By Ananta Agarwal and Deborah Mary Sophia
(Reuters) – United Parcel Service will become the primary air cargo supplier to the United States Postal Service (USPS), the company said on Monday, after rival FedEx (NYSE:) announced the end of its more than 20-year partnership with the Postal Service. supplier.
USPS has been the largest customer for FedEx’s air-based Express segment, even as payments fell after the Postal Service shifted letters and packages from planes to cheaper trucks as part of an operational revamp.
“It’s not a huge loss for FedEx, but it will impact their density… You’re losing consistency in terms of revenue from a pretty significant partner, but it wasn’t the most profitable business for them… it’s not all bad” , said Faisal Hersi, equity analyst at Edward Jones.
According to a Reuters calculation, USPS accounted for only about 4% of Express’ annual revenue.
The contract win is seen as a boost for UPS. The package delivery company in January forecast full-year revenue below Wall Street’s target.
“It provides the opportunity (for UPS) to have someone who will guarantee them some of that volume and help them get that density improvement,” Hersi said.
Financial terms of the contract were not disclosed but UPS said it was “significant.”
Shares of FedEx, which expects improved profitability in fiscal 2025, fell nearly 2%. UPS shares fell 1%.
FedEx will also make changes to its network to make up for the loss of the contract that brought in nearly $2 billion in annual business.
“The parties were unable to reach an agreement on mutually beneficial terms to extend the contract,” the company said in a statement Monday.
As many as 300 FedEx pilots could be left without jobs if the contract expires, trade publication FreightWaves said in January, citing a recording of a meeting between a FedEx executive and pilot evaluators.
The union representing FedEx pilots, the Air Line Pilots Association, which has yet to reach a new union agreement with the company, did not immediately comment when contacted by Reuters.
USPS payments to FedEx shrank to about $1.7 billion in fiscal 2023, compared to $2.4 billion in the fiscal year ended September 2020.
As the USPS’s No. 1 domestic air freight contractor, FedEx had supported the agency’s Priority Mail and other expedited services.
The agency is reorganizing to accommodate clients who are adopting Amazon.com’s (NASDAQ:) strategy of bringing distribution centers closer to the people who buy their products. This proximity has meant that fast deliveries have less need for air services.