Highway Transportation
Highway transportation expenses for 2008 were $3,499 million, an increase of $349 million, or 11.1% over 2007. In 2008, the increase was attributed to higher fuel prices, contract labor rates, and contract CPI rates. In addition, some mail that was previously transported via air was moved to surface transportation during the year. In 2008, the average price of gasoline increased approximately 30.4% compared to 2007. Diesel fuel, which makes up 93% of the fuel purchased for highway contracts, was an average of $3.87 per gallon in 2008, compared to $2.70 per gallon in 2007, an increase of 43.3%.
In 2007, our highway transportation expenses were $3,150 million, an increase of $173 million, or 5.8%, over 2006. This was driven by an increase in the number of miles driven, contractual rate increases for the contract drivers, and delivery growth. The increase in fuel prices was somewhat neutralized through leveraging our buying power to obtain favorable pricing by consolidating fueling points and bulk purchasing.
Air Transportation
Air transportation expenses for 2008 were $3,047 million, an increase of $57 million, or 1.9%, compared to the same period last year. Domestic air transportation expenses for 2008 were $2,336 million, a decrease of $57 million or 2.4%, compared to 2007. International air expenses increased $114 million primarily due to the shift from surface to air delivery, resulting from the elimination of the Global Economy service offering.
Air transportation expenses for 2007 were $2,990 million, an increase of $219 million, or 7.9%, from 2006. In 2007, the increase was driven by growth in mail volume on our cargo carriers and the expansion of peak season operations, which provided improved service to our customers. Additional contributing factors were increases in contract rates for the offshore networks and an increase in fuel expenditures. With the 5% growth in international volume, we also saw a corresponding increase in international air expense compared to 2006.
Other Transportation
Other transportation expenses for 2008 were $415 million, an increase of $53 million, or 14.6%, mainly driven by an increased number of international terminal dues settlements to foreign postal administrations compared to 2007. Terminal dues settlements are the fees we pay to foreign postal administrations for the outbound international mail that they deliver for us.
In 2007, other transportation expenses were $362 million, an increase of $65 million, or 21.9%, caused by increased international terminal dues settlements to foreign postal administrations and expedited mail delivery transactions as compared to 2006.
Other Expenses
In 2008, other operating expenses of $9,785 million increased $452 million, or 4.8%, from the comparable 2007 amount. The increase was primarily driven by Depreciation and Vehicle Maintenance Services. Vehicle Maintenance Services increased $166 million and includes the fuel used by our carrier fleet. Depreciation and amortization expense increased $167 million, compared to 2007, as a number of equipment projects were completed during the last half of 2007 and the early part of 2008.
Other Operating Expenses |
2008 |
2007 |
2006 |
|---|---|---|---|
(Dollars in millions) |
|||
Supplies and Services |
$ 2,597 |
$ 2,594 |
$ 2,643 |
Depreciation and Amortization |
2,319 |
2,152 |
2,149 |
Rent and Utilities |
1,779 |
1,700 |
1,721 |
Vehicle Maintenance Service |
926 |
760 |
709 |
Information Technology and Communications |
658 |
630 |
649 |
Rural Carrier Equipment |
545 |
495 |
485 |
Other |
961 |
1,002 |
978 |
Total |
$ 9,785 |
$ 9,333 |
$ 9,334 |
In 2007, other operating expenses decreased $1 million from 2006 comparable amounts, as shown in the table above.
Productivity
We use a single indicator called total factor productivity (TFP) to measure productivity. TFP measures the change in the relationship between outputs (workload processed) and inputs (resource usage). Workload consists of weighted mail volume, miscellaneous output, and our expanding delivery network. Resources consist of labor, materials (including transportation), and deployed capital assets. Workload minus resources used equals TFP.
During FY 2008, TFP declined 0.5%. This marks the first year since 1999 that the Postal Service registered negative annual TFP growth. Despite efforts to manage workforce utilization (reduction of 50 million workhours), utilize material such as supplies and services efficiently, and maximize the return on capital investments (mainly automation), the worsening conditions across most sectors of the U.S. economy during this fiscal year, resulted in a 4.5% decline in mail volume, which we were unable to completely offset.