US Postal Service 2004 Annual Report Download - page 19

2004 annual report united states postal service | 17
declined฀again฀this฀year.฀As฀volume฀falls฀in฀First-Class฀Mail฀
while฀overall฀volume฀and฀workload฀increase,฀it฀becomes฀more฀
evident฀that฀the฀mail฀monopoly฀no฀longer฀has฀the฀business฀
value฀it฀did฀at฀the฀time฀of฀postal฀reorganization.฀For฀the฀first฀
time฀in฀history,฀in฀2005฀First-Class฀Mail฀is฀projected฀to฀fall฀
below฀Standard฀Mail฀as฀our฀largest฀volume฀product.฀The฀shift฀
in฀the฀mail฀mix฀from฀First-Class฀Mail฀to฀lower฀revenue-per-
piece฀mail฀classes฀has฀resulted฀in฀stagnant฀revenue฀growth฀
and฀shrinking฀contribution.฀Nonetheless,฀the฀costs฀of฀univer-
sal฀service฀will฀continue฀to฀increase.฀
Public฀ Law฀ 108-18฀ adjusted฀ our฀ overpaid฀ Civil฀ Service฀
Retirement฀System฀(CSRS)฀payments฀beginning฀in฀2003,฀but฀
also฀shifted฀to฀us฀the฀cost฀associated฀with฀military฀service฀of฀
our฀employees฀and฀imposed฀on฀us฀an฀escrow฀requirement฀
starting฀in฀2006.฀As฀required฀by฀P.L.108-18,฀we฀provided฀
detailed฀ proposals฀ to฀ Congress,฀ the฀ President฀ and฀ the฀
Government฀Accountability฀Office฀in฀which฀we฀recommended฀
that฀the฀Department฀of฀the฀Treasury฀resume฀the฀obligation฀
to฀pay฀the฀CSRS฀costs฀associated฀with฀the฀military฀service฀
of฀postal฀employees.฀We฀also฀recommended฀that฀Congress฀
eliminate฀the฀escrow฀requirement฀for฀all฀“savings”฀realized฀
under฀P.L.108-18฀after฀2005,฀and฀that฀these฀“savings”฀be฀
used฀to฀pre-fund฀postal฀retiree฀health฀benefits.฀We฀are฀still฀
awaiting฀resolution฀of฀these฀issues.฀
By฀2005,฀the฀“savings”฀realized฀under฀P.L.108-18฀will฀have฀
been฀fully฀absorbed฀by฀the฀escalating฀cost฀of฀postal฀opera-
tions.฀The฀greatest฀factors฀in฀this฀rise฀in฀costs฀are฀increasing฀
personnel฀compensation฀costs,฀driven฀largely฀by฀health฀bene-
fits฀inflation฀and฀the฀continuing฀need฀to฀service฀an฀ever-larger฀
delivery฀and฀retail฀network.฀Each฀of฀these฀business฀drivers,฀
First-Class฀Mail฀volume฀erosion,฀a฀growing฀retiree฀population฀
and฀increasing฀cost฀pressures฀are฀structural฀in฀nature฀and฀
each฀must฀be฀seen฀as฀an฀ongoing฀reality.
For฀ 2005,฀our฀financial฀plan฀ calls฀ for฀virtual฀“breakeven”฀
results,฀with฀revenue฀falling฀below฀this฀year’s฀level฀due฀to฀
the฀continuing฀shift฀in฀the฀mail฀mix฀as฀our฀costs฀continue฀to฀
escalate.฀Under฀our฀conservative฀financial฀plan,฀a฀net฀loss฀of฀
approximately฀$200฀million฀in฀2005฀is฀forecast.
Our฀strategy฀for฀2005฀is฀to฀continue฀to฀pursue฀our฀trans-
formation฀strategies,฀leveraging฀our฀resources฀to฀build฀the฀
business.฀While฀these฀ strategies฀ have฀ resulted฀ in฀ historic฀
productivity฀levels฀and฀cost฀savings฀over฀the฀last฀few฀years,฀
we฀must฀recognize฀that฀additional฀efforts฀to฀take฀costs฀out฀of฀
system฀will฀require฀fundamental฀structural฀change.฀This฀will฀
require฀public฀policy฀which฀does฀not฀interfere฀with฀manage-
ment’s฀decisions฀to฀take฀costs฀out฀of฀the฀system.
In฀closing,฀I฀would฀like฀to฀thank฀all฀of฀our฀postal฀employees฀for฀
their฀continued฀hard฀work฀and฀dedication.฀฀Without฀the฀efforts฀
of฀each฀of฀them,฀we฀could฀not฀have฀achieved฀this฀phenom-
enal฀financial฀and฀operational฀performance.
Richard฀J.฀Strasser,฀Jr.
Chief฀Financial฀Officer฀and฀
Executive฀Vice฀President
a message from the chief financial officer and executive vice president
By฀2005,฀the฀“savings”฀realized฀
under฀P.L.108-18฀will฀have฀been฀
fully฀absorbed฀in฀covering฀the฀
escalating฀cost฀of฀postal฀operations.฀
The฀greatest฀factors฀in฀this฀rise฀
in฀costs฀are฀increasing฀personnel฀
compensation฀costs,฀driven฀largely฀
by฀health฀benefits฀inflation฀and฀the฀
continuing฀need฀to฀service฀an฀ever-
larger฀delivery฀and฀retail฀network.฀