UPS to replace FedEx as primary air cargo provider for United States Postal Service

Associated Press
·3 min read

UPS will become the primary air cargo provider for the United States Postal Service, replacing FedEx after a 20-year partnership with the Memphis-based company.

Atlanta-based UPS said Monday that it had received an air cargo contract from the U.S. Postal Service that significantly expands an existing partnership between the two.

UPS will move the majority of air cargo in the U.S. for the postal service following a transition period, according to UPS. Financial terms of the deal were not disclosed.

USPS’s current air cargo contract with FedEx Corp. is set to expire in late September.

FedEx said in a regulatory filing that it wasn’t able to reach an agreement on mutually beneficial terms to extend its contract with USPS. The company said that negotiations ended on Friday, after extensive talks.

FedEx Express will continue to provide air transportation services domestically and to Puerto Rico until the contract expires on Sept. 29.

Reuters reported that USPS was the largest customer for FedEx’s air-based Express segment, though it represented a relatively small share of the division’s revenue.

During FedEx’s third-quarter conference call on March 21, Chief Customer Officer Brie Carere said that the company had provided its services to USPS for more than two decades and that the two sides were still in negotiations.

USPS announced a four-year extension of its air cargo network contract with FedEx in 2020. The mail and delivery service said that the contract provided for domestic air transportation for U.S. Mail, Priority Mail and Priority Mail Express.

In recent years USPS has focused increasingly on lowering costs, and avenue is through transitioning from air freight to ground transportation. In February USPS Postmaster General Louis DeJoy said that USPS is looking to reduce its overall transportation costs by $3 billion over the next two years, which includes $1 billion cost savings already achieved in airfreight.

While USPS is looking to move more to ground shipments as a cost-saving tactic, air cargo shipments have been rising globally. Last month the International Air Transport Association said that total demand for air cargo, which is measured in cargo ton-kilometers, climbed 18.4% in January compared with the prior-year period. That’s the highest annual growth in the figure since the summer of 2021.

Shares of United Parcel Service Inc. rose nearly 2% before the opening bell Monday, while FedEx’s stock fell 2.1%

FedEx said in a statement Monday morning that the company expected the end of the USPS contract would drive efficiency in the division, improving profitability.

“The elimination of structural costs currently in place to support postal service volume will be addressed and, in conjunction with our DRIVE efforts, FedEx profitability will improve in FY25 and beyond,” a company statement said.

The FedEx Master Executive Council of the Air Line Pilots Association Int’l (ALPA) also released a statement on the end of FedEx’s contract with USPS.

“With each new announcement, FedEx management continues to threaten every FedEx employee’s job security and quality of life. Regretfully, this news is not surprising given that recent actions taken by FedEx executive leadership have diminished the company’s competitive advantage. A business that was once the industry leader and the gold standard is rapidly turning into a cautionary tale,” ALPA said.

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