US Postal Service 2004 Annual Report Download - page 26

We฀believe฀that฀we฀can฀maintain฀stable฀rates฀through฀calen-
dar฀2005฀because฀ of฀the฀reduction฀in฀ our฀contributions฀ to฀
the฀ Civil฀ Service฀ Retirement฀ and฀ Disability฀ Fund฀ (CSRDF)฀
that฀were฀effected฀by฀P.L.108-18฀in฀2003฀and฀the฀savings฀
we฀have฀achieved฀from฀our฀continued฀productivity฀improve-
ments.฀However,฀we฀will฀have฀to฀adjust฀postage฀rates฀in฀2006฀
because฀increased฀costs฀will฀exceed฀the฀benefits฀from฀produc-
tivity฀improvements.฀Starting฀in฀2006,฀P.L.108-18฀requires฀that฀
we฀place฀in฀escrow฀the฀“savings”฀attributable฀to฀its฀enactment.฀
These฀funds฀are฀to฀be฀held฀in฀escrow,฀pending฀a฀decision฀by฀
Congress฀as฀to฀how฀they฀are฀to฀be฀used.฀We฀are฀also฀required฀
by฀this฀law฀to฀consider฀these฀“savings”฀as฀an฀operating฀expense,฀
thus฀enlarging฀the฀size฀of฀the฀rate฀increase฀that฀will฀generate฀
the฀revenues฀we฀will฀need฀to฀cover฀costs.
Operating฀Expenses
Our฀costs฀can฀be฀categorized฀into฀two฀types:฀volume-variable฀
and฀non฀volume-variable.฀As฀the฀term฀implies,฀volume-variable฀
costs฀are฀those฀costs฀that฀vary฀directly฀with฀changes฀in฀mail฀
volume.฀For฀example,฀a฀high฀percentage฀of฀mail฀processing฀
costs฀are฀considered฀volume-variable฀costs฀since฀changes฀in฀
mail฀volume฀directly฀affect฀the฀number฀of฀hours฀clerks฀and฀
mail฀handlers฀have฀to฀work.฀On฀the฀other฀hand,฀only฀a฀small฀
fraction฀of฀postmaster฀salaries฀are฀considered฀volume-variable฀
costs฀since฀these฀cost฀are,฀for฀the฀most฀part,฀unaffected฀by฀
mail฀volume.฀In฀2003,฀the฀latest฀year฀available,฀volume-vari-
able฀costs฀totaled฀approximately฀$37฀billion,฀or฀about฀57%฀
of฀total฀costs.฀The฀approximately฀$28฀billion฀remaining฀costs฀
are฀non-volume-variable฀and฀must฀be฀borne,฀ultimately,฀by฀the฀
combined฀revenue฀of฀all฀classes฀of฀mail.฀
Compensation฀and฀
Benefits
Personnel฀ compensation฀ and฀
benefits,฀which฀totaled฀$52,237฀
million฀in฀2004,฀make฀up฀more฀than฀
79%฀of฀our฀operating฀expenses.฀
These฀costs฀grew฀$1,693฀million฀
or฀ 3.3%฀ in฀ 2004,฀ compared฀ to฀
2003.฀ This฀ year’s฀ growth฀ was฀
due฀primarily฀to฀contractual฀labor฀
rate฀ increases,฀ cost-of-living-
adjustments฀(COLAs),฀and฀health฀
benefits฀ payments฀ for฀ current฀
and฀ retired฀ employees.฀ Our฀
2004฀average฀hourly฀labor฀rates฀
increased฀by฀1.7%,฀and฀our฀2004฀
health฀benefits฀expense฀for฀current฀
employees฀and฀retirees฀increased฀
by฀ $499฀ million฀ over฀ 2003฀ to฀
over฀$6฀billion,฀driven฀mainly฀by฀
premium฀increases.฀
In฀addition฀to฀labor฀and฀benefits฀
rates,฀ the฀ other฀ major฀ driver฀ of฀
our฀ compensation฀ and฀ benefits฀
expense฀is฀workhours.฀This฀year’s฀
growth฀ in฀ costs฀ was฀ tempered฀
by฀a฀reduction฀of฀over฀21฀million฀
workhours.฀The฀ 2004฀ workhour฀
reduction฀is฀the฀fifth฀consecutive฀
year฀ in฀ which฀ workhours฀ have฀
been฀less฀than฀the฀prior฀year.฀In฀
2003,฀ we฀ eliminated฀ 54฀ million฀
workhours.฀ Approximately฀ one-
฀2004–2003 2003–2002฀฀
2004 2003 2002 ฀%฀Change %฀Change
Compensation $37,876 $37,144 $36,877 2.0% ฀0.7%
Retirement 6,574 5,877 9,105 11.9% -35.5%
Health฀Benefits ฀4,845฀ 4,526 4,201 7.0% 7.7%
Retiree฀Health฀Benefits 1,313 1,133 987 15.9% 14.8%
Workers’฀Compensation ฀฀1,239 1,473 1,524 -15.9% -3.3%
Other ฀฀390 391 464 -0.3% -15.7%
Total฀Compensation฀
and฀Benefits* $52,237 $50,544 $53,158 3.3% -4.9%
฀
*฀Equals฀compensation฀and฀benefits฀plus฀interest฀on฀deferred฀retirement฀on฀the฀financial฀statements.
Part II
WORKHOURS (In฀thousands)
2004฀2003฀2002฀
฀฀฀Operations
฀฀฀Operations฀Support 9,077฀ 9,102฀ 9,106฀
฀฀฀Mail฀Processing 336,737฀ 347,964฀ 374,597฀
฀฀฀Rural฀Delivery 171,628฀ 166,873฀ 169,939฀
฀฀฀City฀Delivery 464,683฀ 464,300฀ 470,075฀
฀฀฀Vehicles฀Services 31,947฀ 32,111฀ 32,835฀
฀฀฀Limited฀Duty฀and฀Rehabilitation 6,356฀ 21,455฀ 25,742฀
฀฀฀Plant฀&฀Equipment฀Maintenance 81,302฀ 81,807฀ 82,127฀
฀฀฀Customer฀Services฀&฀Retail฀ 233,237฀ 232,529฀ 241,491฀
Postmasters฀&฀Installation฀Heads,
฀฀฀Supervisors,฀Administration฀and฀Other 117,354฀ 117,652฀ 121,510฀
฀฀฀Total฀Workhours 1,452,321฀1,473,793฀1,527,422฀
COMPENSATION AND BENEFITS DETAILS (Dollars฀in฀millions)
24 | 2004 annual report united states postal service