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Earlier this month, UPS announced securing a pivotal role as the primary air cargo provider for USPS.

This announcement came on the heels of FedEx's decision to terminate its longstanding partnership with USPS, which spanned over two decades.

The shift in USPS's logistics strategy, moving away from air-based transportation to more cost-effective truck transportation, has led to declining payments to FedEx, prompting this change.

UPS Is Now USPS' Primary Air Cargo Provider

Following a transition period, UPS will handle the majority of air cargo transportation for USPS. The contract between the two entities is set for a minimum of five and a half years. Negotiations between FedEx and USPS failed to reach mutually beneficial terms, resulting in the termination of their contract.

Despite the termination, FedEx Express will continue to provide air transportation services domestically and to Puerto Rico until the contract expires on September 29. USPS had previously announced a four-year extension of its air cargo network contract with FedEx in 2020.

USPS' Focus on Reducing Transportation Costs

ABC13 reported that USPS's focus on reducing transportation costs, aiming to save $3 billion over the next two years, including $1 billion already saved in airfreight, has driven the shift towards ground shipments. However, despite this trend, global air cargo demand has been steadily rising.

Shares of United Parcel Service Inc. experienced a slight dip in Monday afternoon trading, while FedEx's stock declined nearly 3%. Carol B. Tomé, CEO of UPS, expressed optimism about the collaboration, stating, "Together UPS and USPS have developed an innovative solution that is mutually beneficial and complements our unique, reliable, and efficient integrated network."

According to the International Air Transport Association, total demand for air cargo climbed 18.4% in January compared with the prior-year period, marking the highest annual growth since the summer of 2021.