UPS takes over as the U.S. Postal Service’s main air cargo provider, supplanting FedEx, reports Reuters

UPS takes over as the U.S. Postal Service’s main air cargo provider, supplanting FedEx, reports Reuters

(Reuters) – United Parcel Service will become the primary air cargo provider for the United States Postal Service (USPS), the company said on Monday, as rival FedEx (NYSE:) pulled out after pushing for a new more advantageous contract with the American agency.

UPS shares rose 1.4% before the bell while FedEx shares fell 1.6%. Financial terms of the contract, which is expected to come into effect after a “transition period,” were not disclosed.

UPS said the postal service’s award was “significant.”

USPS is the largest customer in FedEx’s Air Express segment. The company said it was prepared to end the 22-year relationship if the terms of the existing contract, which expires on September 29, did not improve.

FedEx, which has been working to rein in spending to combat falling freight demand and a bloated cost structure, announced Monday that it will not extend its contract with USPS.

“The parties were unable to reach agreement on mutually beneficial terms to extend the contract,” FedEx said in a securities filing.

As the USPS’s first domestic air contractor, FedEx had supported the agency’s Priority Mail and other expedited services.

Expiring the national contract with USPS would wipe out nearly $2 billion in annual revenue that funds hundreds of pilot jobs at FedEx. This loss will, however, push FedEx to reduce its air capacity, which will benefit it in the medium term, some analysts believe.

The package delivery company has not yet reached a new contractual agreement with its drivers.

USPS payments to FedEx fell to about $1.73 billion in fiscal 2023, from $2.4 billion in the fiscal year ended September 2020 after the Postal Service transferred letters and packages from planes to more economical trucks.



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