The U.S Postal Service and FedEx Corp. have confirmed that they are in talks to form an alliance that would save time and money -- while improving customer service -- for both companies. Such a partnership would help FedEx gain ground on its rival, the Atlanta-based United Parcel Service of America Inc. (UPS).
In a press conference yesterday, Postmaster General William Henderson said the postal service wanted to take advantage of FedEx's efficient air transportation network. The alliance, he said, would allow FedEx to make greater inroads into the residential delivery market.
Under the alliance, FedEx would deliver the postal service's Express Mail, which is scheduled to arrive by 3 p.m. the day after it has been sent. Henderson said if negotiations pan out, FedEx could be responsible for delivering all the postal service's Express and Priority mail in the U.S.
In turn, the postal service would deliver FedEx's slower moving ground shipments to areas not covered by the Memphis-based company.
Henderson was optimistic that the two companies would have a proposal to submit to the postal service's board of governors, which must approve the alliance, by October. Henderson said the earliest the joint venture could be implemented was spring 2001.
A spokesman for FedEx confirmed the talks with the postal service, saying only the discussions have included "broad areas of strategic cooperation."
Chris Newton, an analyst at AMR Research Inc. in Boston, said any alliance would benefit FedEx and the postal service.
"FedEx has an air transportation [network] that the postal service needs and the postal service is strong in the residential delivery area, and FedEx is not," he said.
Newton said although FedEx is strong in the business-to-business market it has a long way to go in the business-to-consumer market.
"In the mid-'90s, Fed Ex pulled out of the consumer market, but with e-commerce [and more people buying goods over the Internet] they want back in," he said. "But they've lost momentum to UPS."
Newton added that the deal was likely to face a great deal of regulatory scrutiny. "The postal service is a quasi-governmental agency and as such, should they be aligning with one parcel delivery company [to the exclusion of another]?" he asked.
According to Henderson, however, UPS is free to discuss a similar alliance with the postal service.
But yesterday, UPS fired off a statement that was critical of the deal and questioned FedEx's decision to align itself with the postal service, which has "recognized deficiencies in delivery service, time in transit, package tracking and guarantees, all of which today's customers demand and expect."
Like Newton, UPS said the alliance raised a public policy issue.
"A federal government agency should not be allowed to favor one competitor over another," UPS said in the statement. "This is far from a done deal ... Congress and the Postal Rate Commission will have much to say about this proposal."