UPS announced a seismic shift in the relationship with its largest customer, Amazon, prompting a sharp stock price drop Thursday morning.
The Georgia-based logistics company will cut the volume it moves for the retailer by more than 50% by the second half 2026, a move company leaders say reflects UPS’ new strategy, or as CFO Brian Dykes put it, “the largest network reconfiguration in our history.”
The news and the company’s resulting lower-than-expected revenue forecast for 2025 prompted its share price to drop to its lowest point since 2020 on Thursday morning.
UPS said it expects to bring in $89 billion in 2025 — below the average of analysts’ revenue estimate of $95 billion, and below 2024’s revenue of about $91 billion.
In a call Thursday, CEO Carol Tomé tried to assure analysts that the news is part of the company’s “better not bigger” strategy that will pay off in the years ahead.
‘Taking control of our destiny’
“Amazon is our largest customer, but it is not our most profitable customer,” Tomé said. (It represented nearly 12% of UPS’ 2024 revenues.)
The retailer has been a UPS customer for 30 years, and they hold Amazon in “high regard,” she said.
But when it came time to renegotiate the contract, UPS decided it was time to “rightsize” the network. “This was UPS taking control of our destiny,” she said.
The expected drop in Amazon volume is five times faster than the drop UPS has already seen in Amazon volume since 2021, and company leaders say it will free up resources to shift focus to other more profitable businesses.
Amazon, which has been building out its own logistics network, delivered more packages than UPS in 2022.
The move is “probably a win-win” for both Amazon and UPS, says Satish Jindel, president of shipment technology firm ShipMatrix.
“They 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 points to “Fulfillment by Amazon,” which is now delivering packages of other retailers on the Amazon platform, packages that were being delivered by UPS, FedEx or the post office. “That’s a competitive development,” he said.
UPS’ CFO Dykes added that the shift with Amazon will mean a drop in “fixed costs” including reducing labor, closing up to 10% of UPS’ buildings and cutting back its vehicle and aircraft fleets.
“Our labor costs will flex with volume,” Tomé confirmed. “As volume goes up, we have more hours. As volume comes down, we have less hours.”
In follow up questions, a UPS spokesperson told The Atlanta Journal-Constitution it was too early to release specifics on what that could mean for UPS’ workforce. Dykes promised more detail in the next earnings release in April.
The company last year announced it would lay off 12,000 management positions. It employs about 500,000 globally.
“This is not a company that is shrinking. This is a company that is gliding down its largest customer,” Tomé said.
The Amazon news is something the company needed to address, she said, as it executes a major shift in its business model.
What’s next
It’s one of many changes that “will put us further down the path to becoming a more profitable, agile and differentiated UPS that is growing in the best parts of the market,” Dykes said.
The company sees one of those “best parts” as its growing health care logistics segment, in which it doubled revenue between 2015 and 2023 to $10 billion.
Kate Gutmann, UPS president of international, health care and supply chain, told investors last spring the company plans to double that number again by 2026.
Its acquisition of a European cold-chain logistics provider just this month was the latest in a flurry of recent investments to help ramp up its temperature-controlled capacity, which is key for health care shipping.
Another major recent change for UPS was an end to its relationship with the U.S. Postal Service for the final mile of its economy “SurePost” product.
Tomé said that happened after the Postal Service wanted to require customers like UPS to rely on postal service sorting facilities — and to charge more.
The Postal Service change, which went into effect Jan. 1, has resulted in a nearly 10% average rate increase for UPS SurePost deliveries, she said, but it has not increased driving miles thanks to route algorithm adjustments.