UPS and Postal Service Forge Alliance for Low-Cost Shipping

UPS and the U.S. Postal Service have reached a tentative agreement for the USPS to handle final-mile delivery for the carrier’s Ground Saver service. The move, announced by company officials Tuesday, is a key part of UPS’s strategy to cut costs amid declining domestic parcel volumes and reverses a previous decision to manage these deliveries in-house.

The partnership revives an arrangement that soured after the USPS previously raised its rates. In response, UPS had brought the final-mile component of its cheapest offering—then called SurePost and later rebranded as Ground Saver—in-house. However, executives discovered that the company’s own delivery expenses were higher than anticipated, eroding the profitability of the budget shipping option. This was highlighted in the second quarter, when delivery expenses rose by $85 million as UPS struggled to achieve the necessary route density to support Ground Saver’s lower price point.

To counter the high costs, UPS increased rates for Ground Saver. This narrowed the price gap with its standard Ground service, diminishing its value for retailers who are highly sensitive to shipping costs. As a result, many customers sought cheaper alternatives, and Ground Saver’s average daily volume plummeted by 32.7% year-over-year in the third quarter.

CEO Carol Tomé stated during an analyst briefing that UPS has a “preliminary understanding” on revenue and rates with the USPS, with full details expected by the end of the year. She explained that UPS re-engaged with the Postal Service to forge a mutually beneficial partnership. “The way to do that is to leverage what they’re best at, which is final mile, and what we’re best at, which is middle mile,” Tomé said.

The renewed agreement will also extend to UPS Mail Innovations, a service for businesses shipping large volumes of letters and lightweight packages. Mail Innovations had previously lost its discounted pricing with the USPS, leading to significant rate hikes that drove customers to competitors.

According to Satish Jindel, president of ShipMatrix, the decision underscores the challenges UPS faces with its own cost structure in the competitive business-to-consumer market. “What it tells you is that their cost structure has gone up so much… that they are struggling to make money handling ground volume packages at the rate customers want,” Jindel said.

UPS CFO Brian Dykes noted that the company plans to implement the last-mile outsourcing next year, with financial benefits anticipated starting in the second half of 2026. The U.S. Postal Service declined to comment on the pending supplier contract.



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