This report presents the results of our self-initiated audit of the Federal Express (FedEx) transportation agreement. The objectives of our audit were to determine whether selected transportation operations were effective and economical (Project Number 09XG027NL000). See Appendix A for additional information about this audit.
On August 2, 2006, the U.S. Postal Service signed a new 7-year agreement with FedEx. FedEx transports time sensitive mail for the Postal Service, including Express Mail®, Priority Mail®, and First-Class Mail® (FCM). FedEx transportation is usually more expensive than commercial air carrier or surface transportation, and Postal Service policy requires transportation managers to balance service and cost in determining the best transportation mode. In addition, the Postal Service uses Terminal Handling Services (THS) contractors to prepare and load mail into containers for transport on FedEx planes. The containers include both bypass and mixed containers.
Bypass containers hold mail bound for the same destination airport and move through or “bypass” the sorting operations at the FedEx Memphis hub at no additional cost to the Postal Service. Mixed containers hold mail bound for various destination airports and must be sorted at the Memphis hub onto departing planes. The Postal Service is required to pay FedEx for sorting mail at the Memphis hub.
It was more effective and economical in some cases for the Capital Metro, Eastern,Great Lakes, and Northeast Areas to use ground transportation and domestic air carriers as well as to sort mail at Postal Service plants than to use FedEx to perform these functions.1 Because the areas used FedEx, the Postal Service incurred about $35.3 million in unnecessary costs. If these areas implement our recommended changes, we estimate the Postal Service could save $170.6 million over a 10-year period.
Transporting Surface Mail on FedEx
We concluded that in some cases using ground transportation was more advantageous than using FedEx. By flying surface mail on FedEx instead of using cheaper ground transportation, the Postal Service spent about $32.1 million more than necessary during fiscal years (FYs) 2007 and 2008. This occurred because plant employees did not properly segregate surface mail classes from FCM and Priority Mail. By using ground transportation, the Postal Service could lower overall FedEx lift requirements and save about $138.3 million over 10 years. See Appendix B for our detailed analysis of this topic.
Mixed Versus Bypass Air Containers
Finally, it was more advantageous in some cases for the Postal Service to sort mail than use FedEx to do it. During the period May 1, 2008, through April 30, 2009, the Capital Metro, Eastern, Great Lakes, and Northeast Areas unnecessarily spent about $1.5 million to pay FedEx to sort mail because processing plants did not separate and distribute it in available bypass containers.3 If these areas properly sort and distribute this mail, the Postal Service could avoid about $14.9 million in unnecessary costs over 10 years. See Appendix B for our detailed analysis of this topic.