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PSA REPORT (www.parcelshippers.org) (psa@parcelshippers.org) PSA Report 2016-05-24 PSA Members, Details on the August Meeting in Kenosha, WI.

1 PSA REPORT ( PSA Report PSA Members, Details on the August Meeting in Kenosha, WI. (August 17-18) We now have the details for our Wednesday and Thursday, August 17-18, meeting at the Amazon facility in Kenosha, Wisconsin. We have arranged a block of hotel rooms near the facility Wednesday night, the 17 th at: The Hampton Inn th Ave Kenosha WI, t: f: The rate is $ To make a reservation, call the hotel directly at and mention group code: Parcel Shippers Association. Guestrooms will be held until 12:00 PM on 8/4/16. Guestrooms not confirmed at that time will be released and space will be subject to availability. Reservations must be confirmed with a credit card and may be canceled up to 10:00pm on 8/15/16. Cancelation after this time will result in a 1-night charge for each room. The schedule is: Wednesday, August 17, 4 p.m. meet at the hotel for transport to the facility tour facility transport to dinner and return to hotel Thursday, August 18, 8:30 a.m. PSA Quarterly meeting at the hotel 1 p.m. Lunch and adjourn. Please mark your calendars. If you know you are coming, please RSVP to psa@parcelshippers.org to help us with hotel planning.

2 Must Reading Here is an interesting take from Bloomberg News with the sub- head Every time the USPS tries to operate like a real company, government happens. PSA EVP Addresses Letter Carriers Washington Rally Yesterday I spoke to leaders of the National Rural Letter Carriers Association from around the country. They have gathered in Washington DC to lobby for legislation addressing the Postal Service precarious financial position. I was invited by their leadership to make the case for Medicare integration and other reforms to their retiree benefit programs necessary to improve the financial position of the Postal Service. As you can imagine, this was a tough sell. I stressed the importance of the Postal Service universal last mile delivery service and the letter carriers who provide it to our members. Then explained the proposed benefit changes and their value. The slides for my presentation are attached. Why PSA is fighting for legislation to address the unfunded liabilities of the Postal Service From the Statement of the Honorable Robert G. Taub, Acting Chairman, U.S. Postal Regulatory Commission before the U.S. House Oversight and Government Reform Committee (May 1l, 2016): In the face of financial losses, over the past 8 years, the Postal Service has reduced the size of its workforce by about 200,000 career employees, cut labor related costs, and increased its productivity. Today the Postal Service delivers roughly the same volume of mail that it delivered in 1987, but with almost 168,000 fewer total employees. Yet even with these sizeable reductions, the Postal Service does not have the cash to pay down its debt or fully invest much needed capital in its operations. The significant gap between the Postal Service s net current assets and net current liabilities is of particular concern. As noted in the FY 2015 Financial Analysis report, the Commission found that despite a slight improvement in liquidity, current assets, consisting mostly of cash and cash equivalents, continued to be insufficient to meet the payment of current liabilities. On the day it is enacted the legislation PSA supports would reduce Postal Service unfunded liabilities by $50 Billion, and Postal Service costs this year by $7.4 billion. Without increasing rates. Magazines, advertisers, and nonprofits weigh in against any legislated rate increase Associations primarily representing magazines, advertisers, nonprofits and printers and vendors have written to the House postal committee saying that they strongly oppose any legislative proposal, such as that advocated by the Postal Service, that would increase rates for market dominant products. PMG Brennan has recommended restoring the 4.3% exigency increase. As explained in PSA Report PSA, along with other associations and

3 companies, has expressed a willingness to consider market dominant rate adjustments if tied with legislation that would achieve cost reductions sufficient to mitigate the current financial problems by reducing Postal Service unfunded liabilities and the need for excessively large price increases in the future. Sort of, pay a little now (if really necessary) instead of a lot later. We would consider a provision to make an adjustment to the market-dominant rate base sufficient to ensure adequate revenue for the Postal Service through the period of the PRC review, if that is deemed necessary. The mailers supporting this proposal are committed to a long-term relationship with the Postal Service and would not reject a moderate adjustment at the time of the annual CPI increase if it provided rate predictability and stability while maintaining service quality. We do believe that the scope of the financial remedies provided by legislation will have a significant bearing on the outcome of the PRC review and that a more fulsome package would increase the potential of rate predictability and stability for the long-term. Supporters of the letter indicate they, like PSA, support the retiree benefit funding reforms; but not if tied to any rate increase. Mailers Technical Advisory Committee Meeting (second request) MTAC will be meeting in Washington, DC, July 12 and 13. For those PSA members attending I would like to organize a brief meeting to discuss PSA issues. If you are interested please let me know if Monday afternoon, the 11 th or Tuesday morning the 12 th work. Those responding so far favor Tuesday morning. Labor talks extended for Postal Service and two of its unions The United States Postal Service and the National Association of Letter Carriers (NALC) have agreed to extend contract negotiations on a new collective bargaining agreement. Although the contract with the NALC expired at midnight Friday, May 20, the Postal Service and the NALC have mutually decided to extend negotiations beyond the deadline. The NALC represents approximately 210,000 city letter carriers nationwide. Also, the Postal Service and the National Postal Mail Handlers Union, AFL-CIO (NPMHU) also have agreed to extend contract negotiations on a new collective bargaining agreement. Although the contract with the Mail Handlers union also expired at midnight Friday, May 20, the Postal Service and the NPMHU have mutually decided to extend negotiations beyond the deadline. The NPMHU represents approximately 44,000 employees nationwide. While a labor stoppage is not a threat since it is illegal for postal workers to strike, the extensions avoid, at least for the time being, binding arbitration. Most observers agree that historically arbitrators have favored labor positions. Small and Medium Business Committee Still looking for Members (second request) We are forming a committee to address issues in that market. Under its draft charter its

4 mission will be: The mission of the Small/Medium Business (SMB) Committee of PSA is to collaboratively engage the U.S. Postal Service to better understand the impact that its initiatives, rules, requirements and pricing has on SMBs, and represent their interests in those regards when appropriate. Additionally, the committee s objective is to encourage competitive parcel shipping opportunities that promote growth for Small and Medium size Businesses (SMB). We have two volunteers in co-leading the Committee. If you are interested in being a member please let me know at pierce@parcelshippers.org. The Postal Service has gotten wind that we are organizing this and contacted me for information on the Committee. As always, if you have questions or comments please or call. Pierce Myers Executive Vice President & Counsel Parcel Shippers Association pierce@parcelshippers.org Pierce

5 [DRAFT] Charter for the Small/Medium Business (SMB) Committee February 29, 2016 Mission Term The mission of the Small/Medium Business (SMB) Committee of PSA is to collaboratively engage the U.S. Postal Service to better understand the impact that its initiatives, rules, requirements and pricing has on SMBs, and represent their interests in those regards when appropriate. Additionally, the committee s objective is to encourage competitive parcel shipping opportunities that promote growth for Small and Medium size Businesses (SMB). This committee will sunset March 1, 2018 unless extended. Desired Results 1. Clarify who represents the Voice of the Customer for the SMB segment of the parcel shipping market. 2. Ensure SMB s who ship packages with the Postal Service have a voice and input to USPS change initiatives. 3. Identify appropriate relief measures related to Manifest Quality (e.g. address information in the SSF), for transactions generated by SMBs. 4. Understand the impact that USPS initiatives such as Shortpay have on SMBs and provide the Postal Service with feedback to ensure those initiatives do not stifle parcel growth within the SMB segment. 5. Promote ease of shipping for SMBs. Demystify shipping for these businesses. 6. Encourage simpler, cost effective package preparation, shipping payment, and entry requirements for small and medium size businesses. 7. Ensure that PSA members are kept apprised of small and medium business market developments. Planned Activities 1. Committee meetings with various member representatives. 2. Monitor carrier activities that affect the SMB growth. 3. Arrange for appropriate presentations at PSA meetings and participation in PSA events. 4. Incorporate SMB concerns in PSA comments on filings, meetings etc. when appropriate. 5. Facilitate demos, focus groups Sponsors TBD

6 Legislative Update National Rural Letter Carrier Association May 23, 2016 Pierce Myers Harlequin PARCEL SHIPPERS ASSOCIATION MEMBERS 1

org Our working coalition Four employee organizations

7 What We Fight For Reliable, Affordable, Universal Package Delivery Our working coalition Four employee organizations Seven trade associations, including PSA 45 companies/mailers U.S. Postal Service 4 2

8 What s Going On? 5 Consumer Demand 6 3

9 Why USPS? An Unrivaled Network 4

10 It s You 9 The Problem A Perfect Storm n Declining Mail Volume n Overly Aggressive Retiree Health Funding n Saturday Delivery Threatened 5

11 Mail Volume But Not Packages 12 6

Changes in Mail Mix 20% 18% 15% 14% 10% 9% 5% 0% 0% -2% -5% -10% -7% -8% 2010

12 Changes in Mail Mix 20% 18% 15% 14% 10% 9% 5% 0% 0% -2% -5% -10% -7% -8% Packages Mail 13 Sweet Spot 5 lbs (70% of all Package Volume) 7

13 Parcel Select DDU Entry >90%? 100% 75% 75% 50% 25% 16% 0% FY 2000 FY 2005 Now 15 USPS realized $15.6 billion in cost reductions since 2006, but it is not enough 8

14 Retiree Health Payments (Billions If No Relief) Addressing the Problem Repeal the mandate Reduce target to 80% Prudently Invest Medicare integration to reduce USPS health insurance costs 18 9

Our coalition plan Narrowly focused plan designed to stabilize postal finances Based on private sector best practice Key components Medicare integration to reduce cost of pre-funding Invest the

15 Our coalition plan Narrowly focused plan designed to stabilize postal finances Based on private sector best practice Key components Medicare integration to reduce cost of pre-funding Invest the PSRHBF in a balanced portfolio of private stock and bond index funds Improved pension valuations using postal-specific assumptions Modest new products language (beer/wine, state and local gov t services, etc.) Rates stabilization: 19 Medicare Integration Best Practice on Retiree Health Insurance 90% of Fortune 1000 provide retiree health insurance 100% require retirees to enroll in Medicare Parts A &B at 65 Plans incorporate an EGWP to gain access to low cost prescription drugs under Medicare Part D law Investing retiree health funds 1/3 Fortune 1000 pre-fund All invest funds the way they invest pension funds Diversified portfolio of private sector stocks and bonds USPS (ratepayers/employees) are Uncle Sam s 3 rd largest creditor ($340 billion total) n Earning 2-3% on $50B in PSRHBF assets n Premium costs rising 5-7% annually n UFL will grow forever 10

16 Medicare Integration Would Save USPS $7.4 billion this Year Impact of Medicare Integration Benefit Obligation 9/30/15 Liability ($mil) 9/30/15 Assets ($mil) 9/30/15 Unfunded Liability ($mil) Accounting Liability $101,273 $51,415 $49,858 Funding Liability Liability under Medicare Integration 2016 Funding Obligation ($mil) $9,022 ($5,800 PAEA +$3,220 premium payment) $93,795 $51,415 $42,381 $9,022 (same as above) $1,597 $51,798 $51,415 $383 (normal cost + amortization payment 21 Outlook Rates remain an unresolved issue Senate: The Carper ipost bill Chairman Johnson s position unclear; Bill contains many of our coalition s proposals, but has many other controversial provisions No action scheduled yet House of Representatives: Bipartisan approach Chairman Chaffetz and RM Cummings working together Agree on Medicare integration seeking Ways& Means support Draft bill imminent 22 11

17 Our Folks n n n 4imprint Blair Corporation Blue Package Delivery Bluestem Brands, Inc. Colony Brands Deluxe Corporation DHL Global Mail ebay, Inc Endicia FedEx SmartPost Figi's Florida Gift Fruit Shippers Association GENCO Supply Chain Solutions GrayHair Advisors HP Enterprise Services (Electronic Data Systems LLC) Hanesbrands, Inc Harlequin Books, Inc Harris Seeds Company n J.E. Miller Nurseries, Inc. J.W. Jung Seed Company Johnson Smith Company King Solutions, Inc. L.L. Bean, Inc. Lands' End Inc. National Wholesale Company Neopost Newgistics, Inc. Orchard Brands OSM Worldwide Pitney Bowes, Inc. Publishers Clearing House QVC, Inc. SkyPostal Networks, Inc StarCrest of California. U-PIC UPS Mail Innovations Ursa Major Associates, LLC Thank Your Folks 12

NALC vows to continue the fight to maintain six-day delivery and Save America s Postal Service

NALC vows to continue the fight to maintain six-day delivery and Save America s Postal Service Union encouraged and outraged by Obama plan Overview On Sept. 19, President Obama sent a $3 trillion deficit