Letter from the Board of Governors’ Chairman and the Postmaster General

On a typical day, more than 600,000 men and women of the United States Postal Service ensure that hundreds of millions of pieces of mail are delivered to 156 million delivery points, including more than 43 million rural businesses and residences across the country. This daily act of delivery is a cornerstone of the American economy, and it will be far into the future.

The secure, reliable and affordable delivery provided by the Postal Service enables every marketer to reach customers, and every business to conduct transactions and ship physical goods, from our smallest rural communities to our largest urban areas. From delivering holiday cheer through letters and packages to veterans stationed overseas to birthday greetings and college acceptance letters, the Postal Service binds the nation together and powers its commerce.

The Postal Service had a remarkable 2016. We delivered over 154 billion pieces of mail, and we grew revenue to $71.5 billion in FY2016—a 3.7 percent revenue increase. These results helped us achieve controllable income of $610 million. Excluding the impact of a $5.8 billion mandated Retiree Health Benefits prepayment, the Postal Service would have recorded net income for the year. And operationally, we improved performance in all major service categories and delivered record achievement in many categories.

Despite these exceptional achievements, the Postal Service faces significant financial headwinds that threaten our ability to serve the American public if they are not addressed. We self-finance our operations through the sale of postal products and services instead of relying on taxpayer funds, so we compete for customers in a competitive communications and delivery marketplace. We are also obligated to provide universal service—and to maintain the significant processing, transportation and delivery infrastructure that providing universal service requires. Paying for that infrastructure, which continues to rise in cost every year as delivery points continue to grow, is becoming increasingly challenging as our most profitable mail product (First-Class Mail) continues to decline, and as other mandated costs also continue to rise. These problems are exacerbated by statutory pricing constraints and product and service constraints which limit our ability to generate enough revenue to pay our bills.

Among the mandated costs, the Postal Service operates with a requirement to prefund retiree health benefits, but that requirement is unaffordable unless those benefits are fully integrated with Medicare. Additionally, our pension obligations are calculated based on federal government demographics and economic assumptions, which makes them more expensive than they would be if they were appropriately calculated based on postal demographics and wage-growth assumptions.

The Postal Service is also subject to a rigid price cap not faced by private companies. That cap is limited solely to the changes in consumer inflation, which does not reflect the financial realities of our business. This price cap severely limits our ability to raise necessary revenue to cover the rising costs of universal service, which continue to be incurred even as First-Class Mail volume declines.

The Postal Service has responded aggressively to these constraints and long-term trends, reducing our annual cost base by $14 billion since 2008. In that time period, we consolidated our processing, delivery and retail operations; reduced the size of our workforce; and, dramatically improved productivity. Nevertheless, the Postal Service cannot overcome its long-term financial challenges without legislative reform and pricing-system changes.

America needs a financially strong Postal Service to rapidly bring the best technologies and solutions to the marketplace, and to find new and better ways of serving our customers and communities. This is an important goal that we continually pursue by working with Congress. Importantly, it is a very achievable goal with the enactment of the prudent, measured reform legislation that has broad stakeholder support and that is already pending before Congress.

While we continue to seek postal reform legislation and an appropriate pricing system, we are fully committed to our responsibility to operate efficiently, manage costs, and generate profitable revenues. In every American community, we deliver reliable, predictable, secure, and affordable service, and we compete for customers every day by delivering positive experiences at every touch point.

Thank you for taking the time to review our “FY2016 Annual Report to Congress.” We’re proud to serve you and all of the American public.

Megan J. Brennan and James H. Bilbray

Signature of Megan J. Brennan

Megan J. Brennan

Postmaster General
and Chief Executive Officer

signature of James H. Bilbray

James H. Bilbray

Postal Service Board of Governors