U.S. Postal Service picks UPS to move air cargo—sacking FedEx

April 2, 2024

The U.S. Postal Service has tapped United Parcel Service as its primary partner for moving cargo by air—replacing FedEx, which had provided the service for more than 20 years, reports The Wall Street Journal.

The USPS and FedEx had been in talks to extend the contract, but were unable to reach an agreement, FedEx said on Monday, April 1. The four-year contract ending in September covers domestic air transportation for First-Class Mail, Priority Mail Express, and Priority Mail.

The USPS had been FedEx Express’s largest customer. In recent years, the USPS contract became a drag on FedEx’s earnings. FedEx Chief Customer Officer Brie Carere said as recently as last month that the company was making progress on renegotiating the contract on more favorable terms.

“Over time, our respective strategies have shifted as we transform our networks and operations for the future,” said a FedEx spokesperson. “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.”

She added that FedEx will eliminate structural costs in place to support the contract after it ends.

In turn, UPS has confirmed that it has signed an agreement with the USPS—but has declined to say how long the contract will last.

The Postal Service has been restructuring its operations including closing facilities and diverting more parcels to be delivered by truck instead of by plane. In August, Postmaster General Louis DeJoy said that the Postal Service would save around $1 billion in its annual air transportation costs by moving mail and packages to its ground transportation network. USPS said more than 95% of its First-Class Mail and First-Class packages are moved by its ground network.

USPS has said that, in the past 20 years, the use of First-Class Mail has declined amid a rise in digital communications—but a rise in e-commerce meant it sees more parcels in its network. For the fiscal year ended September, USPS said its expenses for air transportation fell 16% from the prior year to $3.1 billion. It doesn’t own or operate any planes.

FedEx has been retooling operations in a bid to cut costs and simplify its network. The Memphis, Tennessee-based company has been slashing billions in costs—parking planes and laying off workers, spurred in part by an industry downturn in delivery volume. FedEx also is combining its Express and Ground delivery units—changing a decades-old operating structure.

Research contact: @WSJ