UPS replaces FedEx as US Postal Service’s primary air cargo provider

UPS has announced that the United States Postal Service (USPS) awarded the company a significant air cargo contract. According to an official release by the integrator, the company has been awarded the “primary air cargo provider status” by the USPS.

This award is effective immediately and greatly expands the existing relationship between the two organisations. Following a transition period, UPS will move the majority of USPS air cargo in the US.

“Together UPS and USPS have developed an innovative solution that is mutually beneficial and complements our unique, reliable and efficient integrated network,” said UPS Chief Executive Officer Carol Tomé.

Meanwhile, FedEx in a regulatory filing with the Securities and Exchange Commission on April 1, 2024, said that “the agreement between FedEx Express and the USPS for domestic transportation services will expire by its terms on September 29, 2024”. This decision was made on March 29, 2024, following extensive discussions,” FedEx noted in the filing.

FedEx and the USPS have had long and productive relationships for over 20 years. “Over time, our respective strategies have shifted as we transform our networks and operations for the future. We have long said we would extend the contract with the USPS if we could agree to commercial terms in the best interests of FedEx shareholders. Although we were unable to reach mutually agreeable terms, we remain committed to delivering outstanding service through the completion of our contract in September.”

“Upon the conclusion of the contract, we will implement adjustments to our network that will drive efficiencies and create more flexibility. 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,” FedEx added in the official statement.

In fact, during the recent FedEx fiscal year 2024 third-quarter earnings call, FedEx president and CEO Raj Subramaniam indicated that the company continues to experience strong headwinds for the USPS, which, according to Subramaniam, has reduced volume significantly. “Despite this volume and revenue drawdown, our service obligations to the USPS remain fixed,” he said during the earnings call.

During the call, Brie Carere, Executive Vice President and Chief Customer Officer for FedEx, said that the company made significant progress in negotiations for a new contract that aligns with FedEx’s ongoing network transformation plan while providing the USPS with operational reliability and outstanding service.

For the year 202, UPS generated $91 billion in revenue. The publicly listed company employs half a million people and provides a wide range of integrated logistics solutions for customers in more than 200 countries and territories.