USPS Working to Keep Fuel Costs Down, Speaker Says

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WASHINGTON -- The USPS is concerned about rising fuel costs and doing everything it can to control these costs, according to a postal official who spoke at the quarterly Mailers' Technical Advisory Committee here yesterday.

"Going forward…expenses are above plan, especially fuel costs and the cost of living increases driven by consumer inflation," said Robert J. Pedersen, acting chief financial officer and executive vice president at the USPS. "We want to hold the line on that, of course."

Mr. Pedersen also said as of May 2006, fuel costs have increased 16.7 percent over last year. What's more, the USPS has said that a sharp growth in fuel costs-both for its vehicles and facilities -- was a key driver for the recent filing of a rate increase in 2007.

Mr. Pedersen said one way the agency is combating high fuel costs is the recent appointment of Al Iniquez to head up the critical role of leading the postal service in developing and implementing national strategies to help manage its rapidly escalating energy costs. Iniquez, the former Pacific Area vice president, was named to his new position on July 20.

Iniguez is currently working closely with operations, facilities and supply management to pursue a multi-faceted approach to the agency's challenges.

Mr. Pedersen said every effort is being made by the USPS to keep fuel costs down. "We recently announced two agreements with our competitors who are also suppliers, and there is every effort being made to keep fuel costs as low as we possibly can [when working with them]," Mr. Pedersen said.

Mr. Pedersen was referring to the Aug. 1 announcement that USPS has extended its domestic air transportation of mail agreement with FedEx Express, a subsidiary of FedEx Corp., through 2013. Also, on July 1, the agency began a new extended arrangement with UPS.

He also said the USPS is working to get "value-pricing everywhere we possibly can and using our transportation infrastructure efficiently."

Going forward, Mr. Pedersen said that he is predicting solid economic growth throughout the year, and that, "revenue is above plan and we want to keep it growing."

One way the USPS is hoping to do this, he said, is to continue its "quick, easy, convenient" marketing message that it began last year, which encourages people to use its tools such as Click and Ship. Click and Ship allows customers to print shipping labels online.

"We are hoping [this messaging] gets people to be in the habit of using our products and services, especially when the rate increase comes along," he said.

Mr. Pedersen also said that USPS is in the process of developing an integrated financial plan for 2007 that the agency will present to the USPS Board of Governors at its meeting in mid-September.

In his presentation, Mr. Pederson also gave an overview of year-to-date financials as of May.

Year-to-date, net income before escrow allocation was $1.65 billion or 281.3 million over plan. The net deficiency after escrow allocation was $354.4 million. Revenue was 3.8 percent higher than last year and is $411 million above the year-to-date plan.

Expenses year-to-date were 4.4 percent higher than the same period last year. Total mail volume is 0.9 percent or 1.2 billion pieces above last year. A significant mail volume increase over last year is in the Standard Mail category, which increased 1.4 billion pieces or 2.1 percent.

"Standard Mail really kicked into high gear at the end of May," said Mr. Pedersen. Year-to-date, First-Class Mail volume is 0.6 percent less than the same period last year.

He also said growth in the agency's online retail channel is strong. Click-and-Ship, for example, saw a revenue increase in the first eight months of the year of 55 percent over the same period last year.

Revenues for that service were $107.4 million.

"If you are getting something that is over $100 million, you have reached critical mass," Mr. Pedersen said. "The growth rate is very strong and I like it."

Another growth category for USPS is PC Postage, which allows consumers to purchase postage over the Internet and use printers to print the PC Postage indicia directly onto envelopes or labels for mail or packages. The category also includes the agency's eBay alliance, which allows eBay sellers to print postage online. This category saw an increase of 61.4 percent to $544.3 million.

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