USPS Air Transport Costs Rise as UPS Contract Forces Mail Off Trucks

USPS Q3: Why Transportation Costs Jumped

The U.S. Postal Service's transportation bill climbed in the quarter ending June 30. Air transportation between facilities rose 4.7% year over year to $509 million, while highway transportation costs increased 4.1% to nearly $1.6 billion. The agency attributed the air increase partly to moving some package volume from trucks back onto planes to meet service standards and contract requirements, alongside higher jet fuel costs.

The shift has a specific contractual cause: USPS has an air cargo agreement with UPS that guarantees a minimum average daily volume. With Priority Mail package volume falling, hitting that minimum has become harder. According to the USPS Office of Inspector General, the agency has been moving more First-Class Mail and Marketing Mail into the air network, even though that runs counter to its longer-term goal of reducing reliance on expensive air transport.

To offset the cost pressure, USPS introduced an 8% temporary price increase in April for package services such as USPS Ground Advantage and Priority Mail. The surcharge is scheduled to last until Jan. 17, 2027. It helped package shipping revenue rise 7.7% year over year in the quarter, despite package volume declining 3.4%. Still, the agency posted a $2.5 billion net loss, and Postmaster General David Steiner described an ongoing urgent financial crisis requiring action from Congress.

Inside the UPS Air Cargo Deal and USPS Pricing Pressures

The Economics of the UPS Minimum-Volume Contract

The USPS contract with UPS guarantees a minimum average daily volume of air cargo. With Priority Mail volume declining, the agency has been substituting First-Class Mail and Marketing Mail into the air network to avoid breaching the contract. That is an expensive substitution because these mail classes would normally move by lower-cost ground transportation. The OIG's warning that more mail may shift into the air if package volumes keep falling means the contract could continue driving costs above what normal demand would require.

Fuel Costs Add a Second Layer of Pressure

Fuel is an independent burden on top of the UPS contract. USPS pointed to higher jet fuel costs for air transportation and higher average diesel prices for highway costs. The article also links broader carrier fuel pressure to the Iran war and associated Strait of Hormuz disruptions. Because USPS is now using more air transport to meet its UPS commitment, it is more exposed to jet fuel swings than it would be if that volume were still moving by truck.

Pricing Is Doing the Financial Heavy Lifting

The 8% temporary price increase shows how much pricing can move USPS results. Package revenue rose 7.7% even as package volume fell 3.4%. That is a clear sign the agency is protecting revenue through rate actions rather than volume growth. Yet the $2.5 billion net loss and Steiner's description of an urgent financial crisis suggest pricing alone will not close the gap. His call for congressional action frames the next phase as a policy problem, not just an operational one.

Who Gains and Who Absorbs the Cost

UPS gains a steady stream of contracted air cargo volume during a period when USPS Priority Mail demand is weak. USPS absorbs the higher operating cost, and its commercial package customers are already paying part of that through the temporary price increase. Mailers of First-Class and Marketing Mail may see service and routing changes as the agency uses air capacity to satisfy the UPS deal, even though those mail classes are not the cause of the contract obligations.

What USPS Shippers Should Watch Before Jan. 17, 2027

• If you use USPS Ground Advantage or Priority Mail, build the 8% temporary charge into shipping cost forecasts through Jan. 17, 2027. USPS leadership has said pricing is now a primary revenue lever, so prepare for possible extension or replacement rate actions after that date.
• If your operation depends on First-Class Mail or Marketing Mail delivery windows, review whether air substitution is changing transit expectations. The OIG has said more of this mail could move into the air network to satisfy the UPS minimum-volume contract rather than because demand requires it.
• For UPS-facing logistics and supplier relationships, note that the USPS contract provides a minimum daily volume buffer while Priority Mail demand remains weak. That gives UPS a more stable air cargo base in the near term even as USPS package volumes decline.