On Monday, United Parcel Service (UPS) revealed its forthcoming role as the primary air cargo provider for the United States Postal Service (USPS), stepping into the vacancy left by rival FedEx, which announced the termination of its more than two-decade partnership with the postal service provider.
While the financial specifics of the contract remain undisclosed, UPS emphasized that the award was of significant magnitude.
Despite declining payments as USPS transitioned its mail and package transportation from planes to more cost-effective trucks, USPS remained the largest customer for FedEx’s air-based Express segment.
FedEx had expressed its willingness to sever ties with USPS if the terms of the existing contract, set to expire on September 29, did not improve.
“It’s a change of fortunes, and obviously, it will be good for UPS to be able to have that business,” remarked Thomas Martin, senior portfolio manager at GLOBALT Investments in Atlanta.
In early trading, FedEx’s shares experienced a nearly 2% decline, while UPS’ stock saw a marginal dip.
This development is perceived as a transient setback for FedEx, which is already grappling with a downturn in industry-wide demand and ongoing negotiations with unionized pilots.
The company projected an improvement in profitability by fiscal 2025, aided by its cost-reduction initiatives and a streamlined operational framework following the conclusion of the contract.
Additionally, FedEx announced plans to implement network adjustments to mitigate the impact of losing the contract, which previously generated nearly $2 billion in annual revenue.
According to trade publication FreightWaves, as many as 300 pilots at FedEx could face job displacement if the contract were to terminate, based on a recording of a meeting between a FedEx executive and pilot evaluators released in January.
The Air Line Pilots Association, the union representing FedEx pilots, which is yet to reach a new labor agreement with FedEx, did not immediately respond to requests for comment on Monday.
