This year will carry challenges and opportunities for the package industry. A softening economy is causing shippers to look harder than ever at every dollar spent and increasingly, theyre looking to the Postal Service to provide affordable, reliable and easy-to-use options for package shipping. The Postal Service has become a key player in the package delivery arena in part because of the information shippers share with us.
You told us we needed to improve service, and we responded. Our on-time service performance has never been better. The Postal Service is one of the largest users of air transportation in the nation, and we purchase billions of dollars of logistics, including agreements with FedEx and UPS, to enhance our ability to provide the highest level of service.
You told us that we needed better product visibility. We have invested more than $1 billion in the future of packages to make sure that our service and visibility meet your needs. In a recent Morgan Stanley shippers survey published in PARCEL, you told us that we needed to improve our performance in the area of customer service. We heard you. We have redesigned our Business Service Network and are exploring every customer interaction to see how we can better your experience.
World-Class Products and Services
The Postal Service has a range of world-class products and services, and we continue to improve them to better meet your needs. We also have excellent partnerships and work cooperatively with mail consolidators, other shippers even our competitors and PC Postage vendors for online convenience. Advances in shipping and rate-shopping technologies make it easier than ever for shippers to add USPS shipping
solutions to their product mixes to reduce costs and better meet service requirements.
Weve been listening to you on pricing and surcharges. In the 2006 Morgan Stanley survey, you said that surcharges were the number one cause of dissatisfaction with your carriers, second only to price. Our competitors are relying on surcharges for more and more of their revenues. Package shippers have been embracing the Postal Services what you see is what you get pricing, and the new postal law passed in December will
offer us even greater opportunities to compete as never before.
The collective knowledge of our employees and our partners could be just the package youre looking for. The Postal Service can match your package needs with the right mailing solution, whether its Priority Mail, Express Mail or Parcel Select or any of our international product offerings.
The Future of Package Technology and Product Visibility
This year, everyone at the Postal Service is very excited about the improvements were making in visibility for mailers including package shippers. We are upgrading our package technology to remain competitive and better meet your needs by focusing on key areas of the package service infrastructure: improved barcodes, better scanning, electronic verification and the new Automated Package Processing System (APPS).
APPS is the Postal Services next generation parcel and mail bundle sorting machine. Each system can automatically process thousands more packages in a day than older machines up to 9,500 per hour. APPS adds visibility by collecting detailed information, such as type, size and weight, about each package; and it supports in-route Delivery Confirmation code tracking. Were starting to use internal package scans from APPS equipment this year, and the transition to full package visibility is moving toward completion.
Shipment Confirmation Acceptance Notice (SCAN) was launched last fall to provide start the clock scans and allow service measurement for Free Package Pickup shipments. We also have invested in new hand-held scanners that are able to capture a customer signature image for your packages. More than 200,000 will be in use throughout the country by the end of this year. Together, these developments will provide better in-route scanning for package shippers.
Scanning and Barcodes
Weve made tremendous strides to increase mail visibility for letters and flats with the Intelligent Mail Barcode an information-rich, standardized code that greatly enhances the capacity to track and efficiently process mail. A similar barcode is being deployed for packages. It conforms to parcel market standards, with benefits similar to those already created for letters and flats. Moving to one unique barcode on every package will help us be more efficient and will eliminate the confusion of numerous labels and barcodes previously required on a single item.
Electronic Verification (e-VS)
Many of you told us that you needed more ease and flexibility when inducting your high-volume package mailings so last year, we launched e-VS for electronic verification. Were making it easy for manifest mailers to ship what, where and when they want a seamless acceptance program that responds to your need for greater operational flexibility. Shippers have control of their mailings and can monitor quality from time of preparation to time of deposit at the entry post office. It eliminates paperwork and allows mailers to avoid possible postage adjustments by taking preventive measures so that discrepancies do not recur.
e-VS allows package mailers and consolidators to document and pay postage, including special service fees, using electronic manifest files. Since the verification is done at destination entry, you are able to tender your shipment at the locations you choose and consolidate the days shipments into one manifest. Additionally, e-VS will be available for Priority Mail later in 2007.
Parcel Select for Volume Shippers
The strength of combined Postal Service and consolidator expertise is demonstrated clearly in Parcel Select. For mailers who ship 1,000 or more packages a day, Parcel Select offers customized rates and services, billing, manifesting, insurance, tracking, pickup service, Delivery Confirmation and many other options. Its an economical ground delivery service that saves package shippers money by enabling them to mail sorted parcels closer to their ultimate destination. Three choices of entry level offer three levels of savings.
With the package market growing steadily in light-weight business to consumer shipments, the Postal Service has emerged as the premier provider for last mile residential delivery. The industry knows that the 2006 consolidator shake-out was a difficult transition and left many scrambling for viable alternatives.
Today, our Parcel Select product is robust and growing. We provide last mile delivery for our traditional competitors and several new partners have emerged. FedEx, DHL and UPS alone ship over 200 million packages with us annually, and all three continue to take on more Parcel Select customers. Regional consolidators expanded operations in 2006 and are also seeing healthy growth by concentrating on high quality and package visibility. Best of all, incremental rate increases are low for this reasonably priced product. As with all our
offerings, there are no accessorial fees.
New Postal Law
The Postal Accountability and Enhancement Act, the culmination of a 12-year effort by Congress, provides us with a tremendous opportunity to focus on our competitive products and will allow us greater flexibility for individual mailers and shippers.
Competitive products as defined by the new law are Priority Mail, Expedited (Express) Mail, Bulk Parcel Post and Bulk International Mail. This is an area ripe for growth an opportunity to continue creative product development that saw a volume increase of 100 million pieces in one fiscal year.
This new law is all about the future. Were planning for the next decade right now. Our productivity is high, and our service scores are at record levels. We will build on this solid foundation with ongoing service and customer satisfaction improvements and continue to drive costs out of the system.
We are working closely with representatives from industry groups, including many parcel shippers, to ensure that our products and services meet your needs. One exciting development will be our ability to match our capabilities to those of our customers. Whether it means offering shippers bundled direct mail, catalogs and fulfillment shipping products; customized packaging; or increased workshare opportunities, the new law will help the Postal Service more closely match our customers capabilities with the products and services they need.
Setting Prices, Remaining Competitive
The cost for the Postal Service to operate, like any business, continues to rise. The Postal Service receives no tax dollars for operations and relies solely on the sale of its products and services to cover operating costs. The current rate case, if approved, would be the first increase to cover operational expenses since 2002.
Like the new postal law, the rate case offers tremendous opportunities for shippers by basing prices on shape, not weight or distance. This will encourage efficiency and provide another avenue for USPS to match a shippers capability with the best products and services to help grow its business.
For example, current prices do not distinguish between some letters, flats and parcels. Proposed changes recognize that each shape has substantially different processing costs and should have a different price. If the contents of a flat are folded and placed into a letter-size envelope, the mailer can save money. If a parcel is reconfigured as a flat, the mailer can potentially realize additional savings.
Shippers also need to know that one of the best values and most popular options, Priority Mail Flat Rate Boxes, is now a permanent product offering. The Postal Regulatory Commission has recommended that the new price for the flat-rate box, regardless of its weight, contents, or distance traveled, should be $9.15.
A Leadership Role
Throughout its history, the Postal Service has focused on being a good corporate citizen, and it always has paid attention to environmental concerns. Out of this longstanding history came the next logical step. We had focused on buildings and vehicles. Now were focusing on the core business products packaging and envelopes and have made a smart, fiscally sound business decision.
We produce about 700 million packages, envelopes and shipping supplies a year. That definitely has an environmental impact. We decided to take a hard look at that and find a solution to continue improving our environmental impact.
The Postal Service has used recyclable materials for more than 30 years. But our commitment today is to use and produce materials that exceed even the highest standards set by the Environmental Protection Agency. Over the next year, we will replace those 700 million packages and envelopes with materials that will bio-degrade more quickly. We also will use an increased amount of recyclable materials and decrease the use of toxic inks.
Our environmental work really has become a part of the way we do business. At processing plants, we use thousands of plastic pallets and millions of plastic containers made of recycled materials that can be recycled again when their useful life is over. We very aggressively promote our website, USPS.com, as a way to avoid driving to a post office. Almost everything you can do at a post office, you can do online: buy stamps, print labels with postage and ask for a free package pickup. All save energy.
Future of Packages
With investments of more than $1 billion in systems and equipment to improve parcel shipping, the future of packages is clear for the U.S. Postal Service.
Were making it easier to ship internationally by redesigningour packages so they can be endorsed domestically and internationally, and we have expanded our popular flat-rate shipping options to international.
Were continuing to improve the mail and package acceptance process, with an emphasis on e-VS and seamless acceptance.
Were lowering the revenue threshold required for shippers to use customized and co-branded Priority Mail packages.
Were creating additional sizes and dimensions for Flat Rate Priority Mail Boxes.
Were redesigning our Business Services Network to add a package component.
Were helping customers leverage our first and last mile services with products not available from other shippers: Free Package Pickup, Parcel Select, Hold for Pickup and various return options.
As package shipping continues to grow every year, we are exploring every aspect of the shipping process to see how we can improve your customer experience. We can't afford not to - USPS revenue from the Package Services and Priority Mail categories was nearly $7.3 billion in 2006, up from just over $6.8 billion in 2005.
Our customers are shipping more and expecting better service in return. The Postal Service is ready to deliver.
For more information, visit our website, USPS.com/business/
For information on the rate case: USPS.com/ratecase
For details on the new postal law: USPS.com/postallaw
For the complete rate case ruling by the Postal Regulatory