UPS is replacing FedEx as the U.S. Postal Service's primary air cargo provider.
Why it matters: USPS accounted for $1.7 billion in revenue last year for FedEx, though that figure has been in decline in recent years.
Between the lines: Despite being the largest customer for FedEx's Express segment, the contract had become a drag on profitability.
FedEx today said it will now be able to eliminate structural costs "currently in place to support postal service volume."
The new contract with UPS is set to begin Sept. 30.
What we're watching: UPS called the 5.5-year minimum base term contract "significant," and CEO Carol Tomé said the parties have developed a "mutually beneficial" solution that complements UPS' network.
Despite a pre-market pop, UPS shares closed down 0.7%.