US Postal Service 2005 Annual Report Download - page 24

14 | 2005 Annual Report United States Postal Service
A Message from the Chief Financial Officer
and Executive Vice President
Our service to customers, our financial results, and
continued improvements in our workplace environment
and safety efforts were all outstanding in 2005. These
achievements are amply described in this report. Some
further reflection on the year, however, may provide insight
useful to understanding future challenges.
Robust growth in the first quarter (October—December
2004) provided a jump start to revenue for the year as
election mailings boosted Standard Mail volume and
mailings by financial institutions increased First-Class Mail
volume. Across all operations, our employees absorbed
the surge in volume of almost 3 billion additional pieces,
producing a high gain in total factor productivity. With vol-
ume then growing more than twice as fast as the growth in
delivery addresses, we captured economies in our delivery
network. In the remaining three quarters, volume growth
was less than half of the first quarter rate and was not
conducive to similar productivity gains.
An encouraging development was the slight growth in the
year’s total First-Class Mail volume after three years of
volume decline. The decline of 1.8 billion single-piece-rate
envelopes (37 cents) was offset by growth of 1.7 billion
workshare-rate pieces. Total revenue for First-Class Mail
did decline $300 million due to the mix change. As had
been forecasted, Standard Mail volume grew 5.4 billion
pieces, to 100.9 billion to exceed total First-Class Mail
volume for the first time. Standard Mail volumes are
becoming more volatile with time, affected as they are
by economic conditions, the comparative price points of
Standard Mail, and rapidly evolving alternative media.
Historically, First-Class Mail with its high volumes and
higher dollar contribution over variable costs has financed
the greatest part of the institutional costs of our nationwide
Post Office and delivery network. As electronic diversion
of First-Class Mail continues, Standard Mail’s share in
the mail mix will grow. Under the current business model,
this alteration in the mail mix will result in postal revenues
not keeping pace with ongoing inflation in costs and will
intensify both our revenue volatility and postal vulnerability
to business cycles.
As is widely recognized, the price-volume challenges we
are experiencing today were not anticipated in the business
model that was designed in 1970. The premise of that
model with its letter mail monopoly was that moderate
volume growth and postage rate increases at or below the
economy’s rate of inflation would finance universal service
Richard J. Strasser, Jr.
As is widely recognized, the price-volume
challenges we are experiencing today were
not anticipated in the business model that
was designed in 1970. The premise of that
model with its letter mail monopoly was that
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.
However, since 1998, the volume of single
piece First-Class letters has declined
by 10.9 billion, or 20 percent, severely
stressing the business model.