1. NPPC Survey and the 10-Year Review
Presented to NPPC
September 22, 2016

2. Outline
NPPC Survey Results
10-Year Review

3. Survey Outline
Background
Results

4. Survey – Total Mail Volume (Last 4 Years)
There were 12 respondents that provided data for all 4 years.

5. Survey – Total FCM Mail Volume (Most Recent Year)
10 Mailers Responded
Total Volume: billion pieces
Mean: million pieces
Standard Deviation: 281 million
Largest Volume: million pieces
Smallest Volume: 47.8 million pieces

6. Survey –FCM Mail Volume (Presort Percentages)
Presort Level
Percent
Residual & Single-Piece
2.4%
Non-Automation Presort
0.9%
MAADC
1.7%
AADC
6.3%
3-Digit
37.1%
5-Digit
51.6%
The 5-Digit percent lags behind the billing determinant rate of 65%

7. Survey – Increase in 5-Digit (Last 4 Years)
Presort Level
Most Rec Yr-3
Most Rec Yr-2
Most Rec Yr-1
Most Rec Yr
Residual & Single-Piece
2.4%
2.3%
Non-Auto Presort
0.5%
0.4%
1.2%
0.9%
MAADC
1.6%
1.5%
1.7%
AADC
9.3%
9.9%
6.6%
6.3%
3-Digit
39.2%
44.2%
38.9%
37.1%
5-Digit
47.0%
41.7%
49.4%
51.6%

8. Survey –FCM Mail Volume (FSIMb Percentages)
78.2%
Basic IMb
13.8%
None
8.0%
The FSIMb percent lags behind the billing determinant rate of 90%

9. Survey – FCM Mail Volume (Last 4 Years)
There were 11 respondents that provided data for all 4 years.

10. Survey – “Free” Second Ounce (Last 4 Years)
Weight
Most Rec Yr-3
Most Rec Yr-2
Most Rec Yr-1
Most Rec Yr
0.0 – 1.0 oz.
92.3%
90.3%
90.9%
87.7%
1.1 – 2.0 oz.
6.8%
8.7%
8.1%
11.3%
2.1 – 3.0 oz.
0.8%
0.9%
3.1 – 3.5 oz.
0.1%

11. Survey – Other Mail Products (Most Recent Year)
FCM Flats
Standard Letters
Competitive Products
Incoming RM
Responses 12
Total Volume
811,178,593
3,452,124,441
83,645,717
415,092,706
Mean (only those who had the product
81,117,859
383,569,382
8,364,572
59,298,958
Standard Deviation
240,748,521
463,707,769
22,423,939
56,719,565

12. Survey – Standard Mail Letters (Last 4 Years)
Product
Most Rec Yr-3
Most Rec Yr-2
Most Rec Yr-1
Most Rec Yr
Total Volume
2,788,187,346
3,091,709,037
3,278,047,601
3,452,124,441
Mean
309,798,594
343,523,226
364,227,511
383,569,382
Standard Deviation
365,369,911
425,752,523
435,948,189
463,707,769
There were 9 respondents that provided answers.

13. Survey – Remittance Mail (Last 4 Years)
Product
Most Rec Yr-3
Most Rec Yr-2
Most Rec Yr-1
Most Rec Yr
Total Volume
502,921,092
466,122,644
439,596,679
415,092,706
Mean
71,845,870
66,588,949
62,799,526
59,298,958
Standard Deviation
72,590,830
65,482,377
59,454,165
56,719,565

14. Why Use First-Class Mail?
Importance
Avg. Response
(1-10)
Legal Considerations
9.57
Customer Preference
8.93
USPS Mail Price
8.71
Mail Service
8.00
Price of Alternatives
7.25
Mail Cost (other than Price)
6.93

15. Why Use Standard Mail? Importance Avg. Response (1-10) USPS Mail Price
9.63
Mail Cost (other than Price)
7.63
Nature of the Promotion
7.13
Mail Service
7.00
Price of Alternatives
Customer Preference
6.71
Demographics
4.71
Targeting Ability
4.57
Seasonal Factors
4.29

16. What Do You Care Most About FCM?
Importance
Avg. Response
(1-10)
My outgoing FCM Letter Mail gets to my customers.
9.7
My remittance mail gets back to me fast.
9.3
My outgoing FCM Flats Mail gets to my customers.
8.8
My outgoing FCM Letter Mail gets to my customers fast.
8.6
My outgoing FCM Flats Mail gets to my customers fast.
8.0
I can tell with great certainty the date my outgoing FCM Letter Mail will get to my customers.
7.0
I can tell with great certainty the date my outgoing FCM Flats Mail will get to my customers.
6.8

17. 10 Year Review

18. The 10 Year Review Should Not Revisit the CPI Price Cap
Mailers will argue “PAEA doesn’t allow it.” If the PRC decides to the contrary, the DC Circuit will likely have the final say.
But even if PAEA does allow a CPI cap revisit, the system has worked well to balance the objectives, considering the factors.
(2) predictabilty and stability in rates
balances very well with …
(5) adequate revenue…to maintain financial stability

19. But If the PRC Allows a Cap Review Resulting in a Price Increase, How Big Could that Price Increase Be?
USPS View – How high can you count?
Mailers View – Are there numbers less than zero?
PRC View – Will need a method to decide

20. Likely PRC Method
Predicting PRC methods always adds a level of uncertainty
Chairman Taub has said that the review allows a chance to “clean-up” the balance sheet and the off-balance sheet liabilities. And make sure operating income provides viability.
Cost of service rate cases and the exigent case provide a historic precedent to operationalize a “clean-up”

21. “What Numbers to Use?” Operating Loss
Pro Forma Financial Results
($ in billions)
Projected – 2017
Total Revenue
$70.8
Total Controllable Expenses
71.3
Pro Forma Controllable Income/(Loss)
(0.5)
RHB Pre-Funding (Default) -
FERS Amortization (Not Paid)
0.2
CSRS Amortization Payments
1.5
Retiree HB – Amortization Payments
2.9
Pro Forma Net Income/(Loss)
($5.2)

22. From Balance Sheet and Income Statement to Revenue Requirement
Operating loss
RPYL Applied to Balance Sheet – 1/9
Sum these two to produce breakeven revenue
Then “gross up” for price elasticity volume loss

23. Additional Revenue Requirement ($ Billions)
Breakeven FY 2017 Prices
Additional Revenue Requirement ($ Billions)
Balance Sheet
Rev
Req
Prior Year Losses
($22.4)
($2.5)
Pro Forma Net Income/(Loss)
($5.2)
Total Income/(Loss)
($7.7)
% of Revenue
10.9%
% W Volume Leakage
13.6%

24. Any Cleanup of On and Off Balance Sheet Should be Inclusive
“The purchase price of Postal Service real estate is $27 billion, but the fair market value is far greater. The Postal Service owns real estate in premium locations. For example, the nearby National Postal Museum has a purchase price of $47 million, but a tax assessed value of $304 million.”

25. Any Cleanup of On and Off Balance Sheet Should be Inclusive
“The current net book value (of real estate) totals only $13.2 billion. The fair market value has been estimated as high as $85 billion….” OIG FT-WP

26. Any Cleanup of On and Off Balance Sheet Should be Inclusive
So if PRC decides a cleanup is necessary, it should net out property assets. That means there is no RPYL to amortize.

27. The 10-Year Review has HUGE Price Implications

28. Questions?