Postal Service, FedEx holding 'alliance' talks

WASHINGTON -- The U.S. Postal Service and Federal Express Corp. are negotiating a "strategic alliance" and could complete a deal by next month under which USPS would deliver many FedEx packages to homes across the nation while using FedEx's air transportation network to move priority and express mail around the world.

Postmaster General William J. Henderson confirmed the negotiations Wednesday night and said he is optimistic that senior Postal Service officials will be able to present the details of an alliance to the Postal Service Board of Governors next month.

"You can imagine that there's culture issues here, but Federal Express would be a world-class partner, in my view," Henderson said in an interview. "I'd like to go to the board with some sort of strategic alliance by October -- that's my goal. The board has encouraged us to do it."

Jess Bunn, a FedEx spokesman in Memphis, said the discussions "have included broad areas of strategic cooperation."

The talks, which Henderson said grew out of "brainstorming sessions" he began earlier this year with FedEx Chairman and Chief Executive Frederick W. Smith, come at a critical moment for the Postal Service, which expects to lose as much as $300 million this fiscal year due to a decline in first-class postage revenue and a rash of unexpected cost increases.

The projected shortfall, after the Postal Service's more than $5 billion in profits since 1995, reflects the growing diversion of letter mail to e-mail and the stiff competition from FedEx and the United Parcel Service.

To address the looming shortfall, the Postal Service in January requested a package of rate increases that would take effect next year and expects a new rate schedule from the independent Postal Rate Commission by Nov. 12. Under the proposed increases, the rate for first-class mail would rise by 3 percent, from 33 to 34 cents, while rates for express and priority mail, periodicals, parcel post and advertising mail would rise by an average of 6 percent.

Henderson said an alliance between the Postal Service and FedEx would allow both entities, now fierce competitors, to cut costs and generate revenue.

"We have ubiquity, the most efficient home delivery network," Henderson said. "They have the most efficient transportation network in the world. It's a matter of matching abilities to reduce costs and increase revenues."

Under the alliance -- the details of which are now being hammered out by three working groups of senior officials from both organizations -- the Postal Service would deliver FedEx packages "the last mile" while also gathering an increasing number of packages that need to be returned to Internet vendors, Henderson said. The alliance would also give FedEx drop-off and pick-up access at post offices.

The Postal Service would contract with FedEx for the use of aircraft -- now provided in many cases by other carriers -- to deliver express and priority mail, Henderson said.

William Burrus, executive vice president of the 360,000-member American Postal Workers Union, now in contract negotiations with the Postal Service, said an alliance with FedEx would not hurt his members.

"It gives the Postal Service more visibility and the ability of dealing with more mail that would otherwise not be in the postal stream," Burrus said.