In 2004 the Postal Service paid Amtrak $46.1 million for rail transportation service. The majority of service provided by the Amtrak transportation network is for Periodicals mail. The remainder was paid to 11 other railroads that perform service on rail segments throughout the country. Recently Amtrak announced that it will no longer carry mail. Amtrak's volume will shift to the next least costly transportation mode that meets the product's service requirements.

c. Highway Transportation

The Postal Service spent approximately $2.4 billion for highway mail transportation in 2004. This represents a 1.3 percent increase from 2003 expenses. This compares to a decrease of 0.1 percent in 2003 compared to 2002.

d. Water Transportation

In 2004, the cost of transporting mail to domestic offshore destinations by water was $27.2 million, an 8.8 percent increase from that reported in 2003.

3. International Transportation

a. International Air Transportation/International Air Deregulation

The Postal Service continues to align its air transportation strategy with the global universal requirements of American businesses and consumers. In 2004 the Postal Service spent $205.9 million on international air transportation that served more than 188 foreign postal administrations. U.S. flag suppliers were paid $175.5 million, and foreign flag suppliers received $30.4 million. The use of foreign flag suppliers, particularly for airmail service, expands the Postal Service's ability to reach destinations where U.S. flag suppliers do not provide the required service. In addition, the cost of military mail, reimbursed by the Department of Defense, increased from $146.2 million to $343.7 million from 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 a transfer to the Postal Service of the authority to contract competitively for such transportation in the open market. Such a transfer of authority may require legislation that is currently being pursued.

b. International Surface Transportation

The cost of international surface transportation by ocean increased from $4.1 million in 2003 to $4.8 million in 2004. Ocean surface transportation suppliers are selected on the basis of a best value comparative analysis of proposals.

c. Terminal Dues, Transit Charges, and Other International Expenses

Under the acts of the Universal Postal Union (UPU), each postal administration that receives mail from another administration has the right to collect from the sending administration a payment for the costs incurred in processing and delivering mail received from that administration. These charges are called terminal dues. International Express Mail also incurs processing and delivery costs, from foreign postal administrations (FPAs) as well as private courier services. Additionally, the UPU provides for transit charges for mail which is exchanged between administrations through a third country. Transit charges are paid by the sending country to the intermediary country for forwarding mail to the destination. Further, the Postal Service has a bilateral agreement with Canada Post Corporation (CPC) outside the UPU framework that also results in terminal dues and similar charges for CPC processing and delivery of mail originating in the United States.

For the most part, settlements of terminal dues and transit charges are contingent upon both the Postal Service and the FPA accepting statistics in regards to the weights and number of pieces exchanged by the two countries. The actual settlement with an FPA and the payment of terminal dues or transit charges can occur a year or more after the service is performed. In order to record expenses associated with the current year, the Postal Service accrues an estimate of these expenses based on available weight and piece data by country. In 2004, the Postal Service recognized $415.1 million in terminal dues, Express Mail, transit charge and other international expense unrelated to the transportation of mail. The comparable number for 2003 was $370.3 million.¹