The Customer's Right (Emery Worldwide is suing the postal service)
When I was a pimply 16-year-old flipping hamburgers, McDonald's pounded their corporate mantra into my tiny brain. The customer is always right. Right?
There are a couple customers of the United States Postal Service that might disagree with that. Emery Worldwide is suing the postal service for early cancellation of its contracts for airlift of its Express Mail and Priority Mail. Emery also had to go to court to win about $200 million in back pay from the USPS for its Priority Mail contract.
Kitty Hawk Air Cargo, hoping to emerge from Chapter 11 bankruptcy, is also losing its contract to haul Priority Mail on the West Coast.
Carriers and third-party logistics firms frequently complain that their shipper customers demand too much service for too little cash. While I side with most shippers on that point, the equation is much different when the shipper/customer is the postal service. Quasi-governmental agency status gives the post office the right to cancel any contract out of whatever the post office wants to label as "governmental convenience."
Emery can assert that it provided a good service that met the criteria and specifications that the postal service designed. If the cost and performance were dependent upon the specifications that the USPS wrote, then who is to blame if the results came up short?
All of this is what Associate Editor Kristin S. Krause is referring to when she notes that the postal service has "a reputation for being a difficult customer" (see page 37 of the 01/22/01 print edition).
So what are we to think about the $6.3 billion, seven-year contract that FedEx Corp. has signed with the postal service to provide airlift of Express Mail and Priority Mail? Will the celebration be replaced in a year or two with more recrimination and legal action?
Probably not, at least from FedEx's side. The FedEx deal is very different from the Emery deal. Emery had to provide aircraft dedicated to the USPS contract, and FedEx will not. The mail can go on any plane on which FedEx has extra capacity.
FedEx will carry most of the volume during the day when its planes are normally idle, which will improve the aircrafts' yields. It will not have to sort mail, as Emery had to, but will receive and deliver it in containers. The contract provides a huge boost to its domestic revenue stream. Given the stagnant nature of the domestic market, it would have taken years to build revenue that the postal service is providing in just one contract.
This boost to the company's domestic market also lets FedEx concentrate on the much faster growing international market. The international market is growing at a rate in the double digits, FedEx executives noted last week as they announced a deal to buy 10 huge new Airbus freighters over the next decade.
FedEx also gets the privilege of renting space for its drop boxes outside every post office in the country. The huge number of easy-to-find locations will provide a $900 million increase in its consumer business, and although other express carriers also will be able to place their drop boxes at post offices, the contract gives FedEx first dibs.
But it's not all blue sky ahead for the FedEx-USPS contract. Emery is already in court fighting the premature ending for its contract. Other carriers are crying foul, complaining that the FedEx deal was not subjected to a competitive bidding process.
The Teamsters are making noise about such a large contract going to a nonunion company and U.S. Rep. Henry Hyde has asked for a Department of Justice probe of antitrust concerns.
Clayton Boyce,
Publisher & Editor in Chief
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