By landing a pair of contracts to handle some shipments for the Federal Reserve banks, the check courier AirNet Systems Inc. has found at least a small financial cushion as the volume of checks continues to decline.
The Columbus, Ohio, company, the nation's largest courier of canceled checks, announced Tuesday that it had signed two contracts to serve the Fed's Check Relay Network. The primary agreement is for weekend shipments moving among Federal Reserve check processing sites; the second is for scheduled and expedited weekday service between Federal Reserve sites that continue to process a large volume of checks.
AirNet said it expected the agreements to contribute about $3 million of revenue during their two-year terms, based on current volumes and anticipated trends.
The contracts will only slow the decline in AirNet's bank service unit, the largest of its three business lines. In the third quarter alone, its bank services revenue fell $3 million from the year earlier, to $24.6 million.
AirNet's volumes have fallen as banks increasingly cleared checks via imaging and other methods. Its weekday cancelled check pounds shipped per flying day — its preferred method of measuring volume — fell 30% in the third quarter compared to the year earlier.
Jeffrey B. Harris, AirNet's chief operating officer, said the additional volume would improve the courier's operating efficiency.
"This expanded relationship will improve our shipment density and utilization of AirNet's weekend and weekday daytime systems," he said in a press release.
Fred Herr, a senior vice president in the Federal Reserve System's retail payments office, described the deal as a routine contract matter.
"The old contracts expired, and we had to rebid them," he said.
The Fed has been progressively cutting back on transportation expenses among its check processing offices, as it increases its use of images. In 2006, the most recent figures available, the Fed spent $35.4 million on such transportation, down 9.2% from the prior year. This expense has been falling since it peaked in 2003, according to the Federal Reserve Web site.
Banking consultant Bert Ely said the unit costs for transporting checks will keep rising as volumes fall, meaning that the fixed costs of planes and trucks will be borne by fewer items, eventually making check transportation cost-prohibitive.
"The cost curves haven't crossed yet. They soon will," said Mr. Ely, an independent analyst in Alexandria, Va.
AirNet has been trying new approaches to protect customers from the rising costs. In October, it adopted a tiered pricing system under which bank clients would continue paying fees even after they stop using its planes to transport canceled checks through certain cities, in effect, subsidizing the cost for those who continue to use the service.
