United Parcel Service will become the United States Postal Service’s (USPS) primary air cargo provider, the company said on Monday, as rival FedEx walked away after pressing for a better new contract with the U.S. agency.

UPS’ shares rose 1.4% before the bell while FedEx’s stock fell 1.6%. Financial terms of the contract, which is set to take effect after a “transition period,” were not disclosed.

UPS said the postal service’s award was “significant.”

USPS is the largest customer for FedEx’s air-based Express segment. The company has said it was prepared to walk away from the 22-year relationship if the terms of the existing contract, set to expire on Sept. 29, did not improve.

FedEx, which has been on a drive to rein in expenses to combat sagging freight demand and a bloated cost structure, said on Monday it would not extend its contract with USPS.

“The parties were unable to reach agreement on mutually beneficial terms to extend the contract,” FedEx said in a securities filing.

As the No. 1 USPS domestic air contractor, FedEx had supported the agency’s Priority Mail and other quick services.

A lapse of the domestic contract with USPS would erase nearly $2 billion in annual business that funds hundreds of pilot jobs at FedEx. However, the loss will push FedEx to reduce its air capacity, which will benefit it in the medium term, some analysts have said.

The parcel delivery firm is yet to reach a new contract agreement with its pilots.

USPS’ payments to FedEx shrank to about $1.73 billion in fiscal 2023, from $2.4 billion during the fiscal year ended September 2020 after the postal service shifted letters and packages from planes to more economical trucks.


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