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UPS is set to become the US Postal Service’s primary air cargo carrier, replacing FedEx, which spent two decades in the role. But who exactly is losing out in the shipping industry shake-up is unclear, as FedEx hinted that ending the contract could help drive efficiency and profitability.
“Upon the conclusion of the contract, we will implement adjustments to our network that will drive efficiencies and create more flexibility,” the company said in a statement. “The elimination of structural costs currently in place to support postal service volume will be addressed and, in conjunction with our DRIVE efforts, FedEx profitability will improve in FY25 and beyond.”
An industry expert made a similar point in February. Barclays analyst Brandon Oglenski told FreightWaves that dropping USPS could improve profitability at the company, which is currently in the midst of a reorganization designed to streamline its operations.
On the deal, FedEx said it was “unable to reach mutually agreeable terms,” despite expressing confidence that it would extend the contract as recently as March 21.
“In short, we are feeling very positive about the negotiations,” Brie Carere, EVP and chief customer officer at FedEx, said during an earnings call.
UPS CEO Carol B. Tomé, meanwhile, said in a statement that the agreement is “mutually beneficial and complements our unique, reliable and efficient integrated network.”
- Air cargo carriers move over $6 trillion worth of goods per year, which makes up 35% of global trade in terms of value, according to the International Air Transport Association.
But the shipping method is facing headwinds: Domestic air freight ton-miles declined nearly 10% YoY in 2023, according to the Bureau of Transportation Statistics. This occurred against the backdrop of USPS efforts to reduce the volume of packages delivered by air as part of its own cost-cutting initiative.