Postal Service Says its Trying to Re-distribute Fedex Mail Load
Since the Sept. 11 terrorist attacks, the amount of U.S. mail carried by FedEx Express has nearly doubled and service has improved, but the Postal Service continues to work to get mail back on commercial airlines.
"We would like to get back to the original design," Paul Vogel, the Postal Service's vice president of network operations management, said after the Postal Service's Board of Governors meeting Tuesday at The Peabody.
That design means trucks carrying 50 percent of the mail volume, while FedEx and commercial airlines evenly split the remainder. However, since the terrorist attacks, security concerns have restricted the cargo that airlines can carry, including mail.
Vogel said the airlines get about $450 million in revenue for carrying mail, or about half the amount earned before Sept. 11.
Last year, FedEx Express, the overnight air express unit of Memphis-based FedEx Corp., and the Postal Service formed a $7.2 billion, seven-year alliance; the bulk involves FedEx transporting about 3.1 million pounds of express, first-class and priority mail a day. Before FedEx, the Postal Service used multiple cargo carriers to move mail from airport to airport.
Since FedEx began the air transport contract in August 2001, the Postal Service has twice added more mail volume to the FedEx contract on a short-term basis. FedEx now carries closer to 7 million pounds of mail a day; the Postal Service ships about 8 million pounds a day by air, Vogel said.
The latest addition of mail volume ends on May 31, 2003, which is the end of FedEx's fiscal year.
"None of the former contracts – individually or as a whole – offered the scope, market reach, system capabilities or financial stability the Postal Service now enjoys with FedEx," Vogel told the Postal Service governors.
Postmaster General John Potter voiced the same praise in his remarks to the board. "It's a relationship that works and helps us keep America's mail moving," said Potter, adding that first-class, priority and express mail services have reached record levels.
Still, for contingency purposes, the Postal Service has always avoided reliance on just one air carrier. To that end, Vogel said the Postal Service has been working for the past year to restore the volume that the commercial airlines have lost.
Speaking to analysts and investors last week in New York, Frederick W. Smith, chairman and chief executive of FedEx Corp., said commercial airlines' getting more mail is not an enormous issue for FedEx.
Still, Smith said, it appears unlikely that mail will ever return to the pre-Sept. 11 level for commercial airlines.
For one thing, Smith said, the government's push to X-ray all items before placing them on commercial airlines creates an enormous problem for the Postal Service, although it makes sense to screen.
Smith said screening mail before placing it on passenger airlines adds to costs for the Postal Service, which is under financial pressure.
The debt-plagued Postal Service is in the second year of a five-year initiative to cut $5 billion in expenses by 2006. So far, the Postal Service has reduced costs by $2.9 billion, and the FedEx contract has played a role in that, Postal Service executives said Tuesday.
David Bronczek, president and chief executive of FedEx Express, said last week about the Postal Service: "At the end of the day, if they're feeling like it's a good value for them, they're saving money, and their service is improving, we're going to do everything we can to keep as much of that addendum volume and more, in fact, if we can going beyond."
To be sure, Postal Service executives appear satisfied with the FedEx contract. Vogel called it a "stellar agreement."
But Vogel did not speculate on whether the Postal Service and FedEx might renegotiate their contract if the restrictions are not eased to allow commercial airlines to handle more mail by the time the current addendum ends next May.
"That's the wildcat," he said.
