BRIEFING
for the
PRESIDENT’S COMMISSION
on the
UNITED STATES POSTAL SERVICE
January 8, 2003
1
Outline
 Background
 Current Overview
 Transformation Plan
2
Postal Reorganization Act of 1970
Universal Service Mandate:
Access and delivery to virtually everyone,
everywhere, everyday.
Statutory Requirement:
“ [The Postal Service] shall provide prompt,
reliable, and efficient services to patrons in all
areas and shall render postal services to all
communities.”
3
Postal Reorganization Act of 1970
Universal Service Mandate:
Access and delivery to virtually everyone,
everywhere, everyday.
Business Model Premise:
Moderate volume growth and postage rate
increases at or below the economy’s rate of
inflation would finance universal service and
the ever-expanding delivery network.
4
Universal Delivery Service
3,400 New Carrier
Routes
80 New Delivery Facilities
at $5.0 Million Each
4,800
New
Carriers
5
1971 – 2002 Comparisons
1971
2002 %Change
Delivery Points (Millions)
81
139
72%
Volume
(Billions)
87
203
133%
Employees (Thousands)
731
854
17%
6
CPI vs. First-Class Postage Rates
Cumulative % Change
400
350
First-Class Postage
300
CPI
250
200
150
100
50
0
May71 Mar74 Dec75 May78Mar81Nov81 Feb85 Apr88 Feb91Jan95 Jan99 Jan01 Jun02
8¢
10¢ 13¢ 15¢ 18¢ 20¢ 22¢ 25¢ 29¢ 32¢ 33¢ 34¢ 37¢
7
Post Office Department and Postal Service
Financial Results
(Cumulative)
Post Office
Department
1942-1971
United States
Postal Service
1972-2002
Revenue
$90
$1,108
Expense
109
1,114
Deficit
($19)
($6)
Revenue/Expense
82.6%
99.5%
$Billions
8
Summary Statistics
210
208 B
208
206
140
207B
139M
204
138M
202 B
203B
202
136M
200
198
194
192
134M
792 K
798K
137
136
135
134
197 B
196 133M
139
138
133
788 K
776 K
753K
190
132
131
130
1998
1999
Mail Volume
2000
2001
2002
Career Complement
Delivery Points
9
Annual Net Margin
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
0.9%
0.6%
-0.3%
-1.0%
-2.6%
1998
1999
2000
2001
2002
Net Margin = Net Income (or Loss) / Revenue
10
Growth in Revenue Per Delivery Point
3.0%
1.9%
1.7%
0.5%
FY 1998
1999
Rate Increase: 3%
2000
-0.7%
2002
2001
15%
11
Revenue Composition - FY 2002
Priority 7%
Package Services 3%
First-Class
55%
Standard 24%
(Mostly Advertising)
Other 11%
12
Expense Composition - FY 2002
Other 13%
Transportation 8%
Compensation/Benefits 79%
13
FY 2001 Expenses
43%
"Fixed" $29B
57%
Volume Variable $38B
$38.4B
14
“Fixed”vs Volume-Variable Costs FY 2001
FY 2001 Expenses
43%
"Fixed" $29B
57%
Volume-Variable $38B
Volume-Variable Costs Include:
“Fixed” Costs include:
- Transportation
- 38,000 Post Office, Station, and
− Mail Distribution Work Hours
Branch Operations
− Del. Rte. Coverage - 240,000 Delivery Rts. − Mail Containers
− Fuel
− 215,000 Vehicles
− Retail Transactions
− Retirement Costs
− Delivery Carrier Prep in Office
− Overhead
15
First-Class Mail
Major Contribution to “Fixed” Costs
Volume
Revenue
FirstClass Other
50% 50%
FirstClass Other
54% 46%
FY 2001
Contribution to
“Fixed” Costs
FirstClass
Other
66%
34%
16
First-Class Single Piece Letters
(Billions Pieces)
54.3
53.8
52.4
50.9
49.3
1998
1999
2000
2001
2002
17
First-Class Mail-Sector Analysis
Source: Household Diary Study
1987
2001
52%
41%
37%
26%
9% 7%
Household to
Household
13% 15%
Household to
Nonhousehold
Nonhousehold to Nonhousehold to
Nonhousehold
Household
18
Standard Mail Volume 1987 and 2001
90B
15B
60B
15 B
75 B
45 B
1987
To Households
2001
To Nonhouseholds
19
Standard Mail Volume
Billions of Pieces
90.1
89.9
87.2
85.7
82.5
FY 1998
1999
2000
2001
2002
20
Standard Mail Volume
Market Share 1972- 2002
14.7%
14.7%
24.6%
17.3%
17.3%
19.3%
19.3%
Direct Mail
Internet Advertising (2.3%)
28.5%
32.1%
Radio & Television/Cable
34.2%
25.1%
Newspapers & Magazines
21.0%
20.0%
21.2%
Other
1972
1987
2002
39.7%
Source: McCann-Erickson WorldGroup
21
Package Services
Revenue Share FY 2001
Air
Airborne All
10% Others
3%
FedEx
36%
Ground
FedEx
12%
All
Other
4%
USPS
6%
USPS
21%
UPS
30%
UPS
78%
Source: Colography Group
22
First-Class Mail – FY 2001
Major Contribution to “Fixed” Costs
Volume
Revenue
FirstClass Other
50% 50%
FirstClass Other
54% 46%
Contribution to
“Fixed” Costs
FirstClass
Other
66%
34%
23
Financial Effect
Volume Necessary to Replace Contribution
From $1 Billion of First-Class Mail Revenue
Volume
Increase
% Growth
8%
Standard Mail
7.1 B
or Priority Mail
313 M
26%
or Express Mail
50 M
70%
or Parcel Post
1.5 B
465%
24
Competition and Technology
First-Class Mail
Standard Mail
•Business eMail
•Print/Broadcast Media
•Electronic Bill Payment
•Internet Advertising
Periodicals
•Internet News Sources
•Lifestyle Changes
Packages
•No Longer the Only
Nationwide Package
Service
25
Strategy: Achieve Lowest Combined Cost
Progression of Customer Worksharing Options
1970’s
1980’s
1990’s
•Presorted
Bundles
•Presorted
Bundles
•Presorted
Trays
•Prebarcode
Pieces
•Prebarcode
Pieces
•Dropship
$15 Billion Current
Annual Discounts
26
Strategy: Achieve Lowest Combined Cost
Postal Operations
1970’s
1980’s
1990’s
2000’s
•Mechanized •Automated •Automated Flat •“Network
Mail
Letter
and Parcel
Optimization”
Processing
Distribution Processing
•Delivery Point
Sequencing
1970 Postal Reorganization
• Capital Investment Financing
• Self-Directed Research
• Longer Term Planning
27
Pricing Cycle
Five Months
Preparation
Ten Months
Rate Case Litigation
Three
Months
Governors’ Consideration
Implementation
28
Rate
Increases
& Economic
Economic
Conditions
Rate Increases
and
Conditions
40%
35%
33%
33%
30%
25%
30%
25%
20%
15%
10%
16%
15%
18%
10%
15%
10%
5%
3%
0%
First-Class First Ounce Rate Increase
Recessions
Average Rate Increase – All Classes – 2001 and 2002 increases implemented in 3 steps
29
Financial Stress
Debt
$ 11 B
Other Liabilities
(Excluding CSRS)
$ 19 B
Retiree Health
Benefits Obligation
($40 – 50 B)
Cumulative Losses
(Since 1971)
$6B
30
Financial Stress - Equity
-$447 M
-$810 M
-$646M
-$2,326 M
-$3,002 M
1998
1999
2000
2001
2002
31
TRANSFORMATION PLAN
32
Transformation Plan
 “Push the Envelope”
 Legislation – Short Term
– Public Policy Issues
33
Transformation Plan
“Push the Envelope”
 Growth
 Efficiency
 Performance Based Culture
34
Transformation Plan – Results to Date
Service
 Externally Measured
 Service At Record Levels
35
Transformation Plan – Results to Date
Cumulative Work Hour Reductions
Work Hour Reductions
FY 2000
FY 2001
FY 2002
-11M
-23M
-34M
111 Million Work Hour Reduction Equivalent to 62,960 Full-Time Employees
-77M
-111M
36
Transformation Plan – Results to Date
Career Complement Reductions
FY 2000
FY 2001
FY 2002
AP 04
-10,533
-11,685
-22,218
-22,963
-45,181
37
Transformation Plan - Results to Date
 First Ever Expense Reduction – $200 Million
Below 2001 Level
 Labor Contracts – In Place to Provide Stability
 Record Setting Safety Performance
 Negotiated Rate Settlement/Expedited
Implementation
 Delivered $1.5 Billion of Cost Savings
Goal - $5 Billion By 2006
38
BRIEFING
for the
PRESIDENT’S COMMISSION
on the
UNITED STATES POSTAL SERVICE
January 8, 2003
39