FedEx Corp. said Tuesday, April 23, it won a $10.5 billion contract to carry mail between domestic airports for the U.S. Postal Service.
The Memphis-based company will extend its current arrangement to transport Postal Service Express Mail and Priority Mail for another seven years. FedEx has been providing similar service for the government agency for 12 years.
FedEx had previously warned in regulatory filings that the contract could be transitioned to another provider, like rival United Parcel Service, and that the terms and conditions of the new arrangement could be “less favorable” than the current contract, which expires in September 2013. The new contract begins in October.
FedEx and the Postal Service did not immediately provide details beyond the value and length of the contract.
“FedEx Express will continue the outstanding service that we have provided to the USPS for the past 12 years under this new agreement,” said David Bronczek, president and CEO of FedEx Express.
The new deal allows for service improvements, capacity flexibility and other operational benefits, Bronczek said.
“FedEx Express will continue the outstanding service that we have provided to the USPS for the past 12 years under this new agreement.”
–David Bronczek, president and CEO of FedEx Express
The new contract comes as the Postal Service is restructuring after years of losses in an effort to return to profitability. Since 2006 it has reduced annual costs by $15 billion, cut 193,000 workers and consolidated more than 200 mail processing locations.
“Following a rigorous evaluation of technical aspects, pricing, and other factors in the proposals, the Postal Service determined that the FedEx proposal represented the best value,” the agency said in a prepared statement.
FedEx also is in the midst of restructuring to cut annual costs of $1.7 billion by 2016 with buyouts that will dramatically reduce its workforce by at least 10 percent by May 2014. The restructuring is expected to compensate for consumers that have opted for cheaper and slower shipping services.
Bloomberg News reported Justin Yagerman, an analyst with Deutsche Bank in New York, says the contract gives FedEx a needed “shot in the arm.”
The global news wire also reported Kelly Dougherty, an analyst with Macquarie Capital Inc. in New York, was concerned UPS could have captured up to 30 percent of the Postal Service business. Dougherty and other analysts have said it is likely the new contract has lower profit margins than the current contract.
The Associated Press contributed to this report.