UPS will become the primary air cargo service for the USPS. The Atlanta shipping company announced Monday that it has secured an air freight contract from the United States Postal Service.
UPS will transport the majority of air cargo in the United States for the postal service after a transition phase, according to UPS.
The financial terms of the transaction were not disclosed.
USPS’s existing air freight contract with FedEx Corp. will end in late September.
FedEx stated in a regulatory filing that it was unable to agree on mutually beneficial conditions to extend its contract with USPS. The company stated that negotiations concluded on Friday after protracted discussions.
FedEx Express will continue to supply domestic and Puerto Rican air transportation services until the contract ends on September 29.
During FedEx’s third-quarter conference call on March 21, Chief Customer Officer Brie Carere stated that the company has offered its services to UPS for more than two decades and that the two sides were still in negotiations.
UPS announced a four-year extension of its air cargo network contract with FedEx in 2020. According to the postal and delivery service, the contract included domestic air transportation for US postal, Priority Mail, and Priority Mail Express.
USPS intends to cut its overall transportation expenses by $3 billion over the next two years
In recent years, USPS has focused more on cost reduction, and one route is the switch from air freight to ground delivery. In February, USPS Postmaster General Louis DeJoy stated that the USPS intends to cut its overall transportation expenses by $3 billion over the next two years, with $1 billion already saved in airfreight.
While USPS is looking to shift more to ground shipments as a cost-cutting measure, air cargo volumes are increasing globally. Last month, the International Air Transport Association reported that global demand for air cargo, measured in cargo ton-kilometers, increased 18.4% in January compared to the previous year. This marks the biggest annual growth in the figure since the summer of 2021.
Shares of United Parcel Service Inc. climbed about 2% before the opening bell Monday, while FedEx’s stock dropped 2.1%.