Postal Service Losing to FedEx, UPS on Federal Shipping

The U.S. Postal Service, required to send congressional letters at reduced rates, can’t win regular business from the federal government, according to an inspector general’s report.

Private-sector competitors led by FedEx Corp. (FDX) and United Parcel Service Inc. (UPS) “consistently” have more than 98 percent of the $337 million annual shipping spending by federal agencies, according to the Jan. 18 report.

“The Postal Service faces challenges to growing its share of this market,” the Postal Service’s inspector general said in the report. “Major challenges include pricing flexibility and the lack of 2- and 3-day guaranteed express delivery products.”

Having lacked a sales force, the Postal Service was late to enter bidding for U.S. General Services Administration contracts for federal agencies. UPS, based in Atlanta, and FedEx, based in Memphis, Tennessee, have been official suppliers since 2001, while the Postal Service only began participating in 2009, according to the report.

Another handicap is the preference the Defense Department gives to carriers that have their own planes and participate in the Civil Reserve Air Fleet program, the report said. The Postal Service primarily contracts its air shipping to FedEx and doesn’t own cargo planes. The FedEx contract expires in September.

Government Shipping

In fiscal 2012, which ended Sept. 30, the Postal Service got $4.8 million of the almost $337 million that U.S. agencies spent through GSA contracts on shipping, the report shows.

The Postal Service could gain $34.8 million in revenue this year and next year if it implements the inspector general’s recommendations to capture more of the U.S. government market, the report said.

The government would have spent more to ship via the Postal Service than UPS and FedEx, both of which can undercut competitors’ prices to gain business, according to the report. Postal Service rates must cover costs as well as a share of the organization’s overhead, and are regulated by the Postal Regulatory Commission and overseen by Congress. The service can’t price express and priority mail, the fastest two ways to ship through the system, at a loss in order to attract customers, the report shows.

$15.9 Billion Loss

Lawmakers in the House of Representatives and Senate held hearings in the previous legislative session calling on the Postal Service to improve its finances. The service lost $15.9 billion in fiscal 2012, and has said the losses will mount until Congress lets it cut costs faster and restructure a required payment for future retiree health benefits.

Senate Majority Leader Harry Reid, a Nevada Democrat, said yesterday that postal legislation is one of the proposals he plans to take up this year.

David Partenheimer, a Postal Service spokesman, referred to the agency’s comments in the inspector general’s report and declined to comment further.

The service, according to the report, said it’s “addressing” its pricing with GSA and looking at more user- friendly payment methods to help boost government shipping business. The service “did not agree” that it could gain $34.8 million in revenue this year and next, saying it’s “nearly impossible” to predict a revenue gain.

To contact the reporter on this story: Angela Greiling Keane in Washington at agreilingkea@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net

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