Millions of packages flow daily like an unending bloodstream, sustaining the lifeline of modern commerce. Supporting this vast logistics network are intricate collaborations between airlines, freight companies, and postal systems. A recent contract shift, akin to a pebble dropped into still waters, has sent ripples through the industry, signaling a new wave of realignment.
A Changing of the Guard: How UPS Won USPS’s Favor
UPS recently secured a "significant air cargo contract" from the United States Postal Service (USPS), introducing fresh variables into the fiercely competitive logistics market. This lucrative agreement was previously managed by FedEx. Now, UPS ascends as USPS’s primary air cargo partner, handling most domestic air shipments—a transition built on their longstanding collaboration rather than an overnight shift. FedEx’s 8-K filing with the SEC confirms its existing contract with USPS will expire on September 29, 2024.
Expert Analysis: The Underlying Reasons for the Shift
Satish Jindel, president of SJ Consulting, observes that USPS’s air cargo contracts and network have evolved significantly over two decades, closely tied to adjustments in its Priority Mail service. Originally designed to compete with FedEx and UPS’s deferred services by offering two-day delivery, Priority Mail’s restructuring reduced demand for overnight air transport.
"First-Class mail and packages once promised next-day delivery on certain routes," Jindel notes. "Now, delivery times extend to 2–5 days. These changes diminished overnight needs, shrinking the air cargo contract’s scale—precisely as Postmaster General Louis DeJoy envisioned in USPS’s decade-long ‘Delivering for America’ plan."
Jindel suggests FedEx’s reluctance to adapt its network to USPS’s declining demand may have rendered the contract less appealing. While FedEx Chief Customer Officer Brie Carrere cited dissatisfaction with pricing, Jindel counters that USPS prioritized cost reduction, and UPS met its terms. With over 20 years of integrated network experience, UPS can fulfill USPS’s delivery timelines—whether by air, ground, or hybrid methods—making the contract a net positive.
Coopetition: Pandemic-Era Collaboration and Transformation
Gordon Glazer, a USPS expert at Shipware, traces this transition’s roots to early pandemic "coopetition" (collaboration amid competition) between FedEx and USPS. By 2020, FedEx had begun transitioning its SmartPost service away from USPS’s last-mile delivery, while DeJoy implemented permanent measures—scaling back overnight First-Class deliveries and shifting mail from air to ground transport.
Strategic Divergence: UPS and FedEx’s Contrasting Paths
"UPS’s revenue leans heavily on Amazon, whereas FedEx shed a smaller Amazon share when discontinuing air services in 2019," Glazer explains. "UPS now balances two ‘whales’—losing either could destabilize it. FedEx, meanwhile, focuses inward, prioritizing B2C while UPS shifts toward B2B. UPS SurePost self-delivers half its parcels, reserving lower-margin ones for USPS."
Contract Value: A Blow FedEx Can’t Downplay
Shipware founder Rob Martinez asserts that losing a 10-figure contract is undeniably detrimental. "FedEx recently claimed ‘material progress’ in negotiations," he says, "but structural adjustments were likely needed to align with USPS’s cost-cutting transformation." Martinez parallels this to FedEx’s 2019 Amazon breakup, which took over a year—and a pandemic—to offset.
Opportunity and Risk: UPS’s New Chapter
"One company’s trash is another’s treasure," Martinez remarks. "For UPS, this secures vital air cargo volume amid declining Amazon reliance. Yet disentangling from an incumbent carrier is painful for all parties—FedEx, USPS, and UPS—in the short term."
Jerry Hempstead of Hempstead Consulting speculates FedEx grew complacent after 20 years with USPS. "DeJoy, with logistics expertise, rationalized the network," he says. "Mail isn’t urgent; ground transport often suffices. FedEx likely underestimated UPS CEO Carol Tomé’s resolve in a softened market."
Five Key Implications
Andre Winters of HudsonWinters & Co. outlines this shift’s ramifications:
- UPS’s Expansion: Acquiring USPS’s Priority and First-Class mail business bolsters UPS’s scale, tonnage, and competitiveness against FedEx and Amazon.
- Mutual Benefits: UPS gains revenue streams; USPS alleviates financial strain to modernize infrastructure.
- Consumer and Competitive Impact: Co-loading USPS cargo may lower UPS’s costs, potentially reducing rates.
- FedEx’s Challenges: Revenue and market share losses coincide with pilot union negotiations and network integration.
- FedEx’s Adaptation: The firm may seek new partnerships or efficiency gains to counter UPS’s ascent.