United Parcel Service (UPS) has secured a significant contract with the United States Postal Service (USPS) to become its primary air cargo provider, following FedEx’s decision to end their over 20-year partnership with USPS.
Although FedEx’s air-based Express segment saw USPS as its largest customer, declining payments ensued as USPS transitioned to more cost-effective truck-based operations.
Faisal Hersi, an equity analyst at Edward Jones, noted that while losing USPS as a partner affects FedEx’s revenue consistency, it wasn’t the most lucrative segment. USPS accounted for approximately 4% of FedEx Express’ annual revenue.
UPS views this contract win as an opportunity to enhance its revenue and density. Although the financial terms were not disclosed, UPS described the contract as “significant”.
FedEx’s stock fell nearly 2% following the announcement, while UPS’ stock decreased by 1%. FedEx will adjust its network to compensate for the loss of the contract, which brought in nearly $2 billion in annual business.
The inability to reach mutually beneficial terms led to the contract’s termination.
The termination could potentially affect up to 300 FedEx pilots, according to trade publication FreightWaves.
The Air Line Pilots Association International (ALPA) criticized FedEx for prioritizing stock buybacks over employee job security.
USPS’ payments to FedEx decreased to $1.7 billion in fiscal 2023 from $2.4 billion in fiscal year 2020.
FedEx, as USPS’ top domestic air contractor, supported Priority Mail and other expedited services.
USPS is reorganizing to accommodate changing customer demands, including those influenced by Amazon.com’s distribution strategies.
