FedEx Express, a division of FedEx, is experiencing notable changes in its operations and financial performance due to reduced volume from the United States Postal Service (USPS). The two entities had extended their air transportation agreement in 2017, which was anticipated to bring in approximately $1.5 billion annually for FedEx. However, recent shifts in operational strategies have impacted this expectation.
As of July, the USPS, which is FedEx Express’ largest customer, has been increasingly moving packages to ground transportation as a cost-saving measure. This shift has led to a 16.3% year-over-year decrease in the USPS’s air transportation spending for the fiscal year ending September 30, while expenses on highway transportation rose by 7.1%.
In parallel, FedEx is in the process of reconfiguring its Express air network as a part of its comprehensive “DRIVE” cost-saving initiative. This program aims to align capacity more effectively with demand and enhance operational flexibility. Nonetheless, the ongoing contract with the USPS presents challenges to FedEx’s efforts to enhance financial outcomes at Express.
Raj Subramaniam, President and CEO of FedEx, commented during a call that margin improvements in the near term are being hindered by factors including the decline in USPS volume coupled with minimum service obligations under the current contract with USPS.
The strategic shifts of both delivery providers are adding complexity to the negotiations for renewing their agreement, which is set to expire in September. The existing contract entails FedEx Express handling domestic air transportation for USPS’s First Class Mail, Priority Mail, and Priority Mail Express services, in addition to international deliveries.
During discussions about the contract renewal, Carere from FedEx stated, “We are having very collaborative negotiations with the Post Office, but I think we’ve also been very clear that it will take quite a significant change in contractual terms and agreement to renew that contract.”
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