1 Product Redesign MTAC Update November 5, 2003

2 Steering Committee Will Continue To Meet –Regular Updates And Feedback Regarding USPS Activity on Key Initiatives –Steering Committee Will Provide Support to Implement Key Initiatives –Add Steering Committee Member to Represent Saturation/ High Density Mailers Will Not Reconvene Work Groups, But Will Provide Status Reports on Product Redesign Activities Need For More Detail Behind Schedules For Development And Implementation of Initiatives USPS Will Not Implement Ideas That Push Up Rates Before 2006 PRODUCT REDESIGN Sept 17, 2003: Steering Committee Meeting Discussion

3 Opportunities Before Omnibus Case That Do Not Raise Rates –Cost-Saving Opportunities Within Current DMCS Framework –Signal Future Changes to Encourage More Efficient Behavior Ideas to Include in Omnibus Rate Case –Developed Schedule Assuming Earliest Possible Rate Case Implementation Date Of January 2006 with filing Early Fall 2004 –No Decisions on Actual Filing or Implementation Dates Have Been Made –If Rate Case Postponed Beyond 2006, USPS Would Be Ready To File Classification Case, Niche Case(s), etc., For 2006 Implementation PRODUCT REDESIGN Sept 17, 2003: Steering Committee Meeting Discussion

4 First-Class Mail: First Steps Toward Shape-based Rates –Omnibus Case: Prepare to Raise Price of 2-ounce Non-letter Mail Cost-based Rates for Periodicals and Standard Mail Flats –Short term ideas that do not require PRC action –Omnibus Case: Prepare to Incorporate New Rate Structure Other Standard and Periodicals Initiatives –Prepare to Incorporate in Omnibus Rate Case –Saturation/High Density Market Expansion Rates –Standard Mail Small Volume Preparation –Periodicals Forwarding Address Quality: MITF Recommendations and Product Redesign Address Quality Grid –Prepare to Incorporate in Omnibus Rate Case PRODUCT REDESIGN Major Initiatives

5 Short-Term: PRC Action Not Required –Raise Standard Mail 5-D Package Minimum To 15 Pieces for Pieces Not Over 5 Ounces and Not Over ¾-Inch Thick –Fed. Reg. Proposed Rule: November 2003 –Proposed Implementation: April 2004 –Permit Mailers To Co-palletize & Co-mail Periodicals, Standard, And Bound Printed Matter Flats –Mixed Mailer Response Under Current Rate Structure –Need Operations Consensus on ADC Pallets Containing Standard Mail –Fed. Reg. Proposed Rule: December 2003 –Proposed Implementation: Possibly Summer 2004 PRODUCT REDESIGN Major Initiatives: Cost-Based Rates for Periodicals & Standard Flats

6 Implement New Cost-based Rate Structure –Quantitative Market Research: Conduct January – May 2004 –Need Hypothetical But Close to Possible Rate Structure –Use Peter Moore Software to Evaluate Effects of Rates of Mailings –Implementation Not Earlier Than January 2006 –In Conjunction With Omnibus Rate Case –If Rate Case is Postponed Beyond 2006, Will Be Prepared to File as a Separate Classification Case PRODUCT REDESIGN Major Initiatives: Cost-Based Rates for Periodicals & Standard Flats

7 Standard Mail Saturation/High Density Market Expansion Rates –Mailers With Established Mailing Programs in Given Markets –Generate New Volume and Revenue –Clear, Measurable Baselines & Avoiding Revenue Leakage –Explore Stakeholder Reaction (e.g., Newspapers, Saturation Letter Mailers) –Might Incorporate in Omnibus Case or Consider Niche Periodicals Forwarding –Periodicals Option to Apply Forwarding Fee to Each Piece Forwarded or Returned Using ACS Instead of Averaging UAA Costs in Piece/Pound Rates –Assure ACS Can Capture All Pieces Forwarded –Incorporate in Omnibus Case or Consider Niche PRODUCT REDESIGN Other Key Standard and Periodicals Initiatives

8 Refine Costing To Support Any Proposals: UAA Cost Study –Need Better Cost Data: Evaluate Whether USPS Gains Would be Worth Additional Mailer Costs (Lowest Combined Costs) –Developing Study Now –Conduct Field Research: January – April 2004 Mailing Industry Task Force Proposals (Fed. Reg. Notices) –Move Update: Require For All Classes; Process Within 95 Days; Remove Ancillary Service Endorsements as MU Option –Address Matching Processing Within 95 Days of Mailing –Use of Monthly (instead of bimonthly) Directories Product Redesign Address Quality Matrix: Incentives for Improvements Beyond Current Levels Incorporate Changes in Omnibus Rate Case PRODUCT REDESIGN Key Initiatives: Address Quality

9 Ongoing Operational Initiatives to Reduce Costs For Processing Parcels Provide Standard Parcels With Greater Drop Ship Incentives –Explore Opportunities To Take Costs Out of System Before Omnibus Rate Case –Current Rate Design Doesn’t Drive Most Efficient Behavior for Presort and Drop Shipment –Incorporate Changes in Omnibus Rate Case –USPS Must Provide Advance Notice Pieces Over ¾-inch Thick Will Be Considered Parcels When Rates Can Be Raised (Not Before 2006) PRODUCT REDESIGN Major Initiatives: Parcels

10 Priority Mail “Open and Distribute” –Dispatch Ready With Less Operational Costs –More Dense Than Average Priority Mail –Explore Rate Tiers Instead of Pound by pound –Minor Classification Case: Possibly Early Spring 2004 Priority Mail Flat Rate Box –One or More Sizes of Boxes and/or Tyvek Envelope –Prepaid Option –Delivery Confirmation and Minimum Insurance in Base Rate –Could be Sold Through Office Supply Stores –Attractive For On-line Use Consider Dropship Rates For Media & Library Mail PRODUCT REDESIGN Major Initiatives: Parcels (Cont’d)

11 PRODUCT REDESIGN Cost-Based Rates for Periodicals & Standard Flats , , , , , ,186 (infinite)None! 12,226 Absorbed ,072 21,943 Total 5D Saved per New 3D 3-Digit Bundles Created 5 Digit Bundles Saved fewer than 3 3 to 4 4 to 5 5 to 6 6 to 7 7 or more 5D Saved per New 3D