**UPS Protests Possible FedEx/USPS Deal

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United Parcel Service, Atlanta, is crying foul about a tentative strategic partnership between the U.S. Postal Service and FedEx announced last week.


The partnership would allow the USPS to deliver FedEx packages to homes across the country while using FedEx's air transportation network to move Priority and Express Mail around the world. Postmaster General William J. Henderson confirmed the negotiations and said USPS officials would present the details to the USPS Board of Governors next month.


United Parcel Service, 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.


"Congress and the Postal Rate Commission will have much to say about this proposal. This is far from a done deal, considering the public policy and antitrust implications."


Henderson, however, said that "there are no real legal impediments" to the deal.


While John McHugh, R-NY, chairman of the House subcommittee on the USPS, said the agreement is not necessarily unlawful, but he plans to press Henderson for additional details on the possible partnership at a hearing scheduled for Sept. 19.


Moreover, UPS said that while the alliance is "an attempt by FedEx to cure a serious shortcoming, its solution puts its service standards at great risk. … The postal service has recognized deficiencies in delivery service, time in transit, package tracking and guarantees, all of which today's customers demand and expect. In short, why would anyone pay FedEx prices for postal service?"


Both the USPS and FedEx said an alliance would allow both organizations to cut costs and generate revenue, helping customers of both services.


For example, it would help the USPS improve its overnight air delivery capabilities and help FedEx improve its ground shipping capabilities by allowing it to deliver packages more easily to customers' homes, a step known in the industry as the "last mile." Currently, FedEx lacks the ground-service and last-mile capabilities needed to exploit e-commerce opportunities.


Moreover, by "renting out" its vast delivery network to FedEx, the USPS could increase revenue and offset fixed costs.


Henderson said the USPS would not deliver FedEx's overnight product -- FedEx Express -- because "that is [FedEx's] core product."


Jesse Bunn, a FedEx spokesman, also confirmed the talks and said the discussions "have included broad areas of strategic cooperation."


Under the alliance, FedEx would use its air network to deliver some postal Express Mail shipments, which are promised to arrive no later than 3 p.m. the next day. FedEx also might deliver all Priority Mail and Express Mail. In return, the USPS would deliver slower-moving ground parcels for FedEx in rural areas that the company's ground-delivery network does not reach. Mail carriers also could pick up returns for FedEx's catalog clients on their regular rounds, saving FedEx the expense of having to visit thousands of homes.


The negotiations include a proposal to locate FedEx drop-off boxes in about 38,000 retail postal outlets.


The deal with FedEx could replace the USPS' air transport contract with Emery Worldwide Airlines, Redwood City, CA, which helps move Priority Mail and makes joint deliveries of certain shipments to consumers from businesses. In April, Emery sued the USPS for breach of contract, claiming it is spending more to fulfill the contract than it is paid. Emery wanted the contract terminated, and talks are continuing. The company opened and continues to operate 10 centers with more than 4,000 employees, primarily on the East Coast. The contract runs through February 2002.


Last month, a federal judge granted Emery's request for a summary judgment in the lawsuit, saying he agreed with Emery's interpretation of a critical contract agreement on pricing for transportation and sortation of Priority Mail. He gave the postal service until Oct. 12 to comply with the contract.
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