Postal Service has been prohibited from transporting mailpieces 16 ounces or greater on commercial airlines. This has resulted in dramatically lower volumes flown on commercial airlines and higher volume on the FedEx network. The arrangement with FedEx has been improved throughout 2003, resulting in lower costs and record service levels.

     The Air Category Management Center solicited and awarded the 2003 commercial air transportation system (CAIR-03) contracts. These contracts replaced the previous air transportation system (ASYS) contracts and differed from ASYS in several significant aspects. CAIR-03 contracts were competitively bid as opposed to negotiated set rates in ASYS. The number of suppliers was reduced from over 50 to 18. For the first time, scanning technology will be used to track the performance of the carriers. Best value criterion, in terms of low cost and best performance, will be used to assign mail. These contracts will allow the Postal Service to enhance its competitive position by using performance data to manage mail flows. The Postal Service will realize a savings of $2.6 million for 2003 alone, over the previous ASYS contracts, and expects to achieve an additional savings of $4.2 million for 2004.

     In addition to the CAIR-03 contracts, six alternate methods of transportation (AMOT) contracts have been solicited and awarded. These contracts are for point-to-point segments where CAIR carriers cannot go. The AMOT contracts will save the Postal Service approximately $5 million per year compared to the contracts they replace.

     Postal Service expenses for all rail transportation were $185 million for 2003. This represents an 18.9 percent decrease from 2002. In 2003 the Postal Service paid Amtrak $61 million for rail transportation service. The majority of service provided by the Amtrak transportation network is for Periodicals mail. Additionally, the Postal Service spent $123 million with 11 other railroads that perform service on rail segments throughout the country.

      The Postal Service expended approximately $2.4 billion for highway mail transportation in 2003. This 0.1 percent decrease over 2002 expenses compared to increases of 2.6 percent and 8.4 percent respectively for the previous two years. d. Water Transportation In 2003, the cost of transporting mail to domestic offshore destinations by water was $25 million, a 2.1 percent increase over 2002.

     The Postal Service continues to align its air transportation strategy with providing universal service that satisfies the global delivery requirements of American businesses and consumers. In 2003, the Postal Service spent $200.1 million on international air transportation to more than 188 foreign postal administrations. This represented a $21.2 million increase over the previous year as export volumes from the United States increased along with an increase in the regulated Department of Transportation rate. U.S. flag suppliers were paid $132.3 million, and foreign flag suppliers received $28.9 million. The use of foreign flag suppliers, particularly for airmail service, expands the Postal Service's ability to reach destinations where United States flag suppliers do not provide the required service. In addition, the cost of military mail, reimbursed by the Department of Defense, increased by $189.4 million to $335.2 million over the previous year, reflecting growing deployment of military personnel.

     The Postal Service continues to pursue the deregulation of air transportation rates for the transportation of international and military mail and conveyance to the Postal Service the authority to competitively contract for such transportation in the open market.