UPS will become the primary air cargo provider for the United States Postal Service.
The Atlanta shipping company, on Monday, announced that it had secured an air cargo contract from the U.S. Postal Service, significantly expanding their existing partnership.
According to UPS, they will handle most of the air cargo transportation for the postal service in the US after a transition period.
The specific financial details of the agreement were not revealed.
The current air cargo contract between USPS and FedEx Corp. is set to end in late September. USPS stated that the contract with UPS will be for at least five and a half years.
In a regulatory filing, FedEx mentioned that it was unable to come to a mutual agreement to extend its contract with USPS under beneficial terms. The company reported that discussions concluded on Friday, after lengthy negotiations.
FedEx Express will continue to offer air transportation services domestically and to Puerto Rico until the contract expires on September 29. UPS's contract with USPS will take effect the following day.
During FedEx's third-quarter conference call on March 21, Chief Customer Officer Brie Carere stated that the company had been serving USPS for over two decades and that negotiations were ongoing.
USPS extended its air cargo network contract with FedEx by four years in 2020. The mail and delivery service mentioned that the contract covered domestic air transportation for U.S. Mail, Priority Mail, and Priority Mail Express.
In recent years, USPS has been increasingly focused on reducing costs, and one way is by transitioning from air freight to ground transportation. In February, USPS Postmaster General Louis DeJoy mentioned that USPS aims to cut its overall transportation costs by $3 billion over the next two years, including the $1 billion cost savings already achieved in airfreight.
Despite USPS's shift to ground shipments as a cost-saving strategy, air cargo shipments have been growing worldwide. Last month, the International Air Transport Association reported that total demand for air cargo, measured in cargo ton-kilometers, increased by 18.4% in January compared to the previous year, marking the highest annual growth since the summer of 2021.
United Parcel Service Inc.'s shares saw a slight decrease in Monday afternoon trading, while FedEx's stock dropped by almost 3%.
