Fedex Could Lose Lucrative USPS Account
FedEx said on Monday it could be in danger of losing the U.S. Postal Service as its largest customer.
The financially strapped post office has informed FedEx and rival UPS that it will seek competitive proposals for air transportation services that are under contract to FedEx through September 2013.
"Accordingly, upon the expiration of the current agreement, the transportation services we provide to the USPS could be transitioned, in whole or in part, to another provider," FedEx said in an annual report filed with the U.S. Securities and Exchange Commission.
"This would have a negative impact on our asset utilization and profitability," the company stated.
FedEx has carried First Class, Priority and Express Mail for the Postal Service under contracts dating to 2000, using the extra volume to maximize efficiency of its domestic fleet and the Memphis hub.
FedEx was the Postal Service's top supplier in fiscal 2011, taking in nearly $1.5 billion, while UPS came in 11th at about $102 million, according to an annual report on top Postal Service suppliers by David P. Hendel of the Washington law firm Husch Blackwell.
The bidding process would come at a time when FedEx Express is restructuring its domestic fleet and workforce in hopes of reversing less than satisfactory profits from that segment of its business. Company officials are expected to provide details of the retooling in October.
U.S. mail from across the country is funneled through the FedEx Express superhub in Memphis, putting planes, people and facilities to work in the daytime lull between overnight peaks.
FedEx spokesman Jess Bunn said, "The U.S. Postal Service is an important customer of FedEx Express, and we are very proud of the outstanding service and value we have provided to the Postal Service for more than a decade. By flying some of the fastest growing and most successful postal products, FedEx Express continues to provide the Postal Service and postal customers important services."
Atlanta-based UPS can be expected to compete vigorously for the new contract.
UPS has provided airlift for some First Class and Priority Mail since 2006 "and remains focused on providing the best, most reliable service possible and growing our relationship for the future," spokesman Norman Black said.
"UPS absolutely believes it can support the Postal Service's commitment to its mail customers while creating new growth opportunities for UPS. We believe the UPS air network and the company's proven logistics capabilities place UPS in a position to best satisfy the demands of the nation's mail system."
FedEx's contract with the postal service was first negotiated in 2000 and went into effect in 2001. It was renegotiated for seven years in 2006.
Perhaps reflecting the magnitude of the postal service's financial problems and urgency of cutting costs, this represents the first time the postal service has opened the business up for proposals. It was unclear when a request for proposals would be issued.
FedEx said even if the company retains the contract, "The terms of the new arrangement may be less favorable than those currently in place."
FedEx doubles as the largest single customer of the post office, which it pays to provide last-mile deliveries of FedEx SmartPost packages.
Analysts had been warning that FedEx stood to lose considerable revenues because of post office budget woes. Some predicted that FedEx could lose as much as $400 million a year in revenues from the post office after the current contract runs out.
The amount is large, but it's still a relatively small portion of FedEx total revenues, which reached $42.7 billion in fiscal 2012, which ended May 31, analysts said.
"The loss of that business would be a significant interruption, but I think there's a relatively low likelihood they would lose it," said Donald Broughton, analyst with Avondale Partners LLC.
Putting services out for competitive bidding, "That's standard procedure in a government contract. It's part of the regulatory process that they have to disclose it as a risk factor."
Broughton said when FedEx won the Postal Service business, the only other company interested was Emery Worldwide, which has since been bought by UPS.
No comments:
Post a Comment