UPS Secures USPS Air Cargo Deal as FedEx Ends Partnership

United Parcel Service (UPS) recently announced a significant shift in its operations, becoming the primary air cargo provider for the United States Postal Service (USPS). This comes in the wake of FedEx’s decision to terminate its more than two-decade-long partnership with USPS.

For FedEx, the termination of the contract may not be earth-shattering, as USPS represented only about 4% of its annual revenue from the air-based Express segment. Nonetheless, it does impact FedEx’s revenue consistency. The postal service had been gradually shifting its shipping from planes to trucks for cost-effectiveness, leading to declining payments to FedEx over the years.

According to a FedEx company filing, “The parties were unable to reach agreement on mutually beneficial terms to extend the contract.”

Analysts like Faisal Hersi from Edward Jones noted that while the loss isn’t catastrophic for FedEx, it does affect their revenue stream. However, for UPS, winning the contract is viewed as a boost, particularly since the company had forecasted revenue below Wall Street’s expectations earlier in the year.

Financial details of the UPS-USPS contract were not disclosed, but UPS described it as “significant.” The news caused a slight dip in FedEx’s stock, and UPS saw a marginal decrease as well.

FedEx, on its part, aims to adjust its network to compensate for the loss of the USPS contract, which brought in nearly $2 billion in annual business. The termination of the contract may also lead to job cuts, with up to 300 pilots potentially impacted.

The Air Line Pilots Association International (ALPA), representing FedEx pilots, criticized FedEx management for prioritizing stock buybacks over job security. They highlighted the irony of layoffs amidst stock repurchases, emphasizing the contribution of employees to FedEx’s success.

As UPS gears up to take on its new role as USPS’s primary air cargo provider, FedEx prepares to navigate its network adjustments and potential job cuts. The shifting dynamics in the parcel delivery sector underscore the importance of adaptability in the face of evolving market conditions.