Key Highlights
- UPS and the U.S. Postal Service have reached a tentative agreement to reunite for delivering low-budget shipments.
- The deal is part of UPS’s strategy to reduce costs amid declining volumes in its domestic parcel business.
- Ground Saver, UPS’s cheapest ground service, saw a significant decline in volume due to rate hikes and competition from other carriers.
- The partnership aims to provide last-mile delivery for both Ground Saver and Mail Innovations services.
UPS and USPS Reunite for Low-Cost Shipments
In a significant move to address declining volumes in its domestic parcel business, UPS has reached a tentative agreement with the U.S. Postal Service (USPS) to resume last-mile delivery for its low-cost Ground Saver shipping service.
Cost Cutting and Declining Volumes
UPS’s decision comes as the company faces challenges in its domestic parcel segment, particularly with the declining volume of its cheapest ground service, Ground Saver. According to data from the third quarter results, Ground Saver average daily volume declined 32.7% year over year. UPS CEO Carol Tomé attributed this drop to the phase-out of Amazon volumes by mid-2026 and volume declines from non-U.S.-based e-commerce companies.
Strategic Partnership and Cost Reduction
The partnership with USPS is part of a broader cost-cutting strategy. According to details provided during an analyst briefing, UPS has a “preliminary understanding” on revenue and rates with the Postal Service to resume home delivery for Ground Saver. The agreement aims to leverage USPS’s strengths in last-mile delivery while allowing UPS to focus on its middle-mile network.
UPS executives have recognized that their cost structure is unsustainable in the competitive B2C delivery market.
Satish Jindel, president of ShipMatrix, explained that this arrangement acknowledges that UPS cannot compete with union drivers in delivering ground volume packages at the rate customers want. The move could help UPS save costs and maintain service levels for its Ground Saver product.
Impact on Mail Innovations
The agreement also includes handling last-mile delivery for Mail Innovations, a shipping and mailing service offered by UPS that uses a combination of UPS’s ground network and the USPS. This workshare arrangement with USPS allowed Mail Innovations to deliver lightweight parcels at a reduced cost. However, in response to significant rate increases, UPS raised rates for Mail Innovations by 20% to 40%, which drove customers to other providers.
UPS intends to implement this last-mile outsourcing next year and expects financial benefits starting in the second half of 2026. CFO Brian Dykes added that while there is still more work to do, they are confident about reaching an agreement that ensures service levels will remain best-in-class.
Industry Context
This partnership reflects broader trends in the shipping and logistics industry where companies seek cost efficiencies through strategic collaborations. As e-commerce continues to grow, players like Walmart and Amazon have been gaining market share by offering competitive pricing and delivery options. UPS’s decision underscores the need for innovation and collaboration in an increasingly competitive landscape.
