**USPS, FedEx Deal Near

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The U.S. Postal Service and FedEx Corp. are nearing an agreement on a highly anticipated delivery alliance, according to published reports.

Details of the plan, which has been the subject of negotiations between FedEx and the postal service for more than six months, were expected to be presented to the USPS Board of Governors at a meeting yesterday in Washington.

It was not clear whether the governors, who would have to approve any delivery alliance, planned to vote on the matter yesterday.

While the agreement still could fall apart, the delivery partnership is likely to include having FedEx, Memphis, TN, use its fleet of 662 aircraft to haul Priority Mail and Express Mail packages for the post office. Postmaster General William J. Henderson confirmed the negotiations in August.

A postal service spokeswoman had no comment on the outcome of the meeting, which was closed to the public. The governors' public meeting takes place today.

The pending agreement already is being fought by the Emery Worldwide Airlines unit of CNF Inc., which carries Express Mail for the post office.

On Friday, Emery asked the U.S. Court of Federal Claims in Washington to stop the post office from awarding an air transportation contract to FedEx. In its court filing, Emery claims the contract "contemplated with FedEx will likely result in the termination for convenience of [Emery's contract] three years before it is set to expire."

A hearing on the dispute is scheduled for today.

The contract between the USPS and CNF Inc.'s Emery Worldwide Airlines to help move Priority Mail was terminated on Sunday.

The USPS now assumes responsibility for operating the Priority Mail network and the 10 Priority Mail processing centers that Emery began handling in 1997.

The decision prematurely ended a contract originally valued at $1.7 billion, the largest in USPS history. The original contract was scheduled to conclude in early 2002.

The relationship was troubled from the start, with Emery claiming that the volume and mix of letters and parcels that it was handling differed significantly from initial USPS projections, making the arrangement unprofitable for Emery. Emery sued the USPS for breach of contract in April in the U.S. Court of Federal Claims, which hears legal disputes that involve the federal government.

While Emery lost its bid to stop working with the USPS, in August the court ordered the USPS to abide by changes it previously had negotiated in the contract's pricing formula. As a result, Emery received payments of about $102 million from the USPS.

Both Emery and the USPS said they are committed to making the transition of the centers seamless to the customer. CNF also said it would continue to provide air transportation for Priority Mail for up to nine months.

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