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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.”