Postal Service Contracts Surge to Nearly $16B in Fiscal 2018

Competitor FedEx Is also USPS’s top contractor
Highway, air transport markets dominate contract spending

The U.S. Postal Service’s commercial spending grew to $15.9 billion in fiscal 2018 from $15 billion in fiscal 2017, Bloomberg Government’s USPS Contracts Dashboard shows.

That’s an increase of nearly $1 billion and the highest amount since fiscal 2016, when Bloomberg Government first began publishing the agency data received through a Freedom of Information Act request.

Friend or Foe?

Federal Express Corp., one of USPS’s largest commercial competitors, received $1.9 billion, or 12 percent of USPS’s total contract dollars. This was a $300 million jump from the previous year.

Despite its competitor status, Fedex has a longstanding business relationship with USPS, dating from 2001. The company is now in year three of its multibillion-dollar Air Cargo Network (ACN) contract with the Postal Service, which was signed in 2017 and runs through September 2024.

Nearly all of Fedex’s contracts are in the $2.9 billion air transportation market. United Parcel Service Co., which held the No. 6 position overall at $199 million, was the distant air transport runner-up, with $186 million. UPS grew its overall postal contract revenue 18 percent from fiscal 2016 through 2018.

Together, Fedex, UPS and 65 other air transportation vendors accounted for 18 percent of fiscal 2018 USPS spending.

Highway Transportation Drives Growth

The largest USPS market is highway transportation, with $4.3 billion in contract obligations during fiscal 2018. Spending in this market has grown by 12 percent since fiscal 2016, but because it includes nearly 9,000 vendors, the average company revenue is considerably lower.

One company stands out: Eagle Express/Hoovestol Group Inc. With combined FY 2018 revenues of $420 million, the company fulfills a broad range of air, ground transportation and logistics requirements. Eagle Express/Hoovestol is USPS’s No. 4 contractor overall but leads in the highway transportation market.

Air and highway transportation combined accounted for $7 billion, or 45 percent of reported FY 2018 USPS contract spending.

Professional Services & Supplies Spending

USPS relies heavily on outsourced professional services and suppliers to maintain its vast vehicle fleet, property inventory and customer support operations. Some of the top companies include:

US Bank, which facilitated $1.1 billion in USPS spending by managing the credit cards used to buy fuel, vehicle maintenance services and other services and supplies.
EnergyUnited Service Corp. had $429 million in obligations for providing third-party billing services, mostly for fuel and utilities.
Wheeler Brothers, a wholly-owned subsidiary of VSE Corp., generated $172 million by providing vehicle maintenance, parts, and mission-critical supply chain management services through the USPS Managed Inventory Program (MIP).
Victory Packaging, with $220 million in obligations, is the lone supplies vendor in the Top 10. It is the Postal Service’s main source of shipping supplies.

Technology and Professional Services Investments Remain Critical

The ninth- and 10th-largest vendors, Northrop Grumman Corp. and Accenture Federal Services, are mainly known as technology and professional services vendors, but they provide a broad range of related services spread across several postal markets.

Northrop Grumman, which received a combined $170 million in fiscal 2018, has had a decades-long business relationship with USPS. The company built the iconic Grumman Long Life Vehicle (LLV) mail truck, which has been in use since 1987. It has held the contract to provide depot-level maintenance for retail and bulk mail processing systems, which takes place at the USPS Central Repair Facility in Topeka, Kansas, for four decades.

Northrop Grumman has broadened its USPS market footprint and now provides a range of IT, equipment rental and repair, maintenance and building services at USPS locations across the country.

Accenture ($165 million in USPS obligations) provides enterprise software, hardware and consulting services on a range of professional services contracts.

But the main focus of both companies is information technology. Along with another 260 IT vendors, Northrop Grumman and Accenture accounted for $753 million in USPS IT spending in fiscal 2018, 4.7 percent of the overall total and a slight decline of 1 percent since fiscal 2016.

What’s Ahead

By most accounts, the USPS faces considerable financial challenges, including a heavy pension burden, declining first-class mail revenue and steady market inroads from some of its largest vendors. But for now, these challenges do not appear to be halting continued investment in its infrastructure and the tens of thousands of vendors that support it.

On Feb. 22, USPS released a request for information from companies that could help integrate Autonomous Delivery Vehicle technology into its delivery fleet. ADV technology has been linked to the USPS’s planned, $6.3 billion acquisition of a Next Generation Delivery Vehicle to replace its aging fleet. The NGDV procurement is in the final stages, awaiting a choice of prototypes.

Responses to the RFI are due by 5:00 p.m. on April 5. BGOV clients can dive into the updated USPS contract details by clicking here.

The source of BGOV’s USPS contract data is the Postal Services Contract Authoring and Management System (CAMs), which tracks spending for supplies, services, equipment and transportation.

To contact the analyst: Paul Murphy in Washington at pmurphy@bgov.com

To contact the editors responsible for this story: Daniel Snyder at dsnyder@bgov.com; Jodie Morris at jmorris@bgov.com