UPS poised to compete for FedEx-USPS contract

Washington DC
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UPS is poised to compete for FedEx's air transportation contract with the US Postal Service, which is set to expire in 2013 and worth at least $1 billion annually.

FedEx and UPS both say that USPS have notified them that it will solicit a request for proposals for the contract, which Memphis-based FedEx first won in 2001 and then extended in 2006 to last until September 2013.

The contract gives FedEx the authority to deliver priority, first class and express mail between airports within the US for the postal service.

Cash-strapped USPS says that it has not made a decision on the contract yet, but that it is "evaluating all of its options."

FedEx wrote a regulatory filing this week it is aware that it could lose the USPS contract or see it revised under less favorable terms if USPS chooses to extend the partnership.

"Accordingly, upon the expiration of the current agreement, the transportation services we provide to the USPS could be transitioned, in whole or in part, to another provider," says the filing.

"This would have a negative impact on our asset utilization and profitability. Moreover, to the extent that any such services are retained by us, the terms and conditions of the new arrangement may be less favorable than those currently in place."

Atlanta-based UPS says it is "absolutely" planning to bid on the FedEx contract, provided USPS issues a request for proposals.

The carrier says it is confident that it can achieve any requirements that the service puts forward with its current domestic fleet, which includes Airbus A300-600, Boeing 757-200/-300 and Boeing 767-300 freighter aircraft.

"We absolutely believe that we can support the postal service's commitment to make the system more efficient," said UPS.

In 2006, USPS awarded UPS with a $100 million per year contract to transport first class and priority mail to 98 US cities, which lasts until 2014.

According to a list of top USPS suppliers compiled by law firm Husch Blackwell, FedEx's contract with the postal service was valued at $1.495 billion in fiscal 2011, making it the top postal service supplier for nine years running. The list is compiled with USPS data.

Kalitta Air held the second most expensive contract, valued at about $549 million in FY2011. USPS contracts Kalitta to send air mail to military bases in Iraq and Afghanistan.