US Postal Service 2004 Annual Report Download - page 35

financial review
2004 annual report united states postal service | 33
Mail฀volume฀is฀positively฀affected฀by฀economic฀growth.฀After฀a฀
period฀of฀relative฀stagnation฀following฀the฀recession฀of฀2001,฀
economic฀growth฀picked฀up฀in฀2003฀and฀2004,฀leading฀to฀
4.5%฀growth฀in฀the฀gross฀domestic฀product฀(GDP)฀for฀2004,฀
as฀projected฀by฀Global฀Insight฀Inc.฀We฀relied฀on฀Global฀Insight’s฀
August฀2004฀projection,฀which฀was฀the฀latest฀available฀when฀
our฀2005฀Integrated฀Financial฀Plan฀was฀developed.฀Based฀on฀
Global฀Insight’s฀forecast,฀we฀expect฀GDP฀growth฀to฀moderate฀
to฀an฀annualized฀rate฀of฀3.5%฀in฀2005.฀
Economy-wide฀retail฀sales,฀an฀economic฀indicator฀for฀Standard฀
Mail฀and฀workshare฀ First-Class฀ Mail,฀grew฀5.1%฀ in฀ 2004,฀
but฀is฀expected฀to฀slacken,฀as฀a฀result฀of฀increased฀energy฀
prices฀and฀interest฀rates.฀Increased฀energy฀prices฀are฀divert-
ing฀consumer฀expenditures฀from฀other฀goods฀and฀services,฀
and฀higher฀interest฀rates฀will฀dampen฀demand฀for฀mortgage฀
refinancing฀and฀reduce฀the฀amount฀of฀cash฀consumers฀have฀
available฀for฀large฀purchases.฀In฀addition,฀the฀stimulus฀from฀
federal฀income฀tax฀cuts฀in฀2003฀caused฀a฀spike฀in฀retail฀sales฀
during฀2004฀that฀will฀not฀be฀repeated฀in฀2005.฀The฀projected฀
2005฀retail฀sales฀slowdown฀leads฀us฀to฀project฀a฀lower฀growth฀
rate฀for฀Standard฀Mail฀volume฀and฀to฀project฀a฀small฀volume฀
decline฀in฀workshare฀First-Class฀Mail.
Employment฀is฀an฀indicator฀for฀our฀single-piece฀First-Class฀
Mail฀volume.฀For฀many฀years฀now฀single-piece฀volume฀has฀
declined.฀The฀moderate฀growth฀projected฀in฀employment฀by฀
Global฀Insight฀is฀not฀sufficient฀to฀drive฀volume฀increases฀that฀
overcome฀the฀negative฀impacts฀of฀electronic฀diversion.฀
Looking฀ at฀ single฀ and฀ workshare฀ First-Class฀ Mail฀ volume฀
together,฀we฀can฀see฀that฀economic฀growth฀has฀only฀attenu-
ated฀the฀declines฀in฀First-Class฀Mail฀volume฀and฀revenue.฀We฀
do฀not฀foresee฀a฀reversal฀of฀the฀multiyear฀downward฀trend฀in฀
total฀First-Class฀Mail฀volume.
We฀also฀expect฀Priority฀Mail฀volume฀to฀decline฀slightly฀due฀to฀
continued฀changes฀in฀the฀structure฀and฀competitive฀nature฀
of฀the฀package฀services฀market.฀We฀think฀that฀Express฀Mail฀
volume฀ will฀stabilize฀after฀four฀years฀of฀decline฀because฀of฀
higher฀prices฀charged฀by฀our฀competitors฀and฀the฀improve-
ments฀ we฀ have฀ made฀ in฀ this฀ service.฀ On฀ the฀ other฀ hand,฀
technological฀and฀demographic฀changes฀continue฀to฀cause฀
declines฀ in฀Periodicals.฀The฀ growth฀ we฀project฀in฀Package฀
Services฀is฀based฀on฀projected฀increases฀in฀both฀Bound฀Printed฀
Matter฀and฀Media฀Mail฀volumes,฀even฀though฀we฀expect฀a฀
decline฀in฀Parcel฀Post.฀
While฀mail฀volume฀should฀grow฀in฀2005,฀we฀have฀planned฀for฀
revenues฀to฀fall.฀Total฀revenue฀in฀2005฀could฀be฀$700฀million฀
less฀than฀2004฀as฀we฀continue฀to฀lose฀our฀higher-revenue-฀
and-contribution฀mail.฀As฀this฀mail฀declines,฀our฀margins฀are฀
reduced,฀resulting฀in฀pressure฀on฀postal฀prices฀over฀and฀above฀
the฀effect฀of฀inflation.
Network฀Growth
Historically,฀First-Class฀Mail฀volume฀and฀the฀growth฀in฀contri-
bution฀it฀has฀produced฀have฀financed฀the฀cost฀of฀operating฀
and฀ expanding฀our฀ delivery฀network.฀Over฀the฀ last฀ several฀
years,฀however,฀the฀volume฀of฀First-Class฀Mail฀has฀declined฀
while฀the฀number฀of฀delivery฀points฀in฀our฀network฀has฀contin-
ued฀ to฀ increase.฀ Since฀2001,฀First-Class฀ Mail฀ volume฀has฀
decreased฀by฀over฀5.7฀billion฀pieces฀while฀our฀delivery฀network฀
has฀expanded฀through฀the฀addition฀of฀4.6฀million฀new฀delivery฀
points.฀Furthermore,฀we฀operate฀a฀retail฀network฀anchored฀by฀
37,159฀Post฀Offices,฀stations,฀branches฀and฀contract฀units.
Delivering฀mail฀to฀individual฀delivery฀points฀six฀days฀a฀week฀
is฀ a฀ major฀ part฀ of฀ our฀ work.฀ Each฀ year,฀ we฀ add฀ between฀฀
1.6฀million฀and฀1.9฀million฀delivery฀points฀to฀our฀network.฀From฀
2000฀through฀2004,฀the฀number฀of฀delivery฀points฀we฀serve฀
has฀grown฀by฀6.4฀million.฀In฀2004,฀we฀adjusted฀our฀reporting฀
of฀rural฀and฀highway฀contract฀deliveries฀to฀customers฀who฀have฀
their฀mail฀forwarded฀to฀a฀Post฀Office฀box฀as฀an฀alternative฀to฀
a฀physical฀address.฀Prior฀to฀2004฀we฀included฀both฀addresses฀
in฀our฀count฀of฀“possible”฀delivery฀points.฀We฀also฀no฀longer฀
count฀a฀vacant฀delivery฀point฀on฀rural฀and฀highway฀routes฀as฀
“possible”฀delivery฀points.฀These฀adjustments฀reduced฀our฀total฀
delivery฀points฀by฀824,388,฀and฀we฀have฀therefore฀adjusted฀our฀
2004฀Operating฀Statistics฀in฀this฀report฀to฀reflect฀this฀change.฀
Our฀actual฀growth฀in฀delivery฀points฀in฀2004฀was฀1,782,900.฀
We฀do฀not฀have฀the฀data฀to฀adjust฀the฀number฀of฀delivery฀points฀
we฀reported฀for฀prior฀years.
We฀expect฀delivery฀point฀growth฀to฀continue฀for฀the฀indefinite฀
future฀as฀a฀result฀of฀population฀growth฀and฀continuing฀demand฀
for฀new฀housing.฀The฀Bureau฀of฀the฀Census฀reported฀housing฀
starts฀in฀August฀2004฀at฀a฀seasonally฀adjusted฀rate฀of฀2.0฀
million,฀up฀from฀1.8฀million฀in฀2003.฀Also,฀Harvard฀University’s฀
Joint฀Center฀ for฀ Housing฀ Studies฀reported฀that฀“household฀
growth฀over฀the฀next฀ten฀years฀is฀expected฀to฀surpass฀that฀
over฀the฀last฀ten฀years”฀and฀estimated฀“the฀total฀number฀of฀
homes฀built฀in฀2005–2015฀could฀reach฀18.5–19.5฀million฀
units”฀which฀“compares฀to฀the฀16.4฀million฀homes฀added฀in฀
the฀1990s.”฀
This฀projected฀increase฀in฀household฀growth฀will฀translate฀into฀
a฀continuing฀expansion฀of฀our฀delivery฀network.฀In฀the฀same฀
period,฀First-Class฀Mail฀volume฀is฀projected฀to฀continue฀to฀
decline.฀As฀the฀revenue฀and฀contribution฀produced฀by฀First-
Class฀Mail฀decline,฀we฀will฀lose฀our฀primary฀historic฀means฀of฀
financing฀our฀delivery฀and฀retail฀networks.฀This฀combination฀
Part II
In฀2004฀we฀delivered฀to฀1.8฀million฀new฀
addresses.฀That’s฀like฀adding฀฀two฀cities,฀
one฀the฀size฀of฀Philadelphia฀and฀one฀the฀
size฀of฀Boston฀to฀our฀delivery฀system.