As the last FedEx cargo plane loaded with mail touched down, it marked the end of an era. The 20-year partnership between FedEx and the United States Postal Service (USPS) has concluded, with UPS officially taking over USPS's air cargo operations. This transition represents more than just a contractual change—it reflects strategic realignments among logistics giants, a reshaping of market dynamics, and the evolution of service models in an era transformed by e-commerce growth, cost pressures, and demands for enhanced services.
I. The Deal: UPS Wins USPS Air Cargo Contract
UPS recently announced it secured a "significant air cargo contract" from USPS, replacing its main competitor FedEx as the primary air transportation provider. The agreement took immediate effect and expands the existing partnership between UPS and USPS. Following a transition period, UPS will handle most of USPS's domestic air cargo operations.
Meanwhile, FedEx disclosed in an SEC filing that its FedEx Express subsidiary's contract with USPS will expire on September 29, 2024. This contract primarily provided domestic transportation services for USPS.
II. Expert Analysis: The Strategic Implications
Logistics experts have offered diverse perspectives on the contract change, analyzing its underlying causes and potential impacts:
Service Model Evolution: SJ Consulting President Satish Jindel noted significant changes in USPS's air cargo needs over two decades. As USPS adjusted its Priority Mail service standards—originally designed to compete with FedEx and UPS's two-day delivery networks—air cargo requirements diminished. "First Class mail and packages previously had next-day delivery commitments on certain routes. Now, First Class delivery standards have shifted to 2-5 days. These changes reduced overnight air cargo needs," Jindel explained.
Cost Control & Strategic Choices: Jindel suggested FedEx might have found the contract less favorable without network adjustments to match declining air cargo demand. "USPS sought cost reductions, while UPS was willing to take over operations at acceptable rates. Some speculate UPS might lose money, but I disagree. With over 20 years of integrated network experience, UPS can manage this differently than FedEx did."
The Rise of "Coopetition": Shipware's Gordon Glazer observed this transition began during the pandemic, reflecting "coopetition" between rivals. He noted FedEx's 2020 decision to stop using USPS for last-mile delivery of its SmartPost service, while USPS simultaneously shifted more mail from air to ground transport.
Strategic Priorities Diverge: "UPS derives significant revenue from Amazon, while FedEx shed most Amazon-related air service in 2019. Now UPS must manage two 'whale' clients—Amazon and USPS—where contract terminations could prove disruptive. Meanwhile, FedEx focuses on internal growth rather than supporting a competitor's long-haul network," Glazer added.
Intensified Market Competition: Glazer noted UPS Mail Innovations entirely relies on USPS delivery. He analyzed the timing of this announcement amid current market overcapacity, where carriers aggressively compete for volume. "During the pandemic, UPS strategically shed lower-margin clients to pursue more profitable small shippers."
Shipware founder Rob Martinez called the lost contract significant—worth over $1 billion—despite FedEx's attempts to downplay it. "FedEx recently claimed 'substantial progress' in negotiations, clearly needing structural adjustments for profitability. USPS wouldn't guarantee volumes to offset high-cost operations." Martinez compared this to FedEx's 2019 Amazon breakup, noting it took over a year—and a pandemic—to refill its network. "One company's trash is another's treasure. This gives UPS guaranteed volume amid declining Amazon shipments."
III. Industry Outlook: Competitive Landscape and Future Prospects
Hempstead Consulting's Jerry Hempstead suggested FedEx might have taken its USPS business for granted. "Postmaster General DeJoy brought logistics expertise, rationalizing that most mail and e-commerce packages aren't urgent. USPS expanded ground alternatives while meeting service standards. To compensate for lost tonnage, FedEx likely sought higher rates but underestimated UPS CEO Carol Tomé's resolve."
HudsonWinters' Andre Winters offered five key observations:
1. UPS Expands Footprint: The deal represents significant capability expansion, aligning with UPS's cost-reduction and network-tonnage goals to better compete with FedEx and Amazon.
2. Mutual Benefits: UPS gains potential access to broader customer segments, while financially strained USPS can focus on core operations and infrastructure modernization.
3. Consumer & Competitive Impact: Industry dynamics may shift as UPS co-loads USPS cargo, potentially lowering rates through cost-sharing.
4. FedEx Revenue & Share Loss: Losing USPS business could substantially impact FedEx's revenue and market position, compounded by ongoing pilot union negotiations and network integration challenges.
5. FedEx Adaptation: FedEx may need new partnerships or growth strategies to offset the loss, while improving service quality to retain customers. Workforce reductions and potential Amazon reconciliation rumors persist.
This strategic shift underscores how logistics giants are adapting to evolving market conditions, where cost efficiency, network optimization, and flexible partnerships increasingly determine competitive advantage in the post-pandemic era.