Highway transportation expenses in 2010 were $3,205 million, an increase of $161 million, or 5.3% from 2009. The increase was the result of higher fuel prices and increased contractual mileage driven.

Diesel fuel, which historically represents approximately 93% of all fuel purchased, cost an average of $2.89 per gallon during 2010, compared to $2.52 per gallon in 2009, an increase of 14.7%. Gasoline prices increased 19.4%, to an average of $2.71 in 2010, compared to 2009’s average of $2.27. Although fuel costs are only a portion of total transportation expenses, the increase in fuel prices from last year contributed significantly to the overall increase in highway transportation expenses.

In addition, contractual miles driven in 2010 were 1.6 billion miles, an increase of 34.8 million miles, or 2.2%, from 2009. The increase in contractual miles was anticipated and is primarily attributable to the implementation of our Network Distribution Centers (NDCs) which began in 2009. The NDC network will improve the flow of mail into the network, consolidate package distribution, and improve transportation utilization. The 2010 increase in contractual miles was partially offset by decreases in rail transportation costs, which are included in “Other transportation expense,” and decreased air transportation expense.

Highway transportation expenses for 2009 were $3,044 million, a decrease of $455 million, or 13.0%, from 2008. This decrease was primarily the result of lower fuel prices and a reduction in contractual miles driven. Diesel fuel cost an average of $2.52 per gallon in 2009, compared to $3.87 per gallon in 2008, a 34.9% decrease. Similarly, gasoline prices decreased by 33.4% per gallon in 2009 compared to 2008. In addition to the drop in fuel prices, mail volume reductions and contract adjustments resulted in a slight decrease in contracted miles driven of 1.3 million miles, or 0.8%.