6. Product Redesign

In 2004 Product Redesign efforts continued to focus on improving the value/cost relationship of the Postal Service's core products, in particular Periodicals and Standard Mail flats and address quality. Product Redesign seeks to increase value through changes in rate structures and preparation that reduce combined mailer and postal costs. Most changes will require PRC approval and are being assessed for inclusion in the next omnibus rate case. However, one change in preparation that helps reduce overall mail processing costs was implemented in 2004 within the current Domestic Mail Classification Schedule. The required 5-digit bundle minimum for lightweight flats likely to be processed on the Automated Flats Sorting Machine (AFSM) 100 was raised from 10 to 15 pieces resulting in cost savings.

A major study was conducted of address quality-related reasons that cause mail to be undeliverable. The study will provide comprehensive information on the volume, characteristics, and costs of this mail and on addressing deficiencies by class of mail and applicable mail processing category. These data will be used to assess proposals for improved address quality, such as those developed in the Mailing Industry Task Force and Product Redesign address quality workgroups. The results of the study will be available in early 2005.

Extensive modeling of costs associated with processing Standard Mail and Periodicals flats was completed. The research will allow the Postal Service to understand the impact of revised Periodicals and Standard Mail flats rate structures on mail preparation and Postal Service costs by determining what changes, if any, mailers make to mail preparation and entry. This information will be used in deciding how this rate structure may be incorporated in the next omnibus rate case. Interviews of Standard Mail and Periodicals mailers and the research findings will be completed in early 2005.

C. International Mail

1. Volume and Revenue

Due to product enhancements, improved economic conditions, and rate stability, international mail revenue increased by 6.9 percent in 2004, compared to the preceding year. Associated piece volume increased by 4.8 percent and piece weight by 7.3 percent. No rate adjustments were implemented.

2. Improving Global Express Mail and Global Air Parcel Post Services

The Postal Service continues a multiyear process of improving reliability and features of its expedited and package service offerings. Global Express Guaranteed (GXG), the premium, time-definite, guaranteed retail service, continued to grow. International delivery for GXG was contracted from DHL to FedEx in March 2004 and FedEx began service with the Postal Service on July 1, 2004.

In addition the Postal Service has furthered its efforts to transform its existing Global Express Mail and Global Air Parcel Post services into more reliable services featuring date-specific delivery and focusing on the most important geographic segments of the market. These efforts have resulted in revenue growth of 17.1 percent and 11.8 percent, respectively, in 2004.

These positive results have been effected through the efforts of the Postal Service and a select group of Asian posts embarked on an initiative to work collaboratively to increase service performance quality to industry standard levels, including commitments to perform mandatory scanning and improve postal operations efficiencies. Rapid improvements have already been achieved by the Postal Service and its Asian partners.

3. State Department Coordination/UPU Congress

The Postal Service worked with the U.S. Department of State, which since October 1998 has had the primary responsibility to formulate, coordinate, and oversee policy with respect to U.S. representation in the Universal Postal Union (UPU), to prepare for the 23rd UPU Congress, held September 15 to October 5, 2004 in Bucharest, Romania. The Postal Service analyzed 760 proposals introduced by the United States and other countries in coordination the Department of State and other federal agencies. A primary U.S. policy goal has been to promote more openness and transparency in the UPU and to formalize participation of private-sector stakeholder organizations in UPU meetings. The creation of a private-sector Consultative Committee was proposed and adopted at the UPU Congress. This Consultative Committee will include representatives of governments or postal regulators, postal operators, and private sector stakeholders who would participate in Council of Administration and Postal Operations Council activities. The Postal Service plays a leadership role in key UPU activities with the goal of improving postal security and the quality of international letter, parcel, and expedited mail services, as well as promoting standards, direct mail, and postal improvements in developing countries.