Will FedEx Be Stiffed?

In his testimony before the Senate Senate Committee on Homeland Security and Governmental Affairs, Postmaster General Patrick R. Donahoe testified that the Postal Service's cash shortfall could extend to operational expenses.  What he did not say was what operational expenses will not be paid.

 

 Previously, when he has testified that the Postal Service would default on the Federal retiree health care and workers compensation payments.   The escalation of the bad news suggest that all of the cost cutting efforts to date have not come fast enough to deal with declining revenue and most importantly declining revenue from First Class transaction mail.

 

When the Postmaster General previously stated that the Postal Service would default on its Federal obligations, he stated that the Postal Service would continue to deliver the mail and employees would still be paid.  So that leaves payments of postal contractor bills as the operating expenses that will not be paid.  In 2010, the Postal Service's largest contractors, and therefore the firms that face the greatest risk that the Postal Service will not pay its bills are as follows:

1. FedEx Corporation (Air Transportation)
2. Northrop Grumman (Equipment, consulting)
3. Kallita Air, Ltd. (Air Transportation)
4. Pat Salmon & Sons (Truck Transportation)
5. Siemens (Equipment, consulting)
6. Hewett Packard Co. (IT support)
7. Wheeler Brothers Transportation (Truck Transportation)
8. Campbell- Ewald (Advertising)
9. Accenture (Consulting, IT support)
10. IBM (EXFC measurement, consulting)
11. Mail Contractors of America (Truck Transportation)
12. United Parcel Service (Air Transportation)
13. Continental Airlines (Air Transportation)

Normally, the Postal Service pays its bills within 30 days of receipt.   The financial shortfall will likely force the Postal Service to delay payments for bills submitted in September and possibly August under it generates enough to cash to pay them.  For these contractors, this could mean that payments that were usually made within  30 days could take 60 to 90 days until the Postal Service has the cash to pay.  

Some contractors may stop work on contracts until payment is received.  Some may decide not to provide any more product or services after payments stop.   Given that nearly all inter-city transportation involves contractors, the greatest risk to service would come if the cash shortfall is large enough to prevent the Postal Service from paying its transportation contractors. 

The Postmaster General's testimony requires Postal contractors to assess the payment risk.  Unless the Postal Service begins talking to its contractors now about the payment risks that contractors face, they may asume that the risk is quite high. Such an assummption could create significant challenges for the Postal Service in providing the mail and parcel delivery services that are critical to the economy in the 4th quarter of 2011 and beyond.  The sooner the Postal Service can allay fears of contractors the sooner they can ensure that Postal contractors continue to act as the partners that they are.