2011 Revenue Outlook Shortchanged

According to the FY 2010 Annual Report, the revenue outlook worsened after the Postal Regulatory Commission’s rejection of the Postal Service’s request for an exigent price increase. This increase, if approved, would have generated approximately $2 billion in additional revenue in 2011. Although the Postal Service has decided to appeal this ruling, no decision is likely to occur in time to impact 2011. Thus, the revenue outlook for 2011 is largely dependent on the course of the economy and, to a lesser extent, revenue initiatives.

Although the economy is largely responsible for the recent revenue and volume decrease, electronic diversion presents on ongoing, long-term challenge, particularly with respect to First-Class Mail.

First-Class and Standard Mail account for 94% of total mail volume. First-Class Mail is expected to continue its long-term decline, while Standard Mail is expected to grow slowly. Total mail volume is expected to be virtually flat in 2011, and then show steady growth beginning in 2012 as the economy continues to recover, but is unlikely to ever return to the peak 2006 levels.

For 2011, the Postal Service projects revenue to be flat versus 2010. Revenue will see a small boost from the recently announced Shipping Services price increases offset by First-Class Mail declines.

First-Class Mail volume is expected to decline during 2011. Even when employment, consumer spending, and capital investment recover, the growing use of the Internet and other electronic means of communication will continue to suppress mail growth. First-Class single-piece letters have been in decline for more than a decade and are expected to continue to decline in both the short- and long-term.

Standard Mail volume has fallen by approximately 20% since peaking in 2007. For 2011, Standard Mail revenue and volume are expected to begin a slow rebound.

Periodicals volume is projected to decrease modestly in 2011. While the projected declines in Periodicals are not as dramatic as some other mail categories, they represent the continuation of a long-term trend.

Shipping Services revenue and volume are expected to increase in 2011. This entire group is influenced by competitors’ prices, which often include fuel surcharges, and by our own advertising and promotional initiatives.