It appears a deal between United Parcel Service (UPS -2.75%) and the U.S. Postal Service was not renewed for 2025, and investors are trying to make sense of what that would mean for the transportation company. Details remain scarce and investors loathe uncertainty, helping to push UPS shares down about 3% as of 2pm Eastern on Friday.
SurePost unsure
SurePost is a UPS service created in 2011 that offered lower rates in return for non-expedited transit and using postal carriers for final delivery. The service has been a hit with e-commerce companies and other customers valuing price over speed.
And while SurePost remains, there are questions about whether the Post Office is still involved. On Jan. 7, the Teamsters union representing UPS employees said on social media that "millions of packages moved away from SurePost and the United States Postal Service and returned to UPS package cars this month, now being sorted and delivered by hardworking UPS Teamsters."
While moving things in-house should be a long-term positive for pricing, it could create near-term uncertainty. Rival FedEx estimated it would take about a year to make a similar transition.
Is UPS a buy in 2025?
The company isn't talking about SurePost right now, but it is likely analysts will be asking questions about the program and the financial implications of a shift on UPS's planned Jan. 30 post-earnings call.
After years chasing volumes as e-commerce soared, both UPS and FedEx are refocusing their businesses around profitability and looking for ways to generate higher margins. That's good news for investors, but risks causing some earnings volatility in the quarters to come. A weak overall shipping market, bogged down by uncertainty about the economy, already has investors on notice.
UPS is a solid operator currently boasting a dividend yield north of 5%. It might not be a smooth ride from here, but patient investors have every reason to believe UPS will deliver over time.
