As e-commerce parcel volumes continue to surge and logistics companies face mounting cost and efficiency challenges, global shipping leader UPS (NYSE: UPS) has announced renewed negotiations with the United States Postal Service (USPS) regarding potential collaboration on its UPS Ground Saver service. This development has quickly drawn industry-wide attention, suggesting possible major changes in last-mile delivery competition.
UPS CEO Carol Tomé revealed the discussions during the company's recent earnings call, confirming both parties are actively exploring possibilities to reestablish their partnership. The UPS Ground Saver service, formerly known as UPS SurePost, was previously a key component of UPS's last-mile delivery strategy that leveraged USPS's extensive network for final delivery.
The Golden Era: When UPS and USPS Thrived Together
During the UPS SurePost era, the collaboration between UPS and USPS represented a mutually beneficial partnership. Under this model, UPS transported packages to USPS facilities near their destinations, while USPS handled the final delivery. This approach offered significant cost advantages for low-value e-commerce packages with less stringent delivery time requirements.
By utilizing USPS's vast network—particularly in rural and remote areas where UPS had limited coverage—the shipping giant could reduce operational costs while expanding service reach. For USPS, the partnership helped increase package volumes, improve network utilization, and generate additional revenue streams at a time when traditional mail services were declining.
The Breakup: When Costs and Reliability Became Concerns
However, as e-commerce volumes exploded, USPS's network faced increasing pressure. Peak season delays and tracking complexities emerged as significant challenges. With customers demanding faster and more reliable deliveries, UPS decided earlier this year to bring all Ground Saver deliveries in-house—a move aimed at improving service quality and cost control.
Unexpected Challenges: Higher Costs Than Anticipated
The transition hasn't gone entirely as planned. Tomé acknowledged during the earnings call that handling Ground Saver deliveries internally resulted in higher-than-expected costs. Specifically, UPS added more delivery stations than projected for the service during Q2, leading to approximately $85 million in financial impact.
Furthermore, UPS Ground Saver volumes declined by over 23% year-over-year—significantly more than the 6.6% overall decline in ground services—indicating weakening competitiveness in the low-value e-commerce segment.
Potential Reconciliation: New Leadership and Excess Capacity
Against this backdrop, UPS's renewed interest in USPS collaboration appears logical. Tomé noted that USPS's new leadership under Postmaster General Louis DeJoy's successor presents fresh opportunities, particularly given USPS's current excess capacity.
Reestablishing the partnership could allow UPS Ground Saver to restore service to Alaska, Hawaii, Puerto Rico, and other territories currently limited to the continental U.S.
Negotiation Prospects and Market Implications
While discussions continue, uncertainties remain. USPS declined to comment on specifics of commercial relationships. Even if an agreement is reached, the new partnership model may differ significantly from previous arrangements.
Industry analysts view the potential reunion cautiously. A renewed alliance could reshape last-mile delivery dynamics, benefiting both parties—UPS through cost savings and expanded coverage, USPS through increased volumes and revenue. However, challenges around cost efficiency, tracking integration, and competition from Amazon and other e-commerce players remain significant hurdles.
Focus on Profitability Remains Paramount
UPS executives emphasize that declining package volumes reflect intentional strategy adjustments to improve per-package profitability. "Ground Saver represented the lowest percentage of our total ground volume in two years during Q2," noted CFO Brian Dykes, "demonstrating positive product mix improvement."
Regardless of USPS negotiation outcomes, enhancing profitability remains UPS's top priority through network optimization, efficiency gains, and service innovation.
Industry Impact and Future Outlook
A potential UPS-USPS reunion could ultimately benefit e-commerce businesses through lower logistics costs and improved delivery efficiency. The collaboration might also spur innovation in last-mile delivery solutions.
Looking ahead, partnership models may become more flexible, with both parties adapting to market demands while leveraging their respective strengths. This evolving relationship between two logistics giants will significantly influence competitive dynamics in the rapidly changing e-commerce delivery landscape.