The United States Postal Service (USPS) is switching gears, selecting United Parcel Service (UPS) as its primary air cargo provider, as FedEx announced the termination of their over two-decade-long partnership with the postal service.
Despite FedEx’s air-based Express segment seeing USPS as its largest customer, revenue took a hit as USPS shifted to more cost-effective truck transportation as part of operational restructuring.
Faisal Hersi, an equity analyst at Edward Jones, remarked, “It’s not a huge loss for FedEx, but it will impact their density… You’re losing consistency in terms of revenue from a pretty significant partner, but it wasn’t the most profitable business for them … it’s not all negative.”
USPS constituted only about 4% of Express’ yearly revenue. Nonetheless, the contract win is anticipated to bolster UPS, which previously projected full-year revenue below Wall Street estimates.
Hersi noted, “It provides an opportunity (for UPS) to have someone that’s going to guarantee them some of that volume and helps them have that density improvement.”
While the financial details remain undisclosed, UPS described the contract as “significant.” FedEx’s stock dipped nearly 2%, with UPS down 1%. FedEx plans network adjustments to offset the loss of the contract, which generated nearly $2 billion in annual business.
“The parties were unable to reach agreement on mutually beneficial terms to extend the contract,” stated FedEx in a filing on Monday.
According to FreightWaves, up to 300 FedEx pilots could face job losses if the contract ends. The Air Line Pilots Association, representing FedEx pilots, did not immediately respond to Reuters’ request for comment.
USPS’ payments to FedEx declined to approximately $1.7 billion in fiscal 2023 from $2.4 billion in the fiscal year ending September 2020. As the leading USPS domestic air contractor, FedEx had backed the agency’s Priority Mail and other express services.
USPS is adapting to changing customer preferences, with more businesses adopting strategies akin to Amazon.com’s by establishing distribution centers closer to consumers. This proximity reduces the necessity for air services to facilitate swift deliveries.
