UPS has secured a major contract with the United States Postal Service (USPS) to become its primary air cargo provider. The Atlanta-based shipping company announced on Monday that it had received the contract, which expands upon its existing partnership with USPS. While the financial details of the deal were not disclosed, UPS will handle the majority of air cargo in the US for USPS after a transition period.
This new agreement comes as USPS’s current air cargo contract with FedEx Corp. is set to expire in late September. FedEx stated in a regulatory filing that it was unable to reach an agreement with USPS to extend its contract on mutually beneficial terms. After extensive negotiations, talks ended on Friday. As a result, FedEx Express will continue to provide air transportation services domestically and to Puerto Rico until September 29, when UPS’s contract with USPS takes effect the next day.
The contract between USPS and UPS is expected to last for a minimum of five and a half years. In 2020, USPS announced a four-year extension of its air cargo network contract with FedEx, which covered domestic air transportation for U.S. Mail, Priority Mail, and Priority Mail Express. However, USPS has been focusing on cost reduction in recent years and has been transitioning from air freight to ground transportation as one avenue to achieve this goal.
USPS Postmaster General Louis DeJoy revealed in February that the organization aims to reduce its overall transportation costs by $3 billion over the next two years. This target includes the $1 billion cost savings already achieved in airfreight. Despite USPS’s shift towards ground shipments for cost-saving purposes, the demand for air cargo has been increasing globally. In January, the International Air Transport Association reported an 18.4 percent growth in total demand for air cargo compared to the same period last year.
Following the announcement of UPS’s new contract with USPS, shares of United Parcel Service Inc. experienced a slight dip in Monday afternoon trading. FedEx, on the other hand, saw its stock decline by nearly 3 percent. The impact of this change in the air cargo landscape remains to be seen, but it is clear that UPS has secured a significant opportunity to expand its business and strengthen its position in the industry.
In conclusion, UPS’s acquisition of the primary air cargo provider role for USPS marks a major development in the logistics and shipping sector. With the expiration of FedEx’s contract, UPS has stepped in to fill the void and will handle the majority of air cargo for USPS in the US. While USPS aims to reduce transportation costs by transitioning to ground shipments, the demand for air cargo continues to rise globally. This new partnership between UPS and USPS opens up new opportunities for growth and expansion for both companies.
