UPS is gearing up for a productive fiscal year in 2025. The parcel service outlined three strategic action steps in a recent earnings report, one of which includes lowering its volume with its largest customer by more than 50 percent. The customer in question? Amazon. The new agreement will open the door for more profitable opportunities for UPS, leaving Amazon to either pick up the slack or seek help elsewhere.
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UPS is implementing cost-saving measures.
Looking ahead, UPS is estimated to bring in $89 billion in revenue in 2025. That marker is below last year’s total revenue of $91.1 billion, and it’s $5.8 billion less than what LSEG analysts had predicted, according to CNBC. As of Jan. 30, UPS shares were down by 14 percent.
In a fiscal fourth-quarter earnings report, UPS CEO Carol Tomes announced the launch of multi-year “efficiency reimagined” initiatives that are expected “to yield approximately $1 billion in annualized savings.”
“We are making business and operational changes that, along with the foundational changes we’ve already made, will put us further down the path to become a more profitable, agile and differentiated UPS that is growing in the best parts of the market,” said Tome.
A major piece of this strategy includes UPS taking a step back from its relationship with Amazon.
UPS will slowly pull back from its partnership with Amazon.
Amazon might be UPS’ biggest customer in terms of demand, but that doesn’t make it the most profitable. “Its margin is very dilutive to the U.S. domestic business,” Tome said of Amazon during an investors call, per CNBC.
When it comes to numbers, Amazon deliveries make up a fourth of UPS’ domestic network, reports Supply Chain Dive. Although a considerable volume, those deliveries only contributed to UPS’ revenue by 11.8 percent in 2024.
For those reasons, UPS has decided to scale back its Amazon deliveries by 50 percent. However, it won’t happen all at once. In the earnings report, UPS said its target date is “by the second half of 2026.”
Amazon has agreed to the terms despite the company’s previous offer to increase UPS’ portfolio.
“Due to their operational needs, UPS requested a reduction in volume and we certainly respect their decision,” Amazon spokesperson Kelly Nantel told Supply Chain Dive. “We’ll continue to partner with them and many other carriers to serve our customers.”
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So, what does this mean for your Amazon packages?
With this new agreement intact, Amazon will either have to deliver more packages itself or increase volume with other parcel services. The retailer already has a close relationship with the U.S. Postal Service (USPS), which took on more deliveries during the recent holiday rush.
“We recognize that like us, other major retailers, small businesses, and the communities they serve rely on the local USPS to deliver, which is why we collaborate on package volume each week and logistical changes meant to improve the customer delivery experience,” Amazon spokesperson Steve Kelly told Supply Chain Drive in Nov. 2024.
To that end, USPS Postmaster General Louis DeJoy told the outlet that USPS’ “operational, transportation and delivery processes have never been more finely tuned” and was well equipped to “handle the peak holiday season surge.”
The good news is Tome doesn’t see a future in which UPS and Amazon will cut ties entirely, noting that many customers depend on UPS for easy Amazon returns.
“I don’t think it will go all away,” said Tome. “I think we’re landing at the right spot with this accelerated glide down.”