Estimated read time: 3-4 minutes
- UPS plans to cut Amazon deliveries by over 50% by 2026, surprising Wall Street.
- The move aims to boost profitability by focusing on higher-margin services and reducing costs.
- UPS forecasts 2025 revenue below expectations, impacting shares, but expects improved margins.
ATLANTA — UPS on Thursday forecast downbeat 2025 revenue as it cuts back deliveries for its largest customer, Amazon — a move that will shed some of its least-profitable business and help shelter profits from stubbornly weak demand for lucrative services like overnight delivery.
Shares in the world's largest parcel delivery firm were down about 18% around midday after the company said it had reached an agreement to cut transported Amazon volumes by more than 50% by the second half of 2026.
The Amazon announcement surprised many on Wall Street.
It is the latest move by industry leaders UPS and FedEx to revamp their operating strategies to cope with the industry's dependence on lower-margin e-commerce deliveries.
"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.
Amazon 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.
On the volume front, UPS has been adding bargain e-commerce sellers such as Temu and Shein as customers. And, starting this year, it is delivering small packages that it had previously handed off to the United States Postal Service for delivery.
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.
Atlanta-based UPS aims to slash about $1 billion in costs by closing buildings, reducing aircraft, truck and labor costs, automating sorting and introducing radio frequency identification package tagging.
UPS also will use acquisitions to expand its premium health care business and sell assets, including its Coyote Logistics freight business.
'A surprise'
After a sharp pandemic-related rebound, shares of UPS have struggled. 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. Shares of FedEx, which is in a fierce battle with UPS for customers, dropped about 4% on Thursday.
Amazon and its affiliates accounted for 11.8% of UPS' overall revenue in 2024. Tome said the lowered Amazon guidance between 2024 and 2026 will be 1.25 million daily packages per year.
"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.
UPS said carrying less freight for Amazon will eventually boost its revenue per piece.
"Winding down the Amazon business is them continuing to execute on what they've said is 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 forecast 2025 revenue of $89 billion, below analysts' average estimate of $94.88 billion, according to data compiled by LSEG. It also forecast full-year consolidated operating margin at 10.8%, an increase from the 9.8% it reported for 2024.
UPS said adjusted profit in the crucial holiday-filled fourth quarter was $2.75 per share, beating Wall Street's target of $2.53 per share.
