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OST 1996-1629 - Transatlantic, Transpacific, Transborder, and Latin American Service Mail Rates Investigation

International Mail Air Transportation: Proposed Changes to the Rate-Setting Process - GAO Report - April 2005

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

OST-1996-1629

July 27, 1982

Motion for Leave to File and Answer of American to Order to Show Cause

Counsel: American, Wesley Kaldahl, 817-355-2500

Order 97-5-23 | OST-1996-1629 | Issued May 28, 1997 | Served June 3, 1997

Order Establishing Final Service Mail Rates

By this order the Department is setting final international service mail rates for the period January 1 through June 30, 1997. The final rates shall also apply as temporary rates beginning July 1, 1997, until further order of the Department.

A-1 International Service Mail Rates | A-2 Transborder Rate Area | B-1 Cost Adjustment Factors Atlantic | B-2 Pacific | B-3 Latin America | B-4 Transborder | C-1 Summary of Carrier Operating Costs Assigned to Mail Atlantic Rate | C-2 Pacific Rate | C-3 Latin American Rate | C-4 Transborder Rate

By: Charles Hunnicutt

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

OST-96-1629 | July 28, 1997

Notice of Objection of United Air Lines

Pursuant to Order 97-5-15 in the above captioned proceeding, United Air Lines, Inc. submits this notice of objection to the Department’s tentative findings and conclusions in that order.

Counsel: United and Ginsburg Feldman, 202-637-9130

Transatlantic, Transpacific, and Latin American Service Mail Rates Investigation

Order 97-8-27 | OST-96-1629 | Issued August 28, 1997 | Served September 4, 1997

Order Establishing Final Service Mail Rates

By this order the Department is setting final international service mail rates for the period July l through December 31, 1997. The final rates shall also apply as temporary rates beginning January 1, 1998, until further order of the Department.

Appendix A-1 | Appendix A-2

By: Charles Hunnicutt

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

OST-96-1629 | January 5, 1998

Notice of Objection of American Airlines

American Airlines, Inc. hereby files this notice of objection to Order 97-12-25, served December 24, 1997, which proposes to establish international service mail rates for the period January 1, 1998 through June 30, 1998. American will submit its answer in support on January 23, 1998

Counsel:  American, Carl Nelson, 202-496-5647

Notice of Objection of United Air Lines

Pursuant to Order 97-12-25 in the above captioned proceeding, United Air Lines, Inc. ("United"), submits this notice of objection to the Department's tentative findings and conclusions in that order.

Counsel:  United and Ginsburg Feldman, Joel Burton, 202-637-9130

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

OST-96-1629 | January 23, 1998

Answer of American Airlines in Support of Notice of Objection to Order 97-12-25

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While American has no insight into depreciation expense changes at Delta, the fact that one carrier's financing or accounting decision can swing rates for all carriers does not seem appropriate. The issue is exacerbated by the fact that the methodology employed uses most recent cost information to trend out a straight-line projection of cost changes in the future.

Counsel:  Ameircan, Carl Nelson, 202-496-5647, carl_nelson@amrcorp.com

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

Order 98-2-13 | OST-96-1629 | Issued February 17, 1998 | Served February 23, 1998

Order Establishing Final Service Mail Rates

Appendix A-1 | Appendix A-2

Transatlantic, Transpacific, and Latin American Service Mail Rates Investigation

OST-96-1629 | July 6, 1998

Notice of Objection of American Airlines, Inc. to Order 98-6-16

American Airlines, Inc. hereby files this notice of objection to Order 98-6-16, served June 23, 1998, proposing to establish international service mail rates for the period July 1, 1998 through December 31, 1998. American will submit its answer on July 23, 1998.

By: Carl Nelson, Jr., 202.496.5647

Notice of Objection of Northwest Airlines, Inc. to Order 98-6-16

Pursuant to ordering paragraph 3 of Order 98-6-16, Northwest Airlines, Inc.hereby gives notice of its objection to the Department's tentative findings and conclusionsand proposed international service mail rates for the period July 1, 1998 throughDecember 31, 1998. This notice is filed to preserve Northwest's right to submit ananswer addressing the Department's show-cause order on or before July 23, 1998, thedate established by Order 98-6-16.

Counsel: Megan Rae Poldy, 202.842.3193

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

OST-96-1629 | July 23, 1998

Answer of American Airlines in Support of Notice of Objection to Order 98-6-16

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We do not know what accounts for such a steep decrease in Delta's non-capacity expenses. One possibility is that Delta's extensive codesharing arrangements with European carriers have resulted in a shift of such expenses to Delta's foreign-flag partners, with the result that they are no longer shown in Delta's Form 41 reports. But whatever the reason, with such a level of period-over-period and inter-carrier variability, it is difficult to defend the position that current average cost trends will continue, and that percentage adjustment factors should be based on such trends.

American believes that a rate calculation methodology change should be adopted to reflect that: percentage adjustment factors should no longer be based on a two-point projection of carrier unit costs, but instead should reflect the most recent year-end Form 41 unit costs themselves. This change will protect the United States Postal Service, and the carriers, from excessive volatility in rates that. may result from on-time restructuring or accounting changes. The percentage adjustment factors and rates that would have resulted if this methodology were in place for the second half' of 1998 are shown in Appendix B. American urges that these rates, and not the ones proposed by Order 98-6-16, should be adopted.

• Appendix A:  Cost Adjustment Factors, Atlantic Rate Area
• Appendix B:  International Service Mail Rates July 1 thru December 31, 1998

Counsel:  American, Carl Nelson, 202-496-5647, carl_nelson@amrcorp.com

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

OST-96-1629 | August 3, 1998

Motion for Leave to File and Response of United Air Lines to Answer of American Airlines

United joins American in questioning Delta's non-capacity expense reported on Form 41. This component has experienced a tremendous decrease over the last several periods, which runs contrary to the experience of other major carriers servicing the Atlantic Region. United initially raised this issue in an objection to Order 97-2-9 (March 18, 1997). At that time, the Department's response was that Delta's drop in non-capacity expense for the twelve month period ending September 30, 1996 was in line with its reduction in revenue tons enplaned. Order 97-5-23. However, for the period ending March 31, 1998, Delta's non-capacity expense dropped 48%, while tons enplaned increased.

This trend is neither consistent nor is it supported by the DOT's response to United's objection to Order 97-2-9. This anomaly hints at a change in Delta's accounting practices. If there were accounting adjustments, they would have a detrimental affect on the rest of the industry through the computation of artificially depressed non-capacity expense factors.

Counsel:  United and Ginsburg Feldman, Joel Burton, 202-637-9130

Transatlantic, Transpacific, Latin America Mail Rates

Delta explained that, following discussions with the Department's staff, it undertook a comprehensive review of the data filed for the last two years for its Atlantic operations and determined that several accounts that included costs for contracted ramp and cargo handling had incorrectly been allocated in their entirety to the passenger line on schedule P-7 rather than to the cargo line. Delta noted that the error in the classification of these expenses occurred during the two-year period it was undergoing a major realignment of its transatlantic route system. It stated that a portion of that realignment involved contracting out many ground handling functions, for both passengers and cargo, but that all of the contract expense was included in passenger accounts, rather than being allocated between passenger and cargo. . Finally, Delta indicated that it has now taken the necessary action and adopted new procedures to ensure that costs are accurately recorded in the appropriate categories on its schedule P-7.

By:  Charles Hunnicutt

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

By:  Charles Hunnicutt

Transatlantic, Transpacific, and Latin American Service Mail Rate Investigation

In conclusion, based on the submissions of Delta, Trans World Airlines believes that it has not been paid a fair and reasonable rate for mail transportation for the past two years in the Atlantic Rate Area; that the rates proposed in Order 98-11-18 are not fair and reasonable; and that the Department should ignore the data provided by Delta when determining international mail service rates.

Counsel:  Richard Fahy, Jr., for TWA, 703.684.4422, rfahy@ibm.net

Transatlantic, Transpacific, and Latin American Service Mail Rates Investigation

American urges that Delta's cost allocation methodology and reported statistics should once again be scrutinized for accuracy and consistency with the reports of other carriers. If Delta is unable to explain the steep drop in its non-capacity expense relative to its reported traffic increase, Delta's statistics should be excluded from the development of the Atlantic service area cost adjustment factors used in calculating the new rate.   While we await the opportunity do discuss the issues associated with what we believe are the shortcomings in the Department's methodology, it is imperative that the rates established in the meantime be constructed by using data that is without question representative of true operating costs in the respective rate areas.

By:  Spencer Dickinson, Managing Director, Postal Sales and Services, Cargo Division, American Airlines, Inc.

A review of Delta's reported costs reveals that the ratio between Delta's non-capacity expense and its tons of baggage and cargo enplaned in its transatlantic entity continues to be anomalous. The Summary of Carrier Operating Costs Assigned to Mail, Appendix C-1 of Order 98-11-18, reflects that Delta was the only carrier to report an increase in tons of baggage and cargo enplaned, but a decrease in non-capacity expenses. Delta's tons of baggage and cargo enplaned increased 19.9 percent, while its non-capacity expenses decreased 22.5 percent. Whether this anomaly is due to cost reporting skewed by Delta's extensive transatlantic code sharing or whether there are additional errors in Delta's accounting, such as charging cargo handling expenses to the passenger accounts, the fact remains that Delta's costs for handling propose international mail rates that are below the industry's actual costs of service.

Counsel:  United and Kirkland Ellis, Jeffrey Manley, 202-879-5161, jeffrey_manley@kirkland.com

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

Because of the financial consequences to the pool of air carriers and the Postal Service, I am requesting that Delta review its reporting of code-share services. Enclosed is Accounting and Reporting Directive #217, which explains the reporting responsibilities for code-share operations. Generally, the aircraft operator reports all traffic and operating expenses associated with the code-share service, while its nonoperating partner reports tranport-related revenues and expenses. This reporting assures the proper correlation between operating expenses and traffic transported.

By:  BTS,  Timothy Carmody

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

Order 99-4-1 sets the final international service mail rates for the period beginning on the date of issue of this order through December 31, 1999. These rates shall also remain in effect as final rates beginning January 1, 2000, or until further order of the Department, whichever is later.

By:  Bradley Mims, Acting Assistant Secretary for Aviation and International Affairs

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

Order 99-10-23 proposes to establish new International mail rates for the period from January 1, 2000, through December 21, 2000. The rates that are currently in effect were established by Order 99-4-1, for the year ending December 31, 1999. Those rates will remain in effect as final rates through December 31, 1999, or
until a final order is issued with respect to the rates proposed here, whichever is later. Objections due December 16, 1999

By:  Bradley Mims

Transatlantic, Transpacific, and Latin American Service Mail Rates Investigation

By:  John Coleman

Transatlantic, Transpacific, and Latin American Service Mail Rates Investigation

Order 2000-11-5 proposes to establish new International mail rates for the period from January 1, 2001, through December 31, 2001. The rates that are currently in effect were established by Orders 99-10-23 and 99-12-16, for the year ending December 31, 2000. Those rates will remain in effect as final rates through December 31, 2000, or until a final order is issued with respect to the rates proposed here, whichever is later

By:  Francisco Sanchez

Transatlantic, Transpacific, and Latin American Service Mail Rates Investigation

By:  Managing Director, Postal Sales and Services, Spencer Dickinson, 817.963.4225, spencer.dickinson@aa.com

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

If Continental's faulty cost data are factored into the final mail rates, United and the other carriers will not be fairly and reasonably compensated for their international mail carriage because the rates will not reflect the true and accurate average costs of operation. Particularly here, where Continental carries significantly less mail in the Transatlantic sector than do United, American or Delta, it would be inappropriate and unfair to allow Continental's unreliable cost data to undermine the fair compensation of the carriers that transport the overwhelming majority of Transatlantic mail.

American offers a reasonable and well-supported solution. The Department "should apply to Continental the average unit costs for the five other carriers in the area, which reflect a decline of 2.43%." American Objections at 2. American has prepared exhibits illustrating the effects of such an adjustment, which would result in an Atlantic area terminal rate that declines 20.6% rather than 23.9%. United agrees that this rate would more accurately reflect the true costs of mail carriage and joins with American in requesting that the Department recalculate the Atlantic area rate using adjusted data in order to arrive at a rate that fairly compensates the carriers for transporting Transatlantic mail.

Counsel:  Wilmer Cutler, Jeffery Manley, 202.663.6670, jmanley@wilmer.com 

The USPS has been loading ULDs on a limited basis for a number of years. We do so, in some cases, for security reasons as well as to improve operational efficiencies. Most, if not all, of these ULDs are destined for the Atlantic and Pacific regions. Due to the mainly narrow-body aircraft serving Canada and Mexico, Transborder mail is normally tendered in loose sack form versus containers.

The USPS believes there is insufficient recognition of containers in Order 2000-11-5. This and prior Department of Transportation (DOT) orders do not appropriately reflect the reduced costs associated with the growth in containerization. Because our goal is to increase the utilization of containers to improve operational and service performance, the USPS would like the DOT to resume the publication of container rates for all regions. The USPS is willing to work with the air Carriers and your department to determine such rates.

Counsel:  USPS, Kenneth McFadden 

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation (9A)

We agree with American that Continental's reported terminal costs in the Atlantic appear suspect, but not for American's stated reason. Examining Appendix D- I -A it is clear that Continental's unit terminal costs of $178.41 are less than half of $457.33, the weighted average of all Atlantic carriers including Continental. Similarly, TWA's reported unit terminal costs of $988.52 appear equally suspect because they are more than double $457.33, the weighted average of all Atlantic carriers including TWA. It would not be fair to excise Continental's while at the same time leave in TWA's costs because each appear equally suspect. Furthermore, the cost disparities of Continental and TWA are not new, because each carrier was, respectively, by far the lowest and highest cost carrier in the preceding rate period. The recent update has only accentuated their respective deviations, with Continental's unit costs decreasing by 22.68% and TWA's increasing by 11.91%, while the average has decreased by 5.50%. Under these circumstances, to disregard only the low cost carrier would be as unfair to the USPS as would be disregarding only the highcost carrier to the other carriers. As a result, we will continue to include both Continental's and TWA's data at this time, but we will adjust the rate prospectively, as discussed below, should the two carriers submit any revised data.

The stated purpose of the Postal Service letter was to open informal discussion among the parties to determine revised rates. We support the goal of working with parties to see if a consensus is possible. In this instance, the resolution of American's objection to Order 2000-11-5 and the Postal Service's desire to resolve nebulous but perhaps larger issues is not immediately possible. In addition, if we take no action, the rates established in Orders 99-10-23 and 99-12-16 remain final until further Department action. The current rates are generally lower than those we tentatively set in Order 2000-11-5. It is our policy, in general, to no longer issue rates subject to retroactive adjustment. In other words, unless we finalize the rates tentatively determined by Order 2000-11-5, the carriers would forego significant mail revenues.

We will therefore grant the Postal Service's request, in so far as making the rate proposed by Order 2000-11-5 final until further Department action. We will work to see if the issues raised by the Postal Service can be resolved on a consensus basis. We will also direct both Continental and TWA to closely re-examine their reported Atlantic terminal costs, and based on their examination, we will amend the rates as appropriate. Regardless of the conclusions of that re-examination, the rates we are finalizing here will not be adjusted retroactively.

By:  Francisco J. Sanchez

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation (9A)

By:  Susan McDermott

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

TWA has reviewed the cost data submitted by Trans World Airlines, Inc. in detail and reconfirmed that Order 2001-1-2 accurately stated Trans World's unit terminal costs. We further understand that Continental Airlines, Inc. has submitted revised "Operating Expenses by Functional Grouping" for the period beginning in the third quarter of 1998 through the fourth quarter of 2000. The new data appears to indicate that Continental's cost figures were substantially understated at the time the Department issued Order 2001-1-2, and thus support a far higher terminal cost than was originally submitted by Continental. As a result of the foregoing, we urge that the Department take immediate action to adjust the rate to reflect the corrected transatlantic terminal cost data.

We urge that the Department immediately adjust upward the international service mail rates as set forth in Orders 2001-1-2 and 2001-2-4. We believe that expeditious action is required given that the rates have been artificially low for the first quarter of 2001, and should be adjusted to reflect this fact. Continental's May 1, 2001 revised Operating Expenses by Functional Grouping requires the Department to act to immediately correct clearly inaccurate mail rates.

Counsel:  TWA and Glenn Wicks, 202-457-7790

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation 

In light of the revised data submitted by Continental Airlines, Inc. on May 1, 2001, and TWA's response of May 7, 2001, the Department should promptly reopen and reissue the current international service mail rates for the transatlantic and transborder areas established by Order 2001-1-2, January 3, 2001 and Order 2001-2-4, February 3, 2001.

On December 18, 2001, American filed objections to show-cause Order 2000-11-5, November 9, 2000, on the basis that Continental's non-capacity unit costs were inordinately low for the transatlantic area. Order 2001-1-2 established the rates until the time at which Continental's costs could be validated. At the same time, that order discounted American's arguments that Continental's data was suspect, given the fact that TWA's costs (in contrast to Continental's) were generally higher than the norm.

TWA has now reviewed its data and confirmed that its costs were accurately stated, and presented a reasonable explanation of why its costs are, and should be, higher than the norm. Moreover, Continental has reviewed its data and filed upward revisions to its non-capacity unit costs in both the transatlantic and transborder areas. TWA's response included a restatement of the transatlantic rates based on Continental's revised data. That restatement shows that the terminal handling charge for the January 1, 2001-December 31, 2001 period should be calculated at 147.90% of the base year (1975), as opposed to 126.57% as put forth in Order 2001-1-2. American fully supports TWA's analysis and urges the Department to revise the transatlantic area rates accordingly.

American supports the statements in TWA's response regarding the USPS' documented desire that the Department investigate the use of separate and reduced rates for mail tendered in pre-built unit load devices (ULDs). The use of pre-built ULDs for the tender of mail is a practice that is used on those occasions when such action is beneficial to the USPS and the carrier. The benefits include streamlining the tender process, assurance of greater security of the mail, and reduced handling costs. These reduced costs are passed back to the USPS in lower non-capacity related costs as captured in the current methodology.

Counsel:  American, Spencer Dicknson, 817.963.4225, spencer.dickison@aa.com

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

Continental has re-examined its reported Atlantic terminal costs, pursuant to the Department’s direction to do so, and reported to the Department significantly higher terminal costs. TWA has re-examined its high terminal costs, confirmed them and explained why they are high. When the Department directed Continental and TWA to re-examine their rates, it said it would “amend the rates as appropriate” based on the results of the carriers’ re-examinations. (Order 2001-1-2 at 2) The time has come to do precisely that. The Department now knows that Continental’s costs are higher than the costs on which it based the current rates and that the Postal Service has been paying rates lower than it should have been. Since the Department no longer makes retroactive adjustments, it should increase the rates immediately in accordance with the information now before it, just as it did in Order 2001-2-4.

Continental agrees with both TWA and American that the Department should not also adjust the international mail rates to reflect containerization. Even if the Department decides to consider this issue, however, it should not delay action on an upward adjustment reflecting Continental’s true costs while it ponders what the Department itself has described as “nebulous but perhaps larger issues” for which “resolution . . . is not immediately possible.”

Counsel:  Crowell Moring, Bruce Keiner, 202.624.2615

TWA and American have prepared revised analyses reflecting the appropriate 2001 transatlantic and transborder mail rates, which take into account Continental's revised cost data. United joins with TWA and American in urging the Department to expeditiously revise the mail rates to ensure that carriers are appropriately compensated for their USPS mail carriage operations. The need for prompt action is made all the more compelling by the Department's determination not to adjust the mail rates retroactively to account for losses the carriers have suffered by virtue of the existing rates.

Finally, with respect to the issue of container rates raised by the Postal Service in its December 19, 2000 submission to this docket, if the Department feels it necessary to further examine the issue, it should do so only after the 2001 mail rates have been revised to account for Continental's actual cost data so that the carriers transporting U.S. mail are not harmed by any further delay.

Counsel:  United and Wilmer Cutler, Jeffrey Manley, 202.663.6670, jmanley@wilmer.com 

Transatlantic, Transpacific & Latin American Service Mail Rates Investigation

By this order the Department is setting final International service mail rates for the period beginning five days after the service date of this order, until further Department action.

This update is necessitated by the submission of revised data by Continental Airlines. For comparison purposes, we show below a summary of current and proposed rates. Rates are for terminal only, because line-haul elements do not change. Likewise, only the Atlantic and Transborder regions are shown, because Continental is not part of either the Latin or Pacific Divisions. For the Transborder region, rates are for daylight container mail and for the Atlantic for space-available mail only.

The Department, as a general matter, prefers that rates be final and not retroactively adjustable, and the late filings of United and American did not provide enough time for the issues they raised to be resolved before the then-current rate was due to expire. Because the corresponding costs of TWA also appeared overstated and because both TWA and Continental had, as always, certified their costs to be accurate, the Department finalized the rate in the show cause order until further Department action as the appropriate rate. We also asked Continental and TWA to review their data submissions in light of the American and United objections and, for TWA, our own analysis. On May 1 Continental submitted revised numbers. On May 6, TWA submitted a letter stating that it had reviewed its data and found them to be accurate. By way of explanation for its high unit costs, TWA noted that between 1993 and 2000 it sharply reduced its Atlantic operations, but that in many instances the facilities and personnel to support the higher level of operations had not been reduced.

For a number of years we have adjusted traffic servicing expenses assigned to baggage and cargo for Northwest, shown in Appendix C, corresponding to similar adjustments we have previously made to Northwest's data. See Order 97-5-23, at pages 3 and 4 for a full discussion of this issue. While we are continuing that practice here, we have informally asked Northwest to review its data. Once Northwest has finished its review, we will either further modify this rate prospectively ' or, depending on circumstances, incorporate Northwest's revisions in our next annual update.-,

Likewise, we have reviewed Continental Micronesia's reported unit terminal costs in the Pacific region, as shown in Appendix D. These unit costs are less than half those of the next lowest cost operator in that region. Moreover, there is an affiliation between Continental Micronesia and Continental, who revised its reported costs. It is not unreasonable to expect similar revisions should be made to Continental Micronesia's costs as have been made to Continental's Atlantic and Transborder regions. We have therefore asked Continental Micronesia to review its reported data to determine if adjustments are appropriate.

Separate from the issue of revised data, we note that Continental's Latin American Division, historically part of the Transborder region, has less than 1.69% of total ATMs and 1.09% of total tons enplaned of baggage and cargo in that region. As such an insignificant part of that region, it may be appropriate to eliminate them from consideration in setting the Transborder rate. We invite comments about either removing this division completely from all international mail rate calculations or alternatively transferring it to the Latin American region, where it would be a significant percentage of total operations. We do not propose to make any such change to the makeup of the cost pools until the next annual update period.

Finally, in the next annual update we anticipate adding carriers to the cost pools of various regions. Specifically, it appears that USAirways is of sufficient size to be added to the pool of Atlantic carriers, and similarly that American Airlines has grown in the Pacific to the extent it would be appropriate to include them as well.

By:  Susan McDermott

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

Counsel:  USPS, Michael Mumbach, 202.268.2974

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

Counsel:  Northwest Airlines, James Mathews

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

Order 2001-7-9 is setting final International service mail rates from August 1, 2001, until further Department action for the Atlantic, Pacific, and Transborder regions. The Latin American region remains unchanged. 

This update is required by the submission of revised data by Continental Micronesia and Northwest Airlines, and is for the terminal element only, because linehaul elements do not change. The Latin American region is not shown because neither Continental Micronesia nor Northwest is part of that region, and, thus, there is no change. The table below shows, for illustrative purposes, Transborder rates for daylight-container mail only and for Atlantic and Pacific space-available mail only. The percentage changes also apply to the priority, military ordinary, sack, and standard container mail.

                                                 Order                         New
                                             2001-5-19                     2001                        Percentage
                                             Terminal                    Terminal                      Change
Atlantic                                      $.2546                        $.2639                         3.65%
Pacific                                        $.3270                        $.3238                       -0.98%
T-Border                                  $.11791                      $.11699                       -0.78%

By:  Susan McDermott

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

By this order the Department proposes to establish new international mail rates for the period from January 1, 2002, through December 31, 2002. The rates that are currently in effect were established most recently by Orders 2001-7-9, 2001-5-19, and 2001-2-4 for the year ending December 31, 2001.  Those rates will remain in effect as final through December 31, 2001, or until a fmal order is issued with respect to the rates proposed here, whichever is later.

By:  Read Van de Water

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

By:  USPS, William Jones, 202.268.3002

The Postal Service is concerned with the significant rate increases over the last year. It appears that the increases are to a large extent due to a significant rise in unit fuel costs from the prior year. An increase in fuel costs was expected based on the economic conditions. However, the double-digit increases noted in many of the carriers' linehaul and terminal costs are acknowledged with little explanation. For example, the increases in Delta's unit terminal costs are simply attributed to a change in their accounting system, without further inquiry about the changes. Rate changes of this magnitude are unusual and may warrant further investigation and explanation.

By:  USPS, William Jones, 202.268.3002

By:  USPS, William Jones, 202.268.3002

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

USPS expresses concern that the proposed rates for 2002 are significantly higher, but recognizes that the increase caused by rising fuel costs was expected. American has been directly affected by fuel costs, and also fully expected that the Department would correctly recognize increased line-haul costs through its rate methodology, which has been accepted by the carriers and USPS for many years. A spike in air carrier costs does not invalidate the method by which fair and reasonable rates are established.

Where codeshare or blocked-space relationships exist, the foreign-flag carriers have agreed to accept the rates established by the Department as fair and reasonable. These codeshare relationships have the effect of reducing USPS costs. There are no line-haul costs and only partial terminal handling costs being incurred by the U.S. flag carriers where these relationships exist, thereby reducing significant components of the rate determination. That benefits USPS.

Finally, American has previously recognized and commented on flaws in the cost projection methodology underlying the current rate setting process. A change in the cost projection methodology to include the option of projections based on more than a two-year trend may have merit. American agrees that a review may be appropriate, with application in future fair and reasonable mail rate studies by the Department.

Counsel:  American, Mark Gilbert, 817.967.1031, mark.gilbert@aa.com

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

The U.S. Postal Service has failed to set forth any specific objections or any findings, conclusions, and rates that should be substituted for the corresponding items in the Show Cause Order. See 14 C.F.R. 302.704(b). The Answer acknowledges that the new mail rates are in large extent due to a rise in unit fuel costs, but baldly asserts that these rate changes are "unusual" and warrant further investigation and explanation. This is exactly the sort of "[v]ague and unsupported Answer,' unaccompanied by any proposed adjustments or any backup data, that the Department repeatedly has warned will not be accepted in the mail rate docket. See, e.g.. Order 2001-11-8, at 4.

In addition, the U.S. Postal Service has used its Answer as a vehicle to argue for changes in how the Department publishes container rates and in the criteria for carrier inclusion in the cost pool. To the extent that either of these proposals has merit. this is not the proper forum for their consideration, and the promulgation of the mail rates set forth in the Show Cause Order should not be delayed beyond January. 1, 2002 on account of these proposals. Ideally, the Department should initiate a new international mail rate investigation to evaluate the proposals. But at a bare minimum, the Answer does not provide a specific report on the progress of the consensus-based negotiations initiated by the Department in Order 2001-1-2. Nor does the Answer explain why such negotiations have been so inadequate that the Department now should unilaterally freeze mail rates in order to consider the U.S. Postal Service's various mail rate methodology proposals in the interim. As the Department previously acknowledged in Order 2001-1-2 (Jan. 5, 2001), "the Postal Service's desire to resolve nebulous but perhaps larger issues is not immediately possible. ... Unless we finalize the rates tentatively determined by Order [2001-11-8], the-carriers would forego significant mail revenues."

Counsel:  Northwest, Megan Rae Rosia, 202.842.3193, megan.rosia@nwa.com

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

USPS reiterates its concerns about publishing container rates for all regions, mentions concerns about determinations on inclusion of carriers in particular regions and suggests the possibility of updating costs based on a 10-year moving average of changes in operational costs. If the Department undertakes consideration of changes to the 10-year moving average for changes in operational costs, the standards for including carriers in regions or additional container rates, those are long-term issues that should be explored prior to setting rates for the period commencing January 1, 2003, rather than delaying final rates for 2002.

Counsel:  Crowell Moring, Bruce Keiner, 202.624.2615 

With respect to the Postal Service's views on the possibility of adding foreign carriers into the international mail service rate-making scheme, United agrees with American that nearly all routes with appreciable volume are served by U.S. carriers or their code-share partners, so the use of foreign carrier service for U.S. mail should remain limited. Given this level of involvement in U.S. mail carriage, factoring foreign carriers' costs into the rate-making is unnecessary. See American Reply at 3. The Postal Service concedes that obtaining access to foreign carriers' operational and financial statistics presents an impediment. Even if the Department were able to overcome that hurdle, however, adding a foreign carrier cost component into the mix may well increase rather than reduce the mail rates in view of these carriers' likely average cost structure.

United wishes to underscore that no material changes should be made to either the 2002 rates or the Department's rate-setting methodology without first offering interested parties an opportunity to comment on the proposed changes well in advance of their implementation.

Counsel:  United and Wilmer Cutler, Jeffrey Manley, 202.663.6670, jmanley@wilmer.com

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

Therefore, the only issue requiring immediate decision is whether or not to finalize the rate for an entire year or until further Department action. The Postal Service raised the "long term" issue of container rates in the preceding annual update. While the parties met in a preliminary meeting, they were not able to resolve the issues consensually, at least in part because of health problems last year of key Postal Service personnel. Continental in its objection does not discuss any harm it may suffer as a result of not making the new final rates effective for an annual period. On that basis, we see little reason to not make the new final rate temporary. Continental and the other carriers will have the certainty of being compensated at a final rate, and resolution of the long-term issues will not interfere with setting final rates.

By:  Read Van de Water

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

OST-96-1629 Docket 37392

February 27, 2002 Docketed March 11, 2002

Re:  Letter Informing Time and Place of Meeting Concerning Container Rates for Air Transportation of International Mail

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

The meeting is designed to be an open forum for discussions among the parties. The USPS will open with their reasons on why a container rate for the Atlantic, Pacific, and Latin American Areas is needed. The USPS will also address concerns previously raised by air carriers. Prior to the meeting, air carrier representatives are encouraged to submit container-related topics they want addressed, in outline form without argument. Parties that cannot attend should consider designating a representative, or submitting concise views that will be noted and distributed to the group for consideration.

By:  Dennis DeVany

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

Mr. DeVany and Mr. Adams welcomed everyone and mentioned that DOT was here to listen and learn from all the ideas. DOT wants out of the rate making process, but that hasn't happened for 10 years. However, DOT does not want a base rate investigation. The discussions should be between the USPS and the carriers, however this meeting is under the auspices of DOT at the airlines' request since international mail rates are still regulated.

By:  Kevin Adams

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

By:  United States Postal Service, Kenneth McFadden

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

The USPS and participating air carriers have reached consensus that the USPS should receive a discounted rate on the terminal handling (TH) component for postal-loaded containers. The parties have agreed that the TH discount should be four cents per pound for mail tendered in postal-loaded container, that such a discount will be applicable to the Atlantic, Pacific, and Latin American areas,' and that minimum chargeable weights per container should be established based on a density factor of seven pounds per cubic foot for each container type.

By:  USPS, William Jones, 202.268.3002

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

American Airlines, Inc. hereby answers in support of the proposal by the United States Postal Service, submitted in this docket on July 3, 2002, to establish certain container rates for international mail service. The USPS has set forth a methodology that is reasonable and fair for consumers and for air carriers, and we urge the Department to adopt this proposal on an expedited basis.

Counsel:  American, Carl Nelson, 202.496.5647, carl.nelson@aa.com

Delta supports the proposal set forth by the United States Postal Service, in its July 3, 2002 pleading, seeking to establish a $0.04 per pound discount rate for postal-loaded containers involving Atlantic, Pacific and Latin American routes. As noted by the Postal Service, this proposal reflects the product of consultations and negotiating between carriers and the USPS. Delta concurs that the new rate should become effective on August 1, 2002. Accordingly, the Department should issue a final rate Order before that date, or, in the alternative, issue a subsequent Order with retroactive applicability to August 1.

Counsel:  Shaw Pittman, Robert Cohn, 202.663.8060, robert.cohn@shawpittman.com  

Submits this answer in support of the "Proposal to Establish Certain Container Rates" filed by the U.S. Postal Service on July 3. The container rates, densities and minimum chargeable rates proposed by the USPS, reflecting a discount rate of $0.0400 per pound for postal-loaded containers for certain international air transportation, are the result of discussions among the USPS and multiple carriers, including Northwest, and observed by Department officials. These discussions were conducted consistent with the consensus-based approach favored by the Department.

Counsel:  Northwest, Megan Rae Rosia, 202.842.3193, megan.rosia@nwa.com

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

Continental Airlines, Inc. supports, pursuant to Rule 702(e), the proposal by the United States Postal Service, submitted in this docket on July 3, 2002, to establish certain container rates for international mail service pursuant to consultations between the USPS and the air carriers. The USPS has set forth a methodology that is reasonable and fair for consumers and for air carriers, and this proposal should be adopted on an expedited basis for effectiveness August 1, 2002.

Counsel:  Continental and Crowell Moring, Bruce Keiner, 202.624.2615, rbkeiner@crowell.com

Over the past several months, the Postal Service, the Department, the Air Transport Association and U.S. air carriers have worked together on a plan to establish container rates for the transportation of international mail in the Atlantic, Pacific and Latin American areas, with an eye to developing rates that both promote the efficiencies that result from the use of container loading while adequately compensating carriers for transporting U.S. mail. The Postal Service Proposal reflects the joint product of those negotiations. United fully supports the Proposal and believes that the proposed terminal handling discount of $0.04000 per pound for postal-loaded containers reflects a fair and reasonable rate for this service.

United appreciates the collaborative process used to reach a consensus on both the operational issues raised by the proposal and the appropriate container rates. The needs of all parties concerned are best served by a process that encourages effective communication and a full exchange of information before new rates, procedures or requirements are adopted. Pursuant to the Department's Order 2001-12-23 establishing international service mail rates effective "until further Department action," the rates currently in effect may be adjusted during the course of the year to reflect the recent agreement on container rates.

Counsel:  Wilmer Cutler, Jeffrey Manley, 202.663.6670, jmanley@wilmer.com

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

Order 2002-8-6, the Department proposes to add another category, container rates, to the Atlantic, Latin and Pacific regions, and make the rate set by Order 2001-12-23 final through December 31, 2002.

No party has objected to the Postal Service proposal, and we agree in concept with the notion that one full container is easier to load than dozens of individual sacks of mail.  In general, when both the Postal Service and the carriers reach consensus, the Department will give great weight to the proposal.  The lower container rate will provide further incentive to the Postal Service to use containers to the maximum extent possible.  The parties also anticipate that shipping by containers will provide better service to customers and may stimulate international mail service.  Because of the need for a reasonable comment period, and because of our policy against setting retroactive rates, we will tentatively make this rate final effective September 1, 2002.

By:  Read Van de Water

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

By Order 2002-8-6 the Department directed parties to show cause by August 29, 2002, why the rates in Appendix A to that order should not be made final. The rates were to be the same as those set in Order 2001-12-23, except for terminal handling for the Atlantic, Latin, and Pacific regions, where the category of container rates was to be added. However, we inadvertently attached the wrong appendix. The rates in Appendix A to this erratum correct for that error. As a result, we will extend the time for objections to the show-cause order for 10 days, from August 29 until September 9. We propose to make the container rates effective beginning on September 1 as we originally announced in the show-cause order. Also, the second page, third paragraph, second sentence of Order 2002-8-6 should read "four cents per pound" instead of "four cents per ton".

By:  Read Van de Water

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

Order 2002-12-23 proposes to establish new international mail rates for the period from January 1, 2003, through December 31, 2003. The rates that are currently in effect were established most recently by Order 2002-8-6, which added a category for container rates in the Atlantic, Latin, and Pacific regions, and by Order 2001-12-23, which finalized the rate set tentatively set by Order 2001-11-8. Those rates will remain in effect as final through December 31, 2002. Effective January 1, 2003, the rates proposed here will be set as interim rates until, and without prejudice to, further Department action. If there are no objections, the tentative rates will become final from January 1, 2003, through December 31, 2003.

We have prepared Appendix D for comparison purposes of unit costs, and the following discussion is drawn from that appendix. All of the carriers showed double-digit decreases in (unit) fuel costs for all regions. For non-fuel linehaul costs, the changes varied significantly by carrier, with some carriers having double-digit increases and some showing single-digit decreases. For terminal costs, Delta showed double-digit declines for each of its three regions. In the Atlantic region, the 16.73% overall increase in nonfuel linehaul costs is driven by Delta's and United's increases exceeding 30%. The 30.2% decline in Delta's terminal costs offsets single-digit increases for other carriers in that region. In the Latin region, there are overall single-digit increases overall, with the 13.02% increase in American's terminal costs offset by Delta's 41.85% decline. In the Pacific region, there are overall single-digit increases in nonfuel linchaul and terminal costs, with double-digit increases for United driving the increase for each category. In the Transborder region, nonfuel linehaul costs increased by 9.74% overall, with modest increases in United's and Delta's costs preventing a steeper overall increase. For the terminal costs, all carriers showed double-digit increases except Delta, which showed a double-digit decline.

Making comparisons for unit costs among carriers in the Atlantic region, United is the most expensive carrier and Continental the least for non-fuel linehaul costs, and Delta is the least expensive and American the most expensive for terminal costs. In the Latin region, the carriers' non-fuel linehaul costs are very close to each other, while American's terminal costs are significantly higher than those for the other three carriers shown. In the Pacific region, United's and Continental Air Micronesia's nonfuel linehaul expenses are the highest and American's is the lowest. On the terminal side, Continental Air Micronesia's expenses are significantly lower than those for any other carrier.

Finally, in the Transborder region, Continental and USAirways had the highest costs for nonfuel linehaul epxenses, while American had by far the highest costs for the terminal, and Delta by far the lowest. In comparing carrier's expenses to each other, in no case did any carrier's costs in any region lie two standard deviations above or below the mean for that region.

By: Read Van de Water

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

American Airlines, Inc. hereby objects to show-cause Order 2002-12-23, December 31, 2002, proposing international service mail rates for the period January 1-December 31, 2003. Specifically, the terminal expense data submitted by Delta Air Lines, Inc. is significantly inconsistent with data submitted by other carriers.

Data provided by Delta is also used in the Depart­ment's calculations for the Latin American rate area and the Transborder rate area. Similar inconsistencies exist in Delta's reporting for these entities. As an example, Delta reported a 36.6% decrease in Latin American rate area terminal expense, yet a 15.6% increase in year-over-year available ton­miles and an 8.9% increase in tons of cargo and baggage en­planed. Clearly, Delta has incorrectly reported its data to the Department. Any errors in the show-cause order are not in any way the result of miscalculations by the Department, which relies on carriers to report their data correctly. In fact, the Department only recently provided reminder instructions to the carrier community as to how data should be submitted for correct interpretation.

American challenges the data submission by Delta as incorrect for all entities, and requests that Delta immediately be directed to review and resubmit its data consistent with the Department's instructions. The Department should then use Delta's revised data to establish the fair and reasonable rates for compensation to be paid by the Postmaster General in the Atlantic, Latin America, Pacific, and Transborder rate areas for the period January 1-December 31, 2003.

Counsel:  American, Mark Gilbert, 817-967-1031, mark.gilbert@aa.com

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

It appears that Delta has inadvertently submitted incorrect cost data to the Department, which has impaired the Department's ability to establish fair and reasonable rates of compensation. In view of the potential harm this may cause to carriers serving the Atlantic, Latin America, and Transborder rate areas, the Department should direct Delta to review and resubmit its data. Upon receipt, the Department should use the new data to establish rates more consistent with the actual costs of operations and associated traffic statistics for these rate areas during YE 6/30/01 and 6/30/02. United further requests that the Department afford carriers an opportunity to review and comment on the proposed rates once they are revised to take into account Delta's corrected cost data.

Counsel:  United and Wilmer Cutler, Jeffrey Manley, 202-663-6670, jmanley@wilmer.com 

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

By Order 2002-12-23, the Department proposed interim international mail rates for the period January 1 through December 31, 2003. Objections to the Show Cause Order were filed by American Airlines and United Air Lines asserting that cost data submitted by Delta appear to be inconsistent with data submitted by other carriers.

Counsel:  Shaw Pittman, Robert Cohn, 202-663-8060

Transatlantic, Transpacific, Transborder and Latin American Service Mail Rates Investigation

Delta has reexamined its accounting and Form 41 cost data as they relate to international mail rates.' Delta hereby submits this revised cost data, together with an estimate of the adjusted rate. Delta requests that the Department revise the interim rates established by the Show Cause Order and issue a Final Order as soon as possible establishing the rates for 2003 consistent with the corrected data.

As a result of the issues identified in this proceeding, Delta is in the final stages of completing a comprehensive review of its recent Form 41 data, which Delta expects to complete by April 24, 2003. However, given the importance of setting new, corrected rates for the industry, Delta has broken out and accelerated its review of the key mail rates elements. Delta expects that further accounting corrections, if any, identified in the course of the more comprehensive Form 41 review would have only a de minimus effect on mail rates.

Counsel:  Shaw Pittman, Robert Cohn, 202-663-8060, robert.cohn@shawpittman.com

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

By show-cause Order 2002-12-23 in this docket on December 31, 2002, the Department proposed tentative rates for the current calendar year, based in part on Form 41 data pro­vided by Delta Air Lines, Inc. American and United Air Lines, Inc. both objected to the proposed rates, urging that the underlying data submitted by Delta was inaccurate. On March 19, 2003, Delta filed relevant revised data. The Department should now take immediate action to establish new interim and final rates based on Delta's corrected data in order to provide fair and reasonable compensation to carriers during the present period of intense economic distress.

Counsel:  American, Carl Nelson, 202-496-5647, carl.nelson@aa.com

Transatlantic, Transpacific and Latin American Service Mail Rates Investigation

Order 2002-12-23 established retroactively adjustable interim international mail rates effective January 1, 2003, and also proposed to make those rates final from January 1 through December 31, 2003. American and United objected to that order on January 17 and January 29, 2003, respectively, stating that it appeared that Delta's data were incorrect. On January 30, 2003, Delta acknowledged that its data were indeed incorrect, and requested time to correct it and submit revised data, which it did on March 19, 2003.  In footnote (1) of that submission, Delta states that it "expects that further accounting corrections, if any, identified in the course of the more comprehensive Form 41 review [it is conducting] would have only a de minimis effect on mail rates."

By: Read C. Van de Water