Mon. Apr 22nd, 2024

How FedEx could win by losing its Postal Service business

February 23, 2024


A majority of FedEx Express’ air network is geared to daytime flying for the Postal Service. Over nearly a quarter-century, the Postal Service has grown into FedEx’s largest customer. Conversely, FedEx has been the largest provider of air transportation capacity to the Postal Service for 20 consecutive years, according to data compiled by David Hendel, a transportation attorney at Culhane Meadows. But under a streamlining initiative four years ago, the agency decided to use less air transportation and rely more on cheaper ground carriers, which is eating into FedEx Express volumes distributed via its Memphis, Tennessee, hub.

FedEx’s revenue from its Postal Service contract in the fiscal year ending Sept. 30, 2022, fell $236 million to $1.9 billion and is expected to decrease again in Hendel’s next list. Postal business represents 4% of total and 10% of domestic Express revenue at FedEx. The contract previously generated annual revenue of at least $2 billion.

FedEx devotes about 100 aircraft to carry postal business at an annual cost of about $3 billion, according to Oglenski’s research. In its December earnings report, the company identified the Postal Service contract as a $400 million drag on earnings. The Priority Mail packages that FedEx primarily hauls have a similar service (two to three days) and pricing profile to packages moved by ground transport, which translates to lower yields and margins when using air transport.

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