After months of negotiations to renew its contract as primary air carrier for the United States Postal Service, FedEx announced that this will be its last year doing so. UPS will be stepping in to provide the service instead.
FedEx and the post office had until September to work out a new deal, but the two parties have called it quits early. As recently as a couple weeks ago, FedEx Chief Customer Officer Brie Carere was telling analysts on its earnings call that the company was “feeling very positive about the negotiations.” But it looks like the feeling was fleeting.
“FedEx and the United States Postal Service have had a long and productive relationship for more than 20 years,” FedEx said in a statement. “Over time, our respective strategies have shifted as we transform our networks and operations for the future.”
Reuters reports that one sticking point was the post office’s shift from moving a lot of its packages through the air to doing more transportation on the ground to match the Amazon-style shift toward moving distribution centers nearer to metro areas and large customer bases. FedEx had been trying to figure out a way to serve fewer postal service markets while it maintained its primary carrier status.
The loss of the USPS contract will likely weigh heavily on FedEx, which noted in its “strategic risk” section of its most recent annual report that the post office is the largest customer for its FedEx Express segment. Though less profitable than its Ground, Freight, and Services divisions, Express still brought in nearly half of the company’s $90 billion in revenue last year.
In its statement, UPS did not lay out the financial terms of the contract, but described them as “significant.”
FedEx stock was down about 3% in midday trading. UPS shares were down a little over 1%.