United Parcel Service to become primary air cargo provider in US
The deal is announced as FedEx ends its 20-year partnership with the US Postal Service
01 April 2024 - 15:45
byAnanta Agarwal and Deborah Mary Sophia
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A United Parcel Service Airbus A300F4-622R cargo plane is pictured at the cargo terminal in Dulles International Airport in Dulles, Virginia. Picture: REUTERS/HYUNGWON KANG
United Parcel Service will become the US Postal Service’s (USPS) primary air cargo provider, the company said on Monday, as rival FedEx announced an end to its more than 20-year partnership with the postal service provider.
The financial terms of the contract were not disclosed but UPS said the award was “significant”.
USPS was the largest customer for FedEx’s air-based Express segment, even as payments declined after the postal service shifted letters and packages from planes to more economical trucks.
FedEx had said it was prepared to walk away from the relationship if the terms of the existing contract, set to expire on September 29, did not improve.
The company has launched a drive to rein in costs to combat weaker freight demand and improve margins at Express after pressure from shareholders.
UPS’ shares rose 1.8% before the bell while FedEx’s stock fell 1.6%.
“It’s a change of fortunes and obviously it will be good for UPS to be able to have that business,” said Thomas Martin, senior portfolio manager at GLOBALT Investments in Atlanta.
FedEx said on Monday it would make adjustments to its network to make up for the loss of the contract that brought in nearly $2bn in annual business.
The company also said its profitability would improve in fiscal 2025 and beyond, echoing analysts’ views made amid the contract negotiations with USPS.
As many as 300 pilots at FedEx could be out of work if the contract ended, trade publication FreightWaves said in January, citing a recording of a meeting between a FedEx executive and pilot evaluators.
The Air Line Pilots Association, which is yet to reach a new labour deal with FedEx, was not immediately available for comment on Monday.
As the top USPS domestic air contractor, FedEx had supported the agency’s Priority Mail and other quick services.
“The parties were unable to reach agreement on mutually beneficial terms to extend the contract,” FedEx said in a securities filing on Monday.
USPS’ payments to FedEx shrank to about $1.7bn in fiscal 2023, from $2.4bn during the fiscal year ended September 2020.
The agency is also reorganising its operations to accommodate customers who are adopting Amazon.com's strategy of moving distribution centres closer to people who buy their products. That proximity meant that fast deliveries have less need for air services.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
United Parcel Service to become primary air cargo provider in US
The deal is announced as FedEx ends its 20-year partnership with the US Postal Service
United Parcel Service will become the US Postal Service’s (USPS) primary air cargo provider, the company said on Monday, as rival FedEx announced an end to its more than 20-year partnership with the postal service provider.
The financial terms of the contract were not disclosed but UPS said the award was “significant”.
USPS was the largest customer for FedEx’s air-based Express segment, even as payments declined after the postal service shifted letters and packages from planes to more economical trucks.
FedEx had said it was prepared to walk away from the relationship if the terms of the existing contract, set to expire on September 29, did not improve.
The company has launched a drive to rein in costs to combat weaker freight demand and improve margins at Express after pressure from shareholders.
UPS’ shares rose 1.8% before the bell while FedEx’s stock fell 1.6%.
“It’s a change of fortunes and obviously it will be good for UPS to be able to have that business,” said Thomas Martin, senior portfolio manager at GLOBALT Investments in Atlanta.
FedEx said on Monday it would make adjustments to its network to make up for the loss of the contract that brought in nearly $2bn in annual business.
The company also said its profitability would improve in fiscal 2025 and beyond, echoing analysts’ views made amid the contract negotiations with USPS.
As many as 300 pilots at FedEx could be out of work if the contract ended, trade publication FreightWaves said in January, citing a recording of a meeting between a FedEx executive and pilot evaluators.
The Air Line Pilots Association, which is yet to reach a new labour deal with FedEx, was not immediately available for comment on Monday.
As the top USPS domestic air contractor, FedEx had supported the agency’s Priority Mail and other quick services.
“The parties were unable to reach agreement on mutually beneficial terms to extend the contract,” FedEx said in a securities filing on Monday.
USPS’ payments to FedEx shrank to about $1.7bn in fiscal 2023, from $2.4bn during the fiscal year ended September 2020.
The agency is also reorganising its operations to accommodate customers who are adopting Amazon.com's strategy of moving distribution centres closer to people who buy their products. That proximity meant that fast deliveries have less need for air services.
Reuters
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