In a significant shift within the logistics and delivery sector, United Parcel Service (NYSE:UPS) is set to become the new primary air cargo provider for the United States Postal Service (USPS), marking the end of USPS' long-standing partnership with FedEx.
Announced on Monday, this move comes as FedEx decided to step back, prioritizing a more profitable contract over continuing its 22-year relationship with USPS.
FedEx, which had regarded USPS as its largest customer for its air-based Express segment, openly stated its willingness to abandon the partnership should the terms fail to meet its profitability criteria.
This comes against the backdrop of a dwindling contract value, with FedEx's earnings from USPS dropping to approximately $1.73 billion in fiscal 2023, down from $2.4 billion in the fiscal year ending September 2020.
The reduction was primarily due to USPS' strategic decision to transfer a significant portion of its letter and package deliveries from air cargo to ground transportation, aiming for cost efficiency.
The transition to UPS as the primary air cargo provider is set to occur as FedEx's current contract with USPS approaches its expiration on September 29.
FedEx has yet to respond to requests for comments regarding this development.
In anticipation of this new partnership, UPS saw a 1.4% increase in its shares during pre-market trading, signaling investor confidence in the company's expanded role with USPS.