Message from the Chairman of the Board, Robert F. Rider, and Postmaster General & CEO, John E. Potter. The Postal Service is delivering on its commitment to the Senate and the House of Representatives to develop a comprehensive Transformation Plan. The Congress’s recognition of and concern for the seriousness of the situation facing the Postal Service has been most encouraging to the Governors and postal management. Successful transformation will require strong and committed leadership from the Governors, the Postmaster General and all postal employees. Working together with our many stakeholders, including the executive and legislative branches, we will forge a new and modern business model for an institution that has served this country and evolved with changing times since 1789. We recognize our responsibility to take definitive action and to offer the citizens of America a clear and compelling view of current and planned actions, and our vision of where we are headed. At the same time we want and encourage all our stakeholders to remain actively engaged in discussions about postal issues and the Postal Service's future. To that end, we call your attention not only to the Executive Summary, but to all the supporting materials, especially the appendices. These sections provide the detailed information that will enable further dialogue and understanding. This Transformation Plan is about enabling the Postal Service to successfully carry out its long-standing mission of providing affordable universal service. It is about maintaining a fundamental principle and vision that delivery of mail is an important and vital government service, regardless of where one lives or what one’s station in life might be. Equal access and opportunity to communicate through the mail to meet personal and commercial needs supports a basic American value of equality. We commit to leading this transformation of the Postal Service to ensure the continuation of affordable universal service and to prepare the organization for the challenges of change in a dynamic marketplace. Robert F. Rider John E. Potter United States Postal Service Board of Governors Robert F. Rider, Chairman S. David Fineman, Vice Chairman Ernesta Ballard LeGree S. Daniels Einar V. Dyhrkopp Alan C. Kessler Ned R. McWherter John F. Walsh John E. Potter, Postmaster General and Chief Executive Officer John M. Nolan, Deputy Postmaster General United States Postal Service Executive Committee John E. Potter, Postmaster General and Chief Executive Officer John M. Nolan, Deputy Postmaster General Anita J. Bizzotto, Chief Marketing Officer and Senior Vice President Patrick R. Donahoe, Chief Operating Officer and Executive Vice President Mary Anne Gibbons, Vice President, General Counsel Suzanne Medvidovich, Senior Vice President, Human Resources Richard J. Strasser, Jr., Chief Financial Officer and Executive Vice President Deborah K. Willhite, Senior Vice President, Government Relations and Public Policy Table of Contents Executive Summary i – xi Section 1 — The Need for Transformation 1 – 10 Section 2 — Meeting the Challenge 11 – 54 Section 3 — Preparing for the Future 55 – 74 Section 4 — Conclusion 75 – 76 Appendices A. Charts, Graphs, and Tables A1 – A6 B. Executive Summary of Outline for Discussion B1 – B4 C. Overview of the Mailing Industry C1 – C12 D. Escalating Retirement Costs D1 – D4 E. Electronic Diversion of Mail Volumes E1 – E10 F. Fixed Versus Variable Costs F1 G. Global Postal Competitors in the United States G1 – G8 H. Postal Transformation — The International Experience H1 – H36 I. Overview of the Universal Postal Union I1 – I10 J. Stakeholder Outreach — Process and Results J1 – J46 K. Growth- and Value-Based Strategies K1 – K17 L. Transforming Pricing in the U. S. Postal Service L1 – L22 M. Efficiency-Based Strategies M1 – M28 N. Procedures for Closing Postal Facilities N1 – N19 O. Performance-Based Strategies O1 – O26 P. Federal Employees’ Compensation Act Overview P1 – P2 Q. Enabling Strategies Q1 – Q39 R. Postal Regulation R1 – R5 S. Privatization — Process and Financing Issues S1 – S17 T. Overview of Selected Government Entities T1 – T31 U. Universal Service Obligation and the Postal Monopoly U1 – U15 V. Alternative Collective Bargaining Models V1 – V2 W. Glossary W1 – W7 United States Postal Service Transformation Plan April 2002