On Monday, rival FedEx announced that it was ending its more than 20-year association with the postal service provider, United Parcel Service will take over as the United States Postal Service’s (USPS) major air cargo carrier.

Although the contract’s financial details were kept a secret, UPS declared the win to be “significant.”

Even though payments decreased when the postal service switched from using planes to more cost-effective vehicles to transport letters and packages, USPS remained FedEx’s biggest client in the air-based Express category.

FedEx has previously stated that it was ready to end the partnership if the conditions of the current agreement, which is scheduled to expire on September 29, did not change.

Under pressure from shareholders, the company has started a push to reduce expenses in order to counter the decline in freight demand and boost profitability at Express.

Prior to the bell, FedEx’s stock dropped 1.6% while UPS’s increased 1.8%.

“It’s a change of fortunes and obviously it will be good for UPS to be able to have that business,” said Thomas Martin, senior portfolio manager at GLOBALT Investments in Atlanta.

FedEx announced on Monday that it would reorganise its network in order to offset the loss of the contract, which generated over $2 billion in revenue annually.

Additionally, the business stated that it will become more profitable in fiscal 2025 and beyond, confirming the predictions of experts during the USPS contract discussions.

Trade journal FreightWaves reported in January that if the contract terminated, up to 300 FedEx pilots may lose their jobs. The article included a tape of a meeting between a FedEx official and pilot evaluators.

The Air Line Pilots Association did not immediately respond to requests for comment on Monday. The organisation has not yet reached a new labour agreement with FedEx.

FedEx, the top domestic air contractor for the USPS, had backed the company’s expedited services, including Priority Mail.

FedEx stated in a securities statement on Monday that “the parties were unable to reach agreement on mutually beneficial terms to extend the contract.”

From $2.4 billion in the fiscal year that concluded in September 2020 to roughly $1.7 billion in the fiscal year 2023, USPS paid FedEx less.

In order to serve clients who are embracing Amazon.com’s approach of relocating distribution centres closer to consumers, the agency is also restructuring its operations. Because of their close proximity, quick delivery requires fewer air services.

(Adapted from Forbes.com)