Delivering a New Day.

Letter from Chairman Barnett and the Postmaster General

The theme of this year’s annual report — Delivering a New Day — reflects a renewed commitment on the part of the United States Postal Service (USPS) to view every day as a new opportunity to deliver great service to our customers. This is fitting, because throughout 2014, we delivered more than 155 billion packages and pieces of mail to almost 154 million delivery points and did so reliably and affordably. In doing so, we earned the trust of the American public by maintaining the privacy and security of the items we delivered.

This commitment also epitomizes our momentum and progress as an organization and reflects the myriad ways we are changing and evolving to better serve our customers. Indeed, if you look across the spectrum of ways that we operate and serve our customers throughout the country, our story is one of continuous adaptation and improvement. The needs of our customers are changing rapidly, and we know we must adapt quickly to maintain our relevance to the American consumer and strengthen our business. To that end, we’ve made extraordinary changes over the last few years to our mail processing, transportation, delivery and retail operations, and we’re becoming a much more technological and data-centric organization. We’re also moving rapidly toward a lean operational footprint that will significantly improve productivity.

So where is our business in Fiscal Year (FY) 2014? Despite challenging marketplace conditions, an inflexible business model imposed by federal law and financial issues caused by legislative constraints, the Postal Service is moving forward with a lot of momentum. In many core aspects of our business — from operational performance to developing and marketing new products and services — we are making progress, resulting in a strong foundation for the future of the organization.

U.S. Postal Service operating revenue increased $569 million in FY2014 over FY2013. If the effect of the $1.3 billion one-time adjustment to deferred revenue-prepaid postage in FY2013 is excluded, operating revenue would have increased by $1.9 billion. This revenue growth resulted from the January 2014 price increase and strong growth in our Shipping and Packaging business. Offsetting this positive news, however, were legislative burdens and constraints that contributed to a $5.5 billion net loss in 2014. This eighth consecutive annual net loss underscores the need for comprehensive legislation to repair our broken business model.

In the past three years, we have consolidated 143 mail processing facilities and eliminated approximately 3,800 delivery routes and modified retail hours to two, four or six hours in over 9,700 offices to better align with customer demand. We also responsibly reduced the size of our career workforce by approximately 3,000 employees during the year through a responsible and measured process of attrition. It is planned that further consolidation will impact an additional 82 mail processing operations in 2015.

Meanwhile, innovation continues to drive growth. In 2014, the Postal Service leveraged data and technology to develop and provide enhanced offerings and improve efficiencies. Dynamic routing, an operational test of early morning-hour deliveries and same-day delivery via MetroPost are just a few of the service innovations enabled by better use of data and technology. Moreover, with advancements in quick response (QR) codes and Personalized Uniform Resource Locators (PURLs), we saw many examples in 2014 of marketers giving mail a fresh look. Brands are marrying mail data with digital data to better target offerings and increase customer demand. Mail is being used in tremendous new ways, and it is no exaggeration to say that enhanced analytics will fundamentally expand the range of services we offer to our customers.

The Postal Service also capitalized on the growth of its package business in 2014 by partnering with major U.S. retailers to deliver packages in selected cities on Sundays. Sunday delivery serves the needs of valued customers in today’s busy online world while at the same time, generates new revenue for the Postal Service. Today, we are delivering to over 650 cities and 3,892 five-digit ZIP Codes.

And while 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 competitive, which is a testament to an exceptionally dedicated workforce. Moreover, the 2013 holiday season was a tremendous success for the Postal Service, which performed exceptionally well in delivering the nation’s holiday packages — even with significant volume increases. The Postal Service also delivered 75,000 packages on Christmas Day, proving that our organization is extremely dedicated when it comes to delivering gifts on time. This year, we expect even higher volumes, and we regard the holiday season as “our season,” when we deliver on the promise of reliable and affordable service as well as a great experience while doing business with us.

Also in 2014, the Postal Service continued to grow its business by expanding consumer access for postage and postal products like Priority Mail. To that end, we announced in October 2013 a partnership with Staples, one of the country’s largest retailers of office supplies. During the pilot, 82 Staples stores nationwide sold a variety of products and services, including stamps, Priority Mail, Priority Mail Express and package handling. In August 2014, those 82 stores transitioned to the Postal Service’s Approved Shipper program. Additionally, the Postal Service opened more than 400 Village Post Offices in 2014. Located inside convenience stores, markets and other neighborhood businesses, Village Post Offices offer the most popular postal products and services, including PO Boxes, Forever stamps and prepaid shipping envelopes. Often, the hours are longer than regular Post Offices, making Village Post Offices a convenient option for customers.

To further promote growth and improve processing efficiency, the Postal Service re-focused its efforts in 2014 on the 24-hour clock, which is designed to improve time management to keep the mail moving and give our customers the service they depend on. Introduced in 2006, the 24-hour clock recognizes that all of our processes are linked — and that if we perform the first chronological task well, it follows that we will perform well on the next and the next and the next, for the full 24-hour cycle.

The Postal Service also made it easier in 2014 for small businesses to attract new customers by launching a new online tool for its Every Door Direct Mail service, which helps small businesses find demographic data for specific delivery routes, review and inspect the size of mailings to be sure they meet standards and view larger ZIP Code area maps. The new tools support the Postal Service’s goal to create simple and easy-to-use mailing and shipping products that allow our customers to focus their attention on building up their businesses.

As evidenced in the pages of this annual report, the Postal Service’s operational achievements in 2014 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 $5.5 billion in 2014, and we continue to face serious financial challenges. Moreover, there is an overwhelming liability burden. These liabilities include retiree health benefits and worker’s compensation as well as $15 billion owed to the U.S. Treasury. As of September 30, 2014, the Postal Service had $68.3 in liabilities. These liabilities exceed assets by $45.3 billion, which further emphasizes the need for comprehensive legislation to avoid becoming a potential burden to the American taxpayer.

As we look back on our strong performance in 2014, we would like to thank the employees of the U.S. Postal Service for their continued commitment and dedication to serving the American people. The process of delivering billions of pieces of mail to reach the hands of intended recipients across the country and around the world is nothing short of extraordinary — and it’s the people of the Postal Service who make it happen. By continuing to prove ourselves each and every day and by working together, we will continue to deliver value for the American people for many decades to come.

Signature of Mickey D. Barnett

Mickey D. Barnett
Chairman, Board of Governors

Signature of Patrick R. Donahoe

Patrick R. Donahoe
Postmaster General and
Chief Executive Officer