Court Refuses to Block USPS-FedEx Deal

Emery Worldwide Airlines has lost a round in court in its effort to prevent the U.S. Postal Service and FedEx Corp. (FDX) from signing a possible deal for airfreight services.

The U.S. Court of Federal Claims Monday evening declined to issue a temporary restraining order barring the postal service from signing a non-competitive, single-source contract for air transportation network services with FedEx, Emery said Tuesday afternoon.

Meanwhile, The Associated Press reported that USPS is still in discussions with FedEx about the possible alliance, and expects a final decision by March 2.

The plan under discussion would have mail carriers covering the “last mile” residential deliveries for FedEx. But the postal service would not handle the Memphis-based company’s signature, business-to-business overnight deliveries.

USPS would perform residential delivery and pickup service for FedEx, which would gather the parcels at post offices and transport them.

FedEx boxes or counters could possibly be placed in post offices, and FedEx parcels could be delivered to post office boxes, according to AP.

The injunction was requested in a lawsuit filed by Emery, a subsidiary of trucking company CNF Inc. (CNF), against USPS last Friday. A hearing on the suit was held Monday in Washington. The suit alleges that a sole-source contract with FedEx would violate the Postal Service's own procurement regulations.

Emery currently operates a $200 million per year hub-and-spoke air transportation network in support of Express Mail and other classes of mail under a 10-year contract with the USPS. Emery sought to end a separate contract to handle Priority Mail shipments in November. That contract was officially terminated Sunday.

Even though Emery has received no notice of termination, the sole-source contract contemplated with FedEx would likely result in termination of Emery’s contract about 2½ years before it is set to expire in January 2004, the company said.

table width=110 align=right border=0>Emery has frequently told USPS that it wishes to be considered as a source for its future air transportation network services. Although USPS has engaged in substantial discussions with FedEx concerning such services, the Postal Service has refused to enter into meaningful discussions with Emery, the Palo Alto, Calif.-based company said.

``When Emery expressed interest in bidding for these services, we were ignored,” said Emery President Kent T. Scott in a statement. “We think that's unfair and illegal. We will continue to pursue appropriate action to stop this contract from being implemented.''

Meanwhile, shares of CNF closed down 9.3% Tuesday after the court’s decision. A Bear Stearns & Co. analyst said loss of the postal contract could reduce Emery’s earnings by 18 cents a share this year, and 23 cents next year, Reuters reported.