USPS achieved a 43% reduction in air freight spending during Q1 FY2025 under a contract with UPS. This new contract, worth an estimated $10billion, has the USPS route 85% of their air freight through UPS. While this has lead to lower rates and a more robust network, issues have begun to arise.

USPS Saves Money, Takes Advantage of Larger Network

In October of 2024, USPS transitioned to a new 5.5 year contract with UPS, ending a 20-year long contract with FedEx. This contract shifts 85% of USPS’s domestic air freight to UPS. FedEx will still move 4% of USPS freight; mostly perishable and hazmat items. This new contract gives USPS better terms such as lower volume commitments, enhanced on-time delivery metrics, and access to UPS’s air-plus-ground mesh network. This allows direct point-to-point routing through regional gateways, bypassing the need to route through a central hub.

USPS also managed to reduce the total pounds of mail moved by air by 7% compared to the previous year. This aligns with USPS’s goal to shift towards cheaper ground transportation.

Issues Arise Under New Contract

The transition from FedEx to UPS has not been without pains. The USPS Office of the Inspector found that it cannot accurately audit on-time performance when UPS flights are delayed or mail is moved under a special provision that allows for late deliveries. Along with this, USPS found that some surface feeder terminals failed to properly scan packages entering or exiting UPS facilities. Up to 97% of outbound scans were missed in some locations. This ultimately reduces visibility and workforce effectiveness.

Lastly, it was found that 84 hazmat-marked packages were incorrectly routed through UPS instead of FedEx. Though this only makes up 0.3% of hazmat shipments, it raises concerns about security of the new system. To fight this, USPS installed upgrades on their sorting machines and implemented better training to flag hazmat shipments.

What the Future Holds for the USPS and UPS Air Contract

By realigning its air strategy and focusing on ground alternatives, USPS is on track to save $1billion a year in air freight alone. This will contribute further to their goal of cutting out $3billion in transport costs of the next two years. It is a fact that the contract will lead to savings, but the compliance and performance risks cannot be ignored. As the transition continues, both USPS and UPS must continue to monitor performance, hazmat compliance, and service quality to ensure that the new model delivers on its financial promise without undermining reliability.