US Postal Service 2012 Annual Report Download - page 36

2012 Report on Form 10-K United States Postal Service- 35 -
Work Hours by Function
(Work Hours in thousands) 2012 2011 2010
City Delivery 389,219 399,010 408,488
Mail Processing 210,170 215,221 224,645
Rural Delivery 177,715 177,384 177,152
Customer Service Operations 144,309 150,203 160,621
Postmasters 58,429 59,484 59,609
Other, including
Vehicle Services, Plant Maintenance, Operational Support, and Administration 142,309 147,535 152,432
Total Work Hours 1,122,151 1,148,837 1,182,947
These work hour reductions were driven by continued efforts to improve efficiency and to respond to the decline in mail
volume. Significant work hour reduction initiatives include network consolidation, streamlining of area and district offices,
offering the previously mentioned incentives for employees to retire or resign, and adjusting delivery routes. Since 2000,
we have reduced total work hours by a cumulative total of 504 million work hours, equivalent to a reduction in annual
expense of $21.4 billion.
Most of the delivery point growth has been experienced by the rural delivery carriers. The decrease in Postmasters in
2012 reflects the impact of the previously discussed incentive. We continually strive to optimize the use of personnel and
minimize variable costs. The challenge that remains is to reduce the fixed labor costs. This will require structural changes,
many of which need legislative or regulatory approval.
We are beginning to reach the limits of the reductions that can be accomplished within the existing network structure and
service standards. In an effort to aggressively address those areas over which we have the most control, as announced in
September 2011, we are implementing a strategy to increase the efficiency of our mail processing network. This requires
a reduction in the number of mail processing and distribution plants and the rescheduling of transportation routes. On May
17, 2012, we announced a modified, phased plan to continue the consolidation of our network of 461 mail processing
locations. The first phase will result in up to 140 consolidations through 2013. There were 46 total network consolidations
during 2012. Unless our circumstances change, a second phase of 89 additional consolidations is scheduled to begin in
February 2014.
The Postal Service is also working to increase the efficiency and reduce the costs of its retail network, while continuing to
provide a high level of service to all communities throughout America. On May 9, 2012, the Postal Service announced a
strategy to preserve the Post Offices serving rural America while providing a framework to achieve significant cost
savings. This strategy, called the POSt Plan, will allow Post Offices to remain operational with modified window hours and
will also allow the affected towns to retain their ZIP Codes.
While the impact of network optimization and the POSt Plan on 2012 financial results is minimal, these initiatives will be
major drivers of reduced work hours in future years.
Another major driver impacting compensation expense is our ability to control wage rates. Our hourly wage rate is
increasing, albeit more slowly than in the past. The average hourly wage rate increases have been 0.9%, 1.0%, and 1.8%
for 2012, 2011, and 2010, respectively.
More than 85% of career employees are covered by collective bargaining agreements. The contracts with the four labor
unions representing the majority of our employees have traditionally included provisions granting Cost–of-Living
Adjustments (COLA), which are linked to the Consumer Price Index–Urban Wage Earners and Clerical Workers (CPI-W).
Under the current APWU and NRLCA contracts, employees represented by these unions, did not receive a COLA in
2010, or 2011, and 2012 COLAs were deferred until 2013 when these employees will receive both years’ adjustments
applied to the then current wages. Eligible employees covered by NPMHU and NALC collective bargaining agreements
received an annual pay increase of approximately $980 for each employee in September 2011 with an overall annual
financial impact of approximately $300 million in 2012. However, these two union contracts expired in November 2011.
Future COLAs for employees represented by these unions are contingent upon the terms of future contracts currently
under interest arbitration. There were no COLA increases for these employees in 2012.