DALLAS — United Parcel Service, aka UPS (5X), announced on April 1, 2024, that it is becoming the primary air cargo provider for the United States Postal Service (USPS), replacing FedEx (FX) in this role. This decision comes as FedEx announced the end of its more than 20-year partnership with USPS

The new contract between UPS and USPS will begin in late September 2024 after the current contract between USPS and FedEx expires on September 29. Under the new agreement, UPS will handle most domestic air transportation for USPS's first-class mail, priority mail express, and priority mail.

Negotiation Breakdown

FedEx and USPS had been negotiating to extend their current contract but could not reach mutually agreeable terms. Specifically, FedEx had expressed its willingness to end the partnership if the terms of the existing agreement, set to expire on September 29, did not improve.

FedEx added that it would "implement adjustments" to its network after the contract expires. According to CNBC, the change comes as USPS looks to reduce its overall transportation costs, including shifting from air freight to ground transportation.

USPS was the largest customer for FedEx's air-based Express segment, even as payments declined after USPS shifted letters and packages from planes to more economical trucks as part of an operational revamp.

The contract's financial terms between UPS and USPS have not been disclosed, but UPS has described the award as "significant." 5X shares rose nearly 2% after the announcement, while FX's stock fell 2.1% as global air cargo demand continues to grow.