Cargo Carriers Monetize Mail

In June, rival United Parcel Service(UPS Quote - Cramer on UPS - Stock Picks) agreed to a three-year deal to fly domestic mail to 98 cities, expanding a relationship that had involved 16 cities. The contract, involving mail previously carried by passenger airlines, is worth an estimated $100 million annually. The Postal Service "had service issues and was looking for alternatives," said UPS spokesman Ken Sternad.

The shift reflects not only the evolution in the scope and efficiency of the overnight carriers, but also the vagaries of the passenger industry. Occupancy levels have been climbing steadily since 1980, increasing the likelihood that passenger baggage will crowd mail out of cargo holds. Additionally, tighter scheduling and the increased use of smaller planes reduce the amount of time and capacity available to load and carry mail.

"We obviously have shown a preference during the last decade to go with carriers whose principal mission is to carry freight and hard copy," said Postal Service spokesman Gerry McKiernan. "There have been times, occasionally and understandably, that on a passenger airline the people would come first.

"We understand the mission of passenger airlines and we're appreciative of the service they've given, but we just felt that it was important to move in the other direction, so that our materials would get priority consideration," McKiernan said. "And UPS and FedEx understand that."

Privilege to Pay

FedEx's new contract takes effect in October, and incorporates the final two years of the 2001 deal. The pact is expected to generate $8 billion in revenue. The company said it will continue to carry more than 4 million pounds of mail each business day. The agreement was reached two years before the existing contract expired.

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