The theme of this year’s annual report — Trusted, Reliable, Affordable — reflects the basic promise the Postal Service makes to the millions of customers it serves on a typical day. We delivered more than 158 billion packages and pieces of mail to almost 153 million delivery points throughout 2013. We did so reliably and affordably, and we strove continually to earn the trust of the American public by maintaining the privacy and security of the items we delivered.
Our customers place great faith in the ability of the Postal Service to deliver for them, both in the literal delivery of mail and packages, and in the larger sense as an organization that is adapting and changing to better meet America’s evolving delivery needs.
We made great strides in 2013 to speed the pace of innovation, to improve our competitive posture by offering great new products, to lower our cost base and stabilize a systemic financial imbalance. And we did so against a backdrop of great change in technology use and consumer habits, and of rapidly rising expectations for delivery services.
Our achievements — despite challenging marketplace conditions and an inflexible business model — were the result of a relentless organization-wide focus on the implementation of our strategic business plan.
Despite the limitations and inflexibility of the current Postal Service business model, the Postal Service substantially cut its loss from ongoing business activities from $2.5 billion in 2012, to $1.0 billion in 2013. In 2013 we increased revenue by almost $800 million, excluding the effect of the one-time, non-cash change in accounting estimate. This was about $1.1 billion better than planned. At the same time we achieved our expense plan, reducing expenses by approximately $900 million, despite higher-than-planned mail and package volume. However, a $1.0 billion loss from ongoing business activities — and a $5.0 billion net loss — is still very bad news. This underscores our need for comprehensive legislation to repair our broken business model.
To improve efficiency and reduce costs, we consolidated 143 mail-processing facilities, eliminated 1,847 delivery routes, and modified retail hours to two, four, or six hours in 7,985 offices to better align with customer demand. We also reduced the size of our career workforce by more than 37,400 employees during the year through a responsible and measured process of attrition.
In 2010 we launched flat rate pricing for our Priority Mail lineup, which has sustained exceptional growth for the past several years. And due to strong marketing and sales efforts this past year, we recorded an 8 percent increase in our package delivery business, which equates to $923 million in additional revenue. We built upon that success and met the growing demand for our package delivery services by introducing a compelling new Priority Mail offering that includes free insurance, improved USPS Tracking™ and day-specified delivery. As a result of the immediate popularity of this new offering, we expect to continue building upon the momentum in this product category in 2014.
Innovations continue to drive growth. A new product such as Every Door Direct Mail — which lets local businesses reach the neighborhood customers that matter most to them — was launched in 2011 and is an excellent way to introduce new customers to the mail. To create similar success stories, the Postal Service is investing in a wide array of new products and services, including digital solutions that can significantly enhance the value of mail for both the sender and receiver. These successes and others — like the introduction of our “Second Ounce Free” promotion for commercial mailers — have helped slow the overall decline in First-Class Mail.
We also leveraged technology investments to enable end-to-end scanning across 95 percent of our network, giving our customers increased visibility and tracking capability as their mail moves through our system from entry to destination. These data and technology investments are enabling further innovations that will deliver compelling value to our customers.
We continued to meet customer expectations of convenience by expanding U.S. postal services in the places people visit every day, such as supermarkets and pharmacies, or on our mobile application or usps.com. We also increased the number of small businesses that operate Village Post Offices and sell stamps and popular shipping products throughout rural America.
And while enhancing delivery remains our core function, service remains at the core of our mission. Our on-time delivery scores across most of our product lines are at all-time highs, which is a testament to an exceptionally dedicated workforce.
In the aftermath of Hurricane Sandy, which devastated many areas along the coast in New York and New Jersey, Postal employees played a vital role in the quick return to normalcy by ensuring that needed mail, packages, and basic relief services were being delivered almost immediately. Our employees contended with floods and forest fires, and all manner of severe weather, and consistently performed at a high level in meeting the needs of America’s communities.
It is upon this foundation of innovation and service that the future of the Postal Service is being built. If given additional flexibility and authority under the law to fully meet America’s evolving mailing and shipping needs, the Postal Service can have a bright future for the coming decades.
Our operational achievements in 2013, are impressive and argue well for a strong future, but they cannot overcome the impacts of a broken business model. The Postal Service recorded a net loss of $5.0 billion in 2013 and will continue to face serious financial challenges. The Postal Service must gain comprehensive legislation that closes an estimated $20 billion budget gap by the year 2017 to avoid becoming a permanent burden to the American taxpayer.
Fortunately, as we believe this annual report demonstrates, the Postal Service has mapped out a responsible, common-sense path to financial stability that will enable it to continue serving as an engine of economic growth, and a trusted, reliable, and affordable delivery partner far into the future.
Patrick R. Donahoe
Postmaster General and Chief Executive Officer
Mickey D. Barnett
Chairman, Board of Governors
The challenges we face
Why is the Postal Service making so many changes? Because the way people communicate is evolving.
Today, when people need to pay a bill or get in touch with a loved one, they reach for their mobile device or laptop. This has affected single-piece First-Class Mail, traditionally one of our major sources of revenue. In 2003, we processed 49 billion pieces of single-piece First-Class Mail, but by 2013, that figured had dropped to 22.6 billion pieces.
Other factors have affected the Postal Service too, including a 2006 law that requires us to pay more than $5 billion each year to “pre-fund” the health care costs of future retirees.
The Postal Service is eager to adapt to the changing needs of our customers, although some of these issues are easier to address than others. For example, First-Class Mail volumes are unlikely to return to previous levels, so we have to shift our resources to areas where we can best serve our customers, such as our growing package business.
We’re asking Congress to help us deal with the other matters. To learn how lawmakers can help, see page 22.
