*USPS, FedEx Hold Alliance Talks

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The U.S. Postal Service said yesterday it is negotiating a strategic alliance with FedEx Corp under which USPS would deliver FedEx packages to homes across the nation 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.


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, Memphis, TN, also might deliver all Priority Mail and Express Mail. In return, the post office would deliver slower-moving ground parcels for FedEx in rural areas that the company's ground-delivery network does not reach. The negotiations also include a proposal to locate FedEx drop-off boxes in about 38,000 retail postal outlets.


The deal with FedEx could also replace the USPS' air transport contract with Emery Worldwide Inc., Redwood City, CA, which helps move Priority Mail and makes joint deliveries of certain shipments to consumers from businesses. Emery sued the USPS for breach of contract in April, and the company has claimed it is spending more to fulfill the contract than it is being paid. Emery wanted the contract terminated, but it has not yet been terminated, and talks are still continuing.


However, the agreement is not nearly completed.


"No agreements have been made yet, but we are optimistic that we can reach some sort of strategic alliance on many of the points," Henderson said. "But, the devil is in the details, which include the fees we negotiate for the air transportation and the arrangement that we have for the delivery and pickup of Federal Express."


He said that an agreement added that anything the USPS agrees to is subject to the USPS' Board of Governors review, and that if anything was approved, it wouldn't be implemented until next Spring.


Henderson said the talks grew out of brainstorming sessions earlier this year with FedEx Chairman/CEO Frederick W. Smith. He said an alliance would allow both entities, currently competitors, to cut costs and generate revenue. It also would allow FedEx to deliver packages more easily to customers homes -- known in the industry as the "last mile."


The thinking came from the fact that we have a fixed infrastructure -- we go by all homes everyday, whether we have one piece of mail or 50 pieces of mail -- and why not take advantage of that fixed infrastructure to take costly segments of Federal Express out for them, including the pick-up FedEx packages that are being returned, and the delivery of some residential services."


Henderson said that USPS, Washington, will not be delivering FedEx's overnight product-- FedEx Express -- because "that is [FedEx's] core product."


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


Besides the Emery partnership, the USPS has already struck limited delivery alliances with Airborne Freight Corp., DHL Worldwide Express Inc. But none of the post office's previous deals with private carriers comes close to the scope of the plans being considered now.


Many questions, however, remain.


It is unclear whether a long-standing government rule preventing FedEx from delivering packages to post offices and post-office boxes would be lifted as part of any agreement. Also unclear is how the Postal Service and FedEx would differentiate Express Mail from FedEx's similar overnight service if the company ended up delivering Express Mail packages.
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