BCG Usps

Projecting US Mail
volumes to 2020
Final Report Detail
March 2, 2010
Objectives and approach
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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
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Approach
Segmented mail into
components with common
behaviors
First-Class Mail: invoices, statements, ad mail, payments

Standard Mail: letters, flyers, catalogs
Other categories: magazines, packages, etc
Interviewed and surveyed

Senders and Consumers
50+ Senders interviewed for views on future use of mail

Average USPS revenue of $200M for sample, and
representation from all major industry segments
3,000+ Consumers were surveyed by phone and by
internet on perception of online alternatives to mail
Incorporated broad set of

industry data and research
Forrester, Celent, Winterberry, Federal Reserve, etc

BCG industry experience in multiple markets
Leveraged global
benchmarks
Developed countries with high broadband penetration

Also, selected US peer for direct comparison
Projected revenues
Leveraged USPS business-as-usual price assumptions
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Mail was classified into segments with similar

characteristics and market behaviors
First-Class Mail
Standard Mail
Bills and invoices
Standard Mail ad letters
General B2C mail
Flyers
Bank statements
Catalogs
C2B / B2B payments

Postcards
First-Class ad letters
Large envelopes
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Volume forecasts were created by segment

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

Source: BCG analysis
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Results
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2020 projections were then developed by

aggregating segments into major mail classes
Forecast
Key drivers
All Mail
Volume to fall to approx. 150B pieces

from 177B in 2009 (-1.5% CAGR)
Sharp decline in First-Class Mail

Flat trajectory for Standard Mail
First-Class
Volume to fall to approx. 50B pieces

from 84B in 2009 (-4% CAGR)
Increasing online diversion driven by

increased consumer acceptance
Standard
Volume to remain roughly flat at 85B

pieces (+0.4% CAGR)
Online diversion of retention mail

Some share gain from newspapers
e-Commerce, including returns
Packages
A bright spot with projected 1B piece

gain (+3% CAGR) but not offsetting
loss in core business
Daily pieces per delivery point to fall
from four to three
Declining mail volumes

Growth in delivery points
Real revenue per delivery point

expected to fall ~30%
Declining pieces per delivery point

Mix shift from First-Class to Standard
Other
metrics

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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
150 (-15%)
140
138 (-22%)
120
118 (-34%)
2020
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
Sender
perspective
Consumer
perspective
Worst-case
benchmark
(from EU)
Fiscal year
2020 projection represents 30% decline off of 2006 peak
1. Sender view
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Multiple drivers impacting volumes in coming

decade
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

Increase in mobile presentment
Shift to online alternatives for retention mail

(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
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2020 forecast sees ongoing decline in FirstClass Mail

Pieces (B)
97
100
84
-4% annual decline1
80
Sender
perspective
60
53 (-37%)
44 (-47%)
40
2000
2002
2004
2006
2008
2010 2012
2014
2016
2018
2020
Consumer
perspective
Worst-case
benchmark
(from EU)
Fiscal year
1. Sender view
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10
2020 forecast sees roughly flat volumes in

Standard Mail vs. 2009
Pieces (B)
104
100
Slight increase1
83
86 (+4%)
Sender
perspective
75 (-9%)
Consumer
perspective
80
69 (-17%)
2000
2002
2004
2006
2008
2010 2012
2014
2016
2018
2020
Worst-case
benchmark
(from EU)
Fiscal year
Recovery will not revisit pre-crisis levels

1. Sender view
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11
Most mail segments will decline by 2020

First-Class Mail Volume (35%)
(%)
Standard Mail Volume (57%)
100
First Class - Consumer
Bills / invoices 44%

12 B (8%)
C2C
80 4 B (3%)
22%
60
40
First Class - Business

Standard
Standard Mail Ad Letters

38 B (26%)
18%
Magazines
Packages
General
B2C mail
11 B (7%)
Misc
C2B
3 B (2%)
24%
2020 Total 150 B (100%)
24%
Magazines
7 B (5%)
17%
Flyers
26 B (18%)
Bank statements
47%
4 B (3%)
B2B/C pmts 2 B (1%) 46%
C2B
payments
20
4 B (3%)
57%
0
Sender: Consumer
volume
Gen B2B 3 B (2%) 24%
First-Class
Ad Letters
8 B (5%)
30%
Catalogs
29%
9 B (6%)
Large Envelopes 4 B (3%)
26%
Newsletters 4 B (3%)
Postcards 3 B (2%)
Business
volume
Packages
4 B (3%)
10%
40%
Sender outlook for 2020

%
+1% or more
0% to -24%
-25% to -60%
14%
12%
Both
Note: based on Sender view. Segments do not sum to 150B pieces due to rounding.
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12
Sender view
Senders tell us that they see their use of mail

declining sharply
Representative quote
Representative source
"We are planning to suppress 100% of First Class transaction mail

by 2020, and are sure that other telecom companies are moving in
the same direction"
Top five Telecom
"We do not see a rebound, we expect annual declines out to 2020

of 5-7% per year"
Top five Check Printer
"The goal shifted from how well I can use the mail to how much
mail can I push out of the system"
Top five Credit Card Mail

Service Provider
"Even if the economy recovers, we might get 50% of all marketing

mail back. The rest is gone"
Top five Financial

Services Firm
"Utilities see no value in sending bills to customers and are

offering to average the bill out over 12 months to attract
consumers to sign up for recurring payments"
Top five Mail Service

Provider
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13
Benchmarks from other global posts
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14
What US is experiencing is not uniqueother

posts all seeing erosion of volumes as well
Other posts have varying levels of
broadband penetration
defining a range in terms of

mail volume erosion
Other posts
varying
levels 11of
Countries
leadinghave
in broadband
penetration
Broadband household penetration
(in % of all households)
Postal volume
(% of reference year '03)
100
120
75
100
50
80
US
Denmark
Germany
25
US
Denmark
Germany
60
03
04
05
06
07
08
09E
03
04
05
06
07
08
09E
Findings reinforced by about a dozen internet-enabled

countries in sample
Source: OECD; Annual reports and interim reports local posts; Universal Postal Union; 20082013 Forrester estimates; TIA 2009 ITC Market review and Forecast
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15
Mail trends in broadband-enabled countries

points to impact of broadband penetration
Total mail1 CAGR as function of 2008 broadband penetration
Mail volume average annual growth for each country, 00-08
Denmark
Norway
2
R2 = 0.57
Sweden
Finland
Netherlands
United Kingdom
Germany
France
-2
Spain
Australia
Japan
-4
South Korea
United States
20
40
60
80
100
Household broadband penetration in 2008

Note: Mail volumes for Japan and South Korea only available until 2007; trend lines and R2 based on data from all countries except South Korea
Source: OECD, Forrester, ComScore, UPU, Annual Accounts local postal companies
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16
Implications
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17
2020 real revenue per delivery point will decline

almost 50% from 2000
Year
Average pieces
per delivery point
per delivery day
'09-'20 change
(%)
2000
2009
2020
Total Mail
4.9
3.8
2.8
-26
First-Class Mail
2.5
1.8
1.0
-44
Standard Mail
2.1
1.8
1.6
-11
- 44%
Real (inflationadjusted) revenue

per delivery point
per day (current $)
Total Mail
1.8
1.4
1.0
-29
First-Class Mail
1.0
0.7
0.4
-43
Standard Mail
0.4
0.4
0.3
-25
Note: based on Sender view

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18
All reasonable scenarios suggest volume will

continue to decline
Standard Mail
90% of homes
with broadband
Privacy loses to
online targeting
for customer
acquisition
1.3% YoY GDP
growth
+10%
153B
158B
163B
0%
144B
150B
Base Case
155B
-10%
135B
140B
146B
-10%
0%
+10%
First-Class Mail
80% of homes with

broadband
Online payments
getting less traction
3.3% YoY GDP
growth
Likelihood
Higher
Lower
Note: based on Sender view

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19
Of course, other events can significantly impact

volumes
External
USPS-specific
Catastrophic internet security failure
Downstream printing/increased workshare
Significant changes to US health care
Larger share of Ad Mail leads to greater

swings in profits
National sustainability ("green") initiative

Reduction in monopolies
Prolonged high fuel prices
Mail-borne terror attack
Protracted recovery from current economic
conditions like Japan's "Lost Decade"
Economy recovers, but quasi-periodic
recession returns in 8 years
Do not mail list opt-in or opt-out

Regulation/legislation
Relaxed SEC regulations around investor

communications (e.g., "Access is delivery")
Positive trend for USPS

Negative trend for USPS
9/11-type event
Must build significant labor flexibility

on top of cost reductions
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20
Structural changes required for USPS

Revenue and cost interventions implemented by other posts
Typical revenue / volume
enhancements
Conventional cost
and revenue
enhancements are
minimal
requirements
Structural changes
are required to
close the gap
Pricing enhancements
Sales and marketing
Key account management
Improved product bundling
Efficiency improvements to
processes and routes
Further automation: sequencing,
printing, etc
Product development
B2C parcel proposition
Value chain extensions (print, DM)
Intelligent Mail, Hybrid mail
Network consolidation
Diversification steps used elsewhere

Financial/Insurance Services
Logistics (B2B CEP, LTL, 3PL,
reverse)
(e-) Government services
Information logistics (CRM, secure
email)
Structural cost changes

Delivery model
Frequency: 5 or 3 per week
Relaxing service standards/
days to delivery
Delivery points and time
Integrate Post office network into
retailers to lower costs & release
cash from assets
Lower labor costs to reflect market
conditions (Non Career, Part-time,
Outsourcing)
Profit from diversification

likely to be too limited and
too late to compensate
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Typical cost reduction steps
Given the magnitude of

the gap, structural cost
changes are unavoidable
Generic cost reductions

Indirect, Purchasing, Capital costs
21
Some posts are pursuing these structural

changes now
Implemented distribution changes
Canada: Reduction from 6 to 5 delivery days (1960s in
urban areas, 1982 in rural areas)
Australia: Reduction from 6 to 5 delivery days (1975);
In rural areas delivery frequency can be between two
and four times depending on cost and community need.
Belgium: Reduction from 6 to 5 delivery days
Greece: Reduction from 5 to 3.5 delivery days in rural
areas
Changes under consideration

France: Considered moving from T+1 to T+2
delivery
According to La Poste, T+1 has a high
environmental impact and does not respond
to strong demand, particularly by companies
Netherlands: Considered reducing number of
delivery days from 6 to 52 and announced Dec 09
that its goal is to move to a 3 day delivery model3
Will close the last post office mid 2010 and fully
integrate retail access into retailers
Slovenia: Reduction from 6 to 5 delivery days in rural

areas
Continue to shift to more part time labor
Spain: Reduced scope of delivery, no delivery in

remote homes more than 250m from the main roads
Germany: Deutsche Post proposed in December

2008 to reduce delivery days from 6 to 5
Proposal rejected by German authorities
Denmark: Reduced frequency of delivery of non time

critical class mail on alternate days1
1. Some households will get non time-critical mail on Mondays, Wednesdays and Fridays while others will get their non time-critical mail on Tuesdays, Thursdays and Saturdays;
2. As part of its Masterplan II announced in 2006; 3. Statement from TNT CEO Peter Bakker during Vision 2015 announcement on December 3, 2009
Source: Report "The Evolution of the European Postal Market since 1997", company reports; press search;
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22
The path forward

In the immediate term, there may be some revenue opportunities that
offset some of the losses projected here
However, long-term viability requires a mix of structural changes to
address high fixed costs; these may include changes to
Delivery model, e.g., frequency, standards
Branch network
Labor model
Other posts are taking similar actions in response to declining volumes
These actions are profound changes to the business model restoring
viability through these steps will require both internal alignment and
external buy-in
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23
Appendix: Selected backup materials for key segments Sender view
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24
Bills / Invoices
Transaction Mail
44%
Bill and invoice volume expected to fall 44%

Mail Rebound from recession offset by continued diversion
Impact of drivers (Sender view)
Volume (B)
25
22.0
1.1
2.2
1.2
20
3.9
3.9
15
1.6
10
12.5
5
0
2009
Mail
rebound
Organic
growth
Autopay /
change in
billing cycle
Online
presentment
(biller)
Online
presentment
(consolidator)
Mobile /
ATM
presentment
2020
Source: BCG analysis, customer interviews, USPS RPW Report, USPS Household Diary Survey, USPS volume tracking data
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25
24%
B2C Correspondence
Transaction Mail
B2C Correspondence expected to fall 24%

Volume (B)
20
15
14.4
0.7
1.7
0.2
2.7
1.9
10
11.0
0
2009
Mail
rebound
Organic
growth
Industry
growth /
mailings
per
customer
Online
channel
Mobile /
email
channel
2020
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26
47%
Bank statements
Transaction Mail
Bank Statement volume expected to fall 47%

Volume (B)
12
8.5
0.4
0.8
0.3
2.9
0.5
0.6
4.5
Mobile /
ATM
presentment
2020
0
2009
Mail
rebound
Organic
growth
Account
consolidation
Online
Online
presentpresentment
ment
(institution) (3rd party
consolidator)
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27
57%
46%
C2B Payments
B2B Payments
Transaction Mail
B2B/C2B Payment volume expected to fall 52%

Volume of B2B and C2B payments (B)
1.3
0.8
15
14.2
0.7
2.6
1.2
1.4
3.9
5.8
1.7
10
2.1
0.7
6.8
3.1
B2B payments
3.6
C2B payments
8.5
0
2009
Mail
rebound
Online
Mobile/
Organic Autopay / Online
ATM
growth change in payment payment
reporting (direct) (consol- payment
idator)
cycle
2020
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28
30%
First-Class Mail ad letters
Advertising Mail
First-Class Mail ad letter volume to fall 30%

Mail rebound offset by migration to Standard Mail
Volume (B)
15
0.7
1.2
11.4
3.2
1.4
10
3.2
0.4
8.0
0
2009
Mail
rebound
Organic Improved Shift to

growth targeting Standard1
Online
Email
2020
1. Shift to Standard Mail indicates migration of advertisements from First-Class Mail to Standard Mail
Source: BCG analysis, customer interviews, USPS RPW reports 2009, USPS Household Diary Survey 2008
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29
Standard Mail ad letters
Advertising Mail
18%
Standard Mail ad letter volume to increase 18%

Some volume capture from First-Class Mail
Volume (B)
60
3.2
2.0
10.3
8.4
40
32.1
1.5
1.1
Email
Content
addressable TV
38.0
5.3
20
0
2009
Mail
Organic
rebound growth
Shift Improved Online1

from targeting
First
Class
2020
1.Online channel includes paid search and banner ads

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30
Flyers
Advertising Mail
10%
Flyer volume expected to increase about 10%

Some influx of volume captured from newspaper ads
Volume (B)
40
4.0
2.0
4.4
6.2
3.5
30
23.7
4.8
2.6
26.2
Email
2020
20
10
2009
Mail
Organic
rebound growth
Gain
from
newspaper
Private Online1
carrier
delivery
(PCD)
Mobile
1. Online channel includes paid search, website search and banners

Mail Rebound marked low confidence due to uncertainty in recovery time and not uncertainty in magnitude of recovery
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31
29%
Catalogs
Advertising Mail
Catalog volume expected to fall about 29%

Mail Rebound from recession offset by smarter targeting
Volume (B)
20
15
2.3
12.6
2.2
1.0
2.9
1.4
10
0.4
8.9
0
2009
Mail
rebound
Organic
growth
Online
Improved
targeting
Mobile
Content
addressable TV
2020
1. Online channel includes paid search, website search and banners

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32
Appendix: Selected backup materials for key segments Consumer view
Transaction Mail
Consumers expect volume of mailed bills to fall

Decline will be greater as online financial services improve
Consumers expect a
30% drop in bill volume
Remaining of '09 values
(%)
100
But if these improvements

are made in online services
Improvement
Improvements in security
Provision of a long and free archive of bills
Speed of payment delivery
80
Bill receipt could

decline ~45%
Score1

(%)
100
80
Email alerts about payment dates
60
Ease of enrolling to receive online bills
100
40
Ease of registering billers to whom bills are

paid
71
60
100
40
Ease of accessing online bills
20
Ability to view multiple bills at one site
55
20
0
2009
2020
2009
2020
Senders indicate high likelihood improvements will occur

in the next ten years, including improvements to security
1. Harvey balls based on score. 27-32: , 33-38: , 39-45: , 46-52: 1. Score indicates the percent of respondents who indicated that that improvement would lead them to significantly shift
towards online services instead of paper bills
Source: Consumer internet-based research, 11/09, n=1736; BCG analysis; Sender research, 11/09
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34
Transaction Mail
Consumers expect volume of statements to fall

Consumers expect ~30%
drop in statements
(%)
100

Improvement
Provision of a long and free archive of
statements
Statement receipt could

decline ~40%
Score1

(%)
100
80
Ease of enrolling to receive online

statements
80
60
Ease of accessing online statements
60
100
40
Small fee instituted to receive paper

statements
73
Features to make statement analysis

easier
20
100
40
60
20
Ability to view multiple statements at one

site
0
2009
2020
2009
2020

towards online services instead of paper statements
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35
Transaction Mail
Consumers expect to mail fewer payments

Consumers expect
~25% drop in payments
(%)
100

Improvement
Provision of a long and free archive of
payment records
80
Enrolling for online bill pay
Payments could
decline ~40%
Score1

(%)
100
80
Accessing online bill pay
60
Ease of registering billers to whom bills are

paid
100
40
60
100
40
73
Ability to pay multiple bills via one site
58
20
20
0
2009
2020
2009
2020

towards online services instead of paper payments
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36
Advertising Mail
Consumers expect volume of ad letters to fall

Decline will be greater as online advertising improves
Consumers expect a
~20% drop in ad letters
(%)
100

are made in online advertising
Improvement
Perception that online ads are secure
genuine
Ad letters could
decline ~40%
(%)
Score1
100
Perception that online ads do not collect

information about consumers
80
80
Provision of promotional discounts

Relevance of online ads
60
Informative value of online ads
100
81
40
60
Ease of use of online ads

Ability to inform consumers of new
products
20
100
40
60
20
Attention value of online ads
0
2009
2020
Ability of online ads to provide solicitations

from charities consumers have worked with
0
2009
2020
Senders indicate many of these improvements

will be made in the next 10 years
1. Harvey balls based on score. 7-20: , 21-34: , 35-49: , 50-63: 1. Score indicates the percent of respondents who indicated that that improvement would lead them to more strongly favor
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37
Advertising Mail
Consumers expect volume of flyers to fall

Consumers expect a
~15% drop in flyers
(%)
100

Improvement
Provision of promotional discounts from
online ads
Flyers could
decline ~40%
(%)
Score1
100
Informative value about local stores
80

80
60
60
100
86
40
Online ads' ability to allow consumers to

compare products
100
40

Online ads' ability to inform consumers of
new products
20
64
20
0
2009
2020
How fun online ads are to read
0
2009
2020

towards online ads instead of flyers
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38
Advertising Mail
Consumers expect volume of catalogs to fall

Consumers expect a
~20% drop in catalogs
(%)
100

Improvement
Catalogs could
decline ~40%
(%)
Score1
100
Provision of promotional discounts from

online ads
80
80

Online ads' ability to allow consumers to
compare products
60
100
83
40

How fun online ads are to read
20
60
100
40
61
20
Online ads' ability to inform consumers of

new products
0
2009
2020
2009
2020

towards online ads instead of catalogs
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39
Internet survey
Years of experience online drives Consumer

receptivity for conducting transactions online
Respondents who prefer to pay online (%)
100
Bill received
in the mail
Bill received
online
80
60
40
54
20
29
71
63
33
42
51
85
81
74
56
62
84
66
0
<2
2 to 5
5 to 8
8 to 11
11 to 15
15-20
20+
Years of internet experience
Source: BCG analysis; Consumer internet-based research, 11/09, n=1736

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40

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Projecting US Mail

Objectives and approach

Objectives of BCG's assignment

First-Class Mail: invoices, statements, ad mail, payments

Interviewed and surveyed

50+ Senders interviewed for views on future use of mail

Incorporated broad set of

Forrester, Celent, Winterberry, Federal Reserve, etc

Developed countries with high broadband penetration

Leveraged USPS business-as-usual price assumptions

Mail was classified into segments with similar

Bills and invoices

Standard Mail ad letters

General B2C mail

C2B / B2B payments

Volume forecasts were created by segment

Standard Mail Volume (46%)

B2B/B2C Payments 6 B (3%)

Large Envelopes 5 B (3%)

First Class Consumer

General B2B Mail 4 B (2%)

Note: segments do not sum to 177B pieces due to rounding.

2020 projections were then developed by

Volume to fall to approx. 150B pieces

Sharp decline in First-Class Mail

Volume to fall to approx. 50B pieces

Increasing online diversion driven by

Volume to remain roughly flat at 85B

Online diversion of retention mail

A bright spot with projected 1B piece

Declining mail volumes

Real revenue per delivery point

Declining pieces per delivery point

Source: BCG analysis

We project a volume decline of at least 15% by

-1.5% annual decline

Multiple drivers impacting volumes in coming

Organic growth in number of households

Organic growth in number of households

Increase in online presentment and bill pay

Share capture from newspaper

Increased usage of autopay

Shift to online alternatives to acquisition mail

Extension in billing cycles

Shift to online alternatives for retention mail

Diversion to emerging hybrid mail options

Increased diversion to private carrier delivery

Positive trend for USPS

2020 forecast sees ongoing decline in FirstClass Mail

2020 forecast sees roughly flat volumes in

Recovery will not revisit pre-crisis levels

Most mail segments will decline by 2020

Standard Mail Volume (57%)

First Class - Consumer

Bills / invoices 44%

First Class - Business

Standard Mail Ad Letters

2020 Total 150 B (100%)

Gen B2B 3 B (2%) 24%

Sender outlook for 2020

Senders tell us that they see their use of mail

"We are planning to suppress 100% of First Class transaction mail

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