USPS, FedEx Ready for Joint Venture

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The U.S. Postal Service is ready to begin its shared transportation network with air express carrier FedEx Corp. on Aug. 27.

The shared network will both expand the size of the USPS' air fleet and change the nature of the fleet, ultimately bringing efficiencies that will save money and increase service performance.

"Our expectation is that customers will start seeing much more consistent, reliable service right after the 27th," said Paul Vogel, vice president of network operations at the USPS.

In January, the USPS and FedEx announced two seven-year shipping agreements.

Under one agreement, FedEx Express will provide air transportation for most of its Express Mail, Priority Mail and First-Class Mail that cannot travel solely by surface postal services.

FedEx Express will provide about 3.5 million pounds of airlift capacity every day -- the equivalent of about 30 wide-body DC10 aircraft. FedEx aircraft will carry predominantly unitized shipments, presorted by the postal service into sacks, trays, tubs or containers. Many shipments will be on FedEx aircraft that are usually idle during the day.

Through the arrangement, the USPS will have access to 770 FedEx aircraft. There are 338 jets, of which 288 are wide bodies.

During the seven-year agreement, the USPS expects to save about $1.3 billion in air transportation costs and more than double the market reach of its Express Mail next-day and Priority two-day services.

There is a 95 percent performance requirement, which includes a financial reduction if FedEx fails to meet that service threshold.

There is also a guaranteed volume arrangement, which will give the USPS 443,120 cubic feet of lift capacity for the day portion of the contract, mainly for First-Class and Priority Mail. For the night potion -- which mainly will handle Express Mail and some International Express Mail -- the agreement provides for 250,000 pounds of mail.

Vogel also said that when the network is fully operational, it would expand the service reach for the night network from 50 markets to 116 markets and its daytime network from 26 markets to 84 markets.

The USPS began testing FedEx's transportation network in mid-June, Vogel said, and at the time, everything was on track.

"We continue to enjoy an extremely good relationship with FedEx," Vogel said. "Right now we see absolutely no problem that will inhibit us from the operational aspects of moving this product."

In addition, he said, early experience in the cities that have started using the transportation network has been very good -- well above the 95 percent performance threshold and on pace with the cost savings the USPS anticipated.

The other agreement involves FedEx Express, a subsidiary of FedEx Corp., having the option of placing self-service drop boxes in every U.S. postal location. In June, the USPS and FedEx Express began a nationwide blitz to install about 10,000 FedEx delivery boxes outside post offices in major markets.

More than 700 self-service drop boxes were installed in metropolitan areas of Washington, Chicago, Philadelphia and Trenton, NJ. By the end of last month, 3,000 FedEx drop boxes were installed outside post offices in 38 metropolitan areas. During August and September, deployment will extend to at least 70 additional markets, with plans for further expansion through mid-November.


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