When the last plane lands and packages are unloaded, few may ponder how these parcels traverse vast distances to reach recipients on time. United Parcel Service (UPS) recently won a significant air cargo contract from the United States Postal Service (USPS), previously held by its largest competitor, FedEx. This shift is poised to disrupt the USPS air cargo sector, prompting deeper industry reflection on future dynamics.
1. Event Overview: UPS Wins USPS Air Cargo Contract
UPS announced securing a "significant air cargo contract" with USPS, effective immediately, expanding their existing partnership. After a transition period, UPS will become USPS's primary air cargo provider, handling most domestic air freight. Meanwhile, FedEx disclosed in an SEC 8-K filing that its FedEx Express subsidiary's contract with USPS will expire on September 29, 2024.
2. Industry Expert Analysis
SJ Consulting President Satish Jindel's Perspective
Satish Jindel noted significant changes in USPS's air cargo contracts and network over the past two decades, alongside adjustments to Priority Mail service standards. Originally designed as a two-day delivery network to compete with FedEx and UPS's deferred services, Priority Mail has evolved.
"USPS's service adjustments, such as extending First-Class Mail delivery from next-day to 2–5 days, reduced the need for overnight transport. Consequently, the air cargo contract's scale shrank dramatically, aligning with Postmaster General Louis DeJoy's 'Delivering for America' plan," Jindel explained.
He added that UPS's integrated network positions it favorably to handle the contract differently from FedEx, making this a positive incremental gain for UPS.
Shipware Senior Advisor Gordon Glazer's Insights
Glazer highlighted that the transition from FedEx to UPS began during the pandemic, marked by "co-opetition" between FedEx and USPS. Postmaster DeJoy's permanent changes to air transport—shifting delivery standards and prioritizing ground over air—reshaped the landscape.
"UPS, already tied to Amazon, now manages two major clients, while FedEx focuses on internal growth. This realignment reflects divergent strategies: FedEx prioritizes B2C, while UPS leans toward B2B," Glazer noted.
Shipware Founder Rob Martinez's Assessment
Martinez emphasized that losing a billion-dollar contract is undeniably negative for FedEx. He compared the situation to FedEx's 2019 split with Amazon, which took over a year—and a pandemic—to recover from.
"One company's loss is another's treasure. For UPS, this is a strategic win. They gain assured air freight volume and offset Amazon-related declines," Martinez said. "But the transition will be painful for all parties in the short term."
Hempstead Consulting President Jerry Hempstead's View
Hempstead suggested FedEx took its USPS business for granted after 20 years. Postmaster DeJoy's logistics expertise drove network rationalization, favoring ground transport over air where feasible.
"UPS likely offered competitive pricing, while FedEx underestimated Carol Tomé's resolve. In a softer market, this shift makes sense," he remarked.
HudsonWinters & Co. Founder Andre Winters' Five-Part Analysis
Winters outlined key implications:
- UPS's Expansion: The deal enhances UPS's capabilities, aligning with cost-reduction and scale goals.
- Synergies: USPS gains operational relief, while UPS accesses new revenue streams.
- Consumer Impact: Competition may drive rate adjustments as UPS co-loads USPS freight.
- FedEx's Challenges: Revenue loss and market share erosion loom amid pilot negotiations and network integration.
- FedEx's Adaptation: Strategic pivots and service improvements may mitigate the blow.
The USPS contract shift underscores evolving logistics strategies, with UPS poised to capitalize on FedEx's retreat. As the industry watches, the long-term ramifications of this realignment will unfold in the coming years.