US Postal Service 2003 Annual Report Download - page 26

In 2003, our revenue grew because of the
7.7% average rate increase we implemented
in June 2002. Our volume of mail declined
slightly, from 202.8 to 202.2 billion pieces, as
increases in some categories of mail were
more than offset by volume decreases in other
categories. While the volume of lower-margin
Standard Mail increased, the volume of high-
margin First-Class and Priority Mail declined.
This year, largely because the effects of
September 11 and the anthrax attacks had
dissipated, volume declined less than in 2002,
when it dropped by 4.6 billion pieces.
First-Class Mail volume fell again in 2003,
continuing a long-term decline in single-piece
mail due to the automation of business trans-
actions and communications and the
substitution of electronic technologies for
correspondence and bill payments by
consumers. In 2003, we experienced for the
first time a drop in workshared First-Class Mail.
We attribute this decline to the weak economy,
an increase in the electronic distribution of bills
and statements and a shift into Standard Mail.
We expect the total volume of First-Class Mail
to continue to decline in 2004. While the rate
of decline should moderate as the economic
recovery gains traction, we expect First-Class
Mail will continue to be affected by technolog-
ical substitution.
In contrast to First-Class Mail, electronic
diversion is not causing declines in Standard
Mail, which had robust growth in volume
despite the June 2002 price change. Standard
Mail is a highly targetable advertising medium
that is well-placed in the highly competitive
advertising market. Standard Mail reached a
new all-time high volume of 90.4 billion
pieces. However, much of the growth was
concentrated in low margin, non-carrier route
pieces. We expect increased growth of
Standard Mail volume in 2004. While the
implementation of “do not call” telemarketing
restrictions may increase the volume of
Standard Mail, much depends on a recovery in
the general economy and especially in the
advertising market.
A shift of the parcel market from air to
ground products boosted Package Service
products. While destination-entered Parcel
Post benefited from this shift, Priority Mail
declined, continuing a long-running trend. The
expansion of the FedEx ground network and
the increasing use of ground guaranteed
services have cut into Priority Mail volume.
Package Services volume rebounded to 1.1
billion pieces, led by increases in the Parcel
Post, Bound Printed Matter and Media Mail
subclasses. We expect the parcel products
market to continue to move in the same direc-
tion, with Package Services volume growing
in 2004 and Priority Mail volume declining.
Periodical volume fell in 2003 as a result
of weakness in the advertising market and the
continued move from hard copy news and
entertainment sources to the Internet. These
trends affected both the weight and size of
the pieces that were delivered and the
number of pieces sent, as titles ceased to
exist or merged with others. We project
continued decline in 2004.
Until the economy begins to pick up steam,
lagging trends will continue in both volume
and revenue. We expect volume growth to
pick up in late 2004, with growth for the year
of just over 1%, while revenue should stay
flat, with growth in lower-margin products
again compensating for the losses in high
margin categories.
Operating Revenue and Volume
Revenue Volume
2003 2002 2001 2003 2002 2001
First-Class Mail 1.5% 1.7% 1.0% -3.2% -1.2% 0.1%
Standard Mail 8.8% 0.7% 3.4% 3.6% -3.0% -0.1%
Priority Mail -4.8% -3.9% 1.6% -13.9% -10.7% -8.6%
Package Services 6.5% 4.3% 4.3% 5.0% -1.6% -3.1%
Periodical Mail 3.2% -1.8% 1.6% -3.8% -3.8% -2.8%
International Mail 2.2% -8.8% 4.5% 3.9% -16.5% -1.5%
Total Mail 3.0% 0.5% 1.8% -0.3% -2.2% -0.2%
24 | 2003 annual report united states postal service
management discussion & analysis
operations