In what industry analysts are calling the logistics world's version of "Game of Thrones," the U.S. Postal Service (USPS) is preparing to rebid its massive air transportation contract - a deal worth over $1 billion that has major carriers vying for dominance in America's mail delivery system.
FedEx Faces Existential Threat as USPS Prepares Competitive Bidding
According to FedEx's SEC 10-K filing, USPS plans to open competitive bidding for domestic air services currently exclusively provided by FedEx. The contract, which includes transportation for First-Class, Priority, and Express Mail services, represents the postal service's single largest air transportation agreement.
The current FedEx-USPS partnership dates back to 2001 and is set to expire in September 2013. Industry estimates value the contract at more than $1 billion annually, making it one of the most lucrative deals in transportation logistics.
A USPS spokesperson stated: "The Postal Service remains committed to fulfilling its service obligations at the best value, including those related to air and highway transportation procurement. While no decisions have been made regarding the existing contract, the Postal Service is evaluating all options to restore long-term financial stability while maintaining excellent service for all customers."
Postal Service Financial Crisis Drives Cost-Cutting Measures
The bidding process comes as USPS faces dire financial circumstances, with second-quarter losses of $3.2 billion following a $3.3 billion first-quarter deficit. The service lost $5.1 billion in fiscal 2012, $8.5 billion in 2010, and $3.8 billion in 2009.
Key factors contributing to USPS financial troubles include:
- Declining first-class mail volume due to digital communication
- Regulatory constraints on pricing and operational flexibility
- Massive pension and healthcare obligations for employees
UPS Emerges as Primary Challenger to FedEx Dominance
Industry analysts identify United Parcel Service (UPS) as FedEx's most formidable competitor for the contract. Jerry Hempstead of Hempstead Consulting noted: "Given USPS financial situation, I suspect UPS has been lobbying heavily for competitive bidding. While other carriers like ABX Air or Atlas could bid, UPS represents the most credible threat."
Bloomberg reports the USPS contract accounts for over 3% of FedEx revenue, generating approximately $1.4 billion in fiscal 2012. FedEx spokesperson Jess Bunn emphasized their 11-year partnership "enhanced USPS service levels and reliability," suggesting this track record should weigh heavily in the decision.
UPS has publicly confirmed its intention to bid. Spokesperson Norman Black stated: "UPS firmly believes we can support Postal Service commitments while improving mail system efficiency and creating new growth opportunities. Our air network and proven logistics capabilities position us to best meet national mail system needs."
Industry Implications and Future Outlook
Analysts warn FedEx could face significant operational impacts if it loses the contract. Robert W. Baird's Ben Hartford noted potential negative effects on FedEx Express utilization and margins, though he pointed out the company has time to adjust its network before the September 2013 expiration.
The competition highlights broader industry trends toward efficiency and innovation as logistics providers adapt to changing mail volumes and e-commerce growth. The contract decision may reshape competitive dynamics in the U.S. transportation sector for years to come.
With USPS prioritizing financial recovery and service reliability, the bidding process will likely emphasize cost efficiency, network capacity, and operational flexibility. The outcome could significantly influence both the future of American mail delivery and the balance of power among logistics titans.