UPS to Lead as New Primary Air Cargo Provider for the United States Postal Service

Atlanta-based shipping giant UPS has been announced as the new primary air cargo provider for the United States Postal Service (USPS), marking a significant expansion of their existing partnership. This development comes as the current air cargo contract between USPS and FedEx Corp. approaches its expiration in late September. The financial specifics of the UPS deal remain undisclosed, but it is set to last for a minimum duration of five and a half years, starting immediately after the FedEx contract ends.

FedEx, in a regulatory filing, revealed that it was unable to secure a mutually beneficial agreement to extend its long-standing contract with USPS, despite extensive negotiations which concluded last Friday. FedEx Express will maintain its air transportation services for USPS domestically and to Puerto Rico until the contract's expiration on September 29, with UPS taking over the following day.

The shift in partnership comes after more than two decades of FedEx serving as a key air cargo provider for USPS. In 2020, USPS had even extended its air cargo network contract with FedEx for four years, covering domestic air transportation for US Mail, Priority Mail, and Priority Mail Express. However, recent strategies by USPS to cut costs have seen a pivot towards ground transportation over air freight. Postmaster General Louis DeJoy announced in February that USPS aims to slash its overall transportation expenses by USD 3 billion within the next two years, including a USD 1 billion reduction already achieved in airfreight costs.

Despite USPS's move towards ground shipments for cost-saving purposes, the demand for air cargo shipments has been on an upward trajectory globally. The International Air Transport Association reported an 18.4 percent increase in total demand for air cargo in January compared to the same period last year, marking the highest annual growth since summer 2021.

The announcement of UPS as the new primary air cargo provider for USPS has had an immediate impact on the stock market, with shares of United Parcel Service Inc. experiencing a slight dip in Monday afternoon trading, while FedEx's stock saw a near 3 percent decline.