FedEx Faces $500 Million Hit After U.S. Postal Service Contract Ends

A FedEx cargo plane taking off from an airport runway.

FedEx is preparing for a $500 million financial impact in fiscal year 2025 due to the impending termination of its U.S. Postal Service air cargo contract. The company is taking aggressive measures to reduce costs related to the Postal Service and align its capacity with demand.

FedEx anticipates a $500 million financial setback in fiscal year 2025 following the end of its U.S. Postal Service air cargo contract. The company’s CFO, John Dietrich, revealed this during a Q4 earnings call. To mitigate the impact on its bottom line, FedEx is planning to significantly cut costs associated with the Postal Service after the contract expires on September 29. As part of this strategy, FedEx has permanently decommissioned 22 Boeing 757 freighters in its U.S. network to align its capacity with demand.

Efficiency and Operational Adjustments

Following the contract’s expiration, FedEx plans to make operational and network adjustments to enhance efficiency and flexibility. The company has been focusing on efficiency in recent quarters, reducing costs in its air cargo network and other areas through its comprehensive DRIVE program. Despite a soft demand environment, the DRIVE program helped FedEx increase its operating income and margin in fiscal 2024.

Demand Environment and E-commerce Growth

For fiscal 2025, FedEx anticipates a moderate improvement in the demand environment and is planning for growth in U.S. parcel volume. The company expects this growth to be driven more by e-commerce shipping than business-to-business volume. However, FedEx’s positive outlook for fiscal 2025 could be challenged by excess market capacity, which could affect the company’s pricing power.