UPS wins major air cargo contract with postal service

Deal replaces rival FedEx as the primary postal carrier for air cargo in the U.S.

Sandy Springs-based UPS has announced it won a major air cargo contract with the U.S. Postal Service.

UPS will replace rival FedEx as the primary postal service air cargo carrier, carrying the majority of air cargo for the postal service in the United States.

“Together UPS and USPS have developed an innovative solution that is mutually beneficial and complements our unique, reliable and efficient integrated network,” said UPS CEO Carol Tomé in a written statement.

The U.S. Postal Service said it awarded the contract to UPS on April 1 with a start date of Sept. 30, for a term of at least five-and-a-half years. It said its requirements for the contract were “reevaluated in light of the dramatic changes in the mailing and shipping marketplace” since 2021.

USPS said its objective is “to reduce our overall transportation cost by $3 billion over the next two years, including $1 billion in air freight cost savings already achieved.”

Finalizing the agreement with UPS is “a key step toward achieving our operational and financial sustainability goals,” according to USPS.

The contract is a win for UPS Airlines and its pilots. UPS recently outlined a three-year plan to improve its revenue and profitability, after seeing significant declines in both last year.

The postal service and FedEx have had a business relationship stretching back to 2001. Under the deal, Memphis-based FedEx has carried USPS first class mail, priority mail express and priority mail in the United States, with USPS as its largest customer for its Express business, according to the company’s 2023 annual report.

FedEx warned in its annual report that USPS was making changes to reduce its reliance on FedEx’s air network, which have negatively affected the company’s operations. The contract it had with USPS was extended in 2017 until Sept. 29, 2024, to bring in about $1.5 billion a year in revenue for FedEx Express — though the amount has varied by year.

FedEx said in a filing with the U.S. Securities and Exchange Commission on Monday that it was unable to reach an agreement with USPS to extend its contract, and its negotiations ended March 29.