Product RedesignUpdate

Mailers Technical Advisory CommitteeMay 16, 2002

Shape-Based Rates

Present Rate Structure: Weight-Based A Rate for the First-Ounce, plus 23¢ Over $4 Billion From Additional-Ounce

Rate, Mostly from Flats and Parcels

PRODUCT REDESIGN: FIRST-CLASS

Trying to Make One Rate Do Three Jobs

–Reflect Costs of Weight Per Se

–Reflect Costs of Changes in Shape-Mix

–Reflect Value of Sending Heavier Items

First-Class Costs by Weight and Shape PRODUCT REDESIGN: FIRST-CLASS

Single-Piece Unit Costs (Smoothed)

$0.00

$0.50

$1.00

$1.50

1 2 3 4 < = = == = = == = = = = = = > 13

LettersFlatsParcels

Shape-Based Rates

A Possible Shape-Based Rate Structure:

PRODUCT REDESIGN: FIRST-CLASS

Different Rates for Different Shapes–Rates for Parcels Higher Than for Flats

– For Both Shapes, Rates Start High

– Letter Rates: Apply Only Up to 3 Ounces

For Each Shape, Fewer Weight Steps– Flats and Parcels: One or Two Steps – Letters: First-Ounce Rate, Plus:–Single-Piece: One Rate for Next 2 Ounces?–Workshare: Half-Ounce Increments?

Drop ShipmentDrop Shipment Strong Industry Interest

–Need Improved Service to 3-Day Areas

–Distributed Printing Is Becoming Easier

Reduce Combined-Cost of Transportation?–Mailers Consolidate With Existing SCF Dropship

Volume in Other Classes

–Distributed Printing Eliminates Transportation

USPS Concerns– Earlier Market Research: Limited Cost Saving–Broad Policy Issues

PRODUCT REDESIGN: FIRST-CLASS

Cost-Based Rates

Heightened Awareness of Importance of Identifying Costs for More Components

–Bundle and Container Handlings

–Address Quality Elements

Underlying Theme: Provide Direct Incentives for Mailers to Create More Efficient Mail

Provide Flexibility to Meet Individual Mailers’ Needs and Capabilities

PRODUCT REDESIGN: STANDARD MAIL

PRODUCT REDESIGNMail Processing Costs: Piece, Bundle, & Container

FY 2000 Flats Mail Processing Costs: Standard Regular

Container-Handling

17%

Bundle-Handling

22%

Piece-Handling

57%

Other 4%

PRODUCT REDESIGNMail Processing Costs: Piece, Bundle, & Container

Flats MP Cost Increases: FY2000 > FY 2003Components of 10.8% Standard Regular Increase

Piece-Handling

2.7%Container-Handling

3.5%

Other 0.7%

Bundle-Handling

3.9%

PRODUCT REDESIGNStandard Flats: Pieces vs. Bundles

5-Digit Auto Flats: 5.7 Billion Pieces in 252 Million Bundles–23 Pieces / Bundle On Average

One-Third of Pieces in:– 136 Million Smaller Bundles,– 72 Million Medium Bundles, and– 44 Million Larger Bundles

Piece Rates Cover Bundle-Handling Costs–Each Piece Pays Same Amount– If Bundle Cost = 46¢, Each Piece Pays 2¢

PRODUCT REDESIGNStandard Flats: Pieces vs. Bundles

5-Digit Auto Flats by Bundle Size

$38 M

$63 M

1.9 Billion PiecesBundles <= 20 Pcs

$38 M$33 M

1.9 Billion PiecesBundles 20 to 31

$38 M

$20 M

1.9 Billion PiecesBundles >= 31 Pcs

Revenue @ 2 cents / piece

Cost @ 46 cents / bundle

Summary of Big Ideas

Differentiate Between Commercial and Retail

Entered Mail

Offer Simple Preparation Options for Small

Volume Commercial Mailings

Create Incentives for More Efficient Mail

Preparation Through Cost-Based Pricing

Recognize Levels of Address Quality

PRODUCT REDESIGN

Summary of Big Ideas (Continued)

First-Class Lite

First-Class Drop Shipment

Create Efficiencies Through Fewer Flats

Mailstreams

Create New Returns Services For

Parcels/Bound Printed Matter

PRODUCT REDESIGN

Next Phase

Market Research and Costing

Assess Value and Significance of Opportunities Identified By Work Groups

Quantify Potential Costs, Savings, Prices

–Need Some Real Numbers to Determine Benefit to USPS & Industry

PRODUCT REDESIGN