UPS to Become U.S. Postal Service's Main Air Cargo Provider, Ousting FedEx
UPS to Become U.S. Postal Se...
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UPS to Become U.S. Postal Service's Main Air Cargo Provider, Ousting FedEx

1 April 2024
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2 min.
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UPS to Become U.S. Postal Service's Main Air Cargo Provider, Ousting FedEx

Logistics Disruption

The landscape of air cargo logistics is shifting as United Parcel Service (UPS) steps into the role of primary air cargo provider for the United States Postal Service (USPS), marking the end of a longstanding partnership between USPS and rival FedEx. This transition, announced on Monday, signifies a significant operational change for both companies.

Previously, FedEx had been the largest customer for USPS's air-based Express segment. However, as USPS underwent operational revamps, transitioning letters and packages from planes to more cost-effective truck transport, FedEx's payments dwindled. Despite USPS's significant presence as a customer, representing approximately 4% of FedEx Express' annual revenue, the relationship wasn't the most lucrative for FedEx, according to equity analyst Faisal Hersi from Edward Jones.

The financial details of the UPS-USPS contract remain undisclosed, but UPS has confirmed its significance. This contract win is viewed as a boost for UPS, particularly as it had previously forecasted full-year revenue below Wall Street's expectations. Hersi suggests that the partnership with USPS guarantees UPS a certain volume of business, contributing to improved density for the parcel delivery company.

Market reactions to the news were notable, with FedEx's stock dipping nearly 2% and UPS experiencing a 1% decline. FedEx, while anticipating profitability improvements in fiscal 2025, will need to make network adjustments to compensate for the loss of the lucrative USPS contract, which brought in nearly $2 billion annually.

The termination of the contract also has labor implications. Up to 300 FedEx pilots could be impacted by the contract's end, potentially facing unemployment. The Air Line Pilots Association, representing FedEx pilots, has yet to comment on the matter.

FedEx's revenue from USPS had already seen a decline, shrinking to approximately $1.7 billion in fiscal 2023 from $2.4 billion in the previous fiscal year. This decline reflects USPS's ongoing reorganization efforts, aligning with changing consumer behaviors, such as the trend of moving distribution centers closer to customers, a strategy popularized by Amazon.com. This shift reduces the need for air services, impacting USPS's reliance on air contractors like FedEx.

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