FedEx Set To Lose $400 Million In Next Contract

FedEx Corp., the postal delivery service that is both partner with and rival to the U.S. Postal Service, is looking at a federal mail-flying contract that will drop revenue more than 27% in 2013, amidst a restructuring plan by the company.

Once the current agreement expires and a new contract is negotiated, FedEx’s revenue from carrying Postal Service express, priority, and first-class mail in cargo jets will drop below $1 billion annually according to Satish Jindel, the president of the SJ Consulting Group Inc., based out of Sewickley, Pennsylvania.

In a telephone interview, Jindel stated that a Postal Service savings goal of $2.1 billion a year is unreachable “without making some changes in the way they move things,” he continued that this is “likely to result in a reduction of the number of packages that they will need transported by air.”

With U.S. government sales comprising about 3.7% of FedEx’s annual earnings, the risk of mail flying casts light on the relationship between the U.S. agency and its largest supplier, FedEx. Regarding FedEx’s strategy moving forward, Postal Service Chief Financial Officer Joseph Corbett said that the company will cut mail sent by air by boosting ground shipments, but didn’t give any more details.

Jindel further that that savings would come “from changes and cost elimination for people who handle the mail,” and that some “is going to come from reducing transportation expenditures that they incur. That transportation total amount is almost $6 billion; of that, $1.4 billion is being spent on FedEx.”

FedEx was founded in 1971 by Chief Executive Officer Fred Smith in order to speed up air-freight shipments.