REVENUE AND VOLUME

The annual price increase for most Mailing Services in May 2009 averaged 3.8%. In May 2008, the annual price increase for most Mailing Services averaged 2.9%. Shipping Services prices increased in January 2009 by an average of 5%.

The economic recession adversely affected all classes of mail in 2009, leading to the largest year-over-year revenue and volume decline since the Postal Reorganization Act of 1971. As the recession continued, significant volume declines occurred in each quarter of the year.

Led by the troubled financial services industry, we first experienced declines in advertising mail, particularly with regard to credit card, mortgage and home equity loan solicitations. With the recession’s spread to all economic sectors, declining volumes followed among catalogue retailers, printing and publishing businesses and the services sector.

2009 Mail Revenue

The decline of both revenue and volume for each class of mail for the year can largely be attributed to the economic environment. Competition, electronic diversion and other external factors continue to negatively impact revenue and volume performance, but those factors have become secondary to the overall performance of the economy. No class of mail has been immune to the recent financial turmoil and all categories of mail experienced drops in volume and revenue. Total mail volume fell by 12.7% in 2009, with an accompanying revenue decline of 9.1%.

2009 Mail Volume

Although its relative influence lessened in comparison to economic factors, electronic diversion continued to depress mail volumes in 2009. For example, in Quarter II, the largest decline in First-Class Mail volume came from mailings to and from the U.S. Treasury, primarily the Internal Revenue Service. Americans are increasingly filing tax returns electronically, including a 16.7% increase in e-filed tax returns by self-preparers this year compared to last year. Many of these filers also elect to receive refunds electronically. Periodicals mail volumes also displayed the effects of electronic diversion as some publishers converted to electronic publications.

A product of these negative economic and market forces, operating revenue in 2009 was $68,090 million, a decrease of $6,842 million compared to 2008 operating revenue of $74,932 million. Mail volume of 177.1 billion pieces declined by 25.6 billion pieces, or 12.7%, from the 2008 volume of 202.7 billion pieces, itself a decline from the previous year.

In 2008, the financial sector of the U.S. economy led declines in the mailing arena. Operating revenue for 2008 was $74,932 million, an increase of $154 million over 2007 operating revenue of $74,778 million, while volume of 202.7 billion pieces declined by 9.5 billion pieces, or 4.5%, from the 2007 volume of 212.2 billion. The 2008 volume decline accelerated throughout the year, reaching a peak decline of 3.2 billion pieces in the fourth quarter.

Revenue for the first seven and a half months of 2008 was affected by the May 2007 price increase of 5.4%. The remainder of the year was affected by the May 2008 price increase of 2.9%. Although the volume decrease in 2008 was significant, the price increase held revenue flat compared to 2007.