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2000 Highlights
Letter from
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2000 Year
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Delivering
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Financial
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2000 Annual Report
- page 22 of 70
Some frequently
asked financial questions about the Postal Service answered by Richard
J. Strasser, Jr.,
Chief Financial Officer & Executive Vice President.
The Postal Service has described its 2000 performance as successful,
despite a reported net loss of $199 million. What criteria do you
use to measure your success?
We did have a tremendously successful year, challenging, but successful.
Our levels of customer satisfaction and service remained extremely
high, while we generated record productivity increases. Thus, our
financial result for the year is but one of the indicators we use
in evaluating the organization's performance. We are, however, not
a for-profit operation, rather our financial mandate is to "break
even over time."
This year fuel prices accelerated, also driving up the Consumer
Price Index (CPI). This directly increased our transportation costs
and, through cost of living adjustments contained in our labor contracts,
increased our labor costs. Our comprehensive measure
of productivity, Total Factor Productivity (TFP), is tracked by
an economic consultant. For 2000, we increased our productivity
by 2.5%, thereby saving $1.6 billion in expenses. This was not enough
to offset the significant inflation in costs; thus we experienced
a $199 million loss compared to a net income plan of $100 million.
In specific terms, however, we delivered more mail to more businesses
and households than the previous year, and we used 6,200 fewer work
years.
That sheds light on your governmental mandate of efficiency, but
what about operating in a "businesslike" manner?
This second mandate is best understood in the guidance given by
law. We are to set our rates so that, over time, revenue covers expenses.
This was our plan for 2000. To put that into perspective our actual bottom
line loss of $199 million is less than half of one day's cash receipts
for us. Compared to our revenue of over $64 billion, many would
consider this to be virtually break even.
But we recognize that just like a for-profit company, we must carefully
watch our bottom line. To do this we use a measure that is more
comprehensive than net income. This measure, used by many successful
companies, is called Economic Value Added (EVA). Put simply, EVA
measures the change in financial worth of the Postal Service from
one year to the next. It is more comprehensive than net income (revenue
minus expenses) alone, because it includes the cost of the capital
used to generate that income and the economic impact of inflation. It is focused on producing long-term
value. Our indexed EVA indicator increased $1.8 billion in 2000.
So you can see, 2000 was a very successful year for increasing the
long-term value of the Postal Service.
You mentioned that the Postal Service faced challenges during the
year. Can you elaborate?
Every year we have one challenge that never varies. When a customer
requests service to a new address, we must add it to our delivery
network. And, we do it for free. No for-profit organization would
do that. Last year, customers requested over 1.7 million new addresses.
That is equal to over 5,000 new addresses per day and is roughly
equal to a city the size of Chicago every year. Historically, we
have been able to recover the cost of this free service because
volume and thus revenue has grown at approximately the same rate
as the economy. This historic trend did not hold true this year.
Our forecast was off by over $800 million. This revenue shortfall
presented a tremendous challenge, because we had committed to breaking
even.
Other forces in the economy, notably dramatic increases in oil prices,
added to our challenge. All told, the increase in oil prices raised
our transportation costs an additional $275 million in 2000. We
use approximately 300 million gallons of diesel fuel, 160 million
gallons of aviation fuel and 90 million gallons of gasoline. In
addition to the fuel we use directly, our airline and trucking contractors
are able to quickly pass on their fuel increases to us, something
we can not do to our customers. Our labor costs are directly influenced
by growth in inflation. This year wages increased almost $1.3 billion.
Medical expense inflation heated up again in 2000, increasing health
benefits expenses by 9.4%, or $265 million. Remember that all of
these unplanned cost increases are happening while our postal prices
remain constant.
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