UPS, FedEx Seek Postal Service Air Contract

This story appears in the March 4 print edition of Transport Topics.

As package giants UPS Inc. and FedEx Corp. jockey for a new billion-dollar U.S. Postal Service airmail contract, other carriers said they do not expect major changes if the agency’s plan to cut Saturday mail deliveries becomes reality.

The contract, which made FedEx the largest postal contractor with $1.6 billion in annual revenue, replaces one that expires in September. Lowering air costs could help the struggling Postal Service cut its $15.9 billion annual loss, and dropping Saturday mail delivery could save $2 billion.

A Feb. 15 report by analyst Christian Wetherbee of Citibank said a lower-cost contract could be awarded “over the next few weeks.”

Satish Jindel, who heads SJ Consulting, cited one key reason why he believes the contract will be awarded shortly.

“The new contractor will need three or four months to plan and deploy all the capacity,” said Jindel, who expects UPS and FedEx each will receive a share of the work.

He also told Transport Topics that costs will be lowered by making more use of less expensive ground shipments, which can now meet postal standards because both package carriers have improved transit times.

Sue Brennan, a spokeswoman for the Postal Service, would say only that “nothing has been finalized on our air cargo network at this point.”

Washington attorney David Hendel’s annual contractor list headed by FedEx shows UPS at No. 10 with $126 million annually.

The Postal Service has said it wants to halt Saturday mail delivery on Aug. 5, although Congress may challenge the plan. It said it would continue to deliver packages on Saturday.

UPS spokeswoman Kara Ross said, “We do not speculate on what might or might not happen, such as the potential end to Saturday mail delivery.”

“It is too early to say precisely what the eventual impact to FedEx would be from the U.S. Postal Service’s proposed Saturday delivery changes,” spokesman Jess Bunn said, adding that FedEx “has an outstanding business relationship with the USPS.”

Brennan said FedEx’s SmartPost and UPS’ SurePost deliveries would be unaffected.

“Overall transportation spending shouldn’t be affected that much by the Saturday home delivery issue,” said Hendel, noting that the agency spends about 80% of its annual budget on wages and benefits.

“The same amount of mail still has to be moved,” he said. “The cost of moving the mail is just 10% of their budget. It is not the problem area for the USPS.”

“I honestly don’t think the potential end of Saturday home delivery is designed to change the way the mail moves across the country,” said Janie Ensminger, postal contract administrator for Midwest Transport Inc., Robinson, Ill., whose mail contract revenue totaled $55.6 million annually.

“The only thing that will change is to save those wages,” she said, referring to mail carriers. “Their single biggest expense is their own employee wages.”

Dropping Saturday delivery also won’t affect contract maintenance much, said Randy Davies, president of Wheeler Bros. Inc., Somerset, Pa., the ninth-largest Postal Service contractor.

“Expenditures may decrease slightly because the vehicle usage will be reduced, however, maintenance schedules are based on time and not mileage,” Davies told TT. “The impact will be more on reduction of carrier work hours and fuel usage, but the maintenance schedules should remain the same.”

Art Taylor, president of Taylor Postal Contracting Inc., Jackson, Mich., agreed that Saturday home delivery won’t change his 28-truck operation.

“If it happens . . . I don’t see it having a big effect on our business,” Taylor said. “That is not going to change the volume we carry.”

Two bills have been introduced in Congress, one each in the House and the Senate, which could block changes in Saturday delivery.

One group will be affected by Saturday delivery — the estimated 8,000 small businesses known as “contract delivery services” that deliver and bundle some mail.

Skip Maraney, executive director of the National Star Route Mail Contractors Association, which represents the contractors, told TT any changes would require negotiations.

He also noted, “We have been talking about this Saturday delivery issue for the last two or three years and nothing has happened yet.”

“We certainly ought to have some legislation passed by then,” Maraney said, referring to the Aug. 5 target. “That may take care of the issue, one way or the other.”