By Abhinav Parmar and Lisa Baertlein
(Reuters) -United Parcel Service forecast on Thursday downbeat 2025 revenue as it accelerates a plan to slash millions of deliveries for its largest customer, Amazon.com, a surprise move that sent shares tumbling as much as 18%.
UPS plans to shrink profit-denting Amazon volumes more than 50% by the second half of 2026 – five times faster than it did between 2021 and 2024. That will allow the company to focus on fewer but more lucrative deliveries while it also cuts about $1 billion in costs for buildings, trucks, planes and labor, executives said.
“Amazon is our largest customer, but it’s not our most profitable customer,” said UPS CEO Carol Tome, adding that the business is “extraordinarily dilutive” to margins.
“This was UPS taking control of our destiny,” she said.
Executives said the world’s biggest package carrier is setting itself up to squeeze more profit per package. It has been adding deliveries for new customers such as bargain internet sellers Temu and Shein as well as packages it used to hand off to mail carriers that come with higher margins than from Amazon.
UPS and rival FedEx are revamping operating strategies to cope with stubbornly weak demand for premium services, such as overnight delivery, that has left the industry reliant on lower-profit e-commerce deliveries. The two companies are locked in a fierce battle to win and keep the best customers.
UPS forecast 2025 revenue of $89 billion, below analysts’ average estimate of $94.88 billion, according to data compiled by LSEG.
Atlanta-based UPS is making moves that align with its “long-term focus on profitability over volume but that may weigh on near-term earnings,” Edward Jones analyst Faisal Hersi said.
UPS shares sunk 13.6% to $115.60 in afternoon trading as investors absorbed the news, which dragged FedEx shares down 2%.
“The agreement with Amazon to reduce volumes by more than 50% in 18 months is a surprise,” Evercore ISI analyst Jonathan Chappell said in a note, adding that UPS’ dependence on emerging delivery rival Amazon was a long-term risk.
SHIFTING RELIANCE
Amazon accounted for 11.8% of UPS’ overall revenue in 2024.
Between 2021 and 2024, UPS on average reduced the number of packages it delivered for Amazon by about 250,000 per day. The acceleration will result in about 1.25 million fewer daily Amazon deliveries, UPS said.
The e-commerce company confirmed that UPS requested the reduction in volume.
“We certainly respect their decision. We’ll continue to partner with them and many other carriers to serve our customers,” Amazon said in a statement.
UPS said operating margin for its biggest U.S. division was 7.5% in 2024. It expects that closely watched performance gauge to be almost 9% for 2025 and for it to hit 12% in the fourth quarter of 2026.
UPS has signed up Temu and Shein. Starting this year, it is also delivering 100% of small packages it had previously handed off to the United States Postal Service.
The insourced USPS business, known as SurePost, is the most profitable of those services, and the business from the China-linked e-commerce sellers is more profitable than the Amazon business, UPS Chief Financial Officer Brian Dykes told Reuters.
UPS also said it can reduce costs and improve service by automating sorting and introducing radio frequency identification package tagging, executives said.
UPS has been using acquisitions to expand its premium healthcare business and selling assets, including its Coyote Logistics freight business.
“Winding down the Amazon business is them continuing to execute on what they’ve said they want: higher-margin business even if it means being a smaller company,” said Daniel Imbro, an analyst at Stephens, a financial services firm.
UPS shares have struggled since their pandemic-related spike. The stock has lost more than one-third of its value in the past three years, compared with a 36% increase in the broad S&P 500 index.
(Reporting by Abhinav Parmar in Bengaluru and Lisa Baertlein in Los Angeles; Editing by Shounak Dasgupta, Devika Syamnath, Paul Simao and Rod Nickel)
