Justice Department Reviews USPS/FedEx Partnership

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The Justice Department is conducting an antitrust review of the $6.3 billion alliance between the U.S. Postal Service and FedEx Express, the express shipping arm of FedEx Corp., Memphis, TN, for airmail delivery.

The deal has also drawn fire from rival companies and the International Brotherhood of Teamsters.

United Parcel Service, Atlanta, which would be the main competitor to the FedEx/USPS partnership, said the plans have public policy and antitrust implications.

In a statement, UPS said that from a public policy standpoint, "this is like having the Department of Agriculture partner with Burger King to the exclusion of McDonald's. A federal government agency should not be allowed to favor one competitor over another, particularly when this agency has a $40 billion government-granted monopoly from First-Class mail that it can use to compete unfairly in the marketplace with private carriers."

Teamsters president James P. Hoffa said, "This new alliance is anti-competitive and bad for American consumers." The Teamsters represent 200,000 workers at UPS.

The alliance would permit a government agency with a monopoly on First-Class mail delivery to favor a single competitor without an open bidding process, Hoffa said.

Also, he said, FedEx would have an opportunity to co-brand its products, which would receive the perceived backing of the U.S. government.

The Justice Department had been monitoring the talks between FedEx and the postal service for a while.

The deal, announced earlier this month, is based on air transportation and retail business agreements. Under the alliance, the USPS will buy space on FedEx airplanes to transport Express Mail, Priority Mail and First-Class mail, and FedEx will locate overnight service collection boxes at post offices nationwide. The deal is expected to save the agency $1 billion a year and could hold down future rate increases, Postmaster General William J. Henderson said.

In September, when the tentative deal was first announced, the then-chairman of the House Judiciary Committee, Rep. Henry J. Hyde, R-IL, expressed concern in a letter to then-Assistant U.S. Attorney General Joel Klein.

"The negotiation raises a variety of antitrust concerns," Hyde's letter said.

If the USPS were a private entity, any final alliance would require scrutiny by the antitrust division, Hyde said. But he said it is by no means clear that the USPS could enjoy antitrust immunity as an instrument of the federal government, and "any final alliance may try to use the postal service's potential immunity as a shield against antitrust scrutiny."

Aside from antitrust concerns, Hyde said any such alliance should protect the rights of workers at the USPS, UPS and FedEx.

In a Dec. 11 letter responding to a request from Hyde, Assistant U.S. Attorney General Robert Raben said the USPS competes with FedEx and other companies such as UPS "in the delivery of Priority Mail and the shipment of packages."

Raben said, "The antitrust division intends to review any alliance these two parties may reach to determine whether there are issues for federal antitrust enforcement."

Spokesmen for USPS and FedEx said they were aware of the investigations and had no further comment.

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