USPS, UPS Expand Relationship for Domestic Air Transportation

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The U.S. Postal Service June 28 awarded a contract to UPS Inc., significantly enhancing a business relationship involving the domestic air transportation of mail.

The agreement calls for UPS, Atlanta, to transport primarily First Class and Priority Mail each week to and from 98 U.S. cities. UPS currently provides the USPS with mail transportation to and from 16 U.S. cities.

The agreement is a three-year arrangement with the possibility of a two-year extension, the USPS said from its Washington headquarters.

Service under the new contract will begin July 1, 2006. USPS customers will see no change in the way their mail is delivered as the result of this contract.

The move comes as the contract deadline the agency has with commercial airlines ends this week.

David Partenheimer, a USPS spokesman, said that during negotiations with UPS, some commercial airlines decided not to participate in a new solicitation process that the agency recently began for air carriers.

"In other cases, the agency decided not to solicit some airlines," he said. " Some commercial carriers were able to meet the agency's service standards better than some other carriers."

A recent news report, for example, said that United Airlines - the passenger carrier that flies the most mail - will lose its domestic contract with the USPS because of poor on-time performance.

United will still carry international mail, the majority of its mail business. The airline has transported U.S. mail for 75 years.

Mr. Partenheimer would not comment on the United deal, and said no contracts have yet been awarded in the new process, although awards are expected shortly.

Meanwhile, Postmaster General John E. Potter, at a press conference June 28 in Washington, said the postal service is one of the largest users of air transportation in the nation and UPS operates one of the world's largest and best airlines.

"It only makes sense for the postal service to take advantage of the extensive reach of the UPS network," Mr. Potter said. "The added advantage of the similarity of our operations will only enhance the postal service's ability to provide the highest levels of service for out customers."

Mr. Potter said it is prudent for the USPS to work with suppliers that have the transportation of like commodities as a principal mission. He also discussed the relationship between the two carriers.

"The postal service and UPS have been friendly rivals for many years, but what probably would surprise many folks around the country is that we have also enjoyed a very productive and positive business relationship since 2003," Mr. Potter said.

"UPS has been flying some of our mail to some of our more distant outposts, and they have been a very good partner in doing that," he said. "And they have asked us to deliver some packages in some of the more rural areas of the country."

UPS chairman/CEO Michael L. Eskew, who also spoke at the press conference, found the agreement worked in favor of both entities.

"We are excited about expanding our relationship with USPS," Mr. Eskew said. "We can help support the postal service's service commitment to its mail customers while creating new growth opportunities for our company."

UPS said it will use existing capacity to handle the new postal volume, further optimizing its U.S. air network. With more than 575 aircraft either owned or chartered, UPS has capacity during the day to meet postal requirements.

A news report said the deal is expected to generate revenue of more than $100 million a year for UPS. The USPS would not comment on that figure.

The deal would also expand UPS' business relationship with the post office, and may allow the company to expand even more.

One insider said that UPS may be clamoring to take over a partnership the USPS began with FedEx in 2001.

Under that deal, USPS and FedEx formed a business alliance, whereby the USPS buys space on FedEx  airplanes to transport Express Mail, Priority Mail and First-Class Mail, and FedEx can place overnight service collection boxes at post offices nationwide.

Mr. Partenheimer would not comment on that, but added, "the agency is completely satisfied with FedEx's performance."

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