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January 31, 2025
Will Amazon Miss Full Access to UPS Delivery?
UPS announced plans to reduce the volume it moves for Amazon by more than 50% by June 2026 as the fulfillment giant shifts focus toward higher-margin sectors like healthcare and small businesses.
“We’ve been a partner to Amazon for nearly 30 years, and we hold that company in high regard,” CEO Carol Tomé said on UPS’ fourth-quarter analyst call on Thursday. “Amazon is our largest customer, but it’s not our most profitable customer. Its margin is very dilutive to the U.S. domestic business. Our contract with Amazon came up this year, and so we said it’s time to step back for a moment and reassess our relationship.”
Tomé said it was UPS’ decision, not Amazon’s, “because if we take no action, it will likely result in diminishing returns.”
UPS has also been trying to scale back its business with Amazon in recent years, though the new plan accelerates that timeline. “The speed of the glide down is five times faster than our initial glide-down efforts between 2021 and 2024,” CFO Brian Dykes said.
Amazon spokesperson Kelly Nantel told the Wall Street Journal that UPS requested the reduction in volume to address its own operational needs. She said, “We certainly respect their decision. We’ll continue to partner with them and many other carriers to serve our customers.”
The move comes as Amazon has been building out its own logistics network. In 2020, Amazon delivered more packages than UPS. In 2023, data showed that Amazon was shipping more packages than both UPS its main rival, FedEx. FedEx in 2019 went through the process of eliminating Amazon from its delivery network, turning its focus to shipping products for other customers.
On Thursday, shares of UPS fell 14% — its “sharpest one-day drop,” per the WSJ — as the move resulted in the delivery giant projecting sales will decline to $89 billion in 2025 from $91.1 billion in 2024 and below the average of analysts’ revenue estimate of $95 billion.
UPS plans to reconfigure its U.S. network, with expected cuts to labor hours and the size of its vehicle and aircraft fleets, as well as undertake other moves designed to generate $1 billion in savings. UPS is also in-sourcing SurePost deliveries for smaller orders after recently ending its partnership that used the U.S. Postal Service for last-mile delivery following a change in the USPS’ operating model that would have increased costs for UPS and potentially disrupted service.
“This does fit with their strategy of better, not bigger,” Stephens Inc. analyst Daniel Imbro told Bloomberg of UPS’ move to shrink its Amazon volume. “But it appears to be a headwind to earnings, given the lack of underlying revenue growth.”
Satish Jindel, president of shipment technology firm ShipMatrix, told The Atlanta Journal-Constitution that the move was “probably a win-win” for both Amazon and UPS as “both realize they are headed to a competitive relationship, and might as well do it in a friendly and a gradual manner that is good for both of them.”
He noted that “Fulfillment by Amazon” is delivering packages of other retailers on the Amazon platform.
For its part, Amazon still relies on UPS for some of its more complex deliveries. Morningstar analyst Matthew Young said in a recent report, “Taking it all in-house would probably require heavy incremental investment, especially given Amazon’s own internal peak-season needs.”
Discussion Questions
Is UPS’ move to reduce its delivery volume with Amazon much of a negative for Amazon?
Will the shift benefit Amazon’s competitors?
Will UPS eventually regret the move, or does it make sense for the carrier?
Poll
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Cathy Hotka
Principal, Cathy Hotka & Associates
Frank Margolis
Executive Director, Growth Marketing & Business Development, Toshiba Global Commerce Solutions
Adam Dumey
Global VP - Retail, World Wide Technology
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This may require Amazon to do a bit of reconfiguration in some locations, but that is something it can easily take in its stride. UPS may be a logistics specialist, but Amazon is also a logistics powerhouse, and it can adapt by expanding its own extensive network. Amazon is already growing its reach into more rural and super-rural locations: it added a large number of same-day delivery stations last year and will add more this year.
Over-dependence on Amazon could stunt UPS’s profit trajectory. Diversifying gives it the opportunity to grow new partnership opportunities. Good job.
Personally, I’d be more interested on the affect on UPS, than Amazon (but then I’m a shareholder in the former rather than the latter, and this is, after all, RetailWire). Amazon will survive, of course; will it be worse off ? Given that it wasn’t they who ended the relationship, I would think the answer is “likely”; how much, and for how long, tho, are really the issues. I wouldn’t bet money on either one being substantial.
With UPS dropping approximately 50 percent of its Amazon business, this is probably a win-win situation for both Amazon and UPS. Last year, Amazon delivered more packages than UPS with it’s own developing logistics network.
It is possible that Amazon’s logistics services will quickly grow to compete directly with UPS and other delivery companies. Considering that UPS and Amazon are heading toward a competitive relationship, they might as well do it in a friendly, gradual manner that is beneficial to both companies.
“Fulfillment by Amazon” is the process of delivering packages of other retailers on the Amazon platform, packages that would have been delivered by UPS, FedEx or the postal service otherwise.
Meanwhile, UPS will benefit from less Amazon business. A more profitable, agile, and faster-growing market.
While many would view this story as UPS impacting Amazon, it’s really the other way around. True, Amazon may need to accelerate its CapEx spending to increase the size of its delivery fleet, but that’s a rounding error for them. UPS on the other hand, by casting out one of its biggest customers in the name of “reconfiguring its network”, will likely see slower growth in the near-term due to this decision.
I wonder if the real story lands more on data than delivery. The transactional impact has been quantified but how should we think about the data that Amazon is losing? Think about operational intelligence considerations: detailed shipping patterns of UPS’s other enterprise customers, insight into which retailers are growing/shrinking and in which regions etc.. In the age of AI, and the likely surge in autonomous delivery and/or vehicles that collect an increasing amount of data, perhaps we shouldn’t be hitting UPS for their decision but focusing on how they will monetize the chosen path.
Both UPS and Amazon are changing and this move reflects these changing needs in today’s environment. Whether it will be the better move for UPS, remains to be seen, as most people believe that it is not, given the fall in anticipated shorterm revenues and profits for UPS.Perhaps the real question is what does UPS replace Amazon with over the mid and long term, and at what cost?
Looks like a good move for UPS. Wonder how this reconfigures the delivery network for Amazon. USPS seems to do a lot of their deliveries here and that has not been without many delays in delivery.