3. Net Loss
We posted a net loss of almost $1.7 billion in 2001. Despite an increase in postage rates, Postal Service expenses increased at more than twice the rate at which revenue increased. Due to the factors mentioned in the Revenue section above and the R2000-1 recommended decision of the Postal Rate commission that set rates lower than we requested, revenues came in below expectations. Total costs were in line with projections. Additionally, continued inflationary cost increases, particularly in postal compensation and benefits, exceeded the savings effected through our cost reduction programs and the additional revenue earned from increased postage rates. The 2001 net loss followed the net loss of $199 million in 2000.

At the same time, through effective resource management, the Postal Service achieved an increase in Total Factor Productivity (TFP) of 1.3 percent in 2001. That equated to nearly $900 million in reduced expenses for the year and lessened what otherwise would have been an even greater net loss. This gain in productivity followed the 2000 TFP gain of 2.4 percent, a seven-year high for this measure. Our productivity success is explained in greater detail in the next section.