June 17, 2014

Value of the Area Mailer Industry Focus Groups:  Immediate Issue Resolution  Provides a Forum for Crucial Feedback / Suggestions / Ideas  Builds Critical Relationships at All Levels of the Organization  Forum to Communicate Operational Changes 2 Western Area Focus Group

3 Volume Price Labor Costs Universal Service Obligation  Limited pricing flexibility Postal network driven by:  Delivery points  Retail locations  Sortation facilities  Six-day delivery  ~80% of total costs  COLA increases  Benefits: pensions, retiree health, health insurance  Limited flexibility  Retiree prefunding obligation, rising workers’ compensation costs These trends will continue to put pressure on USPS ability to provide affordable universal service Decliningsteadily  Transactional volume declining due to e-diversion  Advertising mail is subject to more substitution options  Mail volume highly sensitive to economic changes  Mail mix changes – lost profit contributions Fixed cost base Rising but capped capped Rising cost per hour Business Imperative for Change

' ' ' ' ' ' ' Career Employees – Reduced by 205K since 2006, without layoffs Postal Service is More Efficient Than Ever $16 Billion of Annualized Savings in the past seven fiscal years with workhours reduced by 24% Total Workhours (Millions) Savings (Billions) Annual Growth 1.2% [2000 – 2013] TFP Cumulative Trend Annual Growth 0.3% [1972 – 1999] 4 Continuous Efficiency Improvements Have Helped Mitigate the Impact of Business Threats Continuous Efficiency Improvements Have Helped Mitigate the Impact of Business Threats

5 A Deep Financial Hole Unrestricted Cash Buildings & Equipment, net of depreciation Other assets Total Assets $ 2.3B $ 17.5B $ 1.8B $21.6B Retiree Health Benefits Workers’ Compensation Debt Accrued Compensation, benefits and leave Deferred Revenue* Other Total Liabilities** $16.8B $17.2B $15.0B $ 3.5B $ 3.6B $ 5.4B $61.5B ASSETS LIABILITIES Liabilities exceed assets by approx. $40 billion The USPS has only 35 cents of assets to cover each dollar of its liabilities * Newly available data on forever stamp usage resulted in a $1.3B reduction in Deferred Revenue – Prepaid Postage ** Under multi-employer accounting rules, there are approximately $51B in obligations not shown on the balance sheet.  Significant profits over years and legislation are needed to recover.

6 USPS Business Plan

7 Key Legislative Goals  Require USPS Health Care Plan  Resolves RHB Prefunding Issue  Refund FERS Overpayment  Adjust Delivery Frequency (6-Day Packages, 5-Day Mail)  Streamline Governance Model  Authority to Expand Products and Services  Require Defined Contribution System for Future Postal Employees  Instructions to Arbitrator  Reform Workers’ Compensation  Right to Appeal EEOC Class Action Decisions

8 Western Area Focus Group

9

Major Optimization Initiative  Units  2,513 Delivery Unit Consolidated  Routes  24,000 City Routes Reduced  Deliveries  Efficient Mode of Delivery 10

Delivery Mode Conversions 11 CURBLINE DOOR CENTRAL 37.8M40.5M 31% 28% 55.0M 41.0% Door Curbline (61.2K) 490.9K (6%) 47% Centralized 607.6K 59% Current Policy/Strategies are Driving Migration to More Efficient Delivery Mode FY 2013 Growth % Total FY 2013 Growth % Total Total Growth 1.04M - - Fiscal Year 2013

12 Western Area Focus Group

13 USPS Retail Network

 Grow Revenue  Reduce the Cost to Serve  Transform Customer Experience in High Traffic Post Offices  Enhance Customer Convenience Through Expanded Retail Partnerships  Preserve Retail Services in Rural America  50% of Post Offices realigned to match community needs Retail Strategy 14

15 Western Area Focus Group

16 Facilities Optimization New Jersey Network Distribution Center – 1.4M Sq Ft Ochopee FL Post Office – 62 Sq Ft

17  Generate Revenue and Reduce Expenses by:  Selling owned buildings  Terminating leases  Re-purposing space Facilities Optimization Over 6.7M Sq. Ft. Eliminated

18 Advantages of a Transformed Infrastructure Fewer Facilities  Denser Bundles/Trays and Pallets  Increased Equipment Utilization  Increased Productivities Maximized Transportation  Better Utilization of Air/Surface Trips  Gain Economies of Scale Right-sized Workforce  Employee Flexibility  Revised Pay Structure Complement

19 Western Area Focus Group Erica Brix Manager, Operations Support Western Area

20 Imbalance of Mail Delivered by DOW Postal Quarter 1 FY 13 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Disproportionate amount of Standard Mail is scheduled for delivery on Monday resulting in:  Service Variability  Operational Inefficiencies  Increased Cost

21 Prior to April 10 CurrentThursday Friday, Saturday, Monday Friday Saturday, Monday Saturday, Monday, Tuesday Saturday Monday, Tuesday Monday, Tuesday, Wednesday Sunday *The current Critical Entry Time (CET) for Standard mail is 4 pm **For delivery in the continental United States DSCF Standard Mail** Dropped Before 4pm* on DELIVERY DAYS MEETING SERVICE STANDARD Expected Days of Delivery

22 Expected Days of Delivery  Standard mail dropped at a DDU does not change  Standard mail dropped at a NDC does not change  EDDM Retail does not change  Periodical/Newspaper processing does not change  First-Class does not change  Priority does not change

Delivered Volume 23 * 4/19 through 6/6

Service Performance 24 4/12 – 5/23 UCL / LCLTargetStandard SCF LettersSPLY UCL / LCLTarget Standard SCF Flats SPLY

25 Standard DSCF Flats April 11 – May 30 Friday Start-the-Clock % of Total23.82%53.99%19.00%2.19%0.58%0.21% Cumulative23.82%77.81%96.81%99.00%99.58%99.79%100.00% Service Variance Day 1 – Saturday 23.82% Day 2 – Monday 53.99% Day 3 – Tuesday 19.00%

DSCF Standard Mail Load Leveling  Results are Promising  Mail Processing working to capacity  Reducing average hours per route  Balanced workload with consistent service performance  Controls and Monitoring  Facility Audits  New data driven diagnostic reports  Address the Vital Few Opportunities  Operational Tiger Teams for site visits and improvement recommendations 26

27 Benefits  Consistent Delivery Times by Day of the Week  Cost Containment – Maintain Affordable Prices  Predictable and Reliable Service  Less Competition in the Mailbox  Benefit to Mailers and Customers  Increase Visibility

28 100% Visibility

29 Attributes of 100% Product Visibility Unique barcodes on letters, flats, packages, trays and containers Access to analytical capabilities for forecasting and predictive workloads Real-time Data & Intelligence

30 Next Generation Equipment C007 Nov 2012-Sept 2013 Delivery Sortation System Dec March 2014 Feb-May 2013 PASSReal-Time Scanners Jan–Dec 2014 DeploymentMay-Nov 2014 Deployment Total – 12,500Total – 4,167 Jul 2014-Dec 2014 Mobile Delivery Device (Replaces Real-Time Scanners) Jan 2015 – Aug 2015 Total – 225,000

31 Delivery Management System (DMS)  Evaluates Carrier Route Status to plan and color- coded route status  Estimates Delivery Time for all packages in unit  Currently being tested in limited ZIP Codes

32 Predictable and Measureable Does USPS have the mail? Where is it in the process? When will it be delivered? How did the overall mailing perform? An optimized plan for: Consistent, predictable delivery Avoiding bottle necks Response Rates & ROI Balance resources & reduce costs Business Intelligence Enhances the Performance & Value of Your Mailings HOW? Full Service Intelligent Mail Strategies

34 VOLUME REALITIES Mail Volume Shifting to a Less Profitable Mix Volume in Billions of Pieces PHASE 2 NETWORK RATIONALIZATION

35 NETWORK RATIONALIZATION STATISTICS PHASE 2 NETWORK RATIONALIZATION

36 FIRST-CLASS MAIL SERVICE AFTER IMPLEMENTATION Overnight – 20.05% 2 Day – 35.6% 3 Day – 44.1% PHASE 2 NETWORK RATIONALIZATION The time it takes First-Class Mail to reach its destination will increase from an overall average of 2.14 days to 2.25 days

37 NETWORK CAPACITY Network Rationalization

Plant Consolidations Phase Over 350 Facilities Eliminated Reduced over 75M miles

39 EMPLOYEE IMPACT  Approximately 15,000 employees affected  Will work within negotiated employee agreements, laws, and regulations to place employees in other vacant positions available through normal attrition PHASE 2 NETWORK RATIONALIZATION

40 Western Area Focus Group Drew Aliperto Vice President Western Area

Continue to Optimize the Value of the Infrastructure 41  Enhance the value of Direct Mail and Catalogs  Increase Market Share of Packages  Innovate across USPS Business Platforms Growth Opportunities

12%.....the share of total American marketing spend on mail. It’s been consistently about 12 percent for the past 30 years.  Four Key Ideas: 1.Personally Relevant – Interest 2.Actionable – Speed to purchase 3.Functional – Imbed technology in paper 4.Creative – Color, construction, size Mail is Relevant – Most Direct Way to Communicate Mail is Relevant – Most Direct Way to Communicate 42

43 Using direct mail and in integrated campaigns creates synergies that boost response more than using either medium alone. The Impact of Direct Mail is Significant Growing Direct Mail Source: Marketing Sherpa Study

44 Mobile Commerce Mobile Technology Helping Drive Long-Term Value with Direct Mail and Catalogs. Smartphones and tablets interact with the printed page Smartphones and tablets interact with the printed page Direct Mail or Catalog becomes “catalyst” for mobile commerce Direct Mail or Catalog becomes “catalyst” for mobile commerce Direct Mail and Catalog integration with technology increases: Direct Mail and Catalog integration with technology increases: Relevance Relevance Effectiveness Effectiveness Convenience Convenience Responsiveness Responsiveness Engagement Engagement NFC Mobile Barcode Image Recognition Augmented Reality

Committed to Mail  We remain committed to growing mail  Will collaborate with the industry to grow and enhance direct mail and catalogs  Embrace technology to attract consumers to new possibilities  Continue to seek promotional ideas from customers 45 The power of mail enhances package delivery & returns.

OPPORTUNITY IN PACKAGES 46 Building a World Class Package Platform Growth Opportunity

E-Commerce Continues to Grow Rapidly 47

48 Elements to Building a World Class Platform Integrated Package Network Plan Product Development Plan Package Delivery Optimization Plan Next Generation Equipment International Package Processing Plan Improve Customer Pick-up Experience 100% Product Visibility Package Growth Opportunity SEVEN KEY ELEMENTS

Build a World Class Package Platform 49

Create a simpler returns product line Consolidate disparate offerings to Network and First Mile Eliminate obstacles to onboarding Fees Separate permits Make products easier for users Roundtrip label Print and Deliver label Expand customer base for Scan-based Payment Align Our Returns Portfolio with the Needs of Ecommerce Shippers Growth Opportunity 50

Sunday Delivery Leveraging Sunday delivery to grow our overall package business Parcel Select Next-Day Next-day delivery for SCF-dropped packages (last mile and a half) MetroPost Same-day, competitive-priced delivery Talking with larger retailers with NYC introduction Customized Products to Meet the Needs of Large Ecommerce Shippers Customized Shipping 51

52 Western Area Focus Group

53 Growing Consumer Expectations Consumers’ busy lifestyles demand more delivery convenience New businesses take notice of these demands and offer more expedient deliveries Existing players improve their offerings to meet demand These changes set new consumer expectations

54 Emerging Trends Directional patterns that may generate market, customer, or organizational needs or opportunities. Technology The application of scientific knowledge and engineering in the digital age Technology The application of scientific knowledge and engineering in the digital age Social Patterns of human interaction, movement, and preference Social Patterns of human interaction, movement, and preference Industry Developments shaping how businesses are organized and how transactions take place Industry Developments shaping how businesses are organized and how transactions take place E-Commerce Same-Day Delivery Public-Private Partnerships Do-It-Yourself Consumer Simplicity Collaborative Consumption Big Data3D PrintingAutomation

Innovate Across Business Platforms 55 Physical Network First Mile Last Mile DigitalDigital  Leverage market- leading physical assets  Incorporate evolving logistics solutions  Develop a structure that fosters agility and innovation  Boost the demand for mail and packages  Expand and simplify induction points  Integrate emerging digital, big data, and consumer trends to grow  Expand delivery solutions  Capitalize on the expansion of E- commerce and technology  Optimize route flexibility and productivity  Leverage USPS’s brand, trust, and reputation to drive profit

56 Enable American Commerce with a World - Class Shipping Platform Enable American Commerce with a World - Class Shipping Platform

57 Western Area Focus Group

58 USPS – Industry Commitment to Communicate  Continue to collaborate through:  MTAC  Assn. Meetings  NPF  Trade shows and other events  Leverage PCC’s & Area Focus Groups to Work With Local Leadership to Resolve Issues Area Mailing Industry Focus Groups – Calendar by Area at

59 Western Area Focus Group