Atlanta-based UPS announced on Monday that it has secured a significant air cargo contract from the United States Postal Service (USPS), marking the end of a 20-year partnership between USPS and FedEx. Following a transition period, UPS will become the primary air cargo provider for USPS, handling the majority of air cargo operations within the United States.

Financial details of the contract between UPS and USPS were not disclosed. However, the current air cargo contract between USPS and FedEx is set to expire in late September, as FedEx confirmed in a regulatory filing. Despite extensive negotiations, the two companies failed to reach an agreement on mutually beneficial terms to extend their partnership.

FedEx Express will continue to provide air transportation services domestically and to Puerto Rico until the contract expires on September 29. According to Reuters, USPS was the largest customer for FedEx's air-based Express segment, although it represented a relatively small share of the company's division revenue.

This shift in air cargo operations comes as USPS endeavors to lower its costs and optimize its transportation methods. USPS has been gradually transitioning from air freight to ground transportation as a cost-saving measure. In February, USPS Postmaster General Louis DeJoy announced plans to reduce overall transportation costs by $3 billion over the next two years, including $1 billion in already achieved cost savings related to airfreight.

While USPS is focusing on ground shipments, the global demand for air cargo has been on the rise. The International Air Transport Association reported an 18.4% increase in total demand for air cargo in January compared to the previous year, indicating significant growth in the sector.

The news of UPS replacing FedEx as USPS's primary air cargo provider has had an impact on the stock market. Shares of United Parcel Service Inc. witnessed a nearly 2% rise before the market opened on Monday, while FedEx's stock registered a decline of 2.1%.

With the new partnership between UPS and USPS, both entities anticipate a smooth transition and enhanced efficiency in their air cargo operations within the United States.