UPS Supplants FedEx as Primary USPS Shipper

Now it’s up to UPS to supply proof of delivery profits. 

On Monday, United Parcel Service announced it will soon become the primary air cargo shipper for the United States Postal Service, replacing rival FedEx after 20 years out in the cold. Somehow all three entities claimed a win.

Special Delivery

USPS owns and operates zero planes of its own, so it relies on third-party private players to ship certain pieces of mail when necessary. But the economics of snail mail have changed. The agency has recently shifted much of its operations from planes to more economical trucks; more than 95% of its First-Class Mail and First-Class packages are moved by its ground network, according to USPS. 

That led FedEx, on its own drive to clean up costs, to begin seeing its relationship with USPS as more of a burden than a boon — setting the stage for Monday’s big news:

• USPS payments to FedEx ran just $1.7 billion in fiscal year 2023, down from $2.4 billion in 2020. While the USPS was the largest client for FedEx’s air-based Express segment, FedEx said it was prepared to walk away if terms for a new contract, due in September, did not improve.
• While terms of the UPS deal have not been disclosed, the company did call it a “significant” contract in its press release. In January, UPS announced full-year revenue guidance for 2024 below Wall Street’s expectations.

“It’s not a huge loss for FedEx, but it will impact their density,” Edward Jones equity analyst Faisal Hersi told Reuters. “You’re losing consistency in terms of revenue from a pretty significant partner, but it wasn’t the most profitable business for them.”

FedEx-Employees: Amid FedEx’s cost-cutting campaign is a reorganization to combine its air-based Express unit directly with its Ground unit. Without the USPS contract, the company may even lay off as many as 300 pilots, trade publication FreightWaves reported in January. Ouch.