According to a Monday announcement, United Parcel Service (UPS) will be the new primary air cargo provider for the United States Postal Service (USPS). CWEB analysts raised UPS’s stock value after this significant announcement. Earlier, rival FedEx had been the postal service’s primary service provider for more than twenty years.
UPS shares rose 1.8 percent before the bell, while FedEx fell 1.6 percent. CWEB thinks UPS stock could increase to $180 by the end of the year.
UPS did not disclose the financial terms but said there was a “significant” award, which led to the upgrade by CWEB analysts. The change in fortune with the new partnership is expected to boost UPS’s stock value, as FedEx saw a nearly $2 billion business from USPS.
Earlier, FedEx had said that it was willing to exit its longstanding partnership with the United States Postal Service if the terms of its contract, expiring in September, did not improve.
On Monday, FedEx said it would adjust its network after terminating the more than two-decade-old deal with USPS.
USPS has been using more economical methods of transportation, such as trucks, instead of airplanes. Its payments to FedEx declined to $1.7 billion in fiscal 2023. However, in the fiscal year ending September 2020, it made payments of $2.4 billion.
Shipping and freight operations have also changed, as air services for fast deliveries are no longer a priority.
Amazon began the shift by moving distribution centers closer to where people buy their products. This decreased the need for air cargo providers and also saved costs.
Other industry giants are following the new operating model, which is expected to affect FedEx’s business model.
In January, trade publication FreightWaves reported that roughly 300 pilots who fly FedEx could lose jobs if the partnership between USPS and FedEx were not extended.
In a securities filing on Monday, FedEx said, “The parties were unable to reach an agreement on mutually beneficial terms to extend the contract.”
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