US Postal Service 2014 Annual Report Download - page 19

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2014 Report on Form 10-K United States Postal Service 15
We have been proactive in developing mailing and packaging services to better meet our customers’ needs. We have improved
access to our products and services and facilitated making mail pieces more actionable in terms of enabling speed to purchase.
We have enhanced customer’s engagement with interactive mail - hard copy to digital that connects consumers to websites,
social media, or a purchase point - by embedding technology such as Quick Response codes in mail pieces. Our successful
marketing efforts have generated growth in our Shipping and Packages business by offering competitive pricing and innovative
services; such as day certain delivery, improved scanning and tracking, text alerts and up to $100 free insurance on most Priority
Mail packages. We continue to enhance our mail and packages services and develop new platforms for our services, as well as
enter into agreements with our competitors to carry more parcels. Efforts are also underway to increase Sunday and same-day
delivery throughout selected geographical markets and cities in the U.S.
However, because Shipping and Packages represents only 20.3% of our 2014 operating revenue, compared to First-Class and
Standard Mail, which represents 67.5% of operating revenue, revenue growth in Shipping and Packages, by itself, cannot fully
offset the declines in First-Class Mail. Furthermore, the profit margins on both First-Class Mail and Standard Mail are greater
than that of Shipping and Packages. As a result, revenue from Shipping and Packages would have to grow at a substantially
higher rate than the decline in First-Class Mail revenue in order to replace the lost profit contribution of First-Class Mail.
During 2014, we implemented a price increase on our Market-Dominant and Competitive services. The Market-Dominant price
increase included an exigent price increase of 4.3% which was assessed as a surcharge in addition to the 1.7% CPI-U price
increase. Together, the CPI-U and exigent price increases were expected to generate $2.7 billion in incremental annual operating
revenue for the Postal Service in the first full year. The PRC decision authorizing the 4.3% exigent surcharge dictates that this
surcharge shall remain in effect only until an additional $3.2 billion of incremental operating revenue above what the Postal
Service would have otherwise recovered through a CPI-U increase alone is collected. The exigent price increase has generated
approximately $1.4 billion in incremental operating revenue for the Postal Service through September 30, 2014.
We have filed an appeal with the United States Court of Appeals for the District of Columbia Circuit arguing that the PRC erred
in its decision to limit the duration of the exigent increase in the manner that it specified. The outcome of this appeal cannot be
determined at this time. Some mailers filed an appeal seeking relief from the PRC’s decision to allow any exigent postage
increase. The expected outcome of these appeals cannot be estimated at this time.