Projecting U.S. Mail Volumes to 2020 Mel Wolfgang Partner BCG - PowerPoint PPT Presentation

Projecting U.S. Mail Volumes to 2020 Mel Wolfgang Partner BCG Boston March 2, 2010

Objectives of BCG's assignment BCG was asked to develop base case projections of mail volumes to 2020 Base Case is a business-as-usual scenario with the following assumptions • No new revenue or cost savings initiatives beyond those already in the current USPS plan • No legislative or regulatory changes • Economy returns to historical long-term growth rate in two to three years • No major economic or other disruptions Base Case forecast incorporates extensive, recent independent research • Interviews, surveys, BCG expertise, benchmarks from other countries, and commercial research 1 Xxxxx-xx/Footer

Mail was classified into segments with similar characteristics and market behaviors First-Class Mail Standard Mail First-Class Mail Standard Mail Standard Mail ad letters Bills and invoices Flyers General B2C mail Bank statements Catalogs C2B / B2B payments Postcards First-Class ad letters Large envelopes 2 Xxxxx-xx/Footer

Volume forecasts were created by segment First-Class Mail Volume (47%) Standard Mail Volume (46%) (%) 100 Bills / Invoices C2C 22 B (12%) 5 B (3%) Standard Mail 80 Ad Letters 32 B (18%) Misc 2009 Total General 177 B (100%) C2B 60 B2C Mail 4 B (2%) 14 B (8%) Magazines Flyers 8 B (4%) 24 B (14%) Bank Statements 8 B (5%) 40 Packages C2B B2B/B2C Payments 6 B (3%) Catalogs 3 B (2%) pmts 12 B (7%) General B2B Mail 4 B (2%) 9 B (5%) 20 Large Envelopes 5 B (3%) First-Class Ad Letters Newsletters 5 B (3%) 11 B (7%) Postcards 3 B (2%) All mail 0 volume (%) Sender: Consumer Business Both Volume volume Packages First Class – Business Standard Magazines First Class – Consumer Note: segments do not sum to 177B pieces due to rounding. Source: BCG analysis 3 Xxxxx-xx/Footer

2020 Projections were then developed by aggregating segments into major mail classes Forecast Key drivers Forecast Key drivers Volume to fall to approx. 150B pieces • Sharp decline in First-Class Mail All Mail from 177B in 2009 (-1.5% CAGR) • Flat trajectory for Standard Mail Volume to fall to approx. 50B pieces • Increasing online diversion driven by First-Class from 84B in 2009 (-4% CAGR) increased consumer acceptance Volume to remain roughly flat at 85B • Online diversion of retention mail Standard pieces (+0.4% CAGR) • Some share gain from newspapers A bright spot with projected 1B piece • e-Commerce, including returns gain (+3% CAGR) – but not offsetting Packages loss in core business Daily pieces per delivery point to fall • Declining mail volumes from four to three • Growth in delivery points Other metrics Real revenue per delivery point • Declining pieces per delivery point expected to fall ~30% • Mix shift from First-Class to Standard Source: BCG analysis 4 Xxxxx-xx/Footer

We project a volume decline of at least 15% by 2020 vs. 2009 Pieces (B) 220 213 200 177 180 -1.5% annual decline 160 Sender perspective 150 (-15%) 140 138 (-22%) Consumer perspective 120 118 (-34%) Worst-case benchmark 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 (from EU) Fiscal year 2020 projection represents 30% decline off of 2006 peak 1. Sender view Source: BCG analysis 5 Xxxxx-xx/Footer

Multiple drivers impacting volumes in coming decade First-Class Mail Standard Mail First-Class Mail Standard Mail Organic growth in number of households Organic growth in number of households Growth in economy Growth in economy Increase in online presentment and bill pay Share capture from newspaper Increased usage of autopay Shift to online alternatives to acquisition mail (search ads, banner ads) Extension in billing cycles Shift to online alternatives for retention mail Increase in mobile presentment (e.g., email to existing customers) Diversion to emerging hybrid mail options Increased diversion to private carrier delivery Diversion to emerging hybrid mail options Positive trend for USPS Negative trend for USPS 6 Xxxxx-xx/Footer

2020 forecast sees ongoing decline in First- Class Mail Pieces (B) 97 100 84 -4% annual decline 1 80 Sender perspective 60 Consumer 53 (-37%) perspective 44 (-47%) Worst-case 40 benchmark (from EU) 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Fiscal year 1. Sender view Source: BCG analysis 7 Xxxxx-xx/Footer

2020 forecast sees roughly flat volumes in Standard Mail vs. 2009 Pieces (B) 104 100 Slight increase 1 Sender 86 (+4%) 83 perspective 80 Consumer 75 (-9%) perspective 69 (-17%) Worst-case benchmark (from EU) 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Fiscal year Recovery will not revisit pre-crisis levels 1. Sender view Source: BCG analysis 8 Xxxxx-xx/Footer

Most mail segments will decline by 2020 First-Class Mail Volume (35%) Standard Mail Volume (57%) (%) 100 First Class - Consumer First Class - Business Bills / invoices 44% C2C Standard 12 B (8%) 80 Standard Mail Ad Letters 4 B (3%) 18% Magazines 38 B (26%) 22% Packages General 2020 Total 150 B (100%) 60 Misc 24% B2C mail C2B Magazines 11 B (7%) 3 B (2%) 7 B (5%) 17% 24% Flyers Packages 10% 40 Bank statements 47% 26 B (18%) 40% 4 B (3%) 4 B (3%) B2B/C pmts 2 B (1%) 46% C2B Gen B2B 3 B (2%) Sender outlook for 2020 24% payments Catalogs 29% 20 % +1% or more 9 B (6%) 4 B (3%) First-Class 14% 30% Large Envelopes 4 B (3%) Ad Letters 0% to -24% % 57% 26% Newsletters 4 B (3%) 8 B (5%) Postcards 3 B (2%) 12% 0 -25% to -60% % Sender: Consumer Business Both volume volume Note: based on Sender view. Segments do not sum to 150B pieces due to rounding. Source: BCG analysis 9 Xxxxx-xx/Footer

2020 real revenue per delivery point will decline almost 50% from 2000 Year '09-'20 change 2000 2009 2020 (%) Total Mail 4.9 3.8 2.8 -26 Average pieces per delivery point First-Class Mail 2.5 1.8 1.0 -44 per delivery day Standard Mail 2.1 1.8 1.6 -11 - 44% Total Mail 1.8 1.4 1.0 -29 Real (inflation- adjusted) revenue First-Class Mail 1.0 0.7 0.4 -43 per delivery point per day (current $) Standard Mail 0.4 0.4 0.3 -25 Note: based on Sender view Source: BCG analysis 10 Xxxxx-xx/Footer

All reasonable scenarios suggest volume will continue to decline • 80% of homes with broadband 153B 158B 163B • Online payments +10% getting less traction • 3.3% YoY GDP growth 150B Standard Mail 0% 144B 155B Base Case • 90% of homes with broadband -10% 135B 140B 146B • Privacy loses to online targeting for customer acquisition -10% 0% +10% • 1.3% YoY GDP growth First-Class Mail Likelihood Higher Lower Note: based on Sender view Source: BCG analysis 11 Xxxxx-xx/Footer