CNF, USPS GO SEPARATE WAYS
After fighting for months in court over a contract dispute, CNF Inc. and the U.S. Postal Service have agreed to dissolve the Priority Mail contract signed in 1997.
The USPS will assume on Jan. 7 operating responsibility over the air freight network set up by CNF subsidiary Emery Worldwide to handle Priority Mail delivery in the eastern U.S. The original contract, which was viewed as ground-breaking at the time because of its scope and duration, was scheduled to end in 2002. Emery operates a network of 10 sortation centers and 4,000 employees for Priority Mail.
CNF will report the results of the USPS contract as a discontinued operation and record an estimated after-tax charge of about $15 million for the third quarter.
“After substantial effort by all parties to make this a successful partnership, it is now agreed that it is best for the Postal Service to assume ongoing operating responsibility,” said Gregory L. Quesnel, CNF president and chief executive officer.
Emery recently was granted a summary judgment in a law suit filed against the USPS claiming that the Post Office reneged on a pricing agreement signed in 1998. According to Emery's suit, mail volumes were higher than projected and the USPS imposed numerous changes in performance requirements, which combined to significantly increase Emery's operating costs.
The court ruled that the USPS never gave Emery a price for operating the Priority Mail contract in 1999 or 2000. It ordered the USPS to respond to Emery's specific pricing proposals and that the pricing method used by the USPS must be discontinued and that certain deductions the agency made from payments to Emery were improper.
Under the terms of the agreement signed by CNF and the USPS to discontinue the contract, CNF said it 'retains the right to pursue claims for underpayment under the contract and plans to do so.”