C. PARCEL SELECT

Parcel Select is the Postal Service's ground, package-delivery product designed for medium-to-large shippers that enter their packages at destination Postal Service facilities. Parcel Select service offers excellent value and service. There were significant developments in the ground market, most notably the acquisition of a key consolidator by FedEx and the merger of two other parcel consolidators. There has been increased focus on maintaining an open dialog with service providers. Quarterly meetings with senior management are held to discuss brand improvement issues such as scanning, service, and manifest accuracy. Service is at an all time high as is the percent of packages entered at the destination delivery unit.

D. PARCEL RETURN SERVICES

Direct to consumer online and catalog sales continued to rise in 2005 and with it so has the number of returned parcels. The Postal Service has been able to capitalize on this growth with its convenient line of return solutions such as Parcel Return Service (PRS) and Merchandise Return Service (MRS). PRS, a work sharing returns program, has been eagerly adopted as merchants appreciate the value of offering a quick, easy, and convenient return service. In 2005 PRS expanded into the Return Delivery Units which is now active in 50 districts and expansion is expected to continue. This allows shippers to pick up returned packages at the same delivery unit where the packages were first entered for delivery.

E. HOLD FOR PICKUP

Late in the year the Postal Service implemented the Hold for Pickup endorsement in response to requests by the mailing industry. This enhancement is designed to meet the unique needs of parcel mailers who ship high-value goods and either do not want the goods delivered to the customer's door or prefer to give the customer the option to collect the parcel at the Post Office. Hold for Pickup was implemented as an endorsement for the Postal Service's Parcel Select service but will expand to additional services where applicable to meet customer needs.

F. COST REDUCTION INITIATIVES

The Postal Service continued to focus on reducing costs that support package service products. Efforts include managing the expenses of packaging supplies, which resulted in significant cost reductions, and coordinating actions to improve mailer parcel barcode quality. Another program, through which Express Mail Corporate Account (EMCA) customers pay for their postage by credit card, was created to enhance service and increase financial controls. Customers are opening new accounts and many trust accounts are converting to the EMCA.

D. International Mail

1. Volume and Revenue

Due to continued economic growth, weight per piece growth, and rate stability, international mail revenue increased 4.1 percent in 2005. Services that saw significant revenue growth included Global Express Guaranteed, Global Express Mail, Global Priority Mail, and Global Air Parcel Post. No rate adjustments were implemented in 2005. To the extent possible, the targeted increase is 5.4 percent, consistent with the domestic rate change. As of January 8, 2006, international rates will increase 5.9 percent on average.

2. Improving International Services

The Postal Service continues a multiyear process of improving the reliability and features of its expedited and package service offerings, providing date-specific delivery and focusing on the most important geographic segments of the market. Effective December 2004 the Postal Service switched delivery providers in Europe from GLS Holdings of Royal Mail to individual foreign postal administrations. In July 2005, the Postal Service launched a date-certain service for Global Express Mail to major Asia-Pacific destinations. These efforts have resulted in revenue growth of 22 percent for Global Express Mail and 15.7 percent for Global Air Parcel Post services in 2005.

Currently, the Postal Service is working with select Asian Posts to increase service performance quality to industry standard levels, including commitments to perform mandatory scanning and improve postal operations efficiencies for Global Air Parcel Post.

3. State Department Coordination/UPU Congress

The Postal Service worked with the U.S. Department of State to represent the United States in the Postal Operations Council (POC) of the Universal Postal Union (UPU) during January 2005. Eighty-nine countries attended this session.

One of the main functions of the POC - in addition to approving the structure, chairpersons, and work plans of over 30 POC bodies - was to adopt new Letter Post Regulations and Parcel Post Regulations. The POC session considered nearly 400 proposals. It adopted decisions on numerous technical issues including barcode requirements for accountable mail, electronic messaging for the exchange of mail, claims and inquiry procedures, statistics and accounting procedures, and the use of a universal mail-bag. The United States was particularly successful with its own proposals: of 19 proposals submitted, 16 were adopted, none were rejected, and three were referred for further study. Of the 400 proposals considered, 325 decisions were made and 75 were referred for further study. Of the decisions made, 275 favored the U.S. position and 50 were against the U.S. position.