USPS-Amazon contract uncertainty grows as reverse auction plan raises stakes for 2026 renewal

With the existing contract between global e-commerce retailer Amazon and the United States Postal Service set to expire in October 2026, media reports published yesterday indicated that there could be some shifts coming in that relationship.

Citing a Washington Post article, Reuters noted that USPS Postmaster General David Steiner intends to hold a reverse auction early next year, which could lead to increased competition within the USPS for Amazon’s business, in the form of “offering access to postal facilities to the highest bidder, rather than directly to Amazon,” adding “it would make the company compete with national retail brands and regional shipping firms.”

The report added that Amazon is the USPS’s largest customer, accounting for more than $6 billion in annual revenue and around 7.5% of sales.

“We've continued to discuss ways to extend our partnership that would increase our spend with them, and we look forward to hearing more from them soon - with the goal of extending our relationship that started more than 30 years ago,” Amazon said in a statement cited in the Reuters report. “We were surprised to hear they want to run an auction after nearly a year of negotiations, so we still have a lot to work through. Given the change of direction and the uncertainty it adds to our delivery network, we're evaluating all of our options that would ensure we can continue to deliver for our customers.”

This comes at a time when the USPS continues to see significant annual losses, as evidenced by a $9.0 billion annual loss in fiscal year 2025, which it announced last month, due largely to ongoing volume declines outside of its Shipping and Packages group, especially for First-Class Mail.

Robert Persuit, Sr. Director, Business Development, ShipMatrix, said that there are various factors to consider in looking at this development, including:

• USPS said in October it has increased daily sort capacity from 60 million to 88 million packages per day, adding that the USPS is in a bind because it has significant overcapacity in non-peak season and a $9 billion loss in FY2025;
• attempts to significantly raise final mile delivery rates for UPS in January 2025 ended in a very painful divorce for both companies
• after abruptly pulling the UPS Surepost and UPS Mail Innovations business, UPS reported the move cost them hundreds of millions of dollars to bring those deliveries in house;
• for USPS, the UPS move left a major revenue hole that contributed to the $9 billion dollar loss for the year and without the UPS revenue they are trying to negotiate higher rates with Amazon whose contract expires in October 2026—while also discussing reconciliation with UPS in USPS FY26Q2
• while Amazon wields a $6 Billion stick, walking away from the USPS would stress Operations and be very costly – as UPS found out;
• To move negotiations along, Amazon spokesman Steve Kelly sent a shot over the bow noting “We are not looking to cut ties with the USPS,” but later added “(Amazon is) considering all options to ensure reliable delivery for its customers”; and  
• the bright spot for the USPS has been the growth of the Ground Advantage product— though volumes have been relatively flat recently

“The bottom line is that Amazon holds the leverage here but is unlikely to make any abrupt moves,” said Persuit. “They will use the USPS as long as it is cheaper than to bring it in house. After that the exit will look similar to the UPS/Amazon ‘glide down’ (ADV Drop of 1.9 million packages PER DAY for UPS 24Q3 vs 25Q3—nearly 500 million packages per year).  This leaves the USPS at a crossroads facing demand erosion from major retailers delivering orders in-house (Amazon, Walmart, et. al.) and an increase in supply competition from new entrants like Door Dash, Veho, Jitsu, Better Trucks, and about a dozen others).  In this case, if you build it, they might not come.  The USPS should be laser focused on what they do best—delivery of low value, low cube shipments that fit in a mailbox.”     

Nate Skiver, Founder, LPF Spend Management, said that from a directional perspective, he agrees that Amazon's goal is to insource delivery of all package volume, with the caveat that cannot see it happening in the next year.  

“Maybe Amazon can significantly reduce its dependence on the USPS in 2026, and come away with a very different contract, both in volume commitments and USPS rates, but I think Amazon will always need the USPS to some degree,” said Skiver. “1M-1.5M daily Amazon packages are being moved out of UPS's network, and Amazon had to contract with FedEx to handle a portion of this volume. The Amazon volume supported by the USPS is likely 4x-5x the UPS volume, so it will take time to absorb it. By the way, those numbers are off the top of my head and not validated.”

Skiver observed that the report’s reference to a “reverse auction” where other companies would bid on lanes, pushing out Amazon, makes no sense.

“I'm actually not even sure what that means in practical terms,” he said. “The USPS benefits tremendously from Amazon volume and revenue, both from a network density and margin contribution perspective (at least how the USPS measures it), so there is no way the USPS is trying to squeeze Amazon.”

Adi Karamcheti, Consultant, Professional Services for San Diego-based Shipware, said that, in a nutshell, it's surprising the USPS would do this.

“They need volume, Amazon has it,” he said. “It's clear the change in Postmaster General has resulted in a pretty quick change in the USPS' approach. I'm sure the USPS may be thinking in terms of the deal they are working on with UPS regarding their Mail Innovations product, but they still need volume. We'll definitely be watching how this plays out and how it impacts our clients.”