USPS's $10B air contract flies mail it moved to the ground

In 2021, the U.S. Postal Service rewrote its own delivery-standard rules specifically to move First-Class Mail off airplanes and onto trucks.▸ Three years later it signed a $10 billion contract that flies it anyway. USPS OIG's July 1, 2026 audit⧉ -- the Postal Service's own internal watchdog -- found that the new primary air cargo agreement, in force since September 30, 2024, set volume minimums so disconnected from where package traffic actually went that USPS now flies First-Class Mail it deliberately kept grounded for three years, just to avoid a worse penalty. The share of three-to-five-day First-Class Mail traveling by air went from 2 percent to about 50 percent in five quarters. Even with that workaround, OIG found USPS still missed the contract's cheapest pricing tier in at least three of its first 13 billing periods, leaving at least $54.1 million unclaimed.

The reversal has a clear before-and-after.▸ On October 1, 2021, as part of its Delivering for America⧉ modernization plan, USPS extended First-Class Mail delivery standards by one to two days specifically to let more volume travel by the cheaper surface network instead of air -- the agency's own documented commitment, not an outside standard imposed on it. USPS projected $701 million a year in savings from flying less mail as a result. Then, on September 30, 2024, USPS signed a new primary air cargo contract with UPS⧉ -- the logistics carrier that replaced FedEx as USPS's main air provider -- worth more than $10 billion over a 5.5-year minimum term running through March 2030. The contract prices space by the cubic foot tied to a guaranteed average daily volume: fall too far below that minimum, and USPS pays a steeper per-unit rate for everything it flies.

The mechanism behind the reversal is a forecasting miss, not a change of policy.▸ When USPS negotiated the contract's volume minimums, management did not apply a decline factor specific to Priority Mail⧉ -- the expedited package product that was actually driving air demand -- and instead forecast an overall 2 percent increase in average daily volume. Priority Mail volume had already fallen about 54 percent in the three years before the April 2024 contract announcement, and kept falling, another 31 percent, in the two years after it. With package volume running far short of the guaranteed minimum, USPS's cheapest way to avoid the contract's penalty rate was to fill the gap with First-Class Mail and Marketing Mail -- a product that, before March 2025, had never flown at all. Once added, Marketing Mail's air volume grew 195 percent in nine months, though it still made up only about 2 percent of total assigned air volume; First-Class Mail did the heavier lifting.

OIG's own arithmetic makes the tradeoff legible.▸ Had USPS flown only packages and left the shortfall as paid-for, empty capacity, total transportation costs would have run more than $127.4 million higher, with over 31.7 million cubic feet of air space USPS was already paying for sitting unused. Padding the planes with First-Class and Marketing Mail avoided that. But it didn't fully solve the problem: even after adding that mail, USPS still fell short of the contract's optimal, lowest-rate volume tier in at least three of the first 13 four-week billing periods of 2025, leaving at least $54.1 million in reachable savings unclaimed in those three periods alone. Net of both numbers, the padding strategy saved USPS roughly $73.3 million over the periods OIG examined -- real money, just far less than the contract's own pricing structure made available.

None of this erased the broader savings USPS has booked.▸ Total transportation expenses fell from about $10.1 billion in FY2023 to about $8.4 billion in FY2025 -- roughly $1.7 billion saved even while shifting more mail onto the air network. But FY2025 spending still ran about $200 million over USPS's own transportation cost plan, which the Postal Service's Fiscal Year 2025 Annual Report to Congress attributes partly to shifting mail back to air in the second half of the year. USPS management's June 17, 2026 written response agreed with most of OIG's finding but explicitly disputed that flying First-Class Mail caused the $200 million overage, calling the Air Cargo Network contract "product agnostic" and crediting the First-Class Mail shift with maintaining a favorable pricing tier and improving service performance -- which did rise, from about 82 percent composite on-time performance in FY2025 Q1 to about 87 percent in FY2026 Q2, as more of that mail moved to the faster network.

OIG made two recommendations.▸ The first -- that USPS's Vice President, Logistics build a better forecasting process for future contracted volume estimates -- USPS accepted, with a target implementation date of February 28, 2027. The second -- that the Chief Logistics Officer and Executive Vice President, together with the Vice President, Logistics, run an updated cost-benefit analysis on whether to terminate the current 5.5-year contract for a shorter one with more flexibility -- USPS rejected outright, arguing the existing contract already has the flexibility it needs. OIG called that response unresolved and said it will pursue the recommendation through its formal audit resolution process, the mechanism by which OIG escalates disputed findings when an agency declines a fix. No date is attached to that process; the $10 billion contract, and the volume minimums that drove this finding, run through March 2030 regardless.