US Postal Service 2009 Annual Report Download - page 52

50 | 2009 Annual Report United States Postal Service
response by the Federal Reserve have resulted in inter-
est rates declining signifi cantly. Accordingly, the projected
rates of return on various maturities of treasury securities,
which we use in discounting our workers’ compensation
model, have declined by 0.7% and 1.0% on compensa-
tion and medical liabilities, respectively, to 4.9% and 4.4%
from what was used in our estimation model at Septem-
ber 30, 2008. The projected return rates are especially low
for 2009 and 2010. While we believe these historically low
rates are only temporary, GAAP requires us to use dis-
count rates based on the best available information at the
measurement date.
The impact of the changes in the discount and infl ation
rates in 2009 increased our 2009 estimated liability and
expense by $718 million. The remaining increase in the
liability resulted from other routine changes in the annual
actuarial update, resulting from new compensation and
medical cases and the development of existing cases.
In 2008, we implemented an improved model for estimating
our liability for workers’ compensation, with the assistance of
an independent actuary. The revised model is similar to that
used in the independent actuarial valuation, which formed
the basis for the recorded liability in 2007. The revised model
combines four generally accepted actuarial valuation tech-
niques to project future claim payments based upon cur-
rently open claims and past claim payment experience. In
addition, we refi ned our estimation in 2008 by taking a lon-
ger period of claim payment experience into consideration.
The cumulative impact of the changes in estimate reduced
our 2008 liability and expense by $154 million.
In 2009, we experienced a 1.4% decrease in the num-
ber of medical claims receiving payments and a 3.2% in-
crease in the number of compensation claims receiving
payments. The actual claim payments increased $78 mil-
lion, or 8.1%, over 2008. Medical claims payments during
the year grew by 9.8%.
In 2008, we experienced a 1.5% increase in the number of
medical claims receiving payments and a 3.8% increase in
the number of compensation claims receiving payments.
The actual claim payments increased $56 million, or 6.2%
over 2007. Medical claims payments during the year grew
by 8.9%.
TRANSPORTATION EXPENSES
Transportation expenses for 2009 were $6,026 million, a
decrease of $935 million, or 13.4%, compared to 2008.
Compared to 2007, 2008 transportation expenses in-
creased $459 million, or 7.1%. Transportation costs are
largely made up of air and highway transportation.
Transportation Expenses
(dollars in millions)
2009 2008 2007
Highway Transportation $ 3,044 $ 3,499 $ 3,150
Air Transportation 2,626 3,047 2,990
Other Transportation 356 415 362
Total Transportation Expenses $ 6,026 $ 6,961 $ 6,502
Highway Transportation
Highway transportation expenses for 2009 were $3,044
million, a decrease of $455 million, or 13.0%, from 2008.
The decrease was the result of lower fuel prices, lower
volume and certain reductions in contract pricing. Diesel
fuel, which makes up 93% of the fuel purchased for high-
way contracts, cost an average of $2.52 per gallon during
2009 versus $3.87 per gallon during 2008, a decrease of
34.9%. Gasoline prices decreased 33.4% in 2009 com-
pared to 2008. Although fuel costs are only a portion of
total transportation expenses, the sharp decrease in fuel
prices from last year’s record highs signifi cantly contrib-
uted to lower highway transportation expenses.
Mail volume reductions and contract adjustments made
during 2009 contributed to an overall reduction in con-
tracted miles driven of 1.3 million miles, or 0.8%. The re-
duction was realized despite a short-term increase in miles
driven since June 2009, primarily due to the startup of the
Network Distribution Center (NDC) project. The project
will transform existing Bulk Mail Centers into NDCs, which
will improve the fl ow of mail into the network, consolidate
package distribution and improve transportation utiliza-
tion. In 2010, we expect contracted miles driven to con-
tinue to decrease as a result of full implementation of the
NDC project.
Highway transportation expenses for 2008 were $3,499
million, an increase of $349 million, or 11.1%, compared
to 2007. The 2008 increase was caused by higher fuel
prices, contract labor rates and contract CPI rate increas-
es. In addition, some mail that was previously transported
via air was moved to surface transportation during the
year. In 2008, the average price of gasoline increased ap-
proximately 30.4% compared to 2007. Diesel fuel cost an
average of $3.87 per gallon in 2008, compared to $2.70
per gallon in 2007, an increase of 43.3%.
Air Transportation
Air transportation expenses of $2,626 million in 2009 de-
creased by $421 million, or 13.8%, from last year. Domes-
tic air expense decreased $322 million, or 13.8%, com-
pared to last year. Lower fuel prices saved $186 million
in expenses, while lower mail volumes drove most of the
remaining expense reduction.