FedEx Express and the Postal Service’s operational strategies have changed significantly since they extended their current air transportation agreement in 2017, which was expected to generate around $1.5 billion in revenue annually for FedEx.
The Postal Service, Express’ top customer as of July, is shifting more packages to ground transportation to reduce operating costs. The agency’s air transportation spending fell 16.3% YoY for the fiscal year ended Sept. 30, while highway transportation expenses increased 7.1%.
Meanwhile, FedEx is redesigning its Express air network as part of its wide-ranging “DRIVE” cost-savings program as it looks to better match capacity with demand and increase flexibility. FedEx’s contract with the Postal Service is complicating its efforts to improve financial performance at Express, however.