Dive Brief:
- FedEx is feeling optimistic about its ongoing U.S. Postal Service contract discussions, with an executive saying Thursday she thinks the company is "days or weeks away" from knowing if it will reach a deal with the major air cargo customer.
- "We have made significant progress in negotiations for a new contract that aligns with our ongoing network transformation plan, while providing the USPS with the operational reliability and outstanding service we have delivered for them for more than two decades," EVP and Chief Customer Officer Brie Carere said in an earnings call.
- The carriers' current agreement, which expires on Sept. 29, has FedEx Express provide airport-to-airport transportation services for the agency within the U.S. However, the Postal Service has been steadily shrinking its package volume transported via FedEx.
Dive Insight:
A new deal would feature "a more efficient network with service to fewer markets," allowing FedEx to more easily adjust its network to overall demand, Carere said. That aligns with the philosophy behind the company's ongoing network overhaul, which involves reducing flight routes and more efficiently deploying crew, aircraft and commercial linehaul resources.
"If that deal were to materialize, you would expect that it's mutually beneficial for both sides," FedEx EVP and CFO John Dietrich said on the call. "So we're looking forward to bringing that to closure as soon as possible."
The Postal Service, on the other hand, is aggressively reducing its air shipping costs as it shifts mail and packages to the agency's less-expensive ground transportation system. It's one piece of its 10-year transformation plan to improve its financial health and compete more effectively against the likes of FedEx and UPS.
In the midst of that undertaking, FedEx Express' global average daily freight pounds fell 16% year over year for the nine-month period that ended Feb. 29, according to FedEx's quarterly financial report. It attributed that decline in part to less Postal Service volume.
Despite the Postal Service headwind and what the company called "weak global economic conditions," FedEx Express operating income leaped 96% year over year as cost savings from the company's wide-ranging DRIVE program took hold, per the report. DRIVE initiatives in the quarter included route optimization and flight reductions at Express.
"The benefits of DRIVE initiatives and an additional operating date more than offset lower revenue," Dietrich said.
