Thursday, September 5, 2013

FedEx Wins Defense Contract

One of the largest package delivery companies, FedEx Corp.(FDX) has won a $171 million contract from the U.S. Department of Defense for small package delivery services for the military. This contract expires on Sep 30, 2014.
FedEx also won a second defense contract worth $49.8 million for overpacking and transportation of perishable products for the Defense Commissary Agency and Defense Logistics Agency. Under this contract, FedEx will deliver perishable goods such as fresh fruits and vegetables from the U.S. West Coast to military locations in Japan, Korea, Guam and Alaska. This contract will be brought into effect on Oct. 1, 2013 and unless extended, will expire on Sep 30, 2014.

Apart from FedEx, the Department of Defense also issued two other contracts worth $171 million each to United Parcel Service, Inc. (UPS) and Polar Air Cargo, subsidiary of Atlas Air Worldwide (AAWW) for providing transportation services. Both these contracts also expire on Sep 30, 2014.

Apart from gaining new military contract, FedEx also extended its multi-year contract with United States Postal Service (USPS) in Apr 2013. Effective Oct 2013, this seven-year contract worth $10.5 billion would require FedEx Express to provide airport-to-airport transportation for USPS Express Mail and Priority Mail services within the U.S.

FedEx also aims to spread its services across the U.S., Canada and Mexico and capitalize on potential business opportunities in NAFTA (North American Free Trade agreement) markets. The company is boosting its international presence with its acquisitions of Opek Sp. z o.o. (Polish courier company), TATEX (French B2B Express transportation company) and Rapidão Cometa (Brazilian logistics company).
Recently, the company acquired Supaswift and its subsidiaries that offer FedEx Express international services in Southern Africa, gaining direct access to seven markets in Southern Africa. FedEx is also building a new hub in Guangzhou, China, to cater to 100 new Chinese cities within the next five years.

We believe that new contracts wins along with investments in organic growth as well as acquisitions will lead to greater operational efficiency, significant long-term synergies and competitive advantage.

FedEx, which operates with companies such as Radiant Logistics, Inc. (RLGT), has a Zacks Rank #3 (Hold).

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