1. 1 “The Future Of Packages” Jim Cochrane Manager, Package Services

2. 2 Market Trends The New Law Re-Designing Products Transformation Strategies Agenda

3. 3 ► Market is generally soft both domestically and internationally “It seems to us that the economy is headed for a soft landing” — Rosalind Wells, Chief Economist for the Retail Federation “We anticipate another good year despite a slowing U.S. economy," — UPS' Chief Financial Officer Scott Davis. “The outlook among the parcel carriers is that domestic economic growth is slowing in the first half of 2007” — William Greene, Financial Analyst for Morgan Stanley Market Update

4. 4 ► Highest Published Increases In Over 10 Years ► Lightweight And Residential Continues To get Hit Heavier Than Published Rate Increase ► Subtle But Significant Changes In Discount Methodology ► Surcharges, New Ones And How They Are Enforced Continues To Drive Revenue ► Elimination Of On-Demand Rates ► Adjusted Net Minimum Market Update

5. 5 B2C Shipments On The Rise Market Update

6. 6 ► B2B Is Stagnant ► As Noted - B2C Is Growing ► Packages Are Getting “Lighter” ► Online Retail Growth Is Replacing Manufacturing Segment Decline What’s Fueling The Growth? Market Update

7. 7 ► Over 70% Of Packages Travel Less Than 700 Miles ► Significant Shift From Air To Ground ► Accessorial Surcharges Are A Strategy To Generate Revenue As Well As Yield  It Also Allows Our Competitors To Suppress Their Actual Rate Increases Market Update

8. 8 The Right Products & Features Total Express Mail Volume FY 200220032004200520062007

9. 9 FY 2002 2003200420052006 2007 Total Priority Mail Volume Market Update

10. 10 The Right Products & Features Total Package Services Volume FY 200220032004200520062007

11. 11 ► Service ► Convenience ► Price ► Visibility SegmentServiceConveniencePriceVisibility National/Strategic1A413 Premier/ Large1A314 Consumer/SMBS1A143 Customer Buying Criteria Market Update

12. 12 Reasons Shippers Change Carriers * Morgan Stanley/ Parcel 2006 Annual Best Practices Survey Market Update

13. 13 Shippers Rated Carriers Less Favorably Biggest Complaint About Primary Carrier * 1Pricing 2Surcharges 3On-Time Delivery 4In-Transit Damage 5Difficulty Working With The Carrier * Morgan Stanley/ Parcel 2006 Annual Best Practices Survey Market Update

14. 14 In Addition To Base Rate Increases, Competitors Continue To Add And Raise Rates On Surcharges Note: The table above does not include fuel surcharges. 1 Based on Competitor’s accessorial charges published before each rate change. Surcharges Are Intended To Increase Package Contribution - They Are Rarely Discounted Calendar Year Approximate Percent Change In Competitor’s Total Average SurchargeAmounts Increase In Reported Number of Competitor’s Surcharges 1 2003/20022.48%3 2004/200318.94%7 2005/200414.87%3 2006/200515.46%3 2007/2006*19.34%4 2007/2002109.29%20 * Estimate Market Update

15. 15 Competitor’s Rate Increases 2002 - 2007 Published Actual Commercial Actual Residential YEARIncrease 1 - 5 lbs. 20023.50%3.90%4.08% 20033.90%4.67%4.64% 20041.90%1.91%6.06% 20052.90%4.71%5.80% 20063.90%4.57%7.57% 20074.9%5.50%5.56% TOTAL22.89%28.02%37.85% AVERAGE3.82%4.67%6.31% Competitive Prices

16. 16 Net Minimums Reduce Discount & Drive Up Cost 2007 Competitor Ground Commercial with 20% Discount - Actual Discounts WgtZone 2Zone 3Zone 4Zone 5Zone 6Zone 7Zone 8 10%2%5%9%13%15%17% 21%7%15%17%20% 32%11%19%20% 45%14%20% 511%15%20% Competitive Prices

17. 17 Weight/ ZoneL,1,2345678 Flat $ (2.00) $ (2.10) $ (2.23) $ (2.41) $ (2.65) $ (2.73) $ (2.84) 1 $ (2.00) $ (2.10) $ (2.23) $ (2.41) $ (2.65) $ (2.73) $ (2.84) 2 $ (1.90) $ (2.15) $ (2.00) $ (1.73) $ (1.95) $ (1.68) $ (1.65) 3 $ (1.14) $ (1.56) $ (0.65) $ (0.01) $ (0.06) $ 0.45 $ 0.66 4 $ (0.65) $ (1.13) $ 0.11 $ 0.93 $ 1.01 $ 1.80 $ 2.14 5 $ (0.40) $ (0.66) $ 0.85 $ 1.97 $ 2.18 $ 3.12 $ 3.63 6 $ 0.03 $ (0.37) $ 1.66 $ 2.44 $ 2.18 $ 3.15 $ 3.53 7 $ 0.26 $ (0.02) $ 2.52 $ 3.02 $ 2.94 $ 4.25 $ 5.04 8 $ 0.66 $ 0.40 $ 3.36 $ 3.68 $ 3.71 $ 5.20 $ 6.30 9 $ 1.11 $ 0.85 $ 4.24 $ 4.31 $ 4.53 $ 6.10 $ 7.61 10 $ 1.42 $ 1.30 $ 5.03 $ 4.97 $ 5.38 $ 6.89 $ 8.80 11 $ 1.83 $ 1.64 $ 5.67 $ 5.60 $ 6.26 $ 7.59 $ 9.92 12 $ 2.22 $ 1.99 $ 6.27 $ 6.21 $ 7.16 $ 8.29 $ 10.97 13 $ 2.57 $ 2.34 $ 6.91 $ 6.90 $ 8.02 $ 9.03 $ 12.04 14 $ 3.00 $ 2.70 $ 7.52 $ 7.48 $ 8.69 $ 9.69 $ 13.09 15 $ 3.39 $ 3.04 $ 8.15 $ 8.16 $ 9.42 $ 10.38 $ 14.22 3.50%FUEL SURCHARGE INCLUDED $1.85RESIDENTIAL SURCHARGE INCLUDED / NO DISCOUNT USPS Rate Advantage Competitors Rate Advantage of $1.00 or Less 2006 Priority Mail Vs 2007 Competitor’s Ground Residential Competitive Prices

18. 18 2007 Priority Mail Vs 2007 Competitor’s Ground Residential Weight/ ZoneL,1,2345678 Flat $ (1.40) $ (1.50) $ (1.63) $ (1.81) $ (2.05) $ (2.13) $ (2.24) 1 $ (1.40) $ (1.50) $ (1.63) $ (1.81) $ (2.05) $ (2.13) $ (2.24) 2 $ (1.45) $ (1.30) $ (1.40) $ (0.73) $ (0.69) $ (0.53) $ (0.40) 3 $ (0.99) $ (0.66) $ (0.50) $ 0.89 $ 1.19 $ 1.55 $ 1.81 4 $ (0.35) $ 0.17 $ 0.56 $ 2.43 $ 3.06 $ 3.55 $ 4.09 5 $ (0.00) $ 0.79 $ 1.50 $ 3.77 $ 4.68 $ 5.37 $ 6.13 6 $ 0.48 $ 1.23 $ 2.56 $ 4.94 $ 4.68 $ 6.00 $ 6.63 7 $ 0.76 $ 1.68 $ 3.47 $ 5.72 $ 5.69 $ 7.40 $ 8.54 8 $ 1.01 $ 2.25 $ 4.26 $ 6.53 $ 6.71 $ 8.65 $ 10.25 9 $ 1.26 $ 2.85 $ 4.69 $ 7.36 $ 7.78 $ 9.85 $ 12.01 10 $ 1.42 $ 3.40 $ 5.13 $ 8.22 $ 8.88 $ 10.99 $ 12.40 11 $ 1.58 $ 3.89 $ 5.62 $ 9.05 $ 10.06 $ 11.14 $ 12.72 12 $ 1.77 $ 4.34 $ 6.02 $ 9.66 $ 11.26 $ 11.34 $ 13.07 13 $ 1.97 $ 4.69 $ 6.51 $ 10.30 $ 11.72 $ 11.63 $ 13.19 14 $ 2.20 $ 5.00 $ 6.97 $ 10.98 $ 11.99 $ 12.39 $ 13.74 15 $ 2.39 $ 5.34 $ 7.45 $ 11.21 $ 12.07 $ 11.98 $ 13.67 3.50%FUEL SURCHARGE INCLUDED $1.85RESIDENTIAL SURCHARGE INCLUDED / NO DISCOUNT USPS Rate Advantage Competitors Rate Advantage of $1.00 or Less Competitive Prices

19. 19 The New Law & Package Business

20. 20  First-Class Mail  Periodicals  Standard Mail  Single-Piece Parcel Post  Media Mail  Bound Printed Matter  Library Mail  Special Services  Single-Piece International  Priority Mail  Expedited Mail  Bulk Parcel Post  Bulk International Mail Competitive – 11%Market-Dominant – 89% FY 2005 Revenues Two Product Categories The New Law & Package Business

21. 21 Pricing- Market Dominant Products ► Future Price Increases Tied To Consumer Price Index (CPI) By Class ► USPS To File With PRC 45 Days Before New prices Become Effective Implications: ► Annual, predictable Increases ► Productivity Improvements Are critical, Since Costs Like Fuel And Health Benefits May Rise At Rates Above CPI The New Law & Package Business

22. 22 Pricing- Competitive Products ► New World- Allows The Postal Service To Compete Fairly In The Market Place.  Must Cover Costs  PRC Decides Cost Coverage & target Contribution To USPS ► Governors Set Prices ► Implied Income Tax To Postal Service MD Fund Implication: Ability To Respond To The Marketplace By Creating Products And Pricing That Better Meet Customer Needs. The New Law & Package Business

23. 23 Re-Designing Products

24. 24 Services (today)Range (Days)WeightPriceFeatures GXG (Doc)2-3Up to 70 lbs$55.75 Guaranteed Track and Trace Insurance - $100.00 GXG (Non-Doc)2-3Up to 70 lbs$61.25 Guaranteed Track and Trace Insurance - $100.00 Global Express Mail 3-5 Up to 70 lbs$31.15 Guaranteed – 5 Countries Tracking (major countries) Insurance $100.00 Airmail Parcel Post4-10Up to 70 lbs$25.80 Indemnity up to $270.00 Insurance available Limited Visibility Economy Parcel Post28-425 to 70 lbs$24.50 Indemnity up to $270.00 Insurance available No Visibility Global Priority Mail4-6Up to 4 lbs$23.25 <24 inches No Insurance No Visibility Airmail Letter Post4-7Up to 4 lbs$21.40 < 24” No Insurance No Visibility Economy Letter Post28-421 lb to 4 lbs$9.55 < 24” No Insurance No Visibility Japan Shipping Options – 3 lbs. The Right Products & Features

25. 25 Old Services Global Express Guaranteed (doc) Global Express Guaranteed (non-doc) Global Express Mail Airmail Parcel Post Economy Parcel Post Global Priority Mail Airmail Letter Post Economy Letter Post Services Today Global Express Guaranteed Express Mail International Priority Mail International First Class Mail International Product Enhancements The Right Products & Features

26. 26 Simple, Relevant Product Offering ►Leverage Domestic Supplies ►New Flat Rates  Express Mail International Flat Rate Envelope  Priority Mail International Flat Rate Envelope  Priority Mail International Flat Rate Boxes Picture of new boxes The Right Products & Features

27. 27 Service FY2005 Revenue FY 2005 VolumeStrategy (Migration Flow) Economy Parcel Post$80M3M Eliminate Migrate to Air Parcel Post Economy Publishers$18M14M Eliminate Migrate to ISAL or Air Letter Post Economy Books and Sheets$1.9M493K Eliminate Migrate to ISAL or Air Letter Post Economy Letter Post$23M4M Eliminate Migrate to air letter post Global Priority Mail and Air Surface Lift Economy Registered Service$225K30KMigrate to air registered service Recorded Delivery$3K1KEliminate Aerogrammes$174K246K Migrate to Air Letter Post Simple Relevant Product Offering The Right Products & Features

28. 28 Packaging To Add Value ►Flat Rate Box  $577 Million Since Launch  $227 Million In Sales FY 07 ►Flat Rate Prepaid Envelope  Growing Adoption  Over $34 Million Since Launch ►Priority Mail Shoebox  Growing Mid-Market Segment  Regular And eBay Versions The Right Products & Features

29. 29 Customized & Co-Branded Packaging New Parameters Are Being Set: ► Customized Packaging- Was $500,000 Will Be lowered To $250,000 ► Co-Branded Packaging- Was $500,000 Will Be Lowered To $250,000 Example: Flat Rate Box #2 Minimum Quantity Would Be 12,000 Boxes Equivalent To Around 8 Pallets Minimum Acceptance Amounts For Co-Branding Any Of The Standard Priority Mail and Express Mail Products

30. 30 ► The Last Major Change Was in 1995  Changed the Eagle on the Logo  4 Color Process to 2 Colors ► We’ve Changed  Fresher, Cleaner Look  Dual Use: Domestic and International  Reduced Supply Chain Management Costs  Certified Cradle to Cradle The Right Products & Features

31. 31 ► Significant Steps Were Taken To Improve Environmental Characteristics  Worked with Vendors to Analyze our Packaging Composition  Changed Inks, Chemicals and Adhesives Used in Manufacturing  Redesign for Simplicity and to Minimize Ink  Reduced Label Dependence  Significantly Reduced Toxins, with No Increase in Cost. The Right Products & Features

32. 32 Earned Cradle to Cradle Certification ► Materials Earned Cradle to Cradle Certification for Eco-effectiveness ► First And Only Firm to Receive This Endorsement for Packaging ► Packaging to Feature Cradle to Cradle Logo The Right Products & Features

33. 33 Old Packaging DesignNew Packaging Design The Right Products & Features

34. 34 New Packaging Design Old Packaging Design The Right Products & Features

35. 35 Transformation Strategies

36. 36 Customized & Co-Branded Packaging New Parameters Were Set: ► Customized Packaging - Was $500,000 Will Be lowered To $250,000 ► Co-Branded Packaging - Was $500,000 Will Be Lowered To $250,000 Example: Flat Rate Box #2 Minimum Quantity Would Be 12,000 Boxes Equivalent To Around 8 Pallets Minimum Acceptance Amounts For Co-Branding Any Of The Standard Priority Mail and Express Mail Products The Right Products & Features

37. 37 Revenue Growth Online Postage Millions Improve Convenience

38. 38 Carrier Pickup Volume APO/FPO SCAN 3.7 Million Improve Convenience

39. 39 ONE Barcode Is Scanned for All Packages Shipment Confirmation Acceptance Notice Improve Convenience

40. 40 E-VS Update ► 9 Live Shippers  18,555 Manifests Submitted YTD ► 61 M Parcels ► $74.8 M Revenue ► Extended Mandatory Implementation Date ► Technical Support Improve Convenience

41. 41 ► Priority Mail & Express Mail  We Know That World Class Service Is Essential  Service Scores Are The Highest They Have Ever Been ► Parcel Select  Service Is Already At World Class Levels.  DHL/UPS/FedEx Last Year Trusted USPS To Deliver Over 300M Packages Time In Transit Improve Customer Service

42. 42 Package Visibility Project - Goals ►One Intelligent Bar Code On Every Package ►End To End Visibility On Every Package ►Bar Codes That Tell Us More About The Package And Shipper ►Intelligence From Bar Codes Is Used To Manage And Grow Our Business Improve Visibility

43. 43 Where Are We? ► Intelligent Mail Device (IMD)  210,000 Of 303,000 Deployed Through April 07- Full Deployment Sept 07 ► APPS  Completed Deployment Of 75 Machines  Lifting Images Now – In PTS  60% Of PM Goes Across APPS ► SPBS  44 Retrofitted With Barcode Scanners  Total Of 226 Will Be Installed By End Of FY07 ► Surface Visibility Will Nest These Events in PTS Intelligence/Visibility

44. Trailer Depart Trailer Load Trailer Arrive Container Load Trailer Unload Surface Visibility Data Collection Make It Intelligent Improve Visibility

45. 45 We Will Continue: ►T►T o Design ►T►T o Enhance ►T►T o Research ►T►T o Educate ►T►T o Create A Marketplace Position That Is Compelling And Meets Customer Needs