Chapter 1 Compliance with Statutory Policies

essentially were about postal services received and/or rates paid and properly belonged before the PRC, not a federal district court.

The plaintiff then filed an appeal to the U.S. Court of Appeals, Eighth Circuit. The matter was fully briefed and the Eighth Circuit heard oral arguments in St. Louis, Missouri on March 17, 2006. On June 16, 2006, the Eighth Circuit affirmed the district court’s decision. It held in a published decision that the Postal Rate Commission has exclusive jurisdiction over service complaints, and that LeMay’s claims, while couched in contract, were really complaints about inadequate service.

18. Rulemakings

The PRC progressed with two Notice and Comment rulemaking proceedings to consider amendments to its Rules of Practice and Procedure. On January 16, 2004, the PRC proposed to incorporate into its rules a definition of postal services within the PRC’s jurisdiction, as distinguished from nonpostal services, over which the PRC has no jurisdiction (Docket No. RM2004-1). The Postal Service did not oppose this initiative, but suggested several refinements to the proposed definition. The PRC issued its Order and Final Rule on January 4, 2006, defining postal services as: “the receipt, transmission, or delivery by the Postal Service of correspondence, including, but not limited to, letters, printed matter, and like materials; mailable packages; or other services incidental thereto.”

On March 5, 2004, the PRC proposed to expand the amount of information regarding nonpostal services that the Postal Service would need to submit when filing a request for recommendations on general changes in rates, fees, and classifications (Docket No. RM2004-2). The Postal Service opposed this proposal, instead taking the view that the amount of information regarding nonpostal services currently required by the PRC’s rules is fully sufficient to allow PRC review and evaluation of proposed postal rates, fee, and classification changes. Initial and reply comments from interested parties have been submitted in this docket, which is pending.

E. Transportation Policies

1. General

The Postal Service spent $6 billion for mail transportation, including terminal dues, transit charges, and other international expenses discussed below. This is a $608 million increase primarily related to fuel.

2. Domestic Transportation


Approximately $3 billion was spent for highway mail transportation. This represents a 12% increase primarily due to increases in fuel prices and mail volumes carried by highway transportation.


Air transportation costs in 2006 totaled $2.8 billion, an increase of 13% from 2005. This increase is a direct result of rising fuel costs and the shift of volume to dedicated airlift for service improvement. These costs include the use of domestic commercial airlines (passenger and freight) and dedicated networks.

The commercial air transportation contract, CAIR-06, started on September, 30, 2006, consists of seven individual contracts. This is a reduction from the CAIR-03 contract because only seven of the previously contracted 17 suppliers performed at an acceptable level and were deemed eligible to participate in CAIR-06. These contracts incorporate the use of carrier performance data to manage mail flows and service.

To stabilize air transportation costs, the FedEx transportation contract was renegotiated to reflect a more favorable pricing structure. The Postal Service also contracted with United Parcel Service to provide flexibility in scheduling and a more competitive transportation environment. Air to surface volume shifts have been pursued where service performance is maintained or enhanced.


Expenses for rail transportation were $127.1 million, a 5.4% increase from 2005. This amount was paid to 11 railroad companies for service throughout the country.


The cost of transporting mail to domestic offshore destinations by water was $29 million, an a 1.5% increase from 2005.

3. International Transportation


The Postal Service continues to align its air transportation strategy with the global requirements of American businesses and consumers. The Postal Service spent $223.9 million on international air transportation for mail destined to 191 countries. U.S.-flag suppliers received 78.2% of the total spent. The Postal Service is required to use U.S.-flag suppliers where available even when their rates are higher. 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 cost of military mail, reimbursed by the Department of Defense, decreased from $468 million to $449.6 million.

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.

The Postal Service OIG conducted a study of the international air transportation rate setting process and issued a white paper on June 29, 2006. The OIG concluded that regulation of international mail transportation rates and requirements that the Postal Service use U.S. flagged carriers “are vestiges of an earlier age of regulation. They are economically inefficient, and most stakeholders oppose them. Regulation unnecessarily raises costs for both postal ratepayers and taxpayers. The Postal Service should be free to purchase international air transportation the way it purchases any other form of transportation. If complete deregulation is not possible, we believe the Postal Service could achieve a more limited solution by encouraging the Department of Transportation to adopt a policy of regulatory forbearance.”