnection with Postal Servicc'mail ,s.muc»K»ng and delivery Activ-
                  ities. Thi,* we have simply assumed > i. 5-<,cnt*p,er .picco catC'/or tkc
                 .purpose at, this -jnalysis.   , . * , —»*
                                               .»- .*.— -       '     . .' ."        "     r "'




                                                                                                              -\
!>•>•-
r.-i




           . ,,.,,, 1. The Postal Service will grant prospective competitors the right to
             _ -- . . *. -- purchase. and use the sortation equipment and related hardware
                  , ^ , . ,and software developed by the Postal Service (or by private firms
         ,              ^ .under coB,traict to and financed' by the Postal Service)
                         • "              i
           v          2, The Postal Service will provide access to that part of de-livery post
                           offices (lockbox or room) where mail can be placed secure'from.
                           thjift during nighttimc'delivcries

                        3. The-P}Slal;Service -jcill provide the carrier route description infor-
                           me.tiou to the cream-skimming operation so that it can .properly sort
                  " . , . its maxi. to th,e appropriate carrrji- route

                      4.. .The Postal Service will not seek significant rate adjustments or take
                           other measures designed. to counter the threatened loss of revenue
         . , ,\            to th^'Cream sk.nimejr.

           OgBKATING ASSUMPTIONS
           AgfD'-feSTIMA-tES
                In:a,natyr.ing the three operations -of cream skimmer two - collection, pro-
          cessing^ and transportation ~ a- conservative approach has been taken. There-
          j&rc, the cost s& tors Qi>eci>a;jc ^roba^>Ly hij^hei than^thosc whi*.h a sophisticated
          t-d.nagerr.ent wuuld uicur. The i-*3Js uocd 'or estimating these costs was pro-
          vi/iej? by Postal S^r;-ice ahalyiti^ tiara frctn the.f/rivate sector, and standard
          publiihjvd statistic^; .rtiit< r^al. Cost assun.iptior.ti iut the cream skimmer's
          three ihbcrrjslated op^rationa aia d^scrxbe^ielcnii, the implied investment
           requirejftfr.ts will be dib.ci.3aed <Ln the se.il>,on yti capital requirements
                                                   "       -     '


                As previously noU-i, there is art'.asst,taptLoji thai the c.re4m.%st'immcr'fi
                       iId brir.g mw.wh^)f'.thcit jyiail 10 the central processing fat ility it:ic
                 ^ skimraer's "p^st ofticc"Uar.d that the c.r.ra.m. aKimreiey would staad
          •eV'ady to rcc.jivc it thcro at any tijne.cf ..he da\ or ois<ht, Jor thj» i[=i.i,l, tne
          cream skihimer tvoulrf o£fer collection 3erVi_:eS.

                As a />>it irnpott.tnt collection ^ssum^tlon, the 'jf]fi.rl ( needs oi tbt cream
                       jEre.'diiiinec', T ->. collect. mail daiiv irotn. its IS Jior.ts, the venture
           would nc< •n.fj'i mure than k ,<o /chicle*. To derive this xetiniatc, it was dcter-
           :^Iped where each customer's n»ail ,.,t>iiI4 b« T«adi>;o X'^r j*,r--up and a city c.nd
           i^burb^ji plck^irp route WJB liriveloi-crf. (Sec E^hi'iit V5 for a dcscttpfxci,-- of
           these .routes. 1 Conudc.cing tLai eiitf; drt';cr wul have ur. i)-tuiiAtr.ii^s>x hours
                                        145

  of driving tune available,-; the routes were constructed to fully use those hours.
-•As.-Exhibit -VII sho.vs, two drivers could.complete their routes within the six-
  hour time constraint.

- .    The drivers rcceiye-the mail in trays, wi.ih<letters already faced ar.d-can-
  celled-but not presorted. As a second key collection assumption, it has been
  assumed that each letter will-carry, a bar/half-bar code representation of
  the address, the same coding the Postal Service is currently testing in a
  number of cities. It is believed the cream-skimmer's clients will adopt this
  coding systein-sincc:

          J Many of the clients now have-computei-s with ah IBM 1400 scries
            printer - which can be easily, adapted to print the bar/half-bar
            code.

          f The set-up costs are low. According to the experience of the Mail
            Processing Grou,p, the set-up cost-to introduce the coding is only about
            $4,000 (one man-month of 3'/sterr"'-iinalys's and programming time)
            plus hardware costs of und\ir4$ZOo for the eight printing slugs
            required to adapt the printer, there are virtually no continuing
            incremental costs. Given'th^ expected benefits major mailers will
            derive from using the cream skimmer's services, this investment
            is quitfr mot?est.

         J The \Ast collection.assumption pertained to the mailing patterns of the
           cream skimmsr's.clients. Because of the anticipated savings,
           the mailers should be willing;, to smooth their mail shipments to allow
           for-continuous running of ;th(t cream skimmer's processing facility.
           As indicated in previous chapters, interviewed mailers directed
           willingness to make operating adjustments that would give them
           significant ;postag'?siyings.
                                                                  i
    - Processing
      Folloy;»ng collection. She venture' > drivers would unload all mail they have
 receive.d-for processing. The venture would then begin to process the mail
 collected by its d r i v e r s or dropped off by its clients. Processing operations


         Tne estimate of 1-\JZ hoyrTtygrd^s productive time less 15 percent non-
         productive time (5 percdnt"HKti'^ue, 5 percent personal, 5 percent
         other dciayii) yields 6-5 £ net productive hours per person. Six hours
         driving time is obtained by subtracting tl.c 3/8 hours for the following
         activities: report in and secure vehicles at the beginning of the day,
         return vehicle -Jivl report out at end of day. (Source: "Preferential
         Mail System S>-Jy Economic Analysis/October 15, 1971," page 2-27).
                                         146

would take place during two work shl'ts - 8:00 a.m. to 4;00 p.m., and 4:00 p.m.
to midnight. Processing operation? would include. (1) merging the mail of the
15 clients; (2) sorting by carrier d- livery post office and then by carrier route.
(3) bundling or traying the mail by >amcr route, and (4) sacking it by carrier
delivery post office. The processing cost considerations pertain to: (I) the
machine needed to carry out these sortations, and (2) whether the presumed
machine configuration will enable the «_rcam skimmer to complete processing
in timely fashion.

     To completely sort 219,000 pieces* of mail during the two shifts, the
cream skimmer will need an automated business mail processing system. It
includes the following equipment - all of which can be pur .hascd from a limited
number of suppliers:

        r
            , A Preceded Originating Mail Processor iPOMP) system with a single-
              position bar code reader

        J Two 100-pockct, single-position letter sorting machines (SPLSM)
          directly connected to the POMP

        J A computer as a-look-up directory, to translate bar code information
          into letter sorting machine instructions for routing each mail piece
          to the appropriate SPLSM and pocket

        ', Appropriate mail transport (pinch belt) conveyor equipment.

    This equipment configuration should be adequate for 'he v c r . t - r i ' D immediate
needs. At an effective processing rate of 35, 030 p' "^cs per hour (estimated by
the Mail Processing Croup), the equipment has the capacity to process 223, 125
pieces each shift -*, this is in excess of the expected mail volume of 219, 000
pieces per day. ^However, a two-shift operation is required since Lie cream
skimmer's mail would generally require two sortation steps, as follows.
During the first eight-hour shift (8:00 a.m. to 4;00 p.m.) most of the mail
would be sorted to the 8? carrier delivery offices in the Washington delivery
area. Because the primary soct would use only part of the 200-pocket capacity.




       - Estimated average total daily mail volume of the 15 selected mailers
         at 20 days per month, (See Exhibit II for estimated monthly piece,
         volumes of mailers.)
    ** - Bated on 6-3/8 hours of productive time per shift.       Sec footnote on
         page 3 - 5 ,




                                        7259
                                          147

  tne remaining pockets could.b* used fpr a carrier route sori. During the
  second eight-hour itv.t't (4:0^ p.m. to midnight;, the entire machine capacity
..would be uSjed for the carrier route aorling. Also, during tho second shift,
 sorted mail would bo trayed or bundled and .sacked. R> jsiidnigltt, alt 2J-9, 000
  pipces would''b& ready for transport to the 8? delivery post offir.es in trie
  cream skimmer's- uiarkei? area. *•

      Transportation
        The/cream skimme:: will require cquipmeni tu transport Jus client's mail
   following processing. Di^r ing; the ejg,h,.-hour shif^fiu^i midnight to 8.00 a»m.,
   maiUwould be trucked from the. central processing-facility to-the Postal
   Service delivery, offices. .Deliveries-would be made to to^kttoxec, which are
   part'of the local post o/fic-e facility,
'v             \
        !t has been estimated that six vehicles woi Id be requited to transpcrl'thc
   mail to.the 8"? destinating post offices. To determine these equipment require-
   ments, driving time and stop fame were estimated separately. First the
   driving.'time was-as;sessed by:

       . Jf Identifying-each of the 89 carrier delivery stations on a map
            (Exhibit Vllll-and constructing tentative routes based on visual
            observations of the stops
         r
             . Estimating the distance between routes (with the help of road maps)

         'I Determining drying time, taking into account types of roads travelled
            and other driving complications

         7 Adjusting the routes so that each required the same approximate
           time to complete (Exhibit IX)

         5 Checking, these estimates with local postmasters and other Postal
           Service personnel who arc familiar with driving times and distances
           between local-post.offices.,


        - Ey introducing a third processing shift, the venture couldjiandlc a
          50 percent increase in average djiily volume without additional sorting
          equipment. This would incrc^s^,tfje cream skimmer's piece volume
          capability to over 80 million pieces per year (Z23, 125 pieces throughout
          capacity per shift times three shifts per day divided by two sorts per
          piece times 240 days per year).
                                           148
   '. 1                                                                          ' 1


     Jn. adoiticn to the drlv jig time, the stuj> im.e was at*o assessed. Facli .-stop
has tv cover at leust 11 steps ;listed in Exhibit X>. La tied on discussions of Uie
bmo r.equire.i for .c<ich.-stei) (v.An f^Mal Service field personneU, i,t ys estimated
that ojich sjtop will lake a minimum ol lour minute' for one full or partially,lull
sacK ^jop-f?ft. 'Eacli ^uditional 3ack. would rc\uuirc *u additional'nunute of stop
«**•"',     '                     •    '         '                     ~ '     , -
              the driving Ume and'^top time data, route stru»_turc!> were developed
that filled as nearly as .jcssibli; the six productive urtving hours available foi
any drivei-. It was found that the crearn sXLmmei «_ould co^cr tht.- cuttre system
oi'89 slop,^ with siXidri\ers - and .would, U.preforc, require six vehicles.
            i
      Under tne transport i_ ^ncept just>described, rriail that had beer received
during the day fr...n the msilars could tie in the hands of carriers for delivery
the- next fey. Mail collected by the cream skimmer' s bwn drivers could be
delxvered on-th^ second day. line cr^am skinirner would therefore have tc.
inventory mail for ojily o.-.c day.). Thes .service standards would likely b;
acceptable to the mailers in light of the.p. stage &avings they uould receive.

ORGANIZATION
AND STAFFING
     To undertake and administer the Collection, processing, and^transportation
functions outlined a-buvt, the venture would require a total of 45 personnel
lExHjbit XIj. The stuUing nerds for ca*.h of the venture'S'thrce cperating sy^ccms
and /or the management and office staff arc explained below.

     Collection
     In collecting tl><; mau from customers, only one person would be needed to
operate each of •„!.<: two vehicles. The Cit> Route is about seven miles long and
the Suburban Roaic 8C miles long. The drivers would need to average five miles
per di-»i-'ny hour for the C.ty Route and 30 miles per driving hour for the
Suburban Route. In one day, the d r i v e r might load and unload as many as 67
sact.s of mail weighing 45 pounds per sack. Neither the miles driven.per day
nor the sa.ck weight handled per day .ire excessive fc-r one person. Overall
management &f tht Collection operations would be in the hands of the 8;00 a.m.
to 4;00 p.m. Shift Supervisor or his assistant (discussed below).

     ProcAasing
      The opccd and se- ;ne requirements of the processing equipment dictate
the manpo\ver needed. T_ estimate staf.ing levels ior the cream ekimrner,
estimates prqvuied by the Mail Processing Group wer-« 'jsed. The resulting
staffing pattern j«as .as fotlows--.
                                                   149

                 5 Two mail loaders, one for. ^aii. letter-feeding transport unit

             .  -? SevcnsSweepers for removing mail from the LSM pocketn as they
                   fill,, bundling and tying or 'tray ing the stwept noail, fillin^'the .ciacks,
              , v- a.'id staring Ailed t,a.cks for later loading onto trucks. Scene sweepers
              * ^yrjllalso assist the vehicle loader ;n moving mai.1 onto the :
            t ;-•; .'toward the end of the -4:00 p.*nt to midnight >' "

                 J Gixe, skilled electrica'. technician and qn€, skilled m.cctia:iLcal tech-
                              imaintain equipment perforrjanct, rupjiir breaktlov/jjs,
                          scheme changes, etc.            , "

                 V One Shift Supervisor
       J • •'•'• '
    f .  ^ r. One Assistant Shift Supervisor to hanfUe icjnor complicaiL'ij.i in
 S\~ ';            operations, fill in for missing workers, «tc.

  Ihis-staffing would be required on both shi-'ts. .In additiua, at least one v
. loader^ would, be nteded.cn the night shift to^'ia) help moye fi.Ued. satjc^ of
 -mail (sfirted: during the day shift) to the load^g ol?tform, (b) receive and load
  (asststft 1 by some sweepers) additional sacks 01' mail filled during the night
  shift; and (c) complete vehicle loading a^ter the night .shiff is oxer.

 y.         Transportation
          As already stated, six regular vehicle drivers, one Jor ea-.h route,
     would be required to drop off the mail at the -ji-jrier d e l i v e r y post o£fi(;e> ber
     twceh midmght and 8;00a. m. In addUtun to tns drivers, the operation would
     likely need a supervisor to maintain contact .with driver*, to answer-procedural
     questions that might arise (e.g., changes in routing to avoid driving ob.stru*.-
     tions), to handle emergencies {e.g., vehitlc ixreakdowBcl, or to fill In- for
     drivers who are ill. To accomplish clean-up i.l<ores and repair damajjed
     vcbic Lcs, the 'enterprise would also probably A^uil a skilled a.uU*mobile rncchan>c
     plus a facilj.tiCfTnaintchanc«7 sanitation man.
             "-.'• J    ' • < . ' ' '                                     ' .'           L
•-          . ' • i" i                         -                 "               ,        i    .-
            Tyfanag'emcnt and
     •• '   Office -Personnel                                        -
      ,    T^e oropnetor. has been assumedjfo be the general raajiager 'ii'the enter-
     prise. He and his office stafijweoldjjiork principally .-iunr% the 8;QO o^jm.
     to 4.00 p.m. shift when customec development opportunities are best <ind whe.n
     th<jir impact on opctdUons,.wvuld be g^eate»t. It is. be-UevcJ thai vffice manage-
     ment activAt.es - cpcre.tsriai wort^ r.ormal tclepiitine Contact with clients and




                                                   7262
                                               150

 postal authorities, billing aad.coll«ction, payroll - can be carried out by foirt
 employees: tv:o secretaries and two accounting Uerks. The venture. would
 retail) independent-firm?, as needed, for legal, computer' programming and
 public accounting services^ During the 4:00 p. m- to midnight and midnight to
 8:00/a. m. shifts, it- was assumed the Shift Supervisor or his assistant would
 be able: to handle any office-management problems that could not be postponed.


     As this crenm-skumrnin£ venture has been structured, start-up investment
 requirements -v<Ji approximate $850,900 - the sum of the following five
 compcptants:                                                              I

                        POMP/LSM.and related processing
                         equipment
                        10 vehicles (two ipr collection,
               ,        , six for trsnapor'acon, two spares)
  .     ,      ,^          Leasehold on ,facilities
            ' /-^- . ' '
;.;'-. V,        .- M :-,- Receivables
      ••",'£•           Oihar start-'^p a n d contingency
        ..••-.;.         reserves              •

                   '                TOTAL Capital Required         $850,0,00

 Each ui these components :s discussed in thy following paragraphs. In addition,
 possiMe-scurces of capital are described, in order to estimate ^he amounts
 of debt ami' equity required to start the venture.


        Equipment           .   •       '                      ,               \   '(,-'.
      As descnbijd OB page 3 - 6 , processing equipment will incladc a -POMP,
 2 SPLSMs, a computer used for a look-up directory and a pinch bolt conveyor.
 Official.*. of the Mail Processing Groi^p estimate that the totaj installed cost >j{
 this system may range between $300,000 and $900,000 - depending or. hypo-
 thetical rnaJt;)vct' conditions at the time of purchase. The Postal Service would
 probably j>.ay-aboyt $200, 0^0 to $300,000 per unit in a large quantity purchase.
-However.. ir«n cream, skimmer in. this analysis will be purchasing one unit only
 and'the manufacturers. wjjjt likely <_harg« the highest possible price. However,
-*»iice it is not possible aMhis time to set a ptecis-c cost, tho. midpoint in thn
 range offered'by PoBtal setvice exe.uuUvcE has beer, (.hoaen as the ebtiroatfcd. co«t.
                                         151-

     Since the processing system might have .a. J united rpsate market should
it be repossessed, financial institutions would likely bf unwilling to finance
any significant portion of its. cost while accepting tKe equipmepi as collateral.
In this situation, however, the banks thmselves would bn majojr rust.omcrs
of the venture; given the expected profits jiiity-of the. venture and the savings
the bank itself would likely realize, the,y m-ght be more..generous in, tlie
financing of this venture than would otherwise be thii ca.se.

     Besides the banks, .equipment.suppliers might be willing to offer extended
payment terms under a conditional s&les contract - especially if the
Washington cream skimmer could show.tjiat it is>but the first oi-a number p.f
prospective purchasers (located in other markets) of. the equipment. However,
for purposes of this analysis. I: was assumed that 50 percent of the iiwestmerit
in the system could be bank-financed and that no supplier financing would be
arranged. The remaining 50 percent of Int. required Investment »f J $600,O, 1 0
would be financed by the ownership of the venture (equl.y financirg).

    Mail Transport                                                            .- -
    Vehicles     ._
     As determined earlier, the venture-would need tan mail transport'vehicles.
>_ight for regularly scheduled delivery and-tollectior-s, o.nd two far back-up
use (e.g., breakdowns, non-schedujed mail delivcricc. for clients, and similar
contingencies).                                          -

     Analysis of the distribution of total sack volume by vehicla indicatsa that
the following, vehicle models would be adequate to. meet expected operating
needs: (Sec Table 'below.) In addition,^ the;/ would <>£.ve enough excess load
capacity to meet any reasonable future increases in volume.




                        Mail Transport vehicle F\eet


                                                                   Total
                            Principal           Number           Investment
    Vehicle                   Use               Required '         Cost'
Econolinc vans              Delivery               4
12-foot trucks              Collection             2
Extended vans          Delivery and spares^,       4
                             TOTAl- '-• \        It)




                                   7264
                                         152

       The. estimated cost of the vehicU.o io 1-as-td on quotations Xrum local-dealers
.andJPosialService ret j>-ds - apd incUdes taxes, dealer [>rtp<irati.^h.cha.r8««.,
 etc. Since'lhc vehicles are Ptandard makes and. models with^an established
 resale yalue, LJ ha£ been asswtricd ifiit two r thita» ol thtir purchase price could
 ,bc financed through bar.tis or finance coropani.es. This cstimit*; is- based <->a
"interviews. *ith loan officers at area banks* "Oius, $40, 000 in loans _pKij
 $20, 000 in equity would be used to finance the ten. rtjjiiircd vehicles.

     Operating Facilities                                                 ,
     This cream skimmer wit! need a long-tt.rjixle.as.5 on th.e premises froj« .
which It operates - bcca,.i5C the POMP/LSM equipment is not easily njoved
and because nearby garage space for the vehicles will have to be available.
Some dock space may .also/hayc to be constructed to facilitate tri-^k loading.
For-purposes oj[ this analysis, it is not Considered necessary that any of thes.e
facilities be purchased and, therefore, nu capital investment would be required.

    •.Receivables
      Normally, it would be assumed that receivables amounting to,about t^vfi
months' gross income would-have to be financed by inveu.tn.ent in this type ui
enterprise - sin^c there is almost no significaat trade or otiicr payablcs as
sources of such financing. H~"*(;ver, maU delivery'yentutcs currently operating
in the United States report c-xtremely )c<w receivables outstanding. ••• Therefore
it is assumed that. (1) o^fy one month's revenues (approximately $100,000)
would have to bt financed by investment funds, {2} 50 percent of this investment
could be bank-financed, and (-3) the remaining 50 percent wuuld.'hc provided by
the ventttr^'s owner (equity capital).

     Other-Start-Up
     And k
     Because a business venture does nti alway.s foresee all its costs, a reserve
for rohtihtcncies approximating ojje month's out-of-pocket expenses has been
allowed. In addition, $20, 000 for office equipment and for rrjmor construction
and remodeling costs has been set aj>ide. It is assumed that the total contin-
gency reserve of about $90,000 would hava to be financed through equity.

    In airnmary, of the total start-up investment of $350, jOO, assumptions
»mply approximately $460,000 would be required from thi owners of the venture
as equity with the rtrnainin^ $390, 000 obtained from banks and/or finance
companies.

     * - See refei-once footnote page




                                         7265
                                        153

PROFIT OUTLOOK
       Compared to other cream-skimming ventures [for example, cream skimmer
one (described in Chapter Two) or current Second or Third Class delivery com-
petitors of the Postal Service], this venture requires considerable capital. How-
ever, this venture also has considerable potential for profit.
    i-
      First Class mailers currently pay a minimum of 8 cents per piece for Postal
Service processing and delivery. In the cream-skimming cas«. -onstructed here,
the Postal Service would receive 3.5 cents per piece for delivc../ of mail that is
brought to the delivery post office sorted to carrier route. Therefore, the cream
skimmer could charge its customers any fee up to 4. 5 cents per piece (8f minus
3. 5£) and still provide an economic advantage for usin b    services. However,
it is doubted the cream SKtmmer would price at this high l^vel since doing so
v/ouid attract other competitors into the cream-skimming business. The new-
comers would likely undercut the high prices and take the volumi from the first
venture.

     Accordingly, the rate has been set at 2. 3 cents per piece since, at this
level, sufficient revenues v ild be generated to provide a 20 percent return
on investment,- Twenty percent *s the minimum 1 >vel considered-necesrary
to cnccxirage an en^erp^neur to undertake the venture. Oi course, higher
returns are possible i£ the cream skimmer raises its rates .slightly. For ex-
ample, at 2.5 cents per piece, the return on investment would be 26 percent
ana at 3 cents per piece, 41 percent. At the 2. 3 cent per piece rate, the eater-
prcneur,.will receive a. 33. 7 percent return on his $460, OOC equity investment.

     The economic information and calculation of rites of return are developed
IE.the cxhiints. Kxhuit XII develops the venture's pro forma cost structure;
Exhibit XLU cites the sources for the <Jat.i in the cost structure anJ summarizes
the basis Jor estimates that were made, and Exhibit XIV E'-OWS the computational
st^ps in detesnnnuig the return on sales, eouity, and Investment figures.

     These arc attractive profitability .figures - but they are realistic only if
they imply a pricing policy thai will enable the cream skimnv r to attract
business away fror&thc- Pcfrtal Service. To achieve $1. 2 million in annual


      - Return or. investment is «>mputca by dividing the operating profit aft;r
        tax,(S170,000) by the 'otat investment ($850, 000). Operating profit
        after taxes is determined by ^xdudu-.,} the cost of borrowing funds
        before computing the tax liability - a standard practice in computing
        investment return. .
                                          154

revenues, the cream skimmer would have to charge only 2. 3 cents for the 52. 6
million pieces handled annually. At this price, the cream skimmer would be
offering its customers savings of between 23 and 35 percent over regular post-
age rates and thus should encounter relatively little trouble attracting business.
The customer's savings are summarized below:

                                        Table

                       Savings of Cream Ski timer's Customers


             Cream- skimmer charge per piece
             Postal Service charge per piece            3.5
             Total charge to customer
             Savings over current 8-cent basic
              First Class mail (2. -Zf .+- 3#) ,-
             Savings over current 8. 9^-ent         -
              average First Class
              |3. I5t -                                        35. 27.
               y',jigs "6v.tr '
              ratc-of 7. 5 centra**                            7,2. 7%


                    * - This average p&sttge per JMC/JC <i{ First Claas mail in
                        FPY-197?Mt «qual U> 34, 379 m-jiion. total First Class
                        mitiT- revenue divided by 48, 933 million First Class
                        mail p^ces.             ,       ,x
                               of the prospective customers-would be eligible
     1
         -     ".      fftiK-tht proposed half-cent presort discount now
                       •considered by the Postal Rate Commission.

      For a. major customer like the Chesapeake and. Potomac Telephone Company,
 the postage savings voqid reach 5275, r j^\ per year (8 cents ^ftr piece av
 postage' minus 5,5^ per piece total cost using cream-JJkimmi::g delivery
 plied by 12.5 million pieces annually).




                                                    7-67
                                      .155



     In conclusion, if the Private Express1 Statutes were abandoned or relaxed;
a. cream skimmer with the characteristics described'in this chapter would'bc         .
both operationally feasible and profitable. The venture could attract sub-          i
stantial business from the Postal Service. Extrapolating tne SO million, pieces
of mail lost annually to the cream, skimmer in the Washington area to the entire
nation, the Postal Service revenue loss'to such ventures could approach $230
million annually. Moreover, this.figure conceivably could be much'higher:
For example, this, cream skimmer could expand its operations rather easily -
possibly by introducing its owri'field delivery force - and thereby attract even
more customers 'from the Postal Service. If the cream skimmer undertakes -
delivery, it would deprive the Postal Service of the 3. 5 cents per piece delivery,
charge and the total loss of revenue nationwide would amount to $377 million;
                                  156

                                                           Exhibit !'



              METROPOLITAN WASHINGTON, P. C.

         CREAM SKIMMER'S MARKET COVERAGE AREA

                              Number of Household and Business Stops*
    County                       ..             (OOP)
District of Columbia                                     267. 7



                                    ^ -.3
                                    43.5
                                   136.-}

                                   "3,8




      prince Georges               204. 0
      Montgomery                    168.5

                                                         iZLi.
             Total coverage
                                                         -"r4**
             Total SMSA                                  943, p

             Percentage of SMSA coverage                    96%




* - Sources: "Survey of Buying Power, " Salc>- Management Magazine,
    .'„/ 10, 1972, p, B-12, for estimated 12/31/71 household population.
    Census of Business, U.S. Department ,•£ Commerce, 1967, for esti-
    mated number of nonhouschoMs u. c,, .-tail, wholesale, and service
    como»nic»).
                                             157




                      FIFTEEN PRIME CREAM-SKIMMER. PROSEECTS

                          METROPOLITAN WASHINGTON, D.-X3.


            Type of                                   Monthly Volume'?
            Mailer           Company'Name.                .(oooy..           Typ'e, of Mail
       Four-.           CScP Telephone Company             1,040                Bill?
       largest          V/ashing-on Gas fr liight            514
       utilities        Potomac-Electric Power Go;           439
                        Virginia'ELccttic-Pow6r Go.       _Ji!
                             Subtotal                     2, 186

\      , i Fiyc larges.t   Central Char^e;Seivicc            370         Statements/invoices
    , : retail,-credit 'Se&rs, Rotbuck Jt Company            3i5
    ' •••.-.card       . . ;HechL Company                    300
                            Woodward It Lothrop              290
                           Garfinkcl's                       150
                             Subtotal                      1,425

       Six              Riggs National Bank of               242         Sta tements /canceled
       largest           Washington                                      checks
       commercial       American Security k Trust            192
       banks            Suburban Truss Company               138
                        National Bank of Washington            82.
                        National Scvings •& Trust           . 60
                        First Virginia Bank .                 55
                             Subtotal                     ^ 770

                             Grand'totaL                   4,381




            * - McKaisfty.-ar.A -mpaay-estimates b*scd on iniormitlon from company
                or other ea\>tc.~Kf. Exclude.^ mail destined for irsas vuuridc cream
                             158

                                                                  Exhibit III




      ORGANIZATION OF WASHINGTON SMSA CREAM SKIMMER ONE


                           . , . ,   •
                    PROPRJeTCR     -/•

                                  (II




 SECRETARIAL.                                  OPERATIONS
ADMINISTRATIVE,                                MANAGERS
   PAYROLL    IS)                                           121




                             MERGER
                          'SUPERVISOR
                                         (V.



                            •MERGER
                           PERSONNEL. .




                                7271
                                        159

                                                            Exhibit IV - 1



                          CREAM. SKIMMER ONE

                 UNDERLYING RATE AND COST ASSUMPTIONS

                            WASHINGTON SMSA


   Cost Element               Rate                   Source/Basis

Field Delivery
Expenses
 1. Field equipment    $4S/f*eld employee/    Estimated cost of minimum
    cost               year                   uniform, including trousers,
                                              shirts, coat, raincoat,, bag,
                                              and hat

 2. Field personnel
    pay*
    - Carriers         $6.00/hour             Postal Service basic annual rate
                                              for city delivery - carriers -
                                              May 1972
    -Supervisors       $7.66/hour             Postal Service rate for supervisors
                                              May 1972

 3. Field trans-       $0. 15/mile            AAA data
    portatiun costs

 4. Paid field
    miles/day
    - Carrier           20 miles/day          Based on typical travel distance
                                              from center of Washingtcn.
                                              D. C. SMSA to outlying areas
    - Supervisors       80 miles/day          Carrier miles x 4.0

 5. Staging storage     SlO.OOO/year^         500 routes at $20/ycar
    rental



   * - Include! fringe benefit* at 25 pcrc nt of hourly wages based on BLS
       1970 compensation review.




                                         7272
                                       160

                                                                  Ex. IV - Z


   Cost Element                Rate                    Source/Basis

Sortation Expenses
 6. Sortation per-
    sonnel pay*
    - Clerks           $5.89/hour              Postal Service basic annual rate
                                               for First Class office clerks -
                                               May 1972
    -Supervisor        S7.66/hour              Postal Service rate for super-
                                               visors - May 1972

 7. Direct sortation   $0.04                   »6 clerk rate par hour -i-
    cost per piece                             1, 500 pieces/hour; also com-
    per sort -                                 pares with USPS studies
    manual

 8. Sortation          $6,400/year             Estimate based on office space
    overhead                                   and equipment required

 9. Pieces per year    43. 33 million          Utility and retail bills for
                                               specified customers

General and
Adminis tra live
Expenses
10. Personnel
    salaries*
    - General          S32, 000/year           Estimate based on scope of
      manager                                  position
    - Operations       $24, 000/ycar           Estimate based on scope of
      manager                                  position
    - Assistant        $18,000/yea.            Estimate based on scope of
      operations                               position
      manager




    * - Includes fringe bcne'lts at 2? percent of hourly wages based on BLS
        1970 compensation review.




                                        7273
                                           161

                                                                       Ex. IV - 3


   Cost Element                   Rate                      Source/Basis
General and
Adminis trativc
Expenses (cont.)
10. Personnel
    salaries* (cont.)
    - Secretary
      . Class B           $10,725/year              BLS 1972 Area Wage Survey
      . Class C           $ 9, 975/ycar             BLS 1972 Area Wage Survey
    - Administrative
      payroll account-
      ing clerk
      . Class A           $9;555/ycar               BLS 1972 Area Wage Survey
      . Class B           S7,008/year               BLS 1972 Area Wage Survey

11. Office space
    - Square feet         200/officc employee       Estimate based on experience-
                                                    of comoarablc organization..
    - Cost                $5/square foot            Based on data frprr> Building
                                                    Oyrw' ...i-j Managers Asso-
                                                    ciation of Washington, D. C.

12. Office equipment      $4,400/year               Estimates from equipment and
    and supplies cost                               supplier representatives

13. Telephone and        $2, 040/ycar               Estimate from telephone com-
    postage cost                                    pany and small business firms

14. Insurance and         S3,600/yta-r              Estimate
    rrysce'Usvneous .
    cosrs

15. Sales promotion       $3,600/ycar               Minimum expenses limited ty
                                                    selling service to, .and main- .
                                                    tanjr.g relationship v.ith, nino
                                                    mailer clients


    '•' - ,Inc.>dcs 'rii.gc b'l-tbtite a.t 25 percent of;hot.rly wages based on BLS
           1970 ct/m&cnsaiion review.




                                           7274
                                         162

                                                               Ex. IV - 4


   Cost Element                  -Rate                Source/Basis
16. Interest expense   Debt funding needed     Estimate from area bank and
                       at-8 percent            SBA adjusted upward,to even
                                               percentage

17. Contingency for    ,$5,000                 Estimate
    legal and ac-
    coai.ting services
    anthtraining




                                    7275
          .- ,.-•".;IH..L-



                                                              163

                                                                                  Exhibit V - 1


.'jr,-v
                                                CREAM SKIMMER ONE
 <i

                                        SUMMARY OF OPERATING COSTS

                                                 WASHINGTON SMSA

                               (Volume Assunv -ion: 43.320 Million Pieces Per Year)


               FieU Delivery Expenses                    Total Annual Cost     Cost Per Piece*
               Carrie,rs<(9f?-c,t-S48. OO^day;                $1, 140,480        2.633(5

             - Supor.vispr.s. (1Q at;$6l. 28/                       147,072      0.340

               Substitutes {10 ^t $'*8i QO/ -        .   ^,         115,200      0. 266

                     "Sublets!! Route Icbor
                     and supervision                          $1,,402, 752       3. 238£

               Transportation (15^/rnile at                   $     U0,080'»     OV.254^
               20 miles per day for carriers
               and-80 for supervisors)
               Equipment ($45/field employee'                        5,355       0.012
               year)
                             Total: Field delivery            $1,5 lg, 187

               Sortation Expenses
               Sorters (16 at $47. J2x 240 daysj              $     180,941
               Supervisor <S6l.2Bjc                                  14,707      0.034
               240 daysl
               Substitute (|47. 12 x 240'J                          11,209       O.C26
               Sortition spi'<rc                                  '* 6,400       O.15
                               t^l- Sortition             "$* 213,, 351


                      * -Same "Gfrat Per Pigce" figured do not add-due to rounding.
                 - «* , jiicludeB tWiflOO staging/storage rental cost.




                                                     7276
                               164'

                                                         Ex. V - 2


General and
Administrative .Expenses      Total Annual Cost   Cost Per Piece
Salaries                        | US;.371           0.273c
Rent .                              8,000           0.018
Equipment and supplies              4,400           0.010
Telephone and postage               2,.040          0.005
Insurance and-miscellaneous         3,600           0.008
Sales promotion                     3,600           0.008
Interest                           12,000           0.028
Contingencies                       5,000           0.012
        Total: Gcrieral and
        administrative          $     156,911       0. 362i
        GRAND TOTAL             $1,883.455          4.




                                    7277
                                        165

                                                                     Exhibit VI


                            CREAM SKIMMER ONE

                ANALYSIS OF POTENTIAL PROFITABILITY

                             WASHINGTON SMS A


Annual Net Profit (OOP omitted)

                                      Utilities      Retailers        Total
     Bills delivered per month                        1,425          3,611
     Bills delivered per year                        17,100        43,320
     Revenue per bill                                   4. 8f         4. 55£
    Annual revenue                                   $820.8      $ 1,975.0
    •Operating expenses                                          $1.876.5
     Operating profit before
       interest and taxes                                        $     98.5
     Less: Interest Expense                                            12.0
     Net profit before taxes                                     $     86.5
     Less: State income taxes*                                          5._8
     Income subject to Federal taxes                             s~    80.7
     Less: Federal taxes**                                             32. Z
     Net profit after taxes                                           '48. 5

Annual Return Factors
    Return on Sales ($48. 5/S1975. 0)                                   2.5 percent
    Equity                                                            150.0
    Return on Equity ($48. 5/$l, 500)                                  32.3 percent
    Operating profit before
      interest and taxes                                               98.5
    Less: State income taxes                                            6.6
    Less: Federal income taxes                                         37.6
    Total-'R'Jtur.i on invested Capital*-**                      S     54.3
    Invested Capital                                                  300.0
    Return on Investment                                               18.1 percent


    * - Seven percent in District of Col ..tibia and Maryland (70. 9 percent of
        families served and delivery volume), 6 percent in. Virginia (29. I percent).
   ** - 22 percent on all income subject to Federal taxes plus 26 percent on
        all income subject to Federal taxes in execs* of $25, 000.
  *** - Return on Investment calculation dues not include interest expenses.
                                                                166

                                                                                                                    Exhibit VII - 1

                                             ANALYSIS OF COLLECTION ROI'TES


                                         COLLECTION                 VOLUME/DAY                  ADJUSTED      ESTIMATED TIME USED
           CUSTOMER
                                           roiNT           Pitcn     WtA*XC*(l   SKki 12)       SACKS <3>   Stoo «) Driving   Tout

 CITY ROUTE 1
 1. ftKMs'ng Ctnttr              ,NA.                       NX          NX        NX              NX         NA.           NX        NX
 2. Ctftlral Ctorgt Strvkt        12ISESUKI.NW.
                                  WHhnitoa. D-C             11300      0.5       , 12J             13         37            15       52 .
 3. RwNinoulBuik                  SthSFStml.N.W.
                                  WtiMngnm.Of.             12.100      Oi          S4               9         29             4       33
 4. Anwfiari jKunry *nd Tnnt     -7tfiS»lm»*un<t>A«.
                                  NW.WBhingtm.Oa:.          9.SM       Oj          6.7              7         25             4       29
 5. Wntunjwnfimmf                 UOOHSiml.NW.
    Ebaric COIBPVTY               W«th«tti>a.D.C.          25.700-     OJS        125              13         37             5       4?
 6. Nitionil Bwk of Wtthuftofc    32S.ISllLStm~<.N.W.
                                 .Wiiungtoo, D^             4100       OS          2J               3         17             5       22
 7. PolomKEfearicPoww             1 900 Ptnntytwu* Aw.
    Company                       NW,W«!iirstM.O.C.        2UM         one         U                2         ts            5        20
 8. NittottlStvApintJTnmCo.       l6:h4Nr«y«li;N.W.
                                  Wubingion. G.C.           3JOOO      OS          ?.I              3         17             7       24
 9. GirfinViri                     KthSFStmi.NW
                                 '•WMhington, D£            7iOO       Oi          5i               6         23                     25
iq.'WsoitwrdSiothrop              ItlhiO.Stmi.VW.
                                  WMhinglon 0£             UjOO        OJ         101              11         33            2      ' 35 .
11. V>gi«'tEI«tricPi><>t(Co.      Na*lC'.t«flo*5
                                  Atii^gton. ^ifgini4       94SO       OJ          4fl. '           4         19       .    20       39
12. Prottttng C*flt»r            KJk.                        NX         NX         NX             NX         NX             20       20


        TOTAL                     MX                      128.150       •IX       i»               71»ck>    252 «:•       Moln 341mm
                                                                                                                             (C)    151

 SUIUfllA»~30UTE 1
 1- Proetnine Cwtlf               NJk                        NA         NA         NJI            HA         N.A           NA        NX
 2. SvburtttnTnmCompwy            e<9SNJ<.A>l«w
                                  Hrmmlli.Muvuhii           6500        Oi         4J               S         21 .          30        51
 3. H«Jit Cumtan/                 fritter. & Ellnnati
                                  SitvtfSpfut9,M>/vbffd    15JOOO       Oi        10^              11         33            20       .53
 4, Chtupukt 4'PbtomK             IMIColuntATiti
    TtUptior* Campwiy             iUl Spring, Miry UM     52*00         Oi        36.1             37         K             20       105
•5. •S*fC.'RMbuck & Coeipwty      5520 Rindolph HwiJ
                                  RKtnllt.MwIini) .        15.750       Oi        10J              11         23            30        £3
•{.'-fim Virjirutjni:                   Pis/4
                                 NVirguiti
                                  Ri.M-7'Cwws.             2750         Oi.        13               2          IS           40        K
 7. Preatt'nj C*i^B               KJ*.                    NX          NX-        NX                NX         NX            20       70

        TOTAL -                   IM.                     12,449     XX           (4.1      ,      66 ml.    1l7.m>        IHnun    347 nil
                                                                                                                                        irt

NOTE;    ftl Source Estirrates from cutters btled on wttyhing sample of billing futilities!, ttitement/invoice until credit U'Qt,
             lUltmtm/criKk Itanfs} mill, F/jurestrt.ouncts
         <2l Number ofstdts* function of wtltfiff pitas, Eich uck filled to 4S pound (w., 730 ounctft minimum,
         (3) An/frtctioruljtck counted lit wsofe-aclr in this column
         14113 minutes minimum per tap. 2 minutes lor etch ackertr I or frxtlon lEMUt VII-21.
         (!> Tout time coma-lint is 6hourf-lXOmi'ruiHl.
         161 At5milts.rj>fhourotdmetime,Cityttouttis7jfmiles            AtXMM,




                                                                    7270
                                        167

                                                                      Ex. VII - 2


                      ESTIMATED COLLECTION STOP TIME


                                                     Average Time Used (Minutes)
                                                      Suburban           City
    Step                  Description                   Route
      I' V     Park vehicle
      2 •" .   Walk to point where mail bags are
               massed
     3-4       Greet client representative
               Conversation
     5-8       Secure sack of mail; take it to
               vehicle; or' ^mail storage
               compartn ent; deposit-sack
(6 additional Lack vehicle's mail storage corn-          2*                    2*
 steps)''     partmcnt; return to point where
           ^ mail bags are massed; secure
              additional sack of mail, return to
              vehicle; unlock mail storage com-
              partment; deposit sack of mail
    9- 10      Lock vehicle's mail storage com-
               partment; go to wheel, start up
               and drive off
                  Total basic (one-sack) stop time            12-1-J minutes




Note; An average of 6 minutes arc allowed for parking downtown.
      Some clients will have private parking space available, thus minimizing
      parking problems, while in .other cases, some time may be required to
      locate a suitable space.


     * - Excluded from total. Depends on number of sacks dropped off.
 Source: McKinsey It Company estimates checked with Wa»hington, D, C,
         area Postal Service field personnel la collection and delivery
         operations.




                                     7280
                                                              168

                                                                             Exhibit


                                     CARRIER DELIVERY STATIONS
                               METROPOLITAN WASHINGTON CREAM-SKIMMER
                                           MARKhlAREA




SOURCE: OlfcbtirfiptirtViilH'njKm.O Z'oiulO:'itrict/NOT£:   Abonmtp
        (ton not IfKludnntirt Pottil t iitrittl




                                                                      7281
                                SUMMARY ANALYSIS OF TRANSPORTATION ROUTE STRICTURES




                                                                                                         Required
                                       Estimated         Time Used (minutes)                          Truck Capacity*
     Route         Total Stops        Total Miles      Stop    Drive    Total        Total-Sacks         (Cu. Ft. )
     A                 14                  115          79       280        359         32. 1              192.6
      B                18                   90          82       27-5       357         19.4               116.4
     C                .13                  136          60       295        355         12.6                75.6
     D                '14                   93          84       272        356         33.6               201.6
     E                M'S                   85          72       280        352          18.0              108.0
                                                                                                                               i— >
      F               "15   •              106          66       290        356         15.2                91.2               C5
                                                                                                                               o
                       89                  625         443      1692       2135        130.9                NA
,
CO
CO
             * - Assumptions: (1) 75% peak utilization of available truck cv.be space; (2) 4.5 cubic feet per
                 filled sack. Note; Fox tr-ck capacity requirements at maximum three shift processing
                 capacity of 80 million units per year, add one-third to above truck-capacities.

             Sources: (1) "Preferential Mail System Study Economic Analysis Report," October 15, 1971,
             part 3. 3. 2: (2) Visual observation of-local road maps for mileage per route; (3) McKinsey                w
             ,St Company-estimates for time utilization checked with local Postal Service field management.
                                                                                                                        cr
                                                                                                                        !->•
                                                                                                                        rr

                                                                                                                        X
                                           170

                                                                     Ex. IX - 2


                        ANALYSIS OF SIX CREAM-SKIMMER

                   :   TRANSPORTATION ROUTE STRUCTURES


                             No. of Sacks Transported       Time Used (minutes)
          Routes                 Actual   Adjusted*         Stop  Drive    Total
                                                        v
Route A
Processing Center                    NA          NA         NA      NA      NA
Ben Franklin                         0.9          1          4-      5       9
Southwest                            2.6          3          6      15      21
Anacostia                            3.5          4          7      15      22
Congress Heights                     2.5          3          6      10      16
Temple Hills                         2.0          2          5      20      25
Oxon Hill                            2.7          3          6      15      21
Accokeek                             1.5          2          5      35      40
Brandy wine                          0.3          i          4      30      34
Clinton                              0.7          1          4      25      29
Upper Marlboro                       0.9          1          4      25      29
Suitland                             3.6          4          7      20      27
Capital Heights                      1.7          2          5      30      35
Benning                              3.8          4          7      15      22
GPO                                  5.4          6          9      10      19
Processinc Center                    NA          NA         NA      10      10
  TOTAL                          32. 1           37         79     280     359

Route B
Processing Center                    NA          NA         NA     NA      NA
Wood ridge                           1.0          1         4       20      24
Bladensburg                          0.5          1         4       15      19
Landover                             1.6          2          5     JO       15
Landover Hi'ls-                      1.4          2          5      10      15
Lanham                               1.4          2          5      10      15
Glenn Dale                           0.1          1         4       10      14
Bowie                                1.4          2          5      20      25
Laurel                               2.6          3          6      30      36
Beltsville                           0.8          1          4      20      24
Greenbelt                            1.1          2          5      20      25
Adclphi                              1.9          2          5      15      20
College Park                         1.2          2          5     'is      20


   * - See note on Exhibit IX - 5.




                              7283
                                          171

                                                                     Ex. IX - 3


                             No. of Sacks Transported   Time Used (minutes)
          Routes                 Actual Adjusted*       Stop Drivo - Total
Route B (Continued)
Rjverdale                          0.9           1       4      10       14
Hyattsville                        0.5           1       4      15       19
W. Hyattsville                     1.4           2       5      10       15
Brentwood                          0.3,          1       4      10       14
Mt. Rainier                        0.0           i       *•     15       19
Brookland                          f. 8          1       4      10       14
Processing Center                  NA           NA      NA      10       10
    TOTAL                         19.4          28      82     275      357

Route C
Processing Center                  NA           NA      NA    .NA       NA
Kensington                         0.9                   4      40       44
Olney                              0.2                   4      25       29
Brooke ville                       0.1                   4      15       19
Damascus                           0.2                   4      25       29
Clarksburg                         0.1                   4      15       19
Dickcrson                          0.1                   4      25       29
Poolesville                        0.1                   4      20       24
Boyds                              C.I                   4      30       ?J
Germantown                         0.2                   4      10       14
Gaithersburg                       1-.8          2       5      20       25
Rockville                          5.3           6       9      20       29
Georgetown                         1.5           2       5      45       50
20th Street                        2.0           2       o      10       15
Processing Center                  NA           NA      NA       5        5
    TOTAL                         12.6          21      60     295      355

Route D
Processing Center                  NA           NA      NA     NA       NA
Columbia Heights                   4.7           5       8      25       33
Brightwood                         3.4           4       7      15       22
Takoma Park                        2. 1          3       6      15       21
Silver Spring                      9.4          10      13      17       30
Cleveland Park                     2.2           3       6      15       21
Friendship                         2.7           3       6      15       21
Chevy Chafe                        2.3           3       6      10       16


       * - Sec note on Exhibit IX - 5.




                                          7234
                                         172

                                                                 Ex. IX - 4


                            No. of Sacks Transported     Time Used (minutes)
          Routes                Actual Adjusted*       Stoo   Drive   Total
Route D (Continued)
Bethesda                          1.3           2       5       15      20
\V. Bethesda                      1.5           2       5       20      ZS
Potomac                           0.7           1       4       20      24
Great Falls                       0.1           1       4       25      29
Herndon                           1.2           2       5       15      20
Bclleview                         0.6           1       4       20      24
McLean                            1.4           2       5       15      20
Processing Center                 NA           NA      NA       30      30
    TOTAL                       33.6           44      84      272     356

Route E
Processing Center                 NA           NA      NA       NA     NA
Central/Pk. /Courthouse           2.9           3       6       25      31
Eads                              1.0           1       4       10      14
Shirlington                       3.4           4       7       10      17
N. Station                        1.6           2       5       10      15
Rosslyn                           0.8           1       4       10      14
Ft. Myers                         0.3           I       4       10      14
Falls Church                      2. 1          3       6       15      21
Bailey's Crossroads               0.9           1       4       15      19
Mosby                             1.3           2       5       15      20
Vienna                            1. 1          2       5       20      25
Oakton                            0.1           1       4       IS      19
Chantilly                         0.2           1       4       25      29
Ccnterville                       0.3           1       4       20      24
Fairfax                           2.2           3       6       20      26
Clifton                           O.I           1       4       20      24
Processing Center                 NA           NA      NA       40      40
    TOTAL                        18.03         27      72      280     352




      * - Sec note on Exhibit IX - 5.




                                 7285
                                         173

                                                                           Ex. IX - 5


                             No. of Sacks Transported             Time Used (minutes)
          Routes                Actual    Adjusted •>      Stop      Drive    Total
Route F
.Processing Center                 NA           NA        NA          NA        NA
 Annahdale                         2.0          2         5           35        40
 Burke                             0.2          I         4           20        24
 Lor ton                           0.2          1         4           25        29
 Fort Belvoif                      0.3          1         4           20        24
 Memorial Heights                  1.4          2         5           20        25
 Franconia                         0.8          1         4           20        24.
 Springfield                       1.5          2         5           15        20
 N. Springfield                    0.7                    4           10        14
 George Washington                 0.8                    4           10        14
 Community                         1.6                    5           10        15
 Park Fairfax                      0.8                    4           10        14
 Engleside                         0.9                    4           10        14
 Lincolnia                         1.0                    4           20        24
 Jefferson Manor                   0.6                    4           20        24
 Shirley Duke                      2.4          3         6           20        26
 Processing Center                 NA.          NA        NA          25        25
    TOTALS                        15.2         21        66          290        356




 Source: McKmsey i. Company estimates of rid time checked against "Intra-
         Sectional Center Facility Schedule" at Schemes and'Routing Office,
         U.S. Postal Service, Washington, D. C., District Headquarters.

*Note:    "Adjusted No. of Sacks Transported" represents rounding of 'Actual
           figures upward to next whole number. Figures used to calculate jtop
           Tim? Used" at 4 minutes for first 'Adjusted Sack" plus 1 minute for each
           additional sack.
                                     *.    ,' •




                                         7286
                                     174

                                                                   Exhibit X


                  ESTIMATED.TRANSPORTATION STOP TIME


                                                  :            Average Time
    beeps                      Description                     Used (Minutes)
    1-4      Park vehicle, gc to rear, unlock mail storage         1. 50
             compartment; locate and pull out sacks to'be
             dropped off
     5        Garr" one sack to lockbox. storage area              1.00
     6        Unlock lockbox                                       0.2S
     7        Deposit sack in lockbox                              0.25
(4 additional Return to vehicle, secure .additional sack;          1.00*
 steps)*'     carry-sack to lockbox; duposit safk »n lockbox
     8        Lock lockbox                                         0.25
   9-M        Return to vehicle; lock mail storage compart-       0./75
              ment; go to wheel, start up, and drive off
                     Total basic tone-sack) stop time              4.minutes




    * - Excluded from total. Depends on number of sacks dropped off.
Source; McKmscy & Company estimates checked with Washington, D. C,
        Postal Service field personnel in collection and delivery operations.




                                  7237
                                                       175

                                                                                    Exhibit XI




                 ORGANIZATION OF WASHINGTON SMSA CREAUWKIMMING VENTURE NUMBER 2




                                                                                            2SECRCTARICS
                                     PROPRIETOR              OFFICE MANAGER
                                                             I.OOim-t.OOtm




               1 -                                                       1
             SHIFT                       SHIFT                         SHIFT
          SUPERVISOR                  SUPERVISOR                    SUPERVISOR
      8 OOffn-4 00pm            .   400im-Mlilnisfit              M&iigtit-8.00fm


n —""*                                     1

                                                                     1 ASSISTANT
           1 ASSISTANT                1 ASSISTANT                 SHIFT SUPERVISOR
           SHIFTSPVSR                 SHIFT SPVSR                   — RESERVE
                                                                  VEHICLE OPERATOR




 -        2 MAIL LOADERS        -    2 MAIL LOADERS           -        t VEHICLE
                                                                      OPERATORS




          7 LSM SWEEPERS-            7 LSM SWEEPERS-                   1 VEHICLE
 -           8UNOLERS-                  •UNDLERS-
             SACKERS                                                   MECHANIC
                                         SACKCRS



                                                                    1 MAINTENANCE
           1 ELECTRICAL                I ELECTRICAL                 AND SATIITATION
            TECHNICAN                   TECHNICAN                      EMPLOYEE


                       -

           1 MECHANICAL               1 MCC"«IICAL
 -    -      TECHNICAN                 TEC*  JAN


                           -^

           2 COLLECTION                                            TOTAI.-G\
                                     1 TRUCK LOADER
*"•       ROUTE DRIVERS
      I7.00im.300pm>
                                                        W-




                                                        7288
                                     176

                                                           Exhibit XII - 1

                            CREAM SKIMMER TWO

                       SUMMARY OF OPERATING COSTS

                             WASHINGTON SMSA

    Collection Costs                Total Annual Cost        Cost Per Piece
Vehicle operators (2 at                 $ 26, 150                 .OSOc
 $54.48/day each)
Vehicle operation (2 at                      6, 240               .012
 $26/day total)
Vehicle space rental                       1, 000
     Subtotal                           $ 33,390

       Processing Costs
Shift supervisors (2 at                 $ 48,000                 . 09 li
 $24,000/year each)
Asst. shift supervisors                     36,000               .068
 (2 at $ 18, 000/year each)
Sortation personnel (20 at                 226, 176              .430
 $47. 12/day each)
Service technicians                         72,000               . 137
 (4 at S18,000/year each)
Sortation equipment depreciation          60,000                 . 114
Equipment parts and operation             60, 060                . 114
Processing space rental                    5,000                 .009 .
      Subtotal                          $507,236                 . 965e
     Transportation Costs
Shift supervisor ($24, 000/year)        S 24,000
Asst. shift suj.Tvisor                    16, 5"1!               .031
 (S13,200/year)
Vehicle operators (6 at                     90,216               . 172
 $62. 65/day each)
Vehicle mechanic ($63. 94/day)             15, 34b               .029
Vehicle operation                          45, 120               .086
Sanitation employee ($50. 60/day)          12, 144               .023
Vehicle space rental                        4, 500               .009
 ($562.50/vehicle/yca-r)
      Subtotal                          $207,867                 7395?
Assumptions, (I) 240 work days per year.
             (2) 219,000 pieces per work day or 52, 560, OOO'picces per year.




                                    7289
                              177

                                                  Ex. XII - Z


  Indirect, General, and
 Administrative Expenses      Total Annual Cost   Cost Per Piece
Salaries                          S 86,263            . l64<!
Office space rental                  6,000            .011
Equipment and supplies               4, 400           . 008
Telephone and postage                2,040            .004
Insurance and miscellaneous          3,600            .007
Sales promotion                      6,000            .011
Interest                            31,200            .059
Training                             1,652            .003
Contract programming                 8,000            .015
Contingencies                        5,000            .010
     Subtotal                     $152,155            . 293(<
         GRAND TOTAL




                                    7290
                                      178

                                                           Exhibit XIII - 1


                          CREAM SKIMMER TWO

                 UNDERLYING RATE AND COST ASSUMPTIONS

                    METROPOLITAN WASHINGTON SMSA


 Cost Element             Xatc                    Source/Basis
Collection Costs
 1. Vehicle           $54.48/day/     Standard Postal Service vehicle operator
    operators         driver          WLRS labor rate for the Eastern Region of
                                      $6. 81/hour, including fringe benefits
                                      effective March 3, 1972
 Z. Vehicle           S26/day-' .     Postal Service operating cost for a 197ft
    operation         for both        2-ton truck of 25£ per mile, plus 20 percent
                      trucks          premium for higher cost of private
                                      ownership, or a total cost of 30^-per
                                      mile. Estimated 87 miles per day
                                      traveled by both trucks combined per
                                      day (sec Attachment 1, footnote 6)
 3. Vehicle space     $l,000/year     See "Source/Basis" for £7 of
    rental            total for       Transportation Costs below
                      2 collection
                      vehicles
Processing Costs
 1. Shift             $24,000/year/   Estimate based on scope oi pos;:.on.
    supervisor        person          Includes fringe benefits
2. Assistant          $18, 000/ycar/ Estimate based on scope of position.
   shift              person         Includes fringe benefits
   supervisor
 3. Sortition         $47.12/day/     Postal Service basic pay rate for -First Class
    personnel         person          office clerks - May 1972 - of $5. 89/hour
4. Service            $18,000/ycar/ Estimated by Mail Processing Group
   technicians        person        management based on scope of
                                    positions. Includes fringe benefits
 5. Sortation         $60,000/ycar    Straight-line 10-year depreciation. Esti-
    equipment                         mated through interviews with Mail
    depreciation                      Processing Group management. Presumes
                                      technological obsolescence at end of
                                      10 years. Assumes no salvage value




                                            7291
                                        179

                                                                Ex. XIII - 2


Cost Element              Rate                    Source/Basis
 6. Sortation         v&O/month       Estimate by Mail Processing Group
    equipment                         management based"on supplier manual
  . power
 7. Sortation         S60,000/year    Estimate by Mail Processing Groun
    equipment                         management of 10 percent of purchase
    purchased                         price per year
    parts and
    service
 8. Processing        55,000/year     •Estimate of Mail Processing Group
    space rental                      management of 1, 000 square
                                      $5. CO per square foot rental per year

Transportation
Costs
 1. Shift             $24, 000/year   Estimate based o.i i 'cop* and responsi-
    supervisor                        bilities of position : nd includes fringe benefits
 2. Vehicle           $62. 65/day     Same rates as comparable personnel
    operators         each            above plus 15 percent premium for
                                      midnight to 8:00 a.m. work
 3. Reserve ve-       $68.92/day      10 percent increment over ordinary
    hicle operator                    vehicle operator rates. Estimate based
    assistant shift                   en scope of position
    supervisor
 4. Vehicle           $63.94/day      Standard Postal Service motor vehicle service
    mechanic                          labor rate for Eastern Rcgion-of $6. 95/
                                      hour plus 15 percent premium for mid-
                                      night to 8:00 a. m. shift
 5. V jhicle          S188/day        Total 625 miles per day f>.r 6 vehicles,
    operation         total for       (See Attachment 4 for routing.) For
                      6 vehicles      rate per mile sec "2 of Collection
                                      Costs above
 6, Maintenance/      $50. to/day *- Standard Postal Service maintenance employee
    sanitation                       WLRS labor rate of $5. 50/hour, includ-
    employee                         ing if -e benefits plus 15 percent pre-
                                     mium for midnight to 8:00 a.m. shift




                                         7292
                                        180

                                                                   Ex. XIII - 3


 Cost Element               Rate                    Source/Basis
 7. Vehicle space       $4,500/ycar     Estimated 9' x21 ' parking space per
    rental                              vehicle plus 50 percent for other space
                                        (repair, maneuvering, entrance, exit)
                                        or 189 sq. ft. per vehicle required
                                        space at $2,00 per sq. ft. per year for
                                        8 delivery vehicles (including 2 spares)

General and
Administrative Costs
 1. Office per
    sonncl salaries*-
    - Manager           $32, 000/year   Estimate based on scope of position
    - Office            S17, 000/year   Estimate based on scope of position
      manager
    - Secretaries
      . Class B         S10,725/ycar    BLS 1972 Area Wage Survey
      . Class C         S 9,975/ycar    BLS 1972 Area Wage Survey
    - Accounting
      clerks
      . Class A         $ 9,555/ycar    BLS 1972 A ret Wage Survey
      . Class B         $ 7,008/ycar    BLS 1972 Area Wage Survey
 2. Office space        $6,000/month    200 sq. ft. for each of 6 office employees
                                        at$5.00/sq. ft. per year
 3. Office equip-       $4,400/ycar     Estimates from equipment and supplier
    ment and                            representatives
    supplies
 4. Telephone           $2, 040/ycar    Estimates from telephone company and
    and postage                         small business firms
 5. Insurance and       S3,600/year     Estimates
    miscellaneous
 6. Sales               $6, 00k,/ycar   Minimum expenses limited to selling
    promotion                           service to, and maintaining relationship
                                        with, 15 mailer clients
 7. Interest            $3I,200/ycar    Estimated from area bank and SBA ad-
    expense                             justed i pward to even percentage at
                                        8 percent per year on $390, 000 debt
                                        outstanding

   *• - All salaries include fringe benefits.




                                          7293
                                    181

                                                         Ex. XIII - 4



 Cost'-Ele'mcnt          Rat'                 Source/Basis
8. Training          Sl,652/year   Average 1 week per employee with ex-
                                   pected turnover at 20 percent per year
                                   amonc hourly-rate employees (33 hourly-
                                   rate employees with average salary of
                                   $50. 05/day). Technical training to be
                                   supplied by equipment manufacturers free
                                   of charge. Estimated turnover based on
                                   Postal Service experience hourly employees.
9. Programming       $8,000/ycar   Assuming that simple program changes and
   costs                           modifications to sorting schemes will be
                                   done by shift supervisors. Complex
                                   programming will be handled by an esti-
                                   mated retainer of two man-months
                                   per year at $200 per day



10. Contingency      $5,000/year   Fstimatc
    for legal,
    accounting
    services, etc.




                                    7294
                                      182

                                                                     Exhibit XIV - 1



                          CREAM SKIMMER TWO

                    POTENTIAL PROFITABILITY AND

                RETURN ON INVESTMENT COMPUTATION


    Pieces/day                                    319,000
    Pieces/year (240 days)                     52,560,000


                                                   Dollars
                                                   (000)
Annual Net Profit
    Revenue/pieces*                 2.3 cents
    Total Revenue                                    1,209
    Operating Expenses                                 872
    Operating Profit before
      Interest and Taxes                               337
    Less: Interest Expense                              31
    Net Profit before Taxes                            306
    Less: State Income Taxes**                          21
    Income Subject to Federal Taxes                    285
    Less: Federal Taxes ***                            130
    Net Profit after Taxes                             155

Annual Return Factors
    Return on Sales ($155/51209)                      12.8 percent
    Equity                                          $ 460
    Return on Equity (S 155/5460)                    33.7 percent



    * - Cream skimmer's revenue only; docs not include 3, 5 cents per piece
        paid to the Postal Service. Sec explanation page 3 - 1 3 .
   ** - Seven percent in District of Columbia and Maryland (71. 5 percent of
        families served and volume); six percent in Virginia (28.5 percent
  * * * - 22 percent on all income subject to Federal taxes plus 26 percent on
         all incom.: subject to Federal.taxes in excess of $25,000.




                                    7295
                                      483

                                                             Ex. XLV - 2



Operating Profit before Interest
  and Taxes                                  $ 337. 0
Less: State Income Taxes                        22.6
Less: Federal Income Taxes                     14.4.4
Total Returii on Invested?Capital*           $ 170.0
Invested Capital                             $ 850
Return on Investment ($ I'.TO /850)             20.percent




 - Return on Investment calculation does not include .ntcrrst expense.




                             7296
                            185

APPENDIX G—PROPOSED POSTAL REGULATIONS ON RESTRICTIONS

           ON PRIVATE CARRIAGE OP LETTERS
                POSTAL SERVICE
               [39 CFR Part 152]

       RESTRICTIONS ON PRIVATE CARRIAGE OF LETTERS

           Notice of Proposed Rulemaking on
Comprehensive Standards for Permissible Private Carriage

Introduction
Since the days of the Articles of Confederation, the Postal
Service and its predecessors have administered certain
restrictions on the private carriage of letters, now found
in 39 U.S.C. 601-606 and 18 U.S.C. 1693-1699 and 1724, known
collectively as the Private Express Statutes. These re-
strictions confer upon the Postal Service the exclusive
right to carry letters, with stated exceptions. Although
formal regulations have in the past been promulgated, ad-
ministration of the Statutes has been based primarily on
interpretations found in hundreds of decisions — mostly
administrative, a few judicial — rendered through 'the
years. In recent years, a compendium of those decisions
has periodically been published in pamphlet form, the most
recent of which is POD Publication 111, "Restrictions on
Transportation of Letters'" (1967).
The body of precedents resulting from the administrative and
judicial decisions contains inconsistencies and is not
easily understandable. On certain questions, it has been
difficult for the public to obtain guidance except by
making a formal request for an advisory opinion. Moreover,
since 1951 the decisions of the legal officers of the Post
Office Department have not been published.
After a complete study and thorough reevaluation of the
Private Express Statutes and their administration, as re-
quired by Section 7 of the Postal Reorganization Act,
Pub. L. No. 91-375, 84 Stat. 719 (1970), the Postal Service
has concluded that changes in the Statutes are unnecessary
but that certain administrative practices can and should
be improved. Accordingly, the following regulations are
proposed as a new Subchapter E in Chapter I of Title 39,
Code of Federal Regulations, to replace the regulations
codified at 39 CFR Part 152 (1970) and the uncodified regu-
lations retained at 35 Fed. Reg. 19399 (1970) (see note,
39 CFR it 7 (1972)).
The regulations establish a broad, and we hope readily
understandable, definition of "letter" that continues the



                           7297
                            186

basic coverage of the Statutes as^ to messages transmitted
in corporeal form. Although the definition of "letx-er"
includes some new matter -- most notably, checks — the
proposed suspensions (Part 320), together with existing
exceptions (Sections 310.3 r310.7), continue to maintain
much of such matter ou.side the scope of the restrictions.
New ma;ter is included within the scope of the restrictions
only where analysis has indicated that its exception was
legally erroneous.
The Postal Service has determined that the public interest
requires exercise of its authority under 39 U.S.C. 601(b)
to suspend the requirement to pay postage for the private
carriage of intra-company communications requiring de-
livery to the addressee within 12 hours or not later than
the opening of the addressee's business on his next working
day and for periodically arid regularly produced data pro-
cessing materials conveyed to or back from a processing
center requiring delivery to the addressee within 12 hours
or not later than the opening of the addressee's business
on his next working day under circumstance'- in which the
processed output is required to be produced at the pro-
cessing center within thirty-six hours of the time the
materials are sent to the center; for checks and- financial
instruments being sent between financial institutions or
in bulk to financial institutions; and for newspapers and
periodicals.
The proposed regulations would also establish an administra-
tive process for the collection of postage on matter sent
in violation of the Statutes. Recovery of such postage would
be in addition to other civil and criminal remedies available
to carry out the purposes of the Statutes.
The proposed regulations are intended to provide a uniform
and comprehensive interpretation of reasonable length with
minimum ambiguity. These regulations reflect the Postal
Service's extensive experience in administering the Private
Express Statutes, and are intended, in part, to correct
the inadequacies of the present essentially adjudicatory
system. The comprehensive approach is consistent with the
recommendation of leading legal commentators that rule-
making rathe - than adjudication should be used where possible.
Highlights of the Proposed Regulations
Under 39 U.S.C. §601 (b)-, the Postal Service proposes sus-
pensions whic would exempt four categories of mailable
matter because ;such suspensions appear to be in the public




                          7298
                           1S7

interest. Since checks and financial instruments,, news-
papers, periodicals and, under certain circumstances,
data processing materials have been considered not to con-
stitute letters, and sii.ce some of this material and much
intra-company matter has ordinarily been carried by em-
ployees of the. sending organization, thus falling within
a longstanding exception, the adverse financial impact on
the Postal Service from the proposed suspensions should be
limited. The suspensions are thus intended, in part, to
continue preexisting practices; in the case of intra-
company messages and certain data processing materials,
they will permit firms to contract with private firms
rather than util-ize their own employees or the Postal
Service, if that seems more efficient for them. It
should be emphasized that the suspensions for intra-company
and data processing material are proposed only when de-
livery within 12 hours or overnight is required. Typically,
matter qualifying for these suspensions will be of a type
which, on a day-to-day basis, requires rapid transmission
and turn-around; in the case of the data processing
materials suspension, such rapid turn-around is a require-
ment for materials sent to and back from a processing canter
to qualify under the suspension. Other intra-company and
data processing material must continue to move only upon
the prepayment of U.S; Postage.
The proposed regulations, would further provide that private
carriers wishing to provide service within the areas of the
suspensions must notify the Postal Service of the operations
expected to be undertaken before they are allowed to begin
operations and that they must provide .annual reports, to-
gether with any certificates required by the Postal Service,
on the extent and nature of the firms' activities under the
suspension. While the Postal Service retains the right to
revoke, alter, or add suspensions; it is expected this
right would not be used to curtail actual operations under
the suspensions to a territory or scale 'of operations
smaller than those antedating a revocation, although
reasonable regulatory changes in conditions affectn j the
suspensions may be implemented' as to*carriers already
operating under them.          • -.
Administrative machinery is provided under which .postage
owing to the Postal Service because of private carriage in
violation of the Statutes can be determined and collected.
The process for determining postage owed could include
a hearing on the record in cases involving disputed issues
of fact. This proposal reflects an exercise of the Postal
Service's authority to prescribe the manner in which postage
is to be paid and is intended to make the administration




                           7290
                              188

of .the Private Express Statutes more effective. -The
avail Ability of .a right to collect postage JLs not in-
tended, however., to affect in any way. the exercise of
other options available under civil and criminal law
for carrying out the purposes of the Statutes.
•The new definition of "letter" is based on a traditional
and objective standard: a message sent to a specific
address. When the Statutes were first enacted in the
United States, the definition of "letter" included all
means of corporeal message communication then in use,
and the present definition is intended to perform much
 the same function. Considerations based upon format-,
 intent of"the sender, utility to the addressee, and type
of information conveyed are eliminated, because these
requirements do not further the statutory purpose and
they have given rise to administrative and interpretative
problems.
Examples of materials formerly determined not to be
letters which are now included in the- definition are listed
below. Carriage of hone of these materials is restricted
where they fall into the range of the five broad ex-
ceptions to, and four categories of suspension of, cover-
age, as set out in Sections 310.3 - 310.7 and in Part 320.
(a) Matter conveying information already known to the addressee

     The exception for matter known to the addressee
     is based upon an unsupported administrative
     determination that something otherwise appearing
     to be a letter was not a letter i'f the infor-
     mation in it was not "live" or "current."
     Since it is difficult to determine the extent
     of the addressee's knowledge and to separate
     information already known from other information,
     this definition has proven impracticable.
     Whether information was "live" or "current"
     does not appear 'to"have been taken into
     account in the first century and a half of
     the administration of the Private Express
     Statutes. Examples: exact copies of items
     previously forwarded to the addressee; contracts
     sent several times between parties with no
     changes.




                                 7300
                            189

(b)   Checks.ard other .commercial papers
      These were declared' not to be letters on--.the
      theory that they are evidence of rights of
      the holder rather than written messages.
      Such a theory is inconsistent: with 'the
      original general definitions- of "letter"
      because such documents are in fact messages,
      conveying information of several kinds.
      Since checks (and presumably other com-
      mercial papers) were held to be letters if
      information "extraneous ' to them appeared
      with or on them, interpretative problems have
      rtsulted. Other examples of commercial papers
      are financial instruments such as stock cer-
      tificates, promissory notes, bonds and other
      negotiable securities; contracts, insurance
      policies, abstracts of title, mortgages, deeds,
      leases and articles of incorporation. The
      suspension provided for checks and financial
      instruments will allow their continued private
      carriage without prepayment of U.S. postage
      between financial institutions and in bulk to
      financial institutions. The suspension does,
      not cover other movements of checks or
      financial instrmnents, such as between private
      individuals.
(c)   Legal papers and documents
      These were declared not to be letters, apparently
      for reasons similar to those for commercial papers,
      and the same objections to this determination
      apply. Examples are court orders, pleadings in
      judicial or quasi-judicial tribunals, briefs, birth
      and death certificates, election ballots and tally
      sheets, lists of registrations of voters and
      certificates to practice certain professions.
(d)   Hatter sent for auditing or preparation of bills
      The exclusion of certain auditing materials from
      the definition of letter grew out of an unsupported
      administrative determination that an item was a
      letter if it contained,information upon which the
      recipient was expe&fed to "act, rely, or refrain
      from acting." The rationale, as it was used to
      justify an exception for matter sent for auditing,




                              7301
                           190

     was based on the fiction that auditing is a mechanical
     process requiring no thought and that therefore
     no information is conveyed. Examples: meter books
     forwarded from local gas companies to central offices
     for preparation of customers' bills, if no other
     use is made of them and no part of the data is re-
     tained in a central office; records of receipts and
     disbursements sent to independent auditing firms,
     if the firm takes no corrective action, adjusts no
     accounts, and makes no other use of the information.
(e) Matter sent for filing or storage
     The exclusion of this information was also based
     upon the "act, rely, or refrain from acting" language.
     The rationale for the exclusion was that there was no
     purpose of communication with the addressee when in-
     formation was sent for 'filing or storage. The de-
     finition sometimes proved unworkable because it de-
     pended oh a determination whether files being sent
     would ever be used again. It must be assumed that
     files not destroyed are kept because of an ultimate
     purpose of communication. Examples: shipment of old
     personal messages; files sent to another office for
     storage, but only if never used again.
Comments
Although, under 39 U.S.C. 410(a), the Postal Service is
*exempted from the advance notice requirement of the
 Administrative Procedure Act regarding proposed rule
making (5 U.S.C. 553(b), (c)), the Postal Service hereby
 gives advance notice of the following proposed changes
 in Chapter I of Title 39, rode of Federal Regulations,
 and certain uncodified regulations. The proposed
 regulations are generally not intended to alter estab-
 lished practices except to the extent that the public
 interest appears to warrant a change. Parties who
 believe that their practices will be altered unjusti-
 fiably by the proposed regulations and any other
 interested parties should submit data, views, or argu-
ments concerning the proposed regulations in writing
 to the General Counsel, United States Postal Service,
 Washington, D.C. 20260, at any time within 60 days
 after date of publication of this notice.




                                 7302
                                  191

                       Uncodified Regulations
  I. The uncodified regulations previously codified in the
     1970 revision of 39 CFR as Part 152, retained in
     effect by 35 Fed. Reg. 19399 (1970), are hereby
     rescinded.
 II. The note at the bottom of page 7 of 39 CFR (1972) is
     amended by deleting the following entry: Part 152 -
     Who may carry letters.
III.   Part 152 of this title is hereby amended to read as
       follows:
                        PART 152 - [Reserved]
IV. New Subchapter E
       Title 39, Code of Federal Regulations, is hereby
       amended by the addition of the following subchapter:

       SUBCHAPTER E - RESTRICTIONS ON PRIVATE CARRIAGE
                      OF LETTERS

       PART 310 - ENFORCEMENT OF THE PRIVATE EXPRESS
                  STATUTES

       Sec.
       310.1    Definitions.
       310.2    Unlawful carriage of letters.
       310.3    Cargo exception.
       310.4    Letters of the carrier exception.
       310.5    Private hands without compensation exception.
       310.6    Special messenger exception.
       310.7    Carriage prior or subsequent to mailing exception.
       310.8    Payment of postage on violation.
       310.9    Advisory opinions.
       AUTHORITY: The provisions of this Part 310 are issued
       under 39 U.S.C. 401, 404, 601-606; 18 U.S.C. 1693-1699,
       1724.
       §310.1     Definitions.
       (a) "Letter" is a message in or on a physical object
           sent to a specific address.
               (1) Physical"objects used for letters include,
                   but -are not limited to, paper (including




                                 7303
                           192

         paper in sheet or card form), recording
         discs,, and magnetic tapes. Methods by
         which messages are placed in or on
         physical objects include, but are not
         limited to, the use of. written or
         printed characters, drawing, holes,
         or orientations of magnetic particles
         in a manner having a predetermined
         significance.
    (2) Whether a physical object contains a
        message is generally to be determined
        on an objective basis without regard
        to the intended or actual use made of
        the object sent. Usually, however,
        letters convey live, current information
        between the sender and the addressee.
        If the object sent cannot, because of
        the relationship between sender and
        addressee^ convey information (for
        example, when a supplier of blank forms
        supplies such forms to a purchaser; a
        printer of advertising circulars supplies
        them to an advertiser; or documents are
        sent for destruction), no letter is
        involved.
    (3) Identical messages in or on more than
        one physical object sent to more than
        one specific address or separately sent
        to the same address constitute separate
        letters.
    (4) "Packet" is two or more letters under one
        cover or otherwise bound together. As
        used in these regulations, unless the con-
        text otherwise requires, "letter" or
        "letters" includes "packet" or "packets."
    (5) The specific form of letter known as a
        telegram is implicitly exempted from the
        restrictions by Congress.
(b) "Person" is an individual-, corporation, association,
    partnership, governmental agency, or other legal
    entity;
(c) "Post routes" are routes between places regularly
    served by the Postal Service, and include post
    roads as defined in 39 U S.C. 5003, as follows:




                        7304
                        193

     (1) the waters D£ the United States, during
         the time the mail is carried thereon;
     (I) railroads or parts of railroads and air
         routes in operation;
     (3) canals, during the time the mail is
         carried thereon;
     (4) public roads, highways, and toll roads
         during the time the mail is carried
         thereon; ,and
     (5) letter-carrier routes established for
         the collection and deliver' of mail.

(d) "Private Express Statutes" are 18 U.S.C.
    1693-1699 and 1724 and 39 U.S.C. 601-606 (1970).
§310.2 Unlawful carriage of letters
(a) It is generally unlawful under the Private Express
    Statutes for any perso \other than the Postal
    Service in any manner to send or carry a letter
    between places regularly served by the Postal
    Service, or in any manner to cause or assist such
    activity. Violation may result in injunction,
    fine or imprisonment, and payment of postage
    lost as a result of the illegal activity (see
    section 310.8).
(b) Activity described dn section 310.2 (a) is per-
    mitted with respect to z. letter if —
     (1) it is enclosed in an evelope or other
         suitable container;
     (2) the amount of postage which would have
         been charged on the letter if it had been
         sent through the 'Postal Service is paid by
         stamps, or postage meter stamps, on the
         container or by other methods approved by
         the Postal Service;
     (3) the name and address of the person for
         whom the letter is intended appears on
         the container;
     (4) the container is so sealed that the letter
         cannot be taken from it without defacing
         the container;




                       7305
                       194

    (5) any stamps on the container are
        cancelled in ink by the sender;
        and
    (6) the date of the letter, or of its
        transmission or receipt by the
        carrier, is endorsed on the con-
        tainer in ink by the sender or
        carrier, as appropriate.
(c) The Postal Service may suspend the operation of
    any part of subsection 310.2(b) where the public
    interest requires the suspension.
(d) Activity described in'section 310.2 (a) is
    permitted with respect to letters which —
    (1) -relate to some part of the cargo of,
        or to some article carried at the
        same- time by, the conveyance carrying
        it (see Section 310.3);
    (2) are sent by or addressed to the carrier
        (see Section 310.4);
    (3) are conveyed or transmitted by
        private hands without compensation
        (see Section 310.5);
    (4) are conveyed or transmitted by
        special messenger employed for
        the particular occasion only, provided
        that not more than twenty-five
        such letters are conveyed or trans-
        mitted by such special messenger
         (see Section 310.6); or
    (5) are privately carried prior or sub- .
        sequent to mailing (see Section 310.7).




                         7306
                        195

§310.3   Cargo exception.
This exception permits 'the sending and carrying of
letters when they accompany shipments when the
letters exclusively relate'to the shipment process
or to the goods shipped.
§310.4   Letters of the carrier exception.
(a) This exception permits the sending and carrying
    ot letteis sent by or addressed to the individual
    carrying them and: letters -sent by or addressed
    to officers or employees of a carrier on the
    current business of the carrier (i.e., in their
    capacities as such officers or employees).
(b) The fact that the individual performing the
    carriage may be an officer or employee of
    the carrier for certain purposes does not
    necessarily mean that he is an officer or
    employee for purposes of this exception.
    The following factors bear on qualifications
    for the exception: the carrying employee is
    employed full-time; the carrying employee
    is a regular salaried employee and shares in
    all privileges enjoyed by- other regular
    employees (including employees not engaged
    primarily in the letter-carrying function)
    including but not limited to salary, annual
    vacation time, absence allowed for illness,
    health benefits, workmen's compensation
    insurance,, and retirement benefits.
(c) Separately incorporated carriers and carriers
    operating as independent units are separate
    entities for purposes of this exception, re-
    gardless of any subsidiary, .ownership, or
    leasing arrangement.
§310.5   Private hands without compensation exception.
This exception permits the sending and carrying of
letters when no charge for carriage is made by the
carrier. However, carriage of letters free of charge
by a person enga"gpd iff'transportation of goods or
persons for hire does not fall within the exception.




                      7307
                       196

§310.6 Special Messenger exception.
(a) This exception permits use of a special messenger
    employed for the particular occasion only to
    *-ransmit letters when not more than twenty-five
    letters are involved. The permission granted
    under this exception is restricted to use of
    messenger service on an infrequent, irregular
    basis by the sender or addressee of the
    message.
(b) A special messenger is a person who, at the re-
    quest of either the sender or the addressee of
    the letter, picks it up from the sender's home
    or place of business and carries it to the ad-
    dressee's home or place of business, but a
    messenger' or carrier operating regularly between
    fixed points is not a special messenger.
§310.7 Carriage prior or subsequent to mailing exception.
(a) This exception permits the private sending or
    carrying of unopened letters which enter the
    mail stream at some point between their origin
    and destination. The origin of a letter is
    the residence or place of business of the sender;
    the destination of a letter is the residence or
    place of business of the addressee.
(b) Examples of permitted activity are the pickup of
    letters which are delivered to post offices for
    mailing; the pickup of letters at post offices
    for delivery to addressees; and 'the bulk shipment
    of individually addressed letters ultimately
    carried by the Postal Service.
§310.8 Payment of postage on violation.
(a) Upon discovery of activity made unlawful by the
    Private Express Statutes, the Postal Service may
    require from any person or persons engaged in
    such activity payment of an amount or amounts,
    the total of which may not exceed the postage to
    which it would have been entitled had it carried
    the letter between its origin and destination.
(b) Such payment of postage is due and payable on
    demand by the Inspection Service. Disputes
    concerning such demands may ~be referred in writing
    to the Judicial Offices and must include specific




                      7308
                         197
              C
       allegations of all errors. If disputed
       issues of specific fact are involved, a
       hearing on the re-ord shall be provided.
       For other disputed issues, the opportunity
       •for written or oral presentation of evi-
       dence or argument shall be afforded. After
       such opportunity, has been exercised or
       waived, the Judicial Officer shall decide
       all disputed issues, and his decision
       shall be final.
(c) Refusal to pay uncontested demands or demands
    which become final after dispute subjects the
    violator to civil suit by tKe Postal Service.
(d) This provision for the payment of postage on
    violation shall in no way affect the right of
    the Postal Service or the Department of
    Justice to enforce the restrictions by civil
    or criminal proceedings.
§310.9 Advisory opinions.
An advisory opinion on any question arising under this
part and Part 320 of these regulations may be obtained
by writing the Assistant General Counsel, Opinions
Division, United States Postal Service, Washington, DC
20263. Final opinions will be available for inspection
by the public in the Library of the United States
Postal Service, and copies of individual opinions may
be obtained upon payment of charges for duplicating
services.

PART 320 - SUSPENSIONS OF THE PRIVATE EXPRESS STATUTES.


Sec.
320.1 Definitions.
320.2 Suspensions.
320.3 Establishment of operations under suspensions.
AUTHORITY: The provisions of this Part 320 are issued'
under 39 U.S.C. 401, 404, 601.
                           •• *
§320.1 Definitions.
The definitions in Section 310.1 apply in this Part 320
to the extent words defined there are used in this Part.




                        7309
                           198

S320.2      Suspensions.
(a) The operation of 39 U.S.C. §601(a) and
    section 310.2(a) of these regulations are-
    suspended on ail post routes for the types
    of matter, and on such terms; as are de-
    tailed in Section 320.l(b) hereof. The
    effect of these suspensions is to allow any
    person to send or carry matter covered by
    the suspensions between places served by
    the Postal Service without paying postage
    or meeting any other conditions of
    Section 601 (a) and Section 310.2(a).
(b) The contents of any matter carried under the
    suspension must -foe -made available for examination
    upon request by a .properly identified Postal
    Inspector.
(c) The suspensions may be revoked at any time.
     It is not expected, however, that a revocation
    would curtail then existing operations under
     the suspensions to- a scale smaller, than that
    antedating the revocation in a particular
     territory served prior to the revocation. Reason-
    able regulatory changes in conditions affecting
    the suspensions may, however-, be implemented
    at any time as to all carriers operating unler
    -the suspensions.
(d) The 'following types ofr matter, if carried
    under the indicated conditions, are not subject
    to penalty pursuant to the Private Express
    Statutes or the regulations issued thereunder.
    ,-(!)    Interoffice communications between offices
             and branches of the same corporation,
             partnership, or other organization when
             transmission must be and is completed
             within 12 hours or by hot later than the
             opening- of the addressee"s busih'ess or.
             his next working day.
     (2) Data processing materials conveyed to or
         back from a company-owned or independent
         data- processing center, when transmission




                           7310
                        199

         must be and is completed within 12
         hours or by not later than the opening
         of the addressee's business on his
         next working day. For purposes of
         this suspension, data processing means
         electro-mechanical or electronic pro-
         cessing; data processing materials
         include only documents produced on a
         regular periodic basis, under cir-
         cumstances where the processing
         center is required to produce final
         processed output within thirty-six
         hours of the time the materials are sent
         to the processing center. The1 time
         limits stated do not include hours of any
         complete day in which no business is conducted.
         Within this concept; data 'processing
         materials include materials of all types
         ready for immediate data processing and
         the direct output of data processing;
         they also include other materials,
         ready for automatic intermediate con-
         version into a form ready for immediate
         data processing.
     (3) Checks and other financial instruments,
          such as s_tock certificates, -promissory
         notes, bonds and other negotiable securities,
         .when shipped between financial institutions
         or in bulk to financial institutions.
     (4) Newspapers and ge'riodicals.
§320.3 Establishment of operations under suspensions.
(a) Persons intending to establish or .alter operations based
    on suspensions granted pursuant to Section
    320.2(d)(l) and (2) hereof shall, as a condition
    to the right to operate under the suspensions,
    notify the Private Express Liaison Officer., Customer
    Services Group, United Spates Postal .Service,
    Washington, DC 20260, of their intention to
    establish such operations not later than the
    beginning of such operations. Such notification,
    on a form available from the Private Express
    Liaison Office,-shali include:
     (1) the name and address of such person; and'
     (2) a detailed' statement of the scope of the
         proposed operation, including but not




                          7311
                      200

         limited to t/-.e type of matter, geo-
         graphical area, and expected duration
         of operations.
(b) Persons filing notification under Section 320.3(a)
    shall file, on a form available from the Private
    Express Liaison Office, not less frequently than
    annually, reports on the actual volumes, revenues,
    distances, frequencies, and such other information
    in such forms and accompanied by such certificates
    as may be required by the Postal Service on
    services performed under suspensions granted
    pursuant to this part.
(c) The filing of notifications or reports under this
    section shall not constitute the operator a
    licensee, and the operator will continue to be
    solely responsible for assuring that his operations
    conform to applicable Statutes and regulations.


                                 Louis A. Cox
                                 General Counsel

                            o




                          7312

								
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