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VOL. 126 | NO. 240 | Friday, December 09, 2011

USPS Cuts Will be Felt in Memphis

By Bill Dries

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The recent set of U.S. Postal Service recommendations for closings would have a larger impact in Memphis than customers waiting two or three days instead of next-day service for letter and package delivery.

But the proposed closing of one of the three Memphis USPS centers that handle and process mail is a mixed bag in terms of its impact.

The proposed cuts would halve the Postal Service’s network of processing facilities in what Postmaster General Patrick Donahoe has called “a new reality.”

The Memphis center that would close is the processing center at 3300 Jet Cove, east of Memphis International Airport, on the other side of Tchulahoma Road from where the east-west runways end.

But the USPS also has a relationship with Memphis-based FedEx Corp., as the two competitors are partners in some sectors of the marketplace.

Every afternoon a fleet of FedEx jets rolls out of the Memphis hub near the Jet Cove facility and return in the evening. Despite the purple and orange colors, the planes are under contract with the Postal Service, moving USPS-shipped cargo across the country.

The Jet Cove facility is seven to eight miles from the Bulk Mail Center at 1921 Elvis Presley Blvd., depending on the route.

The third facility is the Memphis Main Office at 555 S. Third St.

Under the proposal, USPS operations at the Jackson, Tenn., processing and distribution center would be moved to one of the Memphis centers. So would some but not all operations at the Tupelo, Miss., customer service mail-processing center.

“I don’t want to lose any of our jobs. Post offices have been an important employer of African-Americans who otherwise were not given opportunities in the private sector,” said U.S. Rep. Steve Cohen, D-Memphis. “We’ve got $5 billion taken from the pension fund in an inordinate manner from the post office, which shouldn’t have come out. If that was put back, that could help save all of this. We’ve got a bill to do it. It’s just not being acted upon. That’s the fault of Congress.”

U.S. Sen. Susan Collins, R-Maine, a sponsor of the legislation, argued the USPS cuts “could well accelerate its death spiral” by driving customers online and to UPS and FedEx.

“The solution to the Postal Service’s financial crisis is not easy but must involve tackling more significant expenses that do not drive customers,” said the ranking Republican and former chairwoman of the Senate Homeland Security and Governmental Affairs committee.

Cohen, a member of the House Transportation Committee, hasn’t talked with FedEx executives yet specifically about the impact.

“It may hurt FedEx some,” Cohen said. “Most of it is going to be to the Internet.”

FedEx founder Fred Smith commented on the relationship at the Sept. 26 annual meeting of shareholders in Memphis.

FedEx SmartPost is a service that moves its traffic through the FedEx Ground network to FedEx sorting locations and then takes them to the closest USPS unit for final delivery.

Smith told a shareowner the arrangement is “particularly efficient for lightweight residential deliveries” because of the USPS delivery network.

FedEx Express moves most of the USPS Priority Mail that calls for air transport.

“The mail business is the purview of the Postal Service, first class mail,” Smith added. “It’s a monopoly that’s mandated by law. And the relationships that we have with the Postal Service are a win-win proposition for both sides.”

That same week, several analysts asked about the Postal Service contract and how it might be affected during the FedEx quarterly earnings call.

FedEx executive vice president and general counsel Christine Richards said the agreement is flexible.

“So, while there’s fundamental threshold commitments by the Postal Service as far as volumes and weight go, it’s able to move up and down depending upon what their need is as they go through the year,” she said. “It is not set as a single level the way you might think about a traditional contract and that’s one reason why it’s been so successful, because we’ve been able to flex our system and support up and down to meet their needs.”

Stern Agee analyst Jeff Kauffman, who follows FedEx and rival UPS, said the Postal Service cutbacks are a positive for both companies.

“The only negative FedEx could encounter is that they are contracted to provide line-haul service for the USPS for the Express products,” Kauffman said in a note to investors Wednesday, Dec. 7. “That could be negatively affected as well as Saturday last-mile delivery to some rural locations.”

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