UPS is planning to take on FedEx in bidding for a US Postal Service contract for domestic USairlift that is worth more than $1 billion a year at present.
The US Postal Service has told FedEx and UPS that it will seek competitive bids when thecurrent contract with FedEx expires in September 2013. The heavily loss-making postal operator isseeking to reduce operating costs dramatically in the years ahead.
Under the contract dating back more than 10 years, FedEx Express provides domestic airtransportation services between airports across the US for USPS, including for First-Class,Priority and Express Mail, with most of the volumes flown via its Memphis hub.
The contract was renewed in 2006 for seven years and FedEx put its value at $8 billion forthat period, making USPS into FedEx’s largest single customer. In the same year, USPS awarded UPS amuch smaller $100 million contract to fly First Class and Priority Mail volumes between 98 UScities, replacing commercial airline capacity.
UPS spokesman Norman Black told CEP-Research that the company “definitely intends to bid onthis work”. He said: “UPS absolutely believes it can support the Postal Service’s commitment to itsmail customers by enhancing the efficiency of the mail system while creating new growthopportunities for UPS. We believe the UPS air network and the company’s proven logisticscapabilities place UPS in a position to best satisfy the demands of the nation’s mail system.”
UPS today acts as a customer, vendor and supplier to the USPS as well as a competitor, Blackpointed out. “UPS believes it is important to have a strong postal service. The USPS provides avaluable service to the industry and our company by stimulating demand for goods, many of whichshow up as packages in our system as well as those of our competitors.”
FedEx announced in an SEC filing on Monday that “the USPS has informed us that it intends tosolicit proposals for the provision of these services upon the expiration of the current agreement”. It warned that any loss of the contract could have a negative impact on asset utilisation andprofitability, while if it retained the contract this might be on less favourable terms andconditions.
FedEx also said that it would remove some 5,000 drop boxes at USPS locations in approximately340 metropolitan areas under an agreement that expired in June 2012.
Under a separate agreement dating from 2004 and renewed in 2009, FedEx Express also providestransportation and delivery for the USPS’s premium international delivery service called GlobalExpress Guaranteed (GXG). FedEx collects the express packages from US post offices, sorts,transports and delivers them. The value of this contract has not been disclosed.
