* FedEx contract with USPS ends September 2013
* US Postal Service told FedEx it will solicit bids
* UPS says "definitely intends to bid"
* FedEx now postal service's biggest contractor
By Lynn Adler
July 17 Package-delivery company FedEx Corp
risks losing its business with the U.S. Postal Service,
worth more than $1 billion a year, when the beleaguered postal
service puts the contract up for bid next year.
The postal service alerted FedEx that it will seek bids for
the contract after it expires in September 2013, FedEx said in a
regulatory filing late on Monday.
That clears the way for larger competitor United Parcel
Service to grab the business - domestic air
transportation for first-class, priority and express mail - that
FedEx has had since 2000.
FedEx, the No. 2 package delivery company, signed its first
contract in 2000 and started providing postal service in April
2001. In 2006, it signed an extension through September 2013.
"By flying some of the fastest growing and most successful
postal products, FedEx Express continues to provide the Postal
Service and postal customers important services," FedEx
spokesman Jess Bunn said on Tuesday. "We look forward to
continuing our excellent relationship."
FedEx is the postal service's top contractor, earning an
estimated $1.5 billion in revenue in fiscal 2011 from this
business, according to Husch Blackwell LLP's postal service
contracting practice group.
UPS, the world's largest package delivery company, earned
about $100 million in revenue during that period.
"UPS has informed the U.S. Postal Service that it definitely
intends to bid on this work," said UPS spokesman Norman Black.
Dahlman Rose analyst Helane Becker said the contract loss
would be small compared FedEx's $42.7 billion in revenue, but
"We believe the probability of FedEx losing the USPS
contract is relatively small, but until we hear confirmation
otherwise, the contract renewal will cast an overhang on the
stock," she wrote in a note.
"UPS's current contract is dwarfed by FedEx's and would give
the company a solid boost to earnings," she said.
Shares of Memphis, Tennessee-based FedEx were down 0.9
percent in midafternoon trading at $91.04 on the New York Stock
Exchange and up 9 percent so far this year.
FedEx is focused on cost-cutting to boost profit margins
with sluggish economic growth curbing shipping volumes and
leading customers to demand lower-priced delivery options.
Chief Executive Fred Smith in June said the company would
provide greater detail of its planned Express division
restructuring at its October analyst meetings.
"The timing of contract expiration -- a year following
FedEx's expected restructuring announcement -- provides FedEx
visibility to plan for any potential loss of business and
resulting impact to network utilization," Robert W. Baird
analysts led by Benjamin Hartford wrote in a note.
FedEx also said it is preparing to remove about 5,000 drop
boxes at U.S. Postal Service locations in about 340 metropolitan
areas, in line with a separate agreement that expired in June.