UPS Ground Saver Crisis: Why Postal Deal Matters More Than Ever

According to Supply Chain Dive, UPS and the U.S. Postal Service have reached a preliminary agreement on a new Ground Saver partnership after months of negotiations. The talks began in July when David Steiner became Postmaster General, following the collapse of the previous SurePost arrangement that ended in early 2025 due to USPS overhauling agreements established under former Postmaster General Louis DeJoy. UPS has struggled mightily with the service since bringing it in-house, with Ground Saver volume plummeting 32.7% year-over-year in Q3 and the company taking an $85 million hit in Q2 due to inefficient delivery density. CEO Carol Tomé emphasized that a renewed USPS partnership would leverage each organization’s strengths—UPS handling middle-mile logistics while USPS manages final-mile delivery. This potential deal comes at a critical juncture for UPS’s struggling economy shipping service.

The Unseen Crisis in Residential Delivery Economics

The $85 million hit UPS took in Q2 reveals a fundamental problem in last-mile logistics that most consumers never see: density economics. When UPS brings Ground Saver in-house, they’re essentially trying to solve the same problem that has plagued residential delivery for decades—too many stops with too few packages. Unlike commercial routes where drivers might deliver dozens of packages to a single business address, residential routes often involve driving miles between single-package deliveries. The math simply doesn’t work when you’re burning fuel, paying driver wages, and maintaining vehicles for what amounts to one box per stop. This is precisely why the Postal Service’s universal delivery mandate gives them a structural advantage—their carriers are already visiting every address six days a week regardless of package volume.

From SurePost to Ground Saver: A Failed Experiment

The transition from UPS SurePost to Ground Saver represents one of the most significant strategic miscalculations in recent logistics history. When UPS decided to bring the service in-house at the start of 2025, they fundamentally misunderstood the economics of final-mile residential delivery. The earnings call transcripts reveal a company struggling with the basic physics of delivery density—you can’t force packages to cluster in residential areas. What made the original SurePost model work was the symbiotic relationship between UPS’s efficient middle-mile network and USPS’s existing residential coverage. By attempting to replicate this with their own drivers and vehicles, UPS essentially tried to build a parallel postal system overnight—a breathtakingly expensive proposition that the $85 million loss only begins to quantify.

The Broader Battle for Economy Shipping

This struggle comes amid a massive realignment in the economy shipping sector that extends far beyond UPS. Amazon’s continued expansion of its own delivery network has fundamentally changed the economics for all players, while regional carriers like LaserShip and OnTrac are aggressively competing for the same volume. FedEx’s similar Ground Economy service faces parallel challenges, suggesting this isn’t a UPS-specific problem but rather an industry-wide reckoning with the true cost of residential delivery. The timing couldn’t be worse—with e-commerce growth slowing and consumers becoming more price-sensitive, the pressure on margin-thin economy services intensifies daily. A failed Ground Saver relaunch could cede significant market share to competitors at precisely the wrong moment.

Why This New Deal Could Still Fail

The optimism around a renewed partnership overlooks several critical risks. First, the Postal Service under new leadership may demand significantly better terms than the previous arrangement, especially given their own financial pressures and the lessons learned from the DeJoy era. Second, integrating two massive logistics networks after a contentious separation creates operational friction that could undermine the very service reliability UPS seeks. Third, the 32.7% volume decline means UPS comes to negotiations from a position of weakness—they need this deal more than USPS does. Finally, customer trust in the hybrid service model has been damaged by the transition turmoil, meaning even a successful partnership might not recover the lost volume quickly enough to justify the investment.

The Make-or-Break Moment for Economy Shipping

What happens next with Ground Saver could determine UPS’s position in the economy shipping market for the next decade. If they can’t make the economics work—either through a successful USPS partnership or radical internal restructuring—they may need to consider exiting the segment entirely. The alternative is continuing to absorb nine-figure losses while watching volume evaporate. For UPS leadership under CEO Carol Tomé, this represents perhaps their most significant strategic challenge since the pandemic-driven shipping boom ended. The coming quarters will reveal whether this preliminary agreement becomes the lifeline UPS desperately needs or merely delays an inevitable reckoning with the harsh economics of residential delivery.