US Postal Service 2006 Annual Report Download - page 19

2006 Annual Report United States Postal Service | 17
A Message from the Chief Financial Officer
and Executive Vice President
The Postal Service moved further into record territory as we closed 2006
with an unprecedented seventh straight year of increased productivity and
a third consecutive year of positive retained earnings. Guided by our new
Strategic Transformation Plan 2006-2010, the Postal Service achieved
a net income of $900 million, while keeping service and customer
satisfaction near all-time highs.
Although First-Class Mail volume declined for the third time in four years,
total mail volume rose .7 percent, reaching a new peak of 213.1 billion
pieces. At the same time, to serve an expanding U.S. population, we
added more than 1.8 million new delivery addresses, increasing the size
of our delivery network to a record 146.2 million homes, businesses, and
post office boxes.
Despite service improvements, increased convenience, and numerous
innovations to improve the value of the mail, the Postal Service continues
to be challenged by shifts in customer usage patterns to lower margin mail
products. The modest overall decline in First-Class Mail was driven by a
much larger 3.3% decrease in higher-margin single piece letters, which
are particularly susceptible to electronic diversion such as on-line bill pay-
ment. Some single-piece First-Class volume migrated to the First-Class
workshare letter subclass, which increased 2.1%.
Standard Mail, which surpassed First-Class Mail last year to become our
largest mail class, increased by 1.5 percent. While this enabled us to set a
new mail volume record, it was the slowest rate of growth for this category
since 2002, and it provides lower per piece revenue and margins than the
First-Class Mail it replaces.
It is a testament to the quality of our organization’s strategic focus and
through previous investments in automation, process improvements,
and focus at all employee levels that we were able to reduce almost five
million workhours in 2006, despite adding over 1.8 million new delivery
points and handling 1.4 billion additional pieces of mail. Nevertheless, in
the face of the changing mail mix, sustained and evolving competition,
and a challenging economic environment – for example, soaring fuel
prices added over $300 million to our costs – there is a need for even
greater productivity in the years ahead. With labor costs representing
78.8% of our total cost base, a continued focus on workhour reductions is
imperative.
A return to more robust mail growth could help relieve the financial pres-
sures we face. Organization efforts to grow the mail are impressive and
we remain hopeful that long term they will help to underpin a renaissance
in the mail. Of particular note are programs that incorporate front line
employees and postmasters in selling the value of the mail. These efforts
are supported by Internet strategies and new offerings, such as Flat Rate
Priority boxes, that meet the emerging needs of a new generation of
mailers. In addition, there appears to be considerable upside – both from
revenue and cost perspective – in aggressive targeted investments in new
technology to improve flat and parcel processing while building out our
platform to support intelligent mail.
As we look to 2007, our performance this year should give us confidence
that we can master our challenges and adapt to changes in our environ-
ment whatever they should be. I congratulate and thank all Postal
employees for their hard work and focus to make 2006 a success. I
also thank all our other stakeholders who work with us to make the
mail successful, including many just like us who have their futures tied
directly to the success of the mail. It was a very solid year.
H. Glen Walker
Chief Financial Officer and Executive Vice President