year, in contrast to the years before 2001 when our strong TFP growth was achieved by absorbing an increasing workload.

Transportation

     Transportation expenses decreased by $143 million in 2003. After the terrorist attacks on September 11, 2001 the Federal Aviation Administration placed restrictions on mail pieces weighing more than 16 ounces, which prohibited us from using commercial air carriers. We were thus forced to move virtually all Priority Mail to the FedEx network and our surface network, with a small volume of mail on expensive air taxis. Although the FedEx network is less expensive than our old dedicated network, it is more expensive than commercial air carriers. We are currently moving 51% of Priority Mail on our surface network and 48% on FedEx.

Change in Transportation Expenses
2003	2002	2001
-2.8%	1.5%	7.4%

     Even with the additional increase in volume to the FedEx network, we were able to keep the growth in transportation costs to a minimum. We moved more Priority Mail to surface transportation, reducing those network costs. We negotiated changes to the FedEx contract that lowered our rates as volume on that network increased. A midyear decline in fuel prices also helped reduce transportation costs.

     We think that our transportation costs for 2004 will remain in line with our costs for 2003. We continue to work with the Transportation Safety Administration with the expectation that we will again be able to use passenger air transportation for Priority Mail. We are also working to integrate and realign our distribution and transportation infrastructure.

Cost Reduction Initiatives

     We will continue our efforts not just to control costs but to reduce them. For 2004, we plan $1,368 million in cost reductions. We will reduce operating costs by continuing our Breakthrough Productivity Initiative. We plan a reduction of 25 million work hours in 2004, even with the additional work hours from an extra delivery and retail day due to a leap year. This reduction, which is equal to approximately 11,000 full-time equivalent employees, will be the fifth consecutive year that we have reduced work hours, for a five-year total work hour reduction of 191 million. We continue to reduce our total work hours and our costs even as we deliver to 1.9 million new addresses each year.