UPS has landed a deal with the U.S. Postal Service to become the agency's primary provider of air cargo transportation, usurping current USPS partner FedEx Express, according to an announcement Monday.
Under the contract issued Monday, the delivery giant will ramp up its activity with the USPS after a transition period, eventually moving the majority of the agency's air cargo in the U.S.
“Together UPS and USPS have developed an innovative solution that is mutually beneficial and complements our unique, reliable and efficient integrated network,” said UPS CEO Carol Tomé.
The new contract with a five-and-a-half-year minimum base term is slated to be implemented the day after its FedEx Express contract expires on Sept. 29, according to a statement from the USPS. Further terms of the deal, including its value, were not disclosed.
"Finalizing this agreement is a key step toward achieving our operational and financial sustainability goals," the USPS said in its statement.
The USPS is currently under contract with FedEx Express. The arrangement has FedEx provide it with airport-to-airport transport in the U.S.
FedEx EVP and Chief Customer Officer Brie Carere sounded optimistic about the state of negotiations during the company's March 21 earnings call. She said significant progress had been made in negotiations that align with FedEx's ongoing network transformation plan, noting that a new deal would feature “a more efficient network with service to fewer markets."
But in the end, FedEx Express and the USPS "were unable to reach agreement on mutually beneficial terms to extend the contract," according to a securities filing. Negotiations between the two parties concluded Friday. As of May 31, 2023, FedEx counted the USPS as the largest customer of its Express unit.
The company appears prepared to move on. FedEx said in a statement that the two carriers' respective strategies have shifted over their more than 20-year relationship as they each pursue network revamps. The Postal Service had already been reducing its FedEx-transported volume and shifting cargo destined for air transport to the agency's less-expensive ground network instead.
"Upon the conclusion of the contract, we will implement adjustments to our network that will drive efficiencies and create more flexibility," FedEx said. "The elimination of structural costs currently in place to support postal service volume will be addressed and, in conjunction with our DRIVE efforts, FedEx profitability will improve in FY25 and beyond."
Editor's note: This story has been updated with additional information from a statement issued by the U.S. Postal Service.
