IN Brief:
- The USPS Office of Inspector General found the primary air contract is misaligned with current volume trends.
- First-Class and Marketing Mail have been moved by air to help meet contractual minimums.
- The audit recommends stronger forecasting and reassessment of whether the agreement remains effective.
The US Postal Service is flying additional First-Class and Marketing Mail to satisfy minimum-volume commitments within its principal air-cargo contract, after package demand fell below the level anticipated when the agreement was structured.
An audit by the USPS Office of Inspector General found that parcel trends and subsequent changes to the transport network had not been forecast adequately when contractual thresholds were established. The resulting volume gap leaves USPS choosing between placing slower-service mail into the air network or paying higher charges for failing to meet its commitment.
That approach conflicts with earlier changes to First-Class Mail delivery standards, which were designed to allow more volume to move through the less expensive surface network. Despite the longer delivery windows, reliance on air transport for First-Class and Marketing Mail has increased.
The primary air agreement was adjusted in September 2024 as part of the Delivering for America programme. The wider transformation plan projected annual savings of approximately US$1.1 billion from surface transport changes and US$701 million from air-network measures.
Although the Office of Inspector General found that USPS had reduced overall transport spending and continued to receive benefits through the air contract, the minimum-volume structure limited flexibility when parcel demand weakened. Capacity procured at an attractive rate can still become expensive when the network cannot use it for the traffic originally intended.
The audit produced two recommendations covering forecasting, planning, and the alignment of contractual requirements with wider network changes. USPS management accepted one recommendation and disagreed with the other, which will continue through the audit-resolution process.
Fixed commitments meet variable demand
Transport agreements commonly exchange volume certainty for lower unit rates, reserved capacity, and service guarantees. The arrangement performs well when demand remains reasonably close to the forecast used during negotiation, but a long-term commitment becomes restrictive when product mix or network strategy changes materially.
Parcel volumes respond to ecommerce demand, pricing, competition, customer concentration, delivery standards, and the ability of large shippers to inject freight into alternative networks. A contract established around one demand profile can consequently become misaligned well before its formal expiry.
Air capacity carries substantial fixed and operating costs because aircraft, crews, ground handling, security, airport slots, and connecting transport must be planned before the final daily volume is known. Carriers protect themselves against that uncertainty through minimum commitments, while buyers accept reduced flexibility in return for dependable lift.
USPS faces an additional difficulty because its product portfolio contains several delivery promises. Priority products may require air transport over longer distances, whereas First-Class and Marketing Mail can often move by road when service standards and geography permit.
Using surplus capacity for slower mail may avoid a contractual penalty, although the decision weakens the financial benefit expected from extending delivery windows and shifting traffic onto the surface network. The apparent efficiency of one contract can therefore conflict with the economics of the network as a whole.
Mode decisions also extend beyond the rate charged for a single movement. Handling, minimum-volume payments, missed connections, processing schedules, terminal capacity, service failures, and the cost of retaining alternative transport must all be included before air and surface options can be compared properly.
Long-duration agreements need mechanisms capable of responding to structural change rather than ordinary seasonal variation. Volume bands, formal review points, shared forecasting, lane adjustments, and the ability to exchange one type of capacity for another can preserve commercial certainty without locking the customer into an obsolete operating assumption.
Forecasting remains difficult where a relatively small number of major shippers can alter their carrier allocation quickly. Retailers and marketplaces distribute volume between postal operators, parcel carriers, gig networks, and their own delivery operations according to cost, service, geography, and peak-period performance.
The audit does not suggest that air transport can be removed from the postal network. The United States spans long distances and includes remote destinations whose delivery commitments cannot always be met through road movement alone, particularly where connections and processing windows are narrow.
Reducing reserved capacity too aggressively could leave USPS exposed during peak periods, weather disruption, or unexpected demand. Air networks cannot be rebuilt instantly after aircraft, crews, and handling arrangements have been released to other customers.
The required balance lies between continuity and flexibility. Service standards, demand forecasts, contractual incentives, and mode strategy should encourage the same operating behaviour rather than pushing mail towards air simply because capacity has already been purchased.
USPS must now determine how much lift its future network genuinely requires and whether the existing agreement can adjust to a parcel market that has developed differently from the original forecast. Until those elements are aligned, declining package demand will continue to fill aircraft with mail that the wider transformation programme intended to move by road.
