UPS - US Postal Service to Migrate Air Cargo to UPS During Summer | Benzinga
UPS' (NYSE: UPS) ability to leverage its integrated air-and-ground network and bypass its main sort hub in Louisville, Kentucky, will enable the integrated express carrier to better profit from transporting domestic airmail for the U.S. Postal Service than its predecessor, executives said during an earnings briefing for analysts.
Atlanta-based UPS wrested the Postal Service's primary air cargo business from FedEx earlier this month and is working to transition all the first-class mail, Priority Mail and Priority Express volume to its network before the FedEx (NYSE: FDX) contract ends Sept. 29, management said.
The Postal Service next month will implement a detailed plan to begin migrating the business from FedEx to UPS, spokeswoman Sue Brennan said in an emailed statement.
"The process will continue to evolve throughout the summer and be completed in advance of the contract expiration. UPS is currently an active air cargo supplier and has been moving packages for the Postal Service for many years" she said.
CEO Carol Tomé said the U.S. Postal Service contract "fits beautifully with our strategy to grow our B2B business" and will immediately contribute to top-line growth with minimal need for additional investments. The postal contract has a five-and-a-half year minimum base term that is projected to generate about $1.5 billion in annual revenue.
The world's largest parcel carrier expects to support the Postal Service with existing assets and move the majority of mail volume within the current domestic daytime flight operation. It said its meshed network will allow some packages to move locally and regionally, reducing the distance traveled.
"In contrast to traditional hub-and-spoke models, we don't have to run all of the air volume through our main air hub. Of course, we will use Worldport [in Louisville], but we will also use our regional gateways. That allows for splits to occur outside of the network. So containers will be built at origin and then we will bypass the main hub and go point to point" said Tomé. "This is an integrated solution that's very different I think than what the former provider offered."
FedEx Express' daytime flights connect through its global hub in Memphis, Tennessee.
UPS will also use its extensive ground network for packages that can be delivered more cheaply and still meet service commitments, something FedEx ...