FedEx and UPS Pick Up USPS' Slack

The U.S. Postal Service has been hit particularly hard during this recession. With people resorting to email to pay bills and send personal messages, and with businesses cutting back on snail mail advertising, USPS has been left in the dust. On Wednesday, officials reported that from April to June the Postal Service lost $2.4 billion. The most recent three-quarter drop is the largest that the agency has seen in 40 years.

Recently, the USPS released a list of almost 700 offices that are marked for possible closure. On top of this, they are considering cutting down mail delivery from six days a week to five.

This is not the first time that the USPS has had to face cuts. Reuters explains that for the past 10 years the government program has been making cuts to embrace technological advances. It will be interesting to see if the newest phase of cost-cutting will provide a prime opportunity for competitors to step into gaps.

While they cannot offer the same low prices for deliveries, FedEx (FDX - commentary - Trade Now) and UPS (UPS - commentary - Trade Now) have been taking business from the traditional mail carriers for years. So far, the companies' stock values have remained relatively unchanged.

While USPS is contracting, these competitors are further expanding. The Memphis Business Journal reported on Wednesday that FedEx announced its subsidiary, FedEx Trade Networks, was in the process of opening new offices in Latin America and Asia. This recent move illustrates how negative news coming from the U.S. has had a less dramatic effect on these international corporations.

Currently, FedEx and UPS are top holdings in iShares Dow Jones Transportation Average (IYT - commentary - Trade Now), representing 9.72% and 8.15%, respectively, of the fund's assets. The companies also show up in Industrial Select Sector SPDR (XLI - commentary - Trade Now), in which they comprise 6% and 2.5% of the fund, respectively.

If the closing of numerous USPS' offices leads to a boost for these two non-governmental parcel carriers, it is likely that these funds will see a comfortable boost.

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At the time of publication, Dion had no positions in the stocks mentioned.

Don Dion is the publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.

Dion is also president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.