USPS ® FY15 STRATEGIES  1  The Future of Packages   Bright or Dim?  National PCC Day Chicago Postal Customer Council September 10, 2014 Dennis Nicoski

USPS ® FY15 STRATEGIES  Agenda  Marketplace trends – mail and packages  What is dimensional weighting?  DIM 101  Why does it matter? What does it mean?  How do you capitalize?  Proposed Priority Mail price reductions  Q&A 2

USPS ® FY15 STRATEGIES  3 Industry Trends – Mail  FCM erosion continues  Battle for advertising dollars  Changing demographics and buyer behavior  Pace of change  Security / privacy concerns escalating  Technology integration / promotions  Paper/print  Exigency

USPS ® FY15 STRATEGIES 

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 Mail Promotions

USPS ® FY15 STRATEGIES  7 Mail NSA’s  First catalog NSA filed March 5, 2014 – pending before PRC  Key principles  Tiered discount on growth above base  Annual logical adjustment to baseline  5 year term  Multiplier effect  Package commitment  25+ currently in discussion

USPS ® FY15 STRATEGIES  8 Current Marketplace Trends  FedEx and UPS DIM Changes  Proposed Priority Mail price reductions  Sunday, MetroPost/Same Day, Holiday, Next Day  Omnichannel (Ship-from-store, Endless Aisle, Flexible delivery)  Residential growing, commercial flat  Mode shifts – Air to Ground  Zone optimization  Business need assessment  Free shipping vs. transit time pressure from market leaders  Returns  DSV’s  Multi-carrier  Peak

USPS ® FY15 STRATEGIES  IT / Engineering Systems People / Human Capital Customer Experience Bran d First Mile Physical Network Last MileDigital USPS Innovation Platforms Enhance efficiency and convenience of pickup services and induction by fully utilizing USPS data, engaging with potential partners, and recognizing emerging customer needs. Enablers Enhance efficiency and capacity of processing and transport networks by fully utilizing existing assets and augmenting services. Maximize the value of USPS delivery by improving customer experience, cutting costs, and experimenting with adjacent offerings. Develop technological solutions to enhance customer experience, increase revenue to USPS, and cut operating costs. Four “Enablers” will build the capabilities necessary within the organization to support the development and implementation of the Innovation Platforms.

USPS ® FY15 STRATEGIES  Dimensional Weight 101  Shipping carriers use dimensional (also called volumetric) weight to compensate for the additional costs associated with handling packages that are light for their size  They take up more space on transportation and are more expensive to process and deliver 10

USPS ® FY15 STRATEGIES  Dimensional Weight 101  With dimensional weighting, packages pay the greater of the actual weight, or the result of a simple formula: Length X Width X Height Dimensional Weight Factor 11

USPS ® FY15 STRATEGIES  Dimensional Weight 101  Step 1  weigh the package to determine actual weight  For example, say the package weighs 4 lbs  Step 2  Measure the length, width, and height of the package  Multiply the dimensions to determine volume/cube in cubic inches (UPS rounds – 0.4” down, 0.5” up)  For example – a box that’s 12” long by 12” wide by 6” high would be 12X12X6 = 864  Divide by the dimensional weight factor to determine dimensional weight  864 / 166 factor = 5.2  Step 3 – Compare the two  Pay the greater of the actual weight or dimensional weight, which now becomes the billable weight  5.2 rounds up to 6 lbs, which is greater than the 4 lb actual weight – package pays the 6 lb price 12

USPS ® FY15 STRATEGIES  Dimensional Weight 101  Today, the major commercial carriers apply dimensional weighting in the following manner  Domestic Air (ON, 2D, 3D) – All packages – Factor = 166  Domestic Ground – Only >3 cf (5184 ci) – Factor = 166  Postal Service Priority Mail – Only >1 cf (1728 ci) – Only Zones 5-8 – Factor = 194  International – Factor = 139 (Canada import 166) 13

USPS ® FY15 STRATEGIES  Dimensional Weight 101  In January 2015, dimensional weight will apply to ALL domestic Ground shipments with Fedex and UPS  Domestic Air (ON, 2D, 3D) – All packages – Factor = 166  Domestic Ground – All Packages – Factor = 166  Postal Service Priority Mail – Only >1 cf (1728 ci) – Only Zones 5-8 – Factor = 194  International – Factor =

USPS ® FY15 STRATEGIES  Dimensional Weight Benchmarks 15 Dim Wt Paid Wt Max Cu In Max Sample Box (Notebook paper) = 8.5 x 11 x ?" Max Sample Box (iPad) = 9.5 x 7.25 x ?" PM CPP Cubic Tier

USPS ® FY15 STRATEGIES  Dimensional Weight Benchmarks 16 LWHCU INCU FT Cubic TierDIM DIM WEIGHT PM E-MEDIA SFRB O-1096L O-BOX O O MFRB SHOE MFRB O LFRB O-BOX NA7.57

USPS ® FY15 STRATEGIES  Polling Question #1 17  The UPS and FedEx DIM Weight starting in January for a 16” x 12” x 8” box would be: 1.6 lbs 2.8 lbs 3.10 lbs 4.12 lbs

USPS ® FY15 STRATEGIES  Dim Weight vs. Cubic Pricing  Dimensional weighting effectively penalizes customers who have poor density  Large boxes that are light  Cubic pricing is exactly the opposite – it REWARDS customers who have good density  Example:  A 2 lb shipment in a 8.5x11x6” box (0.3 cf) would pay the 4 lb price by dimensional weight  The same item in a slightly smaller box that’s 8.5x11x3.5” (0.2 cf) would pay the 0.2 cf Tier PM CPP Cubic price, or roughly a 2 lb price 18

USPS ® FY15 STRATEGIES  19 Why PM CPP Cubic?  Incent small rather than penalize large packages  Weight is a traditional, “easy” proxy for cube  Cube never used before – difficult to measure  Transportation and delivery costs based more on cube than weight  Planes and trucks virtually always “cube-out” before reaching weight limits  Drives smarter, more environmentally-responsible packaging policies  Less corrugated, less void-fill, less fuel

USPS ® FY15 STRATEGIES  20 Calculating the Cube What is the “cube?” The cube is a term for the cubic volume of the package, in inches or cubic feet. Calculating this figure correctly is one of the most important parts of the qualification process. How do I calculate cube? Measure the length by the width by the height, in inches, rounded down to the nearest 1/4” (6.375” or 6 3/8” rounds down to 6.25 or 6 ¼” ) Multiply the length X width X height and divide that number by This number is the “cube,” or cubic volume in cubic feet. What do I do with the cube I’ve calculated? Take that number and consult the pricing table to see where the package fits. Always round up. Here’s an example: A box measuring 11”” by 8.5” by 3” has a volume of 297 cubic inches (11x9x3). 297 cubic inches ÷ 1728 = cubic feet. Because is greater than 0.1, it falls in the next higher cubic category: 0.2.

USPS ® FY15 STRATEGIES  21 How to measure non-rectangular packages For soft packs, tuck the flap under the package when measuring. Measure the height at the thickest point. For triangular packages, measure it as though it would fit into a rectangular box. Measure length and width as usual, and measure height at the tallest point.

USPS ® FY15 STRATEGIES  22 PackagingLWHCU INCU FTTIER PM E-MEDIA SFRB O-1096L O-BOX O O MFRB SHOE MFRB O LFRB Standard Priority Mail Packaging

USPS ® FY15 STRATEGIES  23 Specialized Priority Mail Packaging Spec PkgLWHCU INCU FTTIER # # # # # # # # # # # # # # #

USPS ® FY15 STRATEGIES  24 CPP Cubic Opportunities Who fits? Anyone with good density ► Any printed matter (includes literature fulfillment, books, photos, forms, documents) ► Foodstuffs (coffee, candy, fruit, etc.) ► Parts ► Electronics (cell phones, cameras, laptops, pda’s) ► Lotions, potions, and pills

USPS ® FY15 STRATEGIES  Jan 2015 Published Dim Impact (166)  Package count that changes by cell between from today to January  63% of packages will now be paid by dim weight rather than actual weight 25 WT Total 0.5 (27,754) (22,482) (34,752) (27,446) (7,937) (7,637) (9,091) (137,099) 1 (9,190) (8,819) (17,062) (15,558) (4,474) (3,859) (1,897) (60,859) 2 (1,443) 4,466 12,786 7,228 2,063 1,190 (3,565) 22, ,489 8,663 11,047 11,238 2,786 3,215 3,526 51,964 4 (16,378) (11,441) (18,800) (15,736) (5,225) (5,471) (8,769) (81,820) 5 2,394 (633) 3,169 2,669 1,605 1,741 5,623 16,568 6 (10,920) (7,767) (11,823) (9,744) (3,016) (2,846) (3,964) (50,080) 7 7,167 6,317 10,156 9,639 2,705 2,531 1,526 40,041 8 (6,517) (5,068) (8,542) (7,150) (2,244) (2,309) (2,703) (34,533) 9 (10,813) (7,335) (14,113) (10,621) (3,988) (3,008) (3,042) (52,920) 10 (11,361) (8,154) (12,618) (9,685) (2,774) (2,924) (3,965) (51,481) 11 19,233 11,568 18,073 13,906 4,291 3,222 4,388 74, (3,110) (3,327) (6,209) (3,673) (1,341) (1,144) (2,021) (20,825) 13 (4,222) (2,351) (3,512) (3,035) (692) (1,287) (669) (15,768) 14 20,762 15,377 22,361 17,944 5,565 6,002 8,605 96, ,306 14,189 24,328 20,182 5,856 6,561 8,265 98, ,327 16,273 24,136 17,201 5,139 5,149 6,995 97,220

USPS ® FY15 STRATEGIES  Proposed Sept 2014 PM Commercial Base Price Reductions 26 (Pounds)L, 1 & 2Zone 3Zone 4Zone 5L, 1 & 2Zone 3Zone 4Zone 5 10 $ (1.13) $ (4.69) $ (5.99) $ (6.43)-12%-36%-39%-30% 11 $ (2.79) $ (5.28) $ (7.18) $ (7.45)-25%-37%-43%-32% 12 $ (3.39) $ (6.00) $ (8.29) $ (8.31)-28%-40%-46%-33% 13 $ (3.91) $ (6.74) $ (9.14) $ (8.74)-30%-42%-48%-33% 14 $ (4.53) $ (7.47) $ (10.19) $ (9.70)-33%-44%-51%-35% 15 $ (5.01) $ (8.13) $ (11.20) $ (10.96)-35%-45%-53%-37% 16 $ (4.93) $ (8.60) $ (11.95) $ (12.08)-34%-45%-53%-39% 17 $ (5.40) $ (9.19) $ (12.88) $ (13.25)-35%-46%-55%-40% 18 $ (5.60) $ (9.73) $ (13.70) $ (14.36)-36%-47%-55%-41% 19 $ (5.89) $ (9.81) $ (13.83) $ (14.79)-37%-47%-55%-42% 20 $ (6.42) $ (9.70) $ (13.90) $ (14.89)-38%-46%-54%-41%

USPS ® FY15 STRATEGIES  Proposed Sept 2014 PM Commercial Plus Price Reductions 27 (Pounds)L, 1 & 2Zone 3Zone 4Zone 5L, 1 & 2Zone 3Zone 4Zone 5 3 $ - $(0.54) $ (1.02) $ -0%-9%-15%0% 4 $ (0.49) $(1.36) $ (2.12) $(1.28)-8%-20%-26%-12% 5 $ (1.12) $(1.67) $ (1.57) $(2.54)-17%-23%-19%-21% 6 $ (1.50) $(1.84) $ (1.62) $(4.02)-22%-25%-19%-28% 7 $ (1.77) $(1.99) $ (3.17) $(5.32)-25%-26%-31%-32% 8 $ (1.99) $(3.98) $ (5.85) $(6.29)-27%-41%-45%-35% 9 $ (2.58) $(4.82) $ (6.62) $(7.04)-32%-45%-48%-36% 10 $ (3.71) $(5.59) $ (7.26) $(7.58)-40%-46%-50%-36% 11 $ (4.09) $(5.61) $ (8.05) $(7.80)-42%-45%-52%-36% 12 $ (3.38) $(6.04) $ (8.85) $(8.26)-33%-46%-54%-36% 13 $ (3.49) $(6.19) $ (9.22) $(8.75)-33%-46%-55%-36% 14 $ (3.73) $(6.58) $ (9.90) $(9.21)-35%-47%-56%-36% 15 $ (4.10) $(6.97) $(10.66) $(9.65)-36%-48%-58%-37% 16 $ (2.94) $(5.87) $ (9.67) $(8.98)-25%-39%-51%-34% 17 $ (3.21) $(6.08) $ (9.76) $(9.15)-27%-39%-50%-34% 18 $ (3.38) $(6.44) $ (9.94) $(9.35)-28%-40%-50%-34% 19 $ (3.69) $(6.47) $ (9.92) $(9.51)-29%-39%-49%-33% 20 $ (3.83) $(6.41) $ (9.96) $(9.54)-30%-38%-49%-33%

USPS ® FY15 STRATEGIES  What Shippers Can Do? 28  Know the data – PLD Rules  Get data on box sizes – if not through systems, from the current carrier, or collect box usage data  Evaluate packaging usage compared to weight – How many boxes of each size vs. how many shipments of each weight?  Watch for bulging packages  Know the round rules - Rounding (0.5 up, 0.4 down)  Renegotiate – new dim factor, phased approach, or net minimum  Look at product packaging - designed for retail or b2c fulfillment  Poly vs corrugated  Void fill

USPS ® FY15 STRATEGIES  29 Questions?

USPS ® FY15 STRATEGIES  30 Thank you.