Revenue and Volume

There were no price increases for Mailing Services products in 2010. Price increases for Mailing Services averaged 2.9% in May 2008 and 3.8% in May 2009. Shipping Services prices increased by an average of 5.0% and 3.3% in January 2009 and 2010, respectively.

While the economic recession may have technically ended in June 2009, the continuing effects of the economic slowdown and the rate at which mail is migrating from traditional postal hard copy services to electronic media continue to negatively impact mail volume and the related revenue. Although the rate of decline eased in 2010, volume continued its downward trend, with a decrease of 6.2 billion pieces or 3.5% in 2010 as compared to 2009.

Signs of economic recovery can be seen and the volume in some classes of mail has grown in the last six months of 2010. For example, Standard Mail reversed its decline in 2010, growing 4.6% in Quarter III and 8.9% in Quarter IV 2010 over the same quarters of 2009. As a result, Standard Mail volume remained essentially flat in 2010, with a yearly increase of just 0.1%. Standard Mail volume of 82,525 million pieces in 2010 represented only 79.7% of its 2007 peak of 103,516 million pieces, a decrease of almost 21 billion pieces.

The decline in First-Class Mail volume continues, with year-over-year declines of 6.6% in 2010, 8.6% in 2009 and 4.8% in 2008. This trend is especially disturbing as First-Class Mail remains our most profitable product. To compensate for financial loss of the contribution of one piece of First-Class Mail, Standard Mail must increase by three pieces.

The following table indicates mail volume by category:

Mail volume of 170.6 billion pieces declined by 6.2 billion pieces, or 3.5%, from 2009 volume of 176.7 billion pieces, itself a decline of 26.0 billion pieces from the 2008 volume of 202.7 billion pieces.

Total operating revenue in 2010 was $67,052 million, a decrease of $1,038 million, or 1.5%, compared to 2009 operating revenue of $68,090 million.

The volume decline of 26.0 billion pieces in 2009 from the 2008 volume of 202.7 billion pieces resulted in a decrease in operating revenue of $6,842 million, or 9.1%, from 2008 operating revenue of $74,932 million.

The continuing decline of both revenue and volume for most classes of mail in 2010 and 2009 is primarily attributable to the lackluster and uncertain economic environment. Competition, diversion of the mail from traditional postal services to electronic media (primarily impacting First-Class Mail) and other external factors continue to negatively impact revenue and volume. The rate of decline in mail volume slowed in 2010 compared to 2009. We anticipate stabilizing mail volume in the next few years, with declines in First-Class Mail being mostly offset by increases in Standard Mail. As noted previously though, the expected continued decline of First-Class Mail, our most profitable product, will pose a significant challenge and will make it difficult to recover the substantial revenue lost during the recent recession. Other Mailing Service or Shipping Services will have to grow significantly to replace the revenue and profit margin associated with the decline of First-Class Mail. Furthermore, significant uncertainties remain concerning the timing, strength and breadth of the economic recovery and the impact of the recovery on mail volume and its related revenue.

2010 Mail Revenue