On January 25, 2005, the PRC initiated Docket No. RM2005-2 in which it sought comments on possible improvements to its rules for dockets concerning NSAs. The proposed rules were based on experience in the Discover (Docket No. MC2004-4) and Bank One (Docket No. MC2004-3) functionally equivalent NSA proceedings. On March 11, 2005, after receiving initial comments, the PRC decided to suspend the schedule for the filing of reply comments until it completed its reconsideration of its Opinion and Recommended Decision in the Bank One case. On February 10, 2005, the PRC initiated RM2005-3, in which it proposed, and solicited comments on, draft rules applicable to proceedings in which the Postal Service seeks to renew or modify an existing NSA. The PRC issued its Final Rules on May 26, 2005, adopting several proposed changes, including those suggested by the Postal Service to expedite such proceedings.

E. Transportation Policies¹

1. General

The Postal Service spent $5.4 billion in 2005 for mail transportation, including terminal dues, transit charges, and other international expenses discussed below. This is a $468 million increase over 2004, which is primarily related to fuel. The consolidation of routes and improved efficiencies in air transportation mitigated an even greater overall increase in total transportation costs in 2005.

2. Domestic Transportation

A. HIGHWAY TRANSPORTATION

The Postal Service spent approximately $2.7 billion for highway mail transportation in 2005. This represents a 9.7 percent increase from 2004 expenses, which is primarily due to increases in fuel prices and mail volumes carried by highway transportation.

¹ Transportation expense data may not match prior years exactly because of annual recasting of data.
Note: Percentages are calculated based on unrounded numbers.

B. AIR TRANSPORTATION

Air transportation costs in 2005 totaled $2.4 billion, an increase of 11.9 percent from 2004. This increase is a direct result of rising fuel costs. These costs include the use of domestic commercial airlines (passenger and freight) and dedicated networks. As a continued effort to improve the security pertaining to the air transportation industry, the Postal Service is still prohibited from transporting heavier mailpieces on commercial passenger airlines. This continues to reduce the mail volume flown on commercial airlines and shifts it to the shared air network and to highway transportation.

The Postal Service has completed the first 27 months of the commercial air transportation system (CAIR-03) contracts. At the onset of the CAIR-03 contract, Air Category Management Center awarded 18 individual contracts. Scanning requirements for these contracts began in September 2003. Since then, the Postal Service has been able to track the true performance of all suppliers based on their scans adding both performance and cost into the best value criterion used for routing selection. These contracts enhance competitive positioning by using performance data to manage mail flows.

C. RAIL TRANSPORTATION

Expenses for rail transportation were $120.6 million for 2005. This amount was paid to 11 railroads that perform service on rail segments throughout the country. This represents a 28.8 percent decrease from 2004. In 2005 Amtrak decided not to renew its contract for mail transportation service. The majority of service provided by the Amtrak transportation network had been for Periodicals mail, most of which moved to highway transportation.

D. WATER TRANSPORTATION

In 2005 the cost of transporting mail to domestic offshore destinations by water was $28.6 million, a 5.1 percent increase from 2004.

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 2005 the Postal Service spent $241 million on international air transportation for mail destined to 188 countries. U.S.-flag suppliers were paid $198 million and foreign-flag suppliers received $43 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. The Postal Service is required to use U.S.-flag suppliers where available even if their rates are higher. The cost of military mail, reimbursed by the Department of Defense, increased from $344 million to $468 million in 2005.