US Postal Service 2006 Annual Report Download - page 28

26 | 2006 Annual Report United States Postal Service
Standard Mail volume exceeded First-Class Mail volume for the second
consecutive year. Standard Mail’s volume growth in 2006 was the slowest
since 2002, when advertising expenditures declined throughout the
economy as a result of a recession. The softness in Standard Mail volume
growth is attributable to lackluster growth in Standard Regular Mail of
1.5% as well as a decline of 13.4% in Nonprofit Enhanced Carrier Route
Mail. Despite these weaknesses, Standard Mail continues to hold its
ground in the advertising market by virtue of its two dominant characteris-
tics; it can be targeted to specific audiences, and its effectiveness can be
measured by the customer.
As shown on the chart above the change in mail mix has a large impact
on our revenue. If the mail mix had remained the way it was in 2001 we
would have had an estimated additional $2.5 billion in revenue in 2006.
First-Class Mail volume, our largest mail class until 2005, decreased
slightly in 2006, declining for the third time in the last four years. An
increase of 1,075 million pieces or 2.1% in workshare First-Class letters
partially offset the continuing decline in single-piece volume, which was
down 1,529 million pieces or 3.3%. The long-term continued decline
in single-piece volume reflects the impact of electronic diversion as
businesses, nonprofit organizations, governments, and households
increasingly automate transactions and divert correspondence to the
Internet. Consolidation in the pre-bar-coded mailer market suggests that
some of the single-piece First-Class Mail may be migrating to workshare
First-Class Mail. Although workshare First-Class Mail volume increased
in 2006, the growth rate was less than half the growth rate in 2005.
Workshare letters are also affected by electronic diversion, but to a
lesser extent. A slowdown in credit card solicitations may have put added
downward pressure on workshare letter growth.
For the second year in a row, Priority Mail volume increased. The 4.1%
growth rate was especially encouraging in light of the January rate
increase since demand for Priority Mail is relatively price sensitive. Four
factors continue to drive this performance. First, we have worked to
consistently improve Priority Mail service performance. Second, Priority
Mail is increasingly easy to use. Customers can purchase postage and
print mailing labels with free delivery confirmation through Click-N-Ship at
http://www.USPS.com/onlinepostage/ or on commercial websites. Carrier
pickup saves customers a trip to the Post Office and our flat rate envelope
and flat rate boxes simplify Priority Mail use further. Third, prior to the
January 8, 2006 rate increase, Priority Mail rates had not changed since
June 2002, while our competitors’ published rates have increased almost
annually during the same period. Finally, the increase in our competitors’
surcharges for fuel, residential delivery, and delivery in rural areas make
Priority Mail a cost effective choice.
We continue to develop new Priority Mail products such as Priority Mail
flat-rate boxes which allow customers to send Priority Mail at a flat rate
price of $8.10 regardless of the weight of the box. Originally launched in
November 2004 with two different shaped boxes, in 2006 we added a
Priority Mail shoebox.
Express Mail volume increased 475,000 pieces over 2005, and like
Priority Mail, Express Mail had benefited from continued rate stability, and
the impact of surcharges imposed by private sector competitors, as well
as website access on www.USPS.com. This is the second consecutive
year of volume increases for Express Mail after four years of declines.
Financial Section Part II