Although postage prices increased in May, the law places a cap on prices for the vast majority of our products: they cannot exceed the previous year’s rate of growth in the Consumer Price Index. This, of course, coupled with high and steady volume losses of more than 4.5 percent — 9.5 billion pieces of mail — was insufficient to offset growth in costs that was led by the highest gasoline prices our nation has ever seen — prices that did not begin to moderate until near the close of the fiscal year.
Providers throughout the entire package and express delivery business, each heavily dependent on transportation, were affected by the steep increases in fuel prices and a softening of shipping demand by consumers and businesses. Like them, the Postal Service experienced more positive results in its international product lines, which continued to benefit from favorable foreign exchange rates.
We ended the year with a net loss of $2.8 billion dollars. The effects of a dramatically declining economic environment on our revenue, and fuel prices that increased costs by over $500 million, were magnified by other factors as well, including the shift of transactions and messages from the mail to electronic communications.
The Postal Law of 2006 required a payment of $5.6 billion, part of an ongoing 10-year obligation for future retiree health benefits — this represents 7.5 percent of operating revenue. This payment was on top of a $1.8 billion payment for the employer’s 2008 portion of current retirees’ health benefits costs.
Cost management remains a critical part of our strategy, as it must be, but growth is even more important to a successful future. That is why we took several major steps this year to build our business. Listening to our customers, we introduced new flexibility and choices to our shipping services products, with expanded choices, volume discounts, online discounts, customized services, and pricing that better reflects the cost differences between some long- and short-distance shipping. These have made our Express Mail and Priority Mail services better values than ever.
Realignment of several major elements of our business in June also was designed to support growth. These adjustments will help us bring new products and pricing to market more quickly and effectively. They are shaped by an aggressive new approach and a leadership team that reflects decades of customer experience both in consumer products and package delivery.
Experience tells us that when the economy stabilizes there will be a renewed demand for shipping and mailing services. That is why we are continuing our investment in the future. We simply cannot afford to defer the improvements necessary to support the needs of our customers until the business climate improves. Even in today’s wired world, mail continues to be one of the most effective channels of communication available to American businesses and households. This is a clear competitive advantage.
To protect the advantages of mail, the deployment of the automated Flats Sequencing System is proceeding as scheduled. This will reduce even more costs as it increases sorting speed and accuracy.
Our commitment to the full implementation of the Intelligent Mail barcode also will provide mailers and the Postal Service with a rich source of real-time system data. This will increase the value of the mail and improve production, accounting, and operating processes. At the same time, we are making our networks more effective than ever. And by embracing a sustainable, green approach to doing business, we are creating long-term value for customers, employees, and the communities we serve.
The Postal Service has been a vibrant part of our nation through the highs and lows of every economic cycle for more than two centuries. We will keep it that way by pursuing innovative approaches that support our historic mission of delivering trusted, affordable, universal service to everyone in America.
John E. Potter
Postmaster General/CEO
Alan C. Kessler
Chairman, Board of Governors