FedEx, Post Office talk alliance Extensive, 'intriguing' pact in works

FedEx Corp. and the U.S. Postal Service confirmed Thursday that they are in the process of hammering out a wide-ranging marketing and operating alliance.

A possible deal has been in the works for several months. In Memphis and Washington, teams of executives are working to reach an accord, and they are essentially trying to answer one vital question: How much?

As in how much will FedEx charge the Postal Service to carry USPS express and priority mail shipments? As in how much will the Postal Service charge FedEx to carry ground shipments to the rural areas on the fringes of FedEx’s vast U.S. network?

But more important, how much will an agreement between the two organizations affect what consumers are willing to pay?

Without question, “how much” is a deal breaker.

“The devil is in the details,” William J. Henderson, postmaster general and chief executive of the Postal Service, said Thursday.

And many details remain to be worked out involving a possible wide-ranging FedEx-Postal Service alliance unearthed in media reports late Wednesday and explained by Henderson Thursday.

Currently, there is no deadline for an agreement to be reached. Henderson said he would like to be able to present the Postal Service’s Board of Governors with a statement of principle when the 11-member body meets Oct. 2-3 in San Diego.

The board must approve any deal.

Here’s what’s being discussed:

The Postal Service would likely pick up returned FedEx packages and deliver shipments to residential areas, especially rural spots FedEx can’t reach with FedEx Ground or FedEx Home Delivery.

But, the Postal Service wouldn’t deliver overnight express shipments, FedEx’s core product, nor is there any talk of having letter carriers transport heavier shipments.

There’s also some discussion about a product that melds the lucrative FedEx brand name with the Postal Service’s. However, any branding effort will be closely scrutinized.

FedEx will not be delivering to the postal box outside your house. Instead the deal could give FedEx access to about 20 million post office boxes and allow the company to place drop-boxes in 38,000 postal retail outlets.

And in the long run, the Postal Service wants to use FedEx Express to ship all of its priority and express mail. First Class Mail is not included.

In all, FedEx would gain the comprehensive ground coverage it desires without having to spend hundreds of millions to build it out to low-density areas. And in the midst of a money-losing fiscal year, the Postal Service would get another source of revenue.

“It’s absolutely intriguing,” said Douglas Rockel, an analyst with ING Barings, “if they could pull something like this off.”

Memphis-based FedEx Corp. is an $18 billion holding company, whose family includes the world’s largest express shipper, FedEx Express, serving 210 countries.

But in the mailing world, FedEx is small compared to its Atlanta-based rival United Parcel Service (about $67 billion) and Germany’s state-owned Deutsche Post ($23.5 billion). At about $65 billion in revenues, the U.S. Postal Service falls in with those giants, and an alliance with FedEx could be a cause of concern for UPS.

Opposition is a given. Antitrust implications already are being raised.

In fact, UPS already is using the M-word (monopoly) in describing the Postal Service’s lock on First Class Mail and has vowed to raise public policy issues before Congress and the Postal Rate Commission. This is despite UPS’s assertion that a FedEx-Postal Service alliance will prove the advantages of UPS’s integrated air and ground network.

However, Henderson said there are no legal impediments to prevent an alliance with FedEx.

“This is not an exclusive deal. We are not locking out UPS from discussions,” Henderson said, adding that USPS has talked with UPS in the past, but nothing came of it.

In fact, the Postal Service has similar deals on a smaller scale with Emery Worldwide Airlines (a