By Lisa Baertlein
LOS ANGELES (Reuters) – United Parcel Service expects its newly won U.S. Postal Service (USPS) air cargo contract to be profitable in its first year and throughout the more than five-year deal, after rival FedEx struggled with the business, Chief Executive Carol Tome said on Tuesday.
Atlanta-based UPS will become the No. 1 USPS air cargo service provider on Sept. 30. It replaces FedEx, which was paid $1.75 billion in fiscal 2023 to provide Priority Mail and other speedy services for the quasi-governmental agency.
FedEx held the contract for more than two decades, but recently struggled to squeeze out profits after the postal service shifted volume from planes to trucks in a broad cost-cutting effort.
While some analysts and investors worry that UPS is sweeping up a money-losing business, the delivery firm said it can profit from the new deal because it already has a unified network.
“In contrast to traditional hub and spoke models, we don’t have to run all of the air volume through our main air hub,” Tome said.
That means short-distance USPS shipments can be handled locally or regionally by plane or truck, resulting in lower costs. FedEx was built on a hub and spoke model.
The CEO said the deal will be margin accretive and earnings per share accretive to UPS “beginning in year one and through the life of the contract.”
UPS is working closely with the postal service to onboard the business ahead of this year’s holiday peak season, Tome said. The company has “plenty of space on aircraft” for the additional volume and will hire more than 200 pilots, she said.
While the contract will significantly increase the company’s U.S. Postal Service business from $308 million in fiscal 2023, UPS is not ready to revise its financial forecasts, she said.
The company reported better-than-expected quarterly profit on Tuesday as cost cuts offset still-soft demand for package delivery.
(Reporting by Lisa Baertlein in Los Angeles; Editing by Michael Erman)
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