UPS has announced a strategic shift in its operations, causing its shares to plummet by more than 17%. The logistics giant plans to significantly reduce its Amazon deliveries by over half, aiming to steer away from less profitable contracts. This move comes as part of UPS's broader strategy to achieve $1 billion in cost savings, having already laid off 12,000 employees earlier this year.
Since 2013, Amazon has progressively built an extensive in-house logistics network, lessening its reliance on UPS. Today, Amazon manages thousands of last-mile delivery companies and boasts a growing fleet of planes, trucks, and ships. Despite being UPS's largest customer, Amazon is not the company's most profitable partner. UPS declined Amazon's offer to increase delivery volumes, opting instead to focus on more lucrative delivery customers.
UPS's recent forecast projects 2025 revenue to reach $89 billion, a decrease from the $91.1 billion anticipated in 2024. This projection falls short of analysts' consensus estimates of $94.88 billion for 2025. The company also missed its fourth-quarter revenue target, reporting $25.30 billion against an expected $25.42 billion.
UPS seeks to realign its U.S. network and introduce multi-year efficiency initiatives, expected to yield approximately $1 billion in savings. Carol Tome, UPS CEO, emphasized the strategic direction by stating:
"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." – Carol Tome
The company has experienced a boost from increased volumes from bargain retailers such as Temu and Shein. However, it continues to face challenges in maintaining profitability within its U.S. domestic business due to thin margins from large contracts like Amazon.
"Its margin is very dilutive to the U.S. domestic business." – Carol Tome
In response to these challenges, UPS has implemented aggressive cost-control measures to cater to more profitable delivery customers. Meanwhile, Amazon remains committed to collaborating with various carriers to enhance customer service. Kelly Nantel, a spokesperson for Amazon, reiterated this commitment:
"We'll continue to partner with them and many other carriers to serve our customers." – Kelly Nantel