FedEx, Postal Service in Pact Valued at $7.2 Billion
FedEx Corp. said it signed a seven-year shipping agreement valued at $7.2 billion with the U.S. Postal Service, two days after rival Emery Worldwide Airlines lost a court challenge to block the alliance.
The world’s largest overnight shipping company agreed to transport express, priority and first-class mail for the Postal Service in FedEx planes in an accord valued at $6.3 billion over seven years. FedEx drop boxes will be placed in every post office within 18 months, adding about $900 million during the agreement.
The accord may give FedEx, which has annual sales of about $19 billion, a boost in catching rival United Parcel Service Inc., which had $28 billion in sales last year. Both firms have gained business as the Postal Service struggles to compete and erase a projected fiscal 2001 loss of $480 million.
UPS plans to ask Postmaster General William Henderson to let the company review the transaction, said UPS spokesman Tad Segal.
The Postal Service and FedEx will still compete, partly because they focus on different kinds of packages, Henderson said. Postal workers won’t accept or handle FedEx shipments, while FedEx won’t accept or deliver U.S. mail. The Postal Service retains the right to use other companies to carry mail by air.
FedEx will hire 500 pilots to support the contract to supplement its current force of 3,500 pilots, said Dave Bronczek, chief executive of FedEx Express.
The company will invest $350 million to $400 million for new planes, computer systems and enhancements to customer service networks, Bronczek said. It will add nine to 11 wide-body planes to its fleet of 665.
The agreement comes two days after the U.S. Court of Federal Claims rejected a request by Emery Worldwide Airlines, a unit of CNF Inc., to block the agreement. Emery has a $200-million annual contract with the Postal Service that runs through 2004.
CNF spokeswoman Nancy Colvert said Wednesday that the accord “is unfair and we intend to pursue our case in court.” CNF had argued that the agreement violated competitive bidding rules.
The alliance is nonexclusive because “as a government organization we feel we have the responsibility” to offer contracts to companies that provide similar services, said Pam Gibert, a Postal Service vice president. “It would have been inappropriate for us to make this exclusive with FedEx.”
FedEx, based in Memphis, Tenn., fell 36 cents to close at $41.91, while Atlanta-based UPS declined $2.50 to close at $58.50. Palo Alto-based CNF shares rose 25 cents to close at $33.25. All trade on the New York Stock Exchange.
