UPS announced a strategic shift to prioritize profitability over volume, forecasting lower 2025 revenue as it drastically reduces deliveries for its largest customer, Amazon. This bold move signals a significant change in the delivery landscape.
UPS plans to cut Amazon deliveries by over 50% by the latter half of 2026, a fivefold acceleration of its previous reduction strategy. This will free up resources to focus on higher-margin customers and cut approximately $1 billion in operational costs. CEO Carol Tome emphasized that while Amazon is a significant customer, it’s not the most profitable, and the current volume is “extraordinarily dilutive” to margins. This decision allows UPS to “take control of our destiny,” she added.
The company is actively pursuing new partnerships with businesses like Temu and Shein, focusing on deliveries that yield higher profit per package. This strategic shift comes as both UPS and FedEx grapple with weakened demand for premium shipping services and increasing reliance on lower-profit e-commerce deliveries. Both companies are vying for the most lucrative customer segments in a highly competitive market.
UPS projected 2025 revenue of $89 billion, falling short of analysts’ estimates of $94.88 billion. This projection reflects the company’s long-term focus on profitability, even if it means potential near-term earnings impact. The news sent UPS shares down significantly, impacting FedEx shares as well. Analysts expressed surprise at the rapid reduction in Amazon volume, highlighting the inherent risk of relying heavily on a single customer, particularly one with its own burgeoning delivery network.
Graph showing stock market trends
In 2024, Amazon represented 11.8% of UPS’ total revenue. While UPS had been gradually reducing Amazon deliveries by roughly 250,000 packages daily between 2021 and 2024, the accelerated plan will eliminate approximately 1.25 million daily Amazon deliveries. Amazon confirmed UPS initiated the volume reduction and expressed respect for the decision, affirming its commitment to collaborating with various carriers to meet customer needs. This strategic realignment positions UPS for long-term sustainable profitability in the evolving delivery market.
This shift by UPS underscores the increasing complexity and competitiveness of the logistics industry. By prioritizing profitability over sheer volume, UPS aims to solidify its position as a leader in the sector, even as it navigates a changing relationship with e-commerce giant Amazon. The long-term success of this strategy will depend on UPS’s ability to attract and retain high-value customers and effectively manage operational costs.
