UPS and USPS SurePost relationship comes to an end, as NSA expires

On January 1, the SurePost relationship between Atlanta-based global freight transportation and logistics services provider UPS and the United States Postal Service (USPS) officially came to an end, upon the expiration of the companies’ negotiated service agreement (NSA).

Introduced in early 2011 by UPS, SurePost is an economy ground service for delivery to residential locations. It is a “contract-only service that combines the consistency and reliability of the UPS Ground network, from pickup through transferring to the Post Office, with the cost benefits of using the United States Postal Service (USPS) for final delivery,” according to UPS.

“As we continue to leverage our track record of industry-leading service and reliability, we are insourcing our SurePost product, effective January 1,” UPS said in a statement on the Investors section of its website. “This product is an important part of the broad portfolio of end-to-end services available to UPS customers. By leveraging the strength and flexibility of our integrated network, insourcing will allow us to control the SurePost volume from point-to-point, provide reliable service and meet our customers’ needs more efficiently.”

For its part, USPS recently explained that prior agreements it has had with package consolidators have “failed to reflect operational and financial realities,” adding that its Parcel Select product, (which SurePost is ostensibly part of, in that SurePost packages were shipped using USPS’s Parce Select service) remains available for any business to use at its published rates.

In a research note, Robert W. Baird & Co. analyst Garrett Holland wrote that in its third quarter earnings last October, UPS expressed optimism that it would be able to find a mutual agreement [with USPS] and was confident the company could work through negotiations.

“UPS is still marketing a SurePost solution for shippers, but recent changes to the scope of service include no more delivery service to PO boxes, AK, HI, PR, or APO/FPO addresses,” wrote Holland. “Recent pricing actions now better explain the relationship changes as well. On 12/16/24, UPS announced SurePost surcharges effective 1/13/25 including ~10% for packages 9 lbs. and under, ~6%-7% for packages weighing 10-70 lbs., and ~62%-69% for extended deliveries (rural and low-density area customers most exposed).

We estimate SurePost accounted for a mid-teens percentage of UPS Domestic volume. SurePost volume carried a lower revenue per piece, but given network productivity enhancements, UPS had already started to redirect more volume into its network, increasing delivery density. Full/immediate insourcing of the remaining estimated majority of SurePost volume carries near-term risk for the cost per piece and volume outlook, though pricing actions are clearly designed to mitigate the impact.”

Jerry Hempstead, president of Orlando-based Hempstead Consulting, observed that this development has been stewing for some time, initially with Amazon going its own way and developing its known fleet of delivery vehicles, followed by FedEx deciding it was best to have its own drivers deliver the bulk of SmartPost shipments.

“Now the USPS has decided to divorce from UPS over irreconcilable differences,” he said. “For whatever reason the USPS no longer desires parcels to be dropped off at the DDUs (Destination Delivery Unit, the post office closest to the recipient), where third parties could leverage the fact that the USPS had a vehicle and a carrier going to every address, every workday. In exchange for this work share the USPS had an extremely affordable price for the last mile. But consider that the USPS did not have to add one terminal, or any trucks, or any drivers to develop the Parcel Select DDU service offering. 

From a historical perspective, Hempstead noted that in the late 90s, former Postmaster General Marvin Runyon saw a great opportunity in work share in the parcel space, built a great team, and set out to recapture its fair share of the parcel market.

“Because of the rapid development of the Internet at this time two realities hit the USPS: First class mail (the major source of revenue for the USPS) was going to decline; and because of the development of e-commerce, parcel transactions, especially to residences was going to take off. Parcel Select, I believe, has been the fastest growing offering at the USPS over past 25 years.”

Paul Yaussy, Sr. Director of Parcel Consulting, for San Diego-based Shipware, told LM that with the UPS NSA with the USPS having expired with no future plans to reinstate it, UPS is now delivering all SurePost packages through its own ground network as part of the company’s “network of the future” transformation, leaving shippers scrambling to find a replacement with no notice.

As for next steps, Yaussy said that what is likely going to happen is SurePost will transform into a product like FedEx Ground Economy, but, shippers will still need low-cost options for lightweight shipments.

“Look for UPS to eliminate SurePost as a service and launch its equivalent to FedEx Ground Economy, and look for it to be called Ground Saver, as we are seeing some occasional bids coming in with that nomenclature as part of the overall offering from UPS,” said Yaussy. “While this wasn’t a surprise to many in the industry, this had to come as a surprise to shippers when their PO Box and Alaska/Hawaii shipment requests were being rejected by UPS.  We’ve seen a big drop off in sales reps’ ability to communicate proactively any changes that are coming, so many shippers were likely left to scramble for ways to get those shipments moving. With all of the recent USPS changes lately, the elimination of consolidators delivering to DDUs, elimination of SurePost, etc., shippers with lightweight packages are taking on large price increases at slower transits.  Something has to give here because you can justify price increases for better service, but not slower service.”