News / 'Swingers' playing musical chairs in the parcel market

© Natalia Bratslavsky

The US parcel market resembles a swingers’ club that produces a shifting scene of alliances, break-ups and re-alignments, with the latest twist being UPS and the US Postal Service (USPS) trying to breathe new life into an alliance that ended less than a year ago.

Having terminated their SurePost deal, under which UPS had handed parcels to the postal agency for final-mile delivery, on 1 January of this year, the pair are close to resurrecting the collaboration. UPS confirmed it had reached agreement with the USPS in principle for final-mile delivery for its Ground Saver product, as the erstwhile SurePost service had been rebranded after the split.

The USPS was the driving force for the break-up under postmaster general Louis DeJoy, who blocked the practice of parcel firms injecting their traffic to the postal network for the residential delivery, part in an effort to raise utilisation of the postal agency’s middle-mile network. That not only ended the SurePost deal with UPS, but also pushed other parcel consolidators like Pitney Bowes to look for alternative final-mile partners.

David Steiner, the new postmaster general, has started a u-turn on his predecessor’s policy in response to the agency’s deteriorating financial situation. For the fiscal year ended 30 September, it posted an operating loss of $2.7bn, following a $1.8bn deficit in 2024.

“We need to stop the revenue decline and grow volumes at a faster pace,” he said.

In addition to courting UPS and other parcel carriers and retailers for final-mile parcels, he also wants to attract parcel returns, leveraging the USPS’s network of some 33,000 post offices for drop-offs.

The realignment makes sense for both sides, commented Cathay Morrow Roberson, founder and head analyst of Logistics Trends & Insights.

“UPS has been bleeding volume on Ground Saver,” she noted.

Like FedEx, the integrator has not endeared itself to customers with a seemingly endless string of surcharges on top of general rate increases. Ms Roberson said many customers had taken their business elsewhere because of this, pointing out that the increased costs owing to tariffs have sapped their ability to absorb higher delivery rates.

Today they can easily find alternatives, she said, pointing to regional carriers, fulfilment providers and increased rural delivery activities by Amazon and Dollar General.

“The days when UPS and FedEx were a duopoly in the parcel market are long gone. In the B2C market, the lowest rate wins the battle,” she commented.

She added that the two big integrators did not really want to be in the B2C market, but the long drought in the B2B sector had forced them to court B2C shippers to boost their network utilisation.

These pressures have driven them into short-lived partnerships. FedEx used to carry a large number of parcels for Amazon, but wound down that engagement citing low profitability. The e-commerce giant subsequently struck a deal with UPS, only for the integrator deciding to also cut down on this traffic for the same reasons as FedEx.

“Were UPS taking any lessons from watching FedEx and Amazon disentangle? Why take on Amazon unless they needed to fill their planes?” Ms Roberson asked.

In May, FedEx and Amazon teamed up again, this time on a more limited scope, with the e-commerce giant using the integrator to move bulky shipments that won’t fit into parcel sorting systems to residential addresses.

“Where was UPS in that conversation?” Ms Roberson wondered.

Faced with the challenges of a market they don’t really want to be in, the integrators seem to be in a situation of ‘damned if they do, damned if they don’t’, she remarked.

For UPS, switching from in-company deliveries to the USPS for Ground Saver traffic should not be a huge tweak, other than having to explain the move to its drivers, she said. Not surprisingly, UPS drivers have never liked the SurePost deal, nor the acquisition of third-party ecommerce fulfilment platform Roadie.

Like its alignments with some partners, the role of Roadie for UPS still remains an open question, said Ms Roberson. It would make sense to integrate it into the UPS platform, but such a move would likely meet with stiff opposition from the company’s unionised workforce.

Meanwhile, other players are moving ahead. Walmart announced during its Q3 earnings call last week that about 35% of its online orders fulfilled from stores were delivered in less than three hours.