DOCKET SECTION
BEFORE THE
POSTAL RATE COMMISSION
WASHINGTON, D.C. 20268-OO01[E8
~i~~:F!x~~
17
I
12 07 i”;j “j&J
c, / ,/:, i_
POSTAL RATE AND FEE CHANGES,
1997
DOCKET NO. R97-1
FLORIDA GIFT FRUIT SHIPPERS ASSOCIATION
SECOND NOTICE OF ERRATA TO
DIRECT TESTIMONY OF LEONARD MEREWITZ
FGFSA-T-1
The attached errata identifies further changes in the testimony of Leonard
Merewitz, FGFSA-T-1, and two of the Exhibits therein, namely Ex:hibits LAM-4b
and LAM-6. A detailed listing of the changes are set forth in the attached Errata
summary. Copies of the affected pages are enclosed.
CERTIFICATE
Post Office Box 3628
Orlando, Florida 32802
Attorney for Florida Gift Fruit
Shippers Association
OF SERVICE
I hereby certify that I have this day served the foregoing document
all parties of record in this proceeding
on this date in accordance
12 of the Rules of Practice and Procedure.
Dated : February 15, 1998
upon
with Section
..._.. ..-. -.......__..__.....-...,-_.,._.-_-- .-._..,_.,, . . . _.. ._...,..,.._” . ....,_,_., .._........ . ,_,
Second Errata to Testimony
of Leonard
Merewitz
FGFSA T-l
‘DBMC Parcel
on inbound purchased transportation runs. Yet it
11
after LAM-4b add LAM-13.
1
Exhii LAM-6 &rough LAM-8 show the impact of drop-ship rules new in 1991 and rates
2
in third-cfassand Standard (A) on the trafEc in the two accountsof purchasedtransportation which
3
we study. Basically, the conclusion is that traflic is down while expenditureson transportation are
4
up. Traffic is down becausemailers, especiabyStandard(A) mailers are taking advantageofwork
5
sharing opportunities and doing more of their own transportation.
6
The top panelof LAM-6 is a summaryshowing a 12.1 percent drop in IStandard(A) traffic
7
between 1991and 1996and a 18.5%increasein Standard(B) traffic. Smce Standard(A) is a bigger
8
classin volume -- 12% of the larger group is greater than 18.5% of Standard(D).
9
Panel 2 concerns Standard (A) regular and shows that mail subject to natiomtide entry or BMC
10
entry’ was 41.8 billion in 1991 and is only 36.9 bion in 1996. The changein workload measured
11
by pieces is a -11.6 percent. When those piecesare converted to pounds the decreasegoes to 13
12
percent. The secondpart of Panel B shows tbat Stand(A) nonprofit workload declined by 5.8 %
13
whereaspieces declined more.
14
Panel3 (p 2 ) concernsStandard(B). Here we havelarge& natural growth taking place with
15
one exception. There has been considerablework sharingproceeding apacein the rate category of
16
Destination-BMC parcel post, This phenomenonsubstitutesfor Inter BMC transportation but not
17
for Irma BMC. Desrination BMC parcelsstill require transportation to their destination SCF’s and
‘This mail is “mail not drop-shippedbeyond [i.e. deeperinto the systemthan] the BMC.”
5
1
-40’s. Our solution is to claim one half the savedpounds as a workload sating since these two
2
accountscmttaBMC and inter BMC) are roughly equal in magnitude. Line 8 shows the full savings
3
and line 9 accountsfor half the savings. The result when both Standard(A) and Standard (B) are
4
brought together is a 4.3 percent decreasein traflic.
5
We may now compare this small decreasein u&c to an apparent healthy increase in
6
transportation expenditures and explore the meaningof those changes. Fist we must obtain an
7
estimateof real increasein the useof transportationservices. Expendituresalone will not tell the full
8
story becausethey include the results of price change,usually increases.When we have taken out
9
those price increases,we will have the real increasein transportation servicespurchased.
10
From LAM-7 and LAM-8 we may i&r that pricechangein the over-the-roadtrucking sector
II
was no greaterthan 2.5 per m pa year (in fkt the current estimateis 2.25 per cent per year) over
12
the period 1991to 1996.Tbe exhibitsshow the price index for trucking nonlocal between June 1992
13
and November 1997. Exhiiit LAM-8 performs a regressionanalysison the model
14
lnY=
A+
b*
t
15
Where In is natural logarithm and r is time in months. Time differentiation shows that the rate of
16
growth is tbe parameterb. The b we estimateis a monthly rate of growth. The quantity (1+b) raised
17
to the power 12 gives the annualrate of growth which is here estimatedto bc 2,.25per cent. Since
18
I do not have the complete scrics I need for my analysisI bavc to say that plrice growth was no
6
1
greatertban 2.5 per cent per year Thereforein the period of our comparisonprice increasewas 13.I
2
per centwhile cmt~act expendinug increased26.8 par cent. The result was a 10.8 per cent increase
3
in real purchasedhighway transportation services, One can say this was real in the senseof cubic
4
foot-miles abstracting from price level change.
5
Thur, baleen 1991and 1996volume in the nonpreferentialhighwaytransportation systemdeclined
6
from 8044.4 million poundsto 7700.9 or by some4.3% mainly becauseof drop shipping. Pleasesee
7
LAM& During the ssmeperiod, purchasedhighway transportation increased27 %. Not more than
8
13.1% of this increasewas price increasebecausethe price index, “Trucking excluding local” shows
9
a 2.25 per cent avaage rate of growth in truck rental costs over that period). So,,during this period
10
there +va.sa 13.7% real increasein the purchaseof highway trsnsporration servicesby the postal
11
service. To sunnnarize and simplify, we have a 14 % real increasein the face of a 4 % decreasein
12
vohme demandii trsnsportation.zWhat shouldwe make of this? It certsinly seemsthat the volume
Qven though this is the non-preftransportation system,designedfor third-class and
fourth-class (with the preferential designedfor first-class and second-class)periodicals are seenin
the trafiic. One might object that tr&lc was increasedover tbe period from the:second-classor
periodicals direction. But, the h
by which I meancube and not pieces(o:FperiodMs has
not changedover this time period). In millions of cubic feet, it was 242 in 1991 and only 240 in
1996.
Zoning
Zoning has existed in periodicalsfor a long time and this is analogousto dropship
diiunts. There is a premium for delivering mail and depositing it into the systemcloser to the
destination. There is simply lesstraErc on those trucks and yet the amount of purchased
transportation servicesis up about 15.8% in real terms. Volume (whether cube or pieces) alone
does not drive the amount of purchasedtransportation input.
7
i~13/19@9
1
1412s
FROM
TO
14074228262
P.82,02
Panzar saysthe samethin8.
2
This distribution key would be more in line with economictheory We could go further with
3
economictheory in the direction of linear or mathematicalprogramming. Such analysiswould lead
4
us to calculate costs at the maximum-load point as Meyer?Kain and Wohl (Cambridge: Harvard
5
University Press,1965) havedonein their classicstudy of urban transportation.” In our application
6
here this would suggestcalculating costs when the trucks are af their tirllest (certainly on outbound
7
trips), This peak-loadapproachlooks at outbound nuts only and divides costs as the proportions of
8
mail classespresent on those trips. This distribution ky is shown in Exhibit L.AM-3.
9
Unfbttunately the TRACS datacollectedarenot reliablebecmtse( among other things) of the tinding
10
DBMC mail on incoming runs: a logical contradiction.‘z Further TRACS data collection problems
11
are shown in LAM 4b and LAM-13, Lib Refs H-l 11 and H-135 are inconsistentin their estimates
12
of the relation betweenParcel Post and StandardA cubic fti.
13
14
15
In the Opinion andRecommendedDecisions of severalrecent cases,the PRC has found that
16
the identity and integrity of the preferential and nonpreferential transpofiation systemswhich once
17
existed separatelyis now, a thing of the past. (R 87-l)
18
We see first class loading in candidateDistribution Key’s of 14%; ll-17% in tbc fourth
“See p. 186 for their decisionto chargethe construction cost of rapid transit largely to the
trdEc at the peak
t2[I la] ‘DBMC Parcel Post is deliveredby the senderto the destination BMC. As such it
should never appear on inbound purchasedtransponation runs. Yet it appearsin the tallies and
was counted, rated and weighed by TRACS data technicians.”
25
Arev 13 Feb lQ98)
Estimates of Parcel Post and Standard A CF From Non-TRACS Sources
Parcel Post
Panel A
Mail Category lntra SMC
Cubic Feet (000)
Parcel Post
22,497
a
DEMC
70,468
b
92,965
Inter BMC
PaMl Post
42556 c
Sourw:
Data Distribution by Weight and tons and SMC/ASF - GFY 1998, Attachment I.
a. p. 32
b. p. U
c. p. 38
Panel B
Standard(A)
Standard (A)
Cubic Feet (005)
Inter BMC
Mm BMC
155,639
Tmr
Source: Lib Ref. H-l 11 Dmpship Savings in Periodicals and Standard Mail
Appendix A. Table 4 and conversion factor .056583 = 1117,873 from TRACS program
%wy 1’. p. 171. Lib. Ref. H- 82.
Panel C
Parcel Post
Standard(A)
sotlrces:
Summary Figurea
infer BMC
42600 a
135639
lntra BMC
92965 b
381540 d
G
a Panel A.
b Panel A
c Panel6
d Panel9
ratio SWPP
4.184122
L4hhG(m~ 13 Feb 1998)
p.1of2
Impact of Drop Shipping on Workload
Transfmmtion
In Intra-BMC and Inter BMC Pur~hiMd
1996
1991
millions
36945.2
41788.4 pa
Standard (A) mall nd ds beynd
BMC ee/
lb regular See workpaper 2
5287.7 Ibs
4602.9 worlrpaper 5
nonprofa
695.4 It6
655.4
2442.6
7766.9
2061.3 Ibs
a0444 Its
Standard (B)w. DBMC COtTectiOn
1.185
0.957
Standard A Mall
1999
a Desk SCF Enby
b DDUEntty
1996
Standard A millions
6619
1621
8440
bb SCFDE
DDU DE
Standard A
16516 c
5870 d
22386
s&w/p2
e Total BR Regular
DstSCForDestD
not ds beynd BMC
Tot St. A Reg
56226.4
8440
41766.4
Dst SCF or Dest
DW
89331.2 f
-22366
36945.2
mail not Qs beynd
41786.4
BMC el
Nonprofit
pounds
(millhxts)
Nonprofit
(millions) Ibs.
PCS
I
659.6f8’
SCF entry
BMCEntq
TOtal
575.571
not ds bevond BMC
Notes: 1. Singlbletter notes refer to Woduxtper 1.
2. ds = dropsnipped
bb. SCF DE = SCF Destination Entry
ee. .ds beyond BMC” means to SCF , A0 or W.
12209.083
1287.673
822.824
70.964
35.762
SCF entw
DU entry098.380 IOWtranspod
mtds&?ldaMc
961 .52,4
371.125
2620,323
9588.76
72.9175
23.5255
167.407
666.417
Standard B mil
1ssr
1991
Mail
Pieces
VW
1
2
3
4
5
PP
BPM
Special
Library
Total
138.494
363,532
153.138
40.228
695392
Weight
thous 1t.s
729,724 ’
916,484
308,611
117,641
2.074.460
lbsipc PP
DBMC PP (mills)
Ibs saved millions
half of DBMC savings
Standard (6) afler DBMC adj
1094.9
1231.3
319.4
212.8
516.1
189.8
30.1
848.8
2di
bef DBMC adjus
1.3819
ratio of workload
6
7
8
9
10
Weight
Pieces
5.1447
5.12
26.3
13.2
2061.3 mill Ibs
DBMC PP avoids inter BMC transp bui it does not avoid intraBMC transp
5.2688
w.41
506.0
254.0
2442.6
0.9732
1.242