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financial review
2004 annual report united states postal service | 29
H.R.฀3798฀and฀H.R.฀4312.฀Both฀ bills฀would฀have฀required฀
that฀cargo฀transported฀on฀passenger฀planes฀be฀screened฀or฀
inspected฀using฀the฀same฀equipment,฀technology฀and฀person-
nel฀that฀are฀used฀to฀screen฀passenger฀baggage.฀H.R.฀3798฀
would฀have฀also฀required฀“shippers”฀to฀pay฀fees฀to฀passen-
ger฀airlines฀to฀cover฀the฀costs฀of฀additional฀screening.฀Our฀
preliminary฀analysis฀suggests฀that฀we฀would฀be฀considered฀a฀
shipper฀and฀would฀have฀to฀pay฀such฀fees฀if฀similar฀legislation฀
is฀enacted฀in฀the฀future.฀
Productivity
We฀use฀two฀indicators฀to฀measure฀our฀efficiency.฀We฀use฀output฀
per฀workhour฀which฀measures฀the฀change฀in฀the฀relationship฀
between฀workload฀(mail฀volume฀and฀deliveries)฀and฀the฀labor฀
resources฀used฀to฀do฀the฀work.฀We฀use฀total฀factor฀productiv-
ity฀(TFP)฀to฀measure฀the฀change฀in฀the฀relationship฀between฀
outputs,฀or฀workload,฀and฀all฀the฀resources฀used฀in฀producing฀
these฀outputs.฀Our฀main฀output฀is฀delivered฀mail฀and฀special฀
services฀and฀carrier฀service฀to฀an฀expanding฀delivery฀network.฀
TFP฀calculations฀include฀inputs฀for฀all฀resources฀including฀labor,฀
materials,฀transportation฀and฀capital฀investments.฀
During฀2004,฀our฀output฀per฀workhour฀grew฀by฀2.4%฀and฀our฀
TFP฀improved฀by฀2.4%.฀This฀TFP฀growth฀is฀equivalent฀to฀$1.6฀
billion฀in฀expense฀reductions.฀This฀marks฀our฀fifth฀consecutive฀
year฀of฀TFP฀growth,฀with฀equivalent฀expense฀reductions฀total-
ing฀over฀$6.1฀billion฀over฀this฀time.฀By฀comparison,฀in฀2003฀
our฀output฀per฀workhour฀was฀2.3%฀and฀our฀TFP฀was฀1.8%.฀
Our฀productivity฀growth฀continues฀to฀be฀driven฀by฀substantial฀
restraints฀on฀the฀resources฀we฀use฀to฀produce฀our฀outputs.฀We฀
were฀able฀to฀achieve฀TFP฀growth฀with฀only฀a฀small฀increase฀
in฀workload,฀in฀contrast฀to฀the฀years฀before฀2001฀when฀our฀
TFP฀growth฀was฀fueled฀largely฀by฀managing฀an฀ever-increasing฀
workload.฀We฀have฀instituted฀measures฀to฀ensure฀continued฀
TFP฀growth.฀It฀is฀now฀our฀policy฀to฀develop฀an฀annual฀budget฀
so฀that฀the฀net฀income฀target฀also฀yields฀positive฀and฀sustain-
able฀TFP฀growth.
Capital฀Investments
The฀Board฀of฀Governors฀approves฀the฀budget฀for฀investments฀
in฀capital฀property฀and฀equipment฀each฀year.฀The฀Board฀also฀
approves฀all฀major฀capital฀projects,฀generally฀defined฀as฀proj-
ects฀greater฀than฀$10฀million.฀At฀the฀beginning฀of฀the฀year,฀
there฀were฀49฀Board-approved฀projects฀in฀progress,฀represent-
ing฀$6,609฀million.฀During฀the฀year,฀the฀Board฀approved฀21฀new฀
projects฀for฀$1,816฀million฀and฀21฀projects฀were฀completed,฀
representing฀$2,685฀million.฀
While฀the฀funding฀for฀a฀project฀is฀authorized฀in฀one฀year,฀the฀
commitment,฀or฀contract฀to฀purchase฀or฀build,฀may฀occur฀over฀
several฀ years.฀ Similarly,฀actual฀payment฀for฀ the฀ project,฀or฀
capital฀cash฀outlays,฀may฀take฀place฀over฀several฀years.฀The฀
$1,685฀million฀in฀capital฀outlays฀for฀2004฀represents฀outlays฀
for฀commitments฀made฀in฀previous฀years฀as฀well฀as฀commit-
ments฀made฀in฀2004฀for฀all฀49฀projects.฀
Of฀the฀49฀active฀Board-approved฀projects฀at฀the฀close฀of฀the฀
year,฀24฀were฀for฀mail฀processing฀equipment,฀12฀for฀facilities,฀
and฀13฀for฀other฀projects฀such฀as฀retail฀equipment,฀vehicles฀
and฀information฀infrastructure฀support.฀
Our฀total฀capital฀commitment฀plan฀for฀2005฀is฀$3.3฀billion,฀with฀
cash฀outlays฀planned฀at฀$2.0฀billion,฀of฀which฀approximately฀
$1.2฀billion฀is฀for฀commitments฀made฀in฀prior฀years฀and฀the฀
remaining฀$800฀million฀for฀new฀commitments฀in฀2005.฀
Future
Our฀capital฀plan฀for฀the฀future฀calls฀for฀developing฀and฀deploy-
ing฀new฀automation฀and฀mechanization฀equipment฀that฀will฀
increase฀our฀operating฀efficiency.฀We฀will฀continue฀to฀maintain฀
our฀infrastructure,฀including฀facilities,฀vehicles,฀and฀systems,฀
as฀well฀as฀ making฀ return฀ on฀ investment฀projects.฀We฀will฀
make฀investments฀in฀programs฀that฀reduce฀workhours฀in฀our฀
distribution,฀processing฀and฀delivery฀operations.฀We฀have฀set฀
our฀capital฀commitment฀plan฀at฀a฀level฀higher฀than฀2004฀to฀
invest฀in฀ programs฀that฀reduce฀workhours฀in฀ our฀distribu-
tion,฀processing฀and฀delivery฀operations,฀such฀as฀Phase฀II฀
of฀the฀Postal฀Automated฀Redirection฀System฀and฀the฀Optical฀
Character฀ Reader฀ Enhancements฀ for฀ Letter฀ Automation฀
program.฀As฀we฀continue฀to฀focus฀on฀customer฀and฀employee฀
safety,฀the฀Biohazard฀Detection฀System฀will฀be฀attached฀to฀
the฀Advanced฀Facer-Canceller฀System฀and฀flats฀cancellers฀to฀
detect฀potential฀biohazards.
Part II
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TOTAL FACTOR PRODUCTIVITY
CUMULATIVE % CHANGE
We฀deliver฀more฀than฀312฀million฀pieces฀
of฀mail฀every฀day,฀handling฀46%฀of฀the฀
world’s฀mail฀volume.฀Japan฀is฀second,฀
with฀6%.