US Postal Service (USPS) gaining momentum in the B2C parcel market

The USPS often is overlooked as a competitive threat to UPS, but with 22% of the domestic ground package market, we believe it’s a force to be watched, especially given that the USPS is growing its parcel volumes once again, after a few years of decline. We should remember that the USPS is the low-price leader in many markets and so its improved service is putting pressure on UPS’s pricing in those lanes in which it competes, namely light-weight B2C. We believe the re-energized USPS management is attempting to find new ways to bemore efficient and to this end we believe it will be more aggressive in re-pricing its $1billion annual contract with FDX for providing the air line-haul for the USPS’s Priority Mail and Express Mail shipments. While we see potential margin pressure for FDX, the contract doesn’t expire until 2008 and thus we don’t see any near-term disappointment.
P:LibraryMorganS report on USPS, UPS & FDX.pdf