Rad-i-cal  adj [from Latin radic-, radix root] 1:  marked by a considerable departure from the usual or traditional 2:  the proposition of the United States Postal Service that everyone in America — no matter who, no matter where — should receive the same high level of service at the same affordable price.

We use two indicators to measure our efficiency. First, we use Output per Workhour which measures the change in the relationship between workload (mail volume and deliveries) and the labor resources used to do the work. Second, we use Total Factor Productivity (TFP), which measures the change in the relationship between workload, and all the resources used in producing these outputs. Our main output is delivering mail and service to an expanding delivery network. Resources measured in the TFP calculations include labor for processing and delivery, transportation, capital investments, materials and other non-personnel costs.

During 2002, our Output per Workhour grew by 2.2% and our TFP improved by 1.1%. This TFP growth is equivalent to $700 million in expense reductions. 2002 marks our third consecutive year of positive TFP growth, with equivalent expense reductions totaling over $3 billion over this time. Our productivity growth continues to be fueled by substantial restraints on resource usage. In 2002 we were able to achieve positive TFP growth as the volume of our workload declined while deliveries grew, in contrast to the years before 2001 when our strong TFP growth was fueled largely by absorbing an ever-increasing total workload.



Transportation expenses increased by $76 million in 2002. On August 27, 2001, we entered into a contract with FedEx to transport a portion of expedited mail through their existing air network. After the terrorist attacks on September 11, the Federal Aviation Administration placed restrictions on mail pieces weighing more than 16 ounces, which prohibited the Postal Service from using commercial air carriers to carry packages. We were forced to move virtually all Priority Mail to either the FedEx network or our surface network, with a small volume of mail on air taxis, which is costly. Although the FedEx network is less expensive than our old dedicated network, it is more expensive than commercial air carriers. The increased use of the FedEx network has increased air transportation costs. We are currently moving 51% of Priority Mail on our surface network, 48% on FedEx and 1% on contracted off-shore air taxis to service routes not served by FedEx.

Even with the additional increase in volume to the FedEx network, we were able to keep the growth in transportation costs to a minimum. We moved more Priority Mail to surface transportation, reducing those network costs. We renegotiated our existing contract with FedEX to lower rates as volume on that network increased. A decrease in mail volume and a decline in fuel prices also helped us control our transportation costs.

We think that our transportation costs for 2003 will remain in line with our costs for 2002. We continue to work with the Transportation Safety Administration with the expectation that we will again be able to use passenger air transportation for Priority Mail. We are also working to integrate and realign our distribution and transportation infrastructure.