US Postal Service 2008 Annual Report Download - page 44

44 | 2008 Annual Report United States Postal Service
Tobacco Legislation
On September 10, 2008, H.R. 4081, The Prevent All Ciga-
rette Trafficking Act of 2008 (PACT Act), passed the House
by a 379 to 12 vote. The bill would make cigarettes and
smokeless tobacco nonmailable under the criminal provi-
sions of Title 18 of the U.S. Code. The bill would also place
shipping and record-keeping requirements on those selling
cigarettes and smokeless tobacco over the phone, through
the mail, or via the Internet. Sellers would be required to
verify the age and identity of purchasers to reduce sales to
minors. In addition, the bill would make failure to comply
with state tobacco tax laws a felony. The Postal Service
estimates that shipping tobacco constitutes approximately
$35–$40 million of revenue annually. A companion bill has
been awaiting Senate floor action for over a year.
Outlook
The U.S. economy had experienced a year of slow growth
before experiencing an actual contraction of GDP, which
began in Quarter IV. Most economists agree that the con-
traction in GDP will be more serious during the first half of
2009. Global Insight, an economic forecasting and consult-
ing firm, expects real GDP to decline for three quarters in a
row beginning with Quarter IV of 2008.
The U.S. economy had slumped long before the current
credit crisis began. The housing market, sub-prime mort-
gage issues, and energy price fluctuations resulted in a
year of slow economic growth, causing a major downturn
in both First-Class Mail and Standard Mail advertising.
A financially healthy Postal Service is dependent upon a
healthy U.S. economy. Retail sales, employment, and in-
vestment spending are all significant indicators of mail
demand. All three of these indicators are projected to sig-
nificantly decrease in 2009. Outright declines in consumer
spending are anticipated during the final quarter of calendar
year 2008 and the first quarter of 2009. These would be the
first declines in consumer spending since 1991. Non-farm
employment has been in steady decline since February,
and is expected to continue to decline throughout 2009.
Finally, investment spending should see a sharp decrease
in 2009.
Revenue Outlook
We project revenue to increase between 1.0% and 2.0%
in 2009 on a volume decrease of 3.0% to 4.0%. This ex-
pected revenue increase is due primarily to anticipated
price increases.
First-Class Mail volume is expected to decline about 2.0%
during 2009. Electronic alternatives to mail will continue to
decrease First-Class Mail volume. Prior to 2008, this was
offset to some degree by growth in First-Class Mail work-
share letters and flats.
Standard Mail revenue is expected to decline in 2009.
Periodicals revenue and volume are both projected to
decrease in 2009. We expect the modest year-over-year
declines in Periodicals volume to continue. While the de-
clines in Periodicals are not dramatic, they are part of a
long-term trend.
Both volume and revenue are expected to grow in 2009 for
Package Services.
Our Shipping Services products revenues and volumes
are expected to grow modestly in 2009. This entire group
is influenced by competitor’s prices, which may include
fuel surcharges. P.L. 109-435 has provided an opportunity
for greater competition by the Postal Service in this area
of services.
Pricing for shipping services will change in January 2009,
with new prices announced in November 2008. The move
to a January implementation for shipping services is consis-
tent with industry standards, and provides a clearer picture
of the competitive, affordable rates the Postal Service offers.
P.L. 109-435 changed the way we operate and conduct
business. It provides new flexibility, especially in competi-
tive pricing for shipping services, enabling us to respond to
dynamic market conditions and changing customer needs.
Prices will change in January for Express Mail, Priority Mail,
Parcel Select, Parcel Return Service, and some internation-
al shipping products. It will be the first time we will separate
price adjustment and implementation dates for our ship-
ping and packaging business from the dates for our mailing
services and products.
Expense Outlook
Total expenses for 2009 are estimated to increase between
1.0% and 2.0%. Personnel costs increases in 2009 will be
driven primarily by cost-of-living adjustments, contractual
pay increases, and increases in health benefits. This will
be offset by planned cost reductions. We are offering vol-
untary early retirement opportunities to almost 25% of our
workforce in 2009. The total number of employees who
accept the early retirement offer will impact the savings for
FY 2009.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations