USPS Ends FedEx Ground Economy Pact
As of July 2024, the U.S. Postal Service no longer supports drop-offs for FedEx Ground Economy, formerly known as SmartPost, ending a long-standing last-mile partnership. Misrouted FedEx packages dropped at USPS locations are now treated as items with unpaid or counterfeit postage. The FedEx Ground Economy service itself continues as a hybrid model offering cost savings for sub-10lb packages.
- The termination of the Ground Economy drop-off arrangement is a symptom of a larger strategic shift; FedEx's separate, more lucrative air cargo contract with USPS, worth approximately $2 billion annually, was not renewed and will expire on September 29, 2024, with UPS taking over the contract. - FedEx has been re-architecting its own network for years to improve last-mile density and profitability, starting with the 2021 rebranding of "SmartPost" to "Ground Economy" and integrating more of these deliveries into its own FedEx Ground network. - In response to losing the USPS air cargo business, FedEx plans to adjust its network to improve efficiency, including reducing costly daytime flight operations that were primarily used for USPS volume. The company anticipates a $500 million financial headwind in fiscal year 2025 due to the contract's expiration but expects its DRIVE cost-cutting initiative to improve long-term profitability. - The original FedEx SmartPost service, launched in 2004, was a pioneering hybrid logistics model that combined FedEx's long-haul transportation with the extensive last-mile delivery network of the USPS to offer a cost-effective shipping solution for lightweight packages. - This change aligns with the USPS's 10-year strategic plan under Postmaster General Louis DeJoy, which includes reducing discounts for shipping consolidators to improve the Postal Service's financial sustainability and encourage direct use of its own services like Ground Advantage. - The shift away from USPS for last-mile delivery has been a multi-year process; by 2019, FedEx had already begun a pilot program to have its own contracted couriers deliver SmartPost packages instead of handing them off to the postal service. - While FedEx is moving away from USPS, it has also ended its ground and domestic express delivery contracts with Amazon in 2019, signaling a broader strategy to focus on higher-margin shipments and the overall market rather than servicing major competitors.
