Operating expenses were $71.8 billion this year, a decrease of 7.6 percent. Postal costs are heavily concentrated in wages, employee and retiree benefits, and transportation. The Postal Service removed more than $6.1 billion in costs in 2009, driven by a reduction of 115 million workhours from the previous year. That reduction was on top of a reduction of 50 million workhours in 2008.

Total Factor Productivity (TFP) declined 0.9 percent, the second consecutive year this measure has declined. TFP compares postal outputs, such as mail volume and delivery network growth, with the resources used. Mail volume is weighted by a number of factors, including shape, weight, and level of customer preparation. Resources include capital, labor, and materials. The methodology is similar to the Multi-Factor Productivity index used by the U.S. Bureau of Labor Statistics to measure the productivity of the overall economy and key industrial sectors.

Prior to 2008 the Postal Service had eight straight years of TFP growth. In spite of a record reduction of workhours and aggressive efforts to reduce all other resources and limit capital investments to essentials, the Postal Service was unable to fully offset the 12.7 percent drop in mail volume. Workload declined 8.3 percent, driven by a 10.5 percent decline in single-piece First-Class Mail, slightly offset by a continued increase in the number of delivery points. In response, the Postal Service reduced the resources it used by 7.4 percent, including a 7.9 percent reduction in labor (workhours).

To help address the continuing financial challenge, the Postal Service in 2010 will continue reducing workhours and employee complement, increasing efficiency, renegotiating contracts with major suppliers, continuing to freeze construction of most new facilities, and pursuing revenue generation efforts using its increased pricing flexibility. These efforts will be pursued through the programs and activities described throughout this Comprehensive Statement.

The financial viability of the Postal Service is at risk and, as the net income projection for 2010 shows, the outlook for the coming year is no less challenging. Long-term relief from the pre-funding requirement for retiree health benefits is essential, but other reforms are necessary as well. The Postal Service requires additional flexibility in labor and operations to improve productivity and reduce costs that better match declining volumes, and also must diversify revenue sources.