United Parcel Service (UPS) announced on Monday its forthcoming role as the primary air cargo provider for the United States Postal Service (USPS), following FedEx's decision to terminate their more than two-decade-long partnership with USPS.
While the financial specifics of the contract were not disclosed, UPS characterized the award as "significant."
According to CNBC, this major transition comes as USPS, once FedEx's largest air-based Express segment customer, gradually shifted its logistics from planes to more cost-effective truck transportation, resulting in declining payments to FedEx.
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FedEx had previously expressed its readiness to end the relationship if contract terms didn't improve, launching cost-cutting measures to enhance profitability amid shareholder pressures. UPS's shares saw a 1.8% rise, contrasting with FedEx's 1.6% stock decline following the announcement.
The potential termination could affect up to 300 FedEx pilots, with labor negotiations with the Air Line Pilots Association ongoing. Specifically, because this means FedEx's longstanding support for USPS's Priority Mail and quick services, as its top domestic air contractor, now transitions to UPS.
Meanwhile, FedEx, anticipating nearly $2 billion in annual business loss, pledged network adjustments to offset contractual repercussions, projecting improved profitability beyond fiscal 2025.
While USPS payments to FedEx reduced to $1.7 billion in fiscal 2023 from $2.4 billion in fiscal 2020, the agency is also adapting its operations to accommodate customers favoring proximity-based distribution centers, aligning with Amazon.com's logistics strategy and reducing reliance on air services for fast deliveries.
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