FOR IMMEDIATE RELEASE
January 10, 2001

WASHINGTON — The U.S. Postal Service and FedEx Express have formed a business alliance based on air transportation and retail business agreements. Under this alliance, the Postal Service will buy space on FedEx airplanes to transport Express Mail, Priority Mail and First-Class Mail and FedEx will locate overnight service collection boxes at post offices nationwide.

"The Postal Service delivers Main Street, and FedEx provides an air fleet," said Postmaster General William J. Henderson. "Together with FedEx we have found a way to give the American consumer greater choice, flexibility and convenience. These agreements will leverage two great networks – the extensive reliability of FedEx planes and the coast-to-coast retail presence of the Postal Service."

The Postal Service has determined an integrated national air transportation network with a highly reliable transportation supplier is needed to meet customer needs for more reliable service, reducing costs and managing cost growth in future years.

The Postal Service will pay FedEx approximately $6.3 billion over seven years for shared access to the FedEx national air transportation network. With more than 650 aircraft, FedEx is one of the largest airlines in the world. This agreement will provide one integrated national air transportation network for the Postal Service. The transportation agreement will begin in August 2001.

"Whenever the public and private sectors work together, the real beneficiary is the American public," said Frederick W. Smith, chairman, president and CEO of FedEx Corp. "These two service agreements create a winning business situation."

The retail agreement gives FedEx the opportunity to place FedEx self-service collection boxes on postal property. This non-exclusive business concept will be open to any company that offers overnight package service with a national reach. Each day some seven million customers go to one of 38,000 postal outlets nationwide. Over the life of the agreement, FedEx has the option to place thousands of boxes at post offices nationwide. The estimated value of the agreement could range from a minimum of $126 million to more than $232 million, depending upon the number of boxes placed. This retail agreement will be launched with an operational test in February, and FedEx expects to place thousands of drop boxes throughout the country within the next year.

Background

The United States Postal Service and FedEx Express have entered into a retail and an air transportation agreement. These agreements allow FedEx to locate FedEx overnight service collection boxes at post offices nationwide and they provide space on FedEx airplanes for the transportation of mail.

Air Transportation Agreement

The Postal Service relies upon a mixture of air transportation companies for the transportation of mail by air. To obtain more reliable service, reduce costs and manage cost growth in future years, the Postal Service has determined that it needs to use one integrated national air transportation network with a highly reliable transportation supplier.

The Postal Service also needs to replace the dedicated air transportation network that serviced 10 Priority Mail Processing Centers (PMPCs) on the East Coast of the United States. By replacing the discontinued PMCP contract and several other regional contracts for shared air service with a single national contract for air service, the Postal Service can reduce costs, improve reliability and increase efficiency.

Thorough review indicated that only FedEx met all of the Postal Service’s requirements. It is one of the world’s largest airlines, has excess capacity during the day that meets postal requirements, a substantial and stable financial base, a well-developed tracking capability, and a scope of operations that allows the Postal Service to expand its service coverage and improve its performance. Additionally, the FedEx services presented minimal competitive conflict issues compared with Postal Service products because the bulk of FedEx’s services transporting overnight packages are in the evening.

The Postal Service will pay FedEx Express approximately $6.3 billion over seven years for shared access to the FedEx national air transportation network. Under the contract, FedEx agrees to provide 443,000 cubic feet of transportation space by day and to carry 250,000 pounds of cargo at night. The agreement also gives the Postal Service a one-time opportunity to increase its day air-rental by 90,000 cubic feet provided this is done within one year of the start of the agreement. In addition, because of the reach of the FedEx fleet – one of the largest airlines in the world – the Postal Service will be able to significantly extend the reach of its Express Mail product.

In conjunction with the implementation of this air transportation agreement with FedEx, the Postal Service intends to discontinue its current dedicated airline lift contracts over the next few months in accordance with existing contract provisions.

FedEx will be used by the Postal Service to transport Express Mail, Priority Mail, First-Class Mail and some International mail. FedEx is scheduled to begin carrying mail under this air transportation agreement in August 2001.

Retail Business Agreement

The Postal Service has entered into a non-exclusive agreement with Federal Express Corporation, which gives FedEx the opportunity to place FedEx Express package service collection boxes on postal property. This business concept will be open to any company that offers overnight package service with a national reach. The nationwide installation of FedEx boxes on postal property will begin as soon as March 2001. The FedEx collection boxes primarily will be located outside of Post Offices, but there may be instances where the box will be located inside a Post Office. FedEx will assume all maintenance responsibilities for the boxes.

FedEx and the Postal Service will test this concept in Charlotte, North Carolina, beginning in February 2001 for a 30-day trial period by placing 125 FedEx boxes on postal property throughout Charlotte. The purpose of the test period is to develop policies and procedures on how to best implement this new concept. During this test period, and an initial implementation period, no other companies will be invited to participate. A second test may also be conducted in Fort Lauderdale.

Soon after the conclusion of the initial implementation period, other qualified overnight package delivery companies will be able to place collection boxes at Post Offices on terms similar to those in the agreement with FedEx. A fee schedule for the deployment of collection boxes has been developed and is applicable to any qualified overnight package delivery company that may want to contract for this service. The box fee schedule has six tiers. The base revenue associated with drop box placement will be in excess of $125 million and will increase based on the number of boxes FedEx places.