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Message from the Chief Financial Officer and Executive Vice President

H. Glen WalkerWhat a difference a year makes. At the start of the fiscal year, the Postal Service set ambitious goals to cut spending by $1 billion, raise service to new record levels, improve customer satisfaction, and deliver solid business performance that would improve our bottom line by nearly $5 billion from the prior year while essentially matching last year’s record mail volume. By year’s end, we met or exceeded all of the goals directly within, our control but saw customer demand and postal revenues decline at an unprecedented rate as the U.S. and global economies experienced serious deterioration.

While I believe it is necessary to focus this message on the Postal Service’s immediate, extraordinary challenges, it is only appropriate to first recognize the achievements of postal managers and employees in fiscal year 2008. Service is the cornerstone of the postal franchise, and employees delivered better service across the board, including our best First-Class Mail service ever. We set new performance records in three-day, two-day, and overnight committed First-Class Mail service, including a record 97 percent of local First-Class Mail delivered overnight in Quarter 3. Customer satisfaction also increased, with 93 percent of customers rating overall Postal Service performance as good to excellent in Quarter 4, the highest such score in three years.

The first decade of the 21st century has been marked by unusual economic and business volatility worldwide, which resulted in rapid swings in Postal Service mail volume, including the worst mail decline in our history. Mail volume fell by 9.5 billion pieces in FY 2008, reflecting weakness first in the housing and financial sectors and then spread throughout our domestic service portfolio, which comprises more than 99 percent of our total mail volume.

To put this in perspective, this one-year volume loss is 60 percent larger than the combined mail losses recorded from 2000 through 2003, during economic recession, the terrorist attacks of 2001 and the deposit of anthrax-laced letters into the mail system. It is, in fact, the single largest volume drop in our history, exceeding even the record 8 billion-piece loss recorded from 1929 to 1933 during the Great Depression. It also is troubling that the mail decline accelerated during the year, falling by a combined 3.4 billion pieces in Quarters 1 and 2, and by 6.1 billion pieces in the second half, a nearly 77 percent increase from the first two quarters.

At the same time that revenues were flattening, key costs were rising. During the course of the year, diesel fuel prices ranged from $3.04 per gallon to $4.76 per gallon. This increased costs by more than $500 million. Fuel prices were not our only significant cost increase — cost-of-living allowances for our bargaining employees, which are linked to inflation in the overall economy, were the highest ever in 2008.

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