United Parcel Service (UPS) secures the primary air cargo contract with the United States Postal Service (USPS), displacing FedEx after over two decades, reports Reuters.
UPS emerges as the new primary air cargo provider for the United States Postal Service (USPS), taking over from FedEx in a significant transition. FedEx, having been the longstanding partner of USPS, terminated its over two-decade-long partnership, citing a shift in USPS’s reliance on air-based services to more cost-effective truck transportation.
This move signifies a decline in FedEx’s relationship with USPS, once its largest customer for air-based services, accounting for approximately 4 percent of FedEx Express’s annual revenue.
Faisal Hersi, an equity analyst at Edward Jones, highlights the impact on FedEx, noting a potential loss in revenue consistency due to the termination of a significant partnership. However, he remarks that this change is not overwhelmingly negative for FedEx. Meanwhile, UPS anticipates a boost in revenue following the transition, with financial terms of the new contract undisclosed but described as “significant.”
The announcement triggered market reactions, with FedEx witnessing a nearly 2 percent drop in its stock, while UPS experiences a 1 percent decline. As FedEx navigates the aftermath, adjusting its network to offset the loss of the contract, potential job losses loom, with as many as 300 pilots at risk of being out of work. The Air Line Pilots Association International (ALPA) criticises FedEx’s management for its impact on employee job security and quality of life.
USPS’s payments to FedEx decreased to approximately $1.7 billion in the fiscal year 2023 from $2.4 billion in the fiscal year ending September 2020. USPS’s reorganisation aligns with a strategy of moving distribution centers closer to consumers, reducing the demand for fast air services previously provided by FedEx.
