The U.S. Postal Service and package carrier FedEx Corp. said today that they have entered into two seven-year shipping agreements worth a total of about $7 billion.
FedEx Express, Memphis, TN, will provide air transportation for certain postal services. The air transportation agreement is expected to take effect in late August and will generate approximately $6.3 billion in revenue.
Under the second agreement, FedEx Express will have the option of placing a self-service drop box in every U.S. postal location. This nonexclusive retail agreement will be launched with an operational test in February. FedEx expects to place more than 10,000 drop boxes nationwide in the next 18 months. FedEx expects this to produce about $900 million in increased drop-box revenues.
The USPS Board of Governors and the FedEx Corp. board of directors have approved the agreements.
“Whenever the public and private sectors work together, the real beneficiary is the American public,” said Frederick W. Smith, chairman and president/CEO of FedEx Corp. “These two service agreements will create a winning business situation.
“The U.S. Postal Service will gain a single air transportation provider for most of its Express and Priority Mail, which cannot travel solely by surface. FedEx will gain an expanded retail network to grow our business. Most importantly, our customers and the American public will win with greater choice, flexibility and convenience.”
FedEx Express will provide approximately 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.
Most shipments will be on FedEx aircraft that are currently idle during the day, though some additional aircraft and equipment may be needed. FedEx Express will hire new employees, including pilots, aircraft mechanics and cargo handlers, with the largest initial impact on Memphis operations. Under this nonexclusive agreement, the USPS can continue to use carriers other than FedEx.
The additional drop boxes will give U.S. customers greater access to the FedEx network, which already includes about 10,000 staffed locations as well as 34,000 self-service drop boxes. FedEx will pay annual fees to the USPS for drop-box placements. After initial implementation, the USPS may seek similar agreements with other shipping companies.
Alan B. Graf Jr., executive vice president and chief financial officer at FedEx, said the company expects to invest between $350 million and $400 million over the seven-year period to provide services under these agreements.
“We believe this is a superior business alliance agreement, and it contains appropriate provisions regarding minimum volume levels, prompt payment terms, reimbursement of most network expansion costs and other key understandings to ensure both parties achieve their goals and benefits under these agreements,” Graf said.
Even after both service agreements take effect, FedEx Express and the postal service will continue to operate competitively. The postal service will not pick up or deliver any FedEx packages, and FedEx employees will not accept or deliver U.S. mail. In addition, FedEx and USPS have no plans to co-brand, and neither plans to alter current service features.
