(Reuters) – United Parcel Service will become the main air cargo provider for the U.S. Postal Service (USPS), the company said on Monday, after rival FedEx pulled out after seeking a better new contract with the service. It was announced on .
UPS stock rose 1.4% before the bell, while FedEx stock fell 1.6%. Financial terms of the agreement, which is expected to take effect after a “transition period”, were not disclosed.
UPS called the Postal Service's award “significant.”
USPS is the largest customer of FedEx's Air Express division. The company said it was prepared to end the 22-year relationship if the terms of the existing contract, which expires on September 29, are not improved.
FedEx, which has been trying to rein in expenses to combat weak cargo demand and a bloated cost structure, announced Monday that it will not extend its contract with the USPS.
“The parties were unable to reach an agreement on mutually beneficial terms to extend the contract,” FedEx said in a securities filing.
As the USPS' No. 1 domestic aviation contractor, FedEx has supported USPS Priority Mail and other expedited services.
If the USPS domestic contract expires, it will eliminate a nearly $2 billion-a-year business that funded hundreds of pilot jobs at FedEx. But some analysts say the losses will force FedEx to reduce its air transport capacity, which will benefit it in the medium term.
The delivery company has not yet reached a new contract agreement with Pilot.
USPS will pay approximately $1.7 billion to FedEx in fiscal 2023, up from $2.4 billion in the fiscal year ended September 2020, as the Postal Service transitions letters and packages from aircraft to more economical trucks. It was reduced to $30 million.
(Reporting by Ananta Agarwal and Deborah Sophia in Bengaluru; Editing by Savio D'Souza, Varun HK and Sriraj Kaluvila)
