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financial review
2004 annual report united states postal service | 23
Item 7. Management’s discussion and
analysis of financial condition and results of
operations
Volume฀and฀Revenue
In฀2004,฀our฀revenue฀was฀slightly฀more฀than฀last฀year,฀while฀
the฀results฀by฀product฀line฀were฀mixed.฀The฀economy฀also฀grew฀
slightly฀more฀than฀projected.฀
Standard฀Mail฀volume฀continued฀ to฀grow฀in฀2004,฀causing฀
total฀ volume฀ to฀ increase.฀ Most฀ of฀ the฀ growth฀ in฀ Standard฀
Mail฀volume฀was฀in฀the฀regular฀automation฀presort฀category.฀
Economic฀growth฀and฀increases฀in฀advertising฀spending฀and฀
corporate฀profits฀spurred฀the฀growth฀in฀Standard฀Mail฀volume฀
and฀revenue.฀Standard฀Mail฀has฀also฀benefited฀from฀the฀“Do฀
Not฀ Call”฀ telephone฀ restrictions.฀ International฀ Mail฀ volume฀
increased฀as฀well.฀Revenue฀and฀volume฀growth฀in฀Standard฀฀
Mail฀and฀International฀Mail฀offset฀declines฀in฀other฀classes฀of฀
mail.฀
First-Class฀Mail,฀which฀is฀our฀largest฀mail฀class฀in฀terms฀of฀
both฀volume฀and฀revenue,฀declined฀in฀volume฀for฀the฀third฀
consecutive฀year฀in฀2004.฀The฀declines฀in฀volume฀and฀revenue฀
in฀First-Class฀Mail฀reflect฀the฀impact฀of฀electronic฀diversion฀as฀
businesses,฀nonprofit฀organizations,฀governments,฀and฀house-
holds฀increasingly฀automate฀their฀financial฀transactions฀and฀
divert฀correspondence฀to฀the฀Internet.฀The฀volumes฀of฀Priority฀
Mail฀and฀Express฀Mail฀also฀declined฀as฀we฀continue฀to฀lose฀
market฀share฀in฀the฀package฀market.฀Package฀Services฀volume฀
increased฀slightly฀because฀growth฀in฀Bound฀Printed฀Matter฀
and฀Media฀Mail฀volume฀offset฀losses฀in฀Parcel฀Post฀volume.฀
Periodical฀Mail฀volume฀and฀revenue฀are฀declining฀as฀busi-
nesses฀and฀consumers฀increasingly฀rely฀on฀the฀Internet฀as฀a฀
substitute฀for฀hardcopy฀publication฀of฀news,฀information,฀and฀
entertainment.
The฀ mix฀of฀mail฀has฀changed฀significantly฀in฀ recent฀ years.฀
As฀recently฀as฀2000,฀First-Class฀Mail฀was฀by฀far฀the฀largest฀
component฀of฀the฀mailstream.฀However,฀over฀the฀past฀four฀
years,฀ First-Class฀ Mail฀ volume฀ has฀ declined฀ 5.4%฀ while฀
Standard฀Mail฀volume฀has฀grown฀6.1%.฀This฀change฀in฀the฀
mix฀of฀mail฀has฀flattened฀revenue฀because฀revenue฀growth฀
has฀been฀coming฀from฀Standard฀Mail,฀which฀has฀an฀average฀
revenue฀per฀piece฀of฀only฀19฀cents,฀compared฀with฀the฀average฀
37฀cents฀per฀piece฀of฀the฀First-Class฀Mail฀it฀is฀replacing.฀In฀this฀
new฀era,฀volume฀growth฀has฀been฀accompanied฀by฀the฀hollow-
ing฀out฀of฀revenues.฀
E-commerce฀and฀e-mail฀are฀replacing฀personal฀correspon-
dence฀and฀hard฀copy฀commercial฀transactions฀that฀formerly฀
traveled฀as฀First-Class฀single-piece฀ Mail.฀In฀2003,฀we฀also฀
experienced฀ our฀first฀ ever฀annual฀ decline฀in฀the฀ volume฀of฀
workshare฀First-Class฀Mail,฀which฀is฀mail฀that฀a฀large-scale฀
mailer฀has฀presorted฀and฀prepared฀for฀entry฀into฀our฀system฀
before฀delivering฀it฀to฀us฀for฀processing.฀Some฀of฀the฀decline฀in฀
workshare฀mail฀was฀related฀to฀the฀weakness฀of฀the฀economy,฀
but฀the฀decline฀is฀at฀least฀as฀much฀due฀to฀the฀absence฀of฀new฀
hard-copy฀billing฀and฀statement฀applications฀and฀electronic฀
diversion฀of฀bills฀and฀statements.฀Workshare฀volume฀increased฀
slightly฀in฀2004.฀We฀expect฀this฀growth฀to฀be฀transitory฀as฀
First-Class฀Mail฀continues฀to฀decline฀due฀to฀long฀term฀trends฀
in฀communication฀and฀payment฀technologies.฀
We฀rank฀27th฀on฀Fortune฀magazine's฀
latest฀“Global฀500฀World's฀Largest฀
Corporations”฀list.
Part II
4�
5�
6�
Workshare฀F Single฀piece฀First฀Class฀Mail
2��42��32��22��12���1999
FIRST-CLASS MAIL VOLUME
MAIL MIX COMPARISON
Down฀11.8%
�
5�
1��
15�
2��
25�
2��42���
9�.1 95.6
1�3.5 97.9
14.3 12.6
Up฀6.1%
Down฀5.4%
Similar volume = $4.4 billion less revenue (at constant rates)
2�6฀Billion
2�8฀Billion
Other
Standard฀Mail
First-Class฀Mail
(Pieces฀in฀Billions)
(Pieces฀in฀billions)
First฀Class฀Mail