United Parcel Service Inc. (UPS) has announced a significant reduction in its shipping volume from Amazon, its largest customer, amid declining demand and profitability concerns. During an investor earnings call on January 30, 2025, CEO Carol Tomé revealed plans to cut UPS's deliveries of Amazon packages by more than 50% by the second half of 2026.
This strategic pivot emerges as recent evaluations highlight the diminishing returns secured from Amazon shipping. "Amazon is our largest customer, but it’s not our most profitable customer," Tomé noted, emphasizing the erosion of margins within UPS's domestic business. The decision has sent shockwaves throughout the financial markets, causing UPS shares to plunge up to 18%—the steepest decline the company has experienced since its stock market debut.
Investors reacted sharply to UPS’s warning of diminishing returns projected for 2025, as the company forecast revenue expectations well below market analysts’ estimates. UPS anticipates generating about $89 billion, down from $91.1 billion for fiscal year 2024. Tomé addressed concerns on the earnings call, "This was not their ask. This was us. This was UPS taking control of our destiny." Nonetheless, financial analysts are observing these developments with caution, noting the need for UPS to adapt.
UPS's existing contract with Amazon, which represented approximately 11.8% of the company’s total revenue for 2023, has now become less advantageous. During the pandemic, UPS’s package volume peaked significantly, but demand has tapered as online consumer behavior normalizes. This reduction is compounded by heightened competition from discount retailers like Shein and Temu, which have been increasingly capturing market share.
While Amazon has sought to bolster its logistics capabilities—investing heavily to build its own distribution networks—UPS remains committed to refining its operations. CFO Brian Dykes disclosed during the same earnings call, "The results of this change will be lower overall volume levels, but an improved customer base at a significantly higher revenue per piece." UPS is pivoting its focus from volume-driven services to those ensuring higher profits.
The decision to reduce volume also aligns with UPS's intention to concentrate on more lucrative shipping segments, including healthcare products and services for small to medium-sized enterprises. Tomé expressed hope for future revenue recovery through these segments.
Meanwhile, Amazon's spokesperson Kelly Nantel confirmed the business relationship will continue, albeit with reduced volumes. “Due to their operational needs, UPS requested this reduction, and we certainly respect their decision,” Nantel said.
The news marks another chapter in the broader narrative of UPS's evolution amid changing dynamics within the e-commerce and logistics sectors. The steep share price drop reflects investor anxiety over potential shifts to UPS's operational strategies. UPS officials have already taken steps to streamline operations, such as closing underperforming facilities, to manage labor costs.
Tomé mentioned several initiatives aimed at improving efficiency within the company, indicating plans for significant innovations within UPS’s operational framework. The future-oriented growth strategy includes enhancing productivity through modern technology and optimizing cost structures.
Despite the challenges faced, Tomé maintains optimism about UPS's ability to navigate this transition. With the volume reduction expected to roll out gradually over the next year and half, the company aims to adapt to changing demands.
Overall, UPS finds itself at a crossroads, wrestling with how to balance maintaining one of its largest customer relationships with the economic realities of profitability. The road forward hinges on the carrier's ability to recalibrate its focus from volume to value, adjusting its business model to support sustainable growth.