UPS to become the primary air cargo provider for the United States Postal Service

UPS will become the primary air cargo provider for the United States Postal Service.

The Atlanta shipping company said Monday that it had received an air cargo contract from the U.S. Postal Service that significantly expands an existing partnership between the two.

UPS will move the majority of air cargo in the U.S. for the postal service following a transition period, according to UPS.

Financial terms of the deal were not disclosed.

USPS’s current air cargo contract with FedEx Corp. is set to expire in late September. The agency said in a statement that its contract with UPS will be for a minimum of five and a half years.

FedEx said in a regulatory filing that it wasn't able to reach an agreement on mutually beneficial terms to extend its contract with USPS. The company said that negotiations ended on Friday, after extensive talks.

FedEx Express will continue to provide air transportation services domestically and to Puerto Rico until the contract expires on Sept. 29. UPS's contract with USPS takes effect the next day.

During FedEx's third-quarter conference call on March 21, Chief Customer Officer Brie Carere said that the company had provided its services to USPS for more than two decades and that the two sides were still in negotiations.

USPS announced a four year extension of its air cargo network contract with FedEx in 2020. The mail and delivery service said that the contract provided for domestic air transportation for U.S. Mail, Priority Mail and Priority Mail Express.

In recent years USPS has focused increasingly on lowering costs, and avenue is through transitioning from air freight to ground transportation. In February USPS Postmaster General Louis DeJoy said that USPS is looking to reduce its overall transportation costs by $3 billion over the next two years, which includes $1 billion cost savings already achieved in airfreight.

While USPS is looking to move more to ground shipments as a cost-saving tactic, air cargo shipments have been rising globally. Last month the International Air Transport Association said that total demand for air cargo, which is measured in cargo ton-kilometers, climbed 18.4% in January compared with the prior-year period. That's the highest annual growth in the figure since the summer of 2021.

Shares of United Parcel Service Inc. dipped slightly in Monday afternoon trading, while FedEx's stock declined nearly 3%.