2. Domestic Transportation

        a. Air Transportation
Air transportation costs in 2001 totaled $1.9 billion. These costs include the use of commercial airlines (passenger and freight) and dedicated networks. The Postal Service contracted with 55 commercial airlines to move more than 2.94 billion pounds of domestic mail last year. Twelve of the commercial airlines handled 75 percent of the total volume. Since September the Postal Service has not been able to transport certain mail on commercial airlines due to FAA restrictions. This resulted in dramatically lower volumes flown on commercial airlines and will continue to do so as long as the restrictions are in place.

To supplement the movement of mail by air, the Postal Service operated dedicated networks for most of the year. These dedicated networks gave way to a transportation agreement with FedEx in August, 2000 that improves air operations. This new alliance replaced all of the existing air networks and most of the point-to-point aircraft. The alliance addressed transportation requirements for significant portions of Express Mail, Priority Mail, and First-Class Mail.

The events of September 11 had a profound impact on the need for dedicated air service. The inability to transport certain mail resulted in the need to expand the FedEx alliance and also required some additional dedicated air taxi service to offshore locations such as Hawaii, Alaska, and Puerto Rico.

        b. Rail Transportation
Postal Service expenses for all rail transportation were $239 million for 2001. This represents a 13.5 percent decrease from 2000. The Postal Service held contracts with eight railroads that perform service on approximately 2,100 rail segments. Contracts with one major rail supplier were not renewed in September 2001 because of their request for double digit price increases.

In 2001 the Postal Service paid Amtrak $90 million for rail transportation service. The Amtrak transportation network provides service for the majority of Periodical Mail.

        c. Highway Transportation
The Postal Service expended approximately $2.3 billion for highway mail transportation in 2001, an 8.1 percent increase over 2000. This increase was driven by the reclassification of expenses from services to transportation for the PMPC and the realignment of two- and three-day service. The two- and three-day service realignment resulted in mail being diverted from the air to service-responsive surface transportation.

        d. Hub and Spoke Program
The hub and spoke program was expanded by four facilities in 2001. The hub and spoke program is crucial to the two- and three-day service realignment and continues to support dedicated air transportation.

        e. Domestic Water Transportation
In 2001, the cost of transporting mail to domestic offshore destinations was $29 million, a 3 percent decrease over 2000.