Originally Posted by
Cachaco
If anyone thinks UPS bid this contract at a rate to loose money, they truly do not know UPS management at all. Especially when we are dumping some routes due to not meeting profitability standards. A lot of this volume will move on existing 2DA flights, new ones added with existing assets (no new capital expenditures required), very little risk for UPS, unlike Fedex which basically created a sort window, added assets years ago to meet demand for the USPS, and now stuck with extra lift and assets.
UPS has always been ruthless when it comes to operating margins, just as focused today.
The devil is always in the details, but I suspect this contract will be the smallest USPS air transportation agreement in many years, given the USPS commitment to reducing costs and moving 95% of their volume solely by ground transportation. FedEx was pretty transparent for a few years that they were not committed to extending it because of the low margins and heavy constraints it placed on the network. According to very reliable sources on the corporate side the demands FDX made during the negotiations were so lofty that there was never a realistic expectation USPS would agree to them. They were instructed to walk away if the deal wasn’t extremely lucrative for the business and a vast improvement over the existing agreement. Nevertheless, it’s a bold strategy given the volatility the entire industry has experienced over the last 2 years so we’ll see if it pays off for them…
I would hope that there’s a contingency plan in place before they let ~1.5 billion in yearly revenue get scooped up by a competitor, but I have so little faith in the “leadership” here these days. In fact, the radio silence from the C suite leads me to believe that they may have been completely caught off guard by whatever 11th hour developments occurred in their talks. Maybe there will be a leadership shakeup soon?!