Dive Brief:
- UPS' revenue derived from Amazon fell to $10.7 billion in 2023, down 5.3% from the year prior and its lowest annual total since 2019, according to the delivery giant's annual financial report.
- However, the percent of UPS' revenue tied to its top customer jumped 50 basis points as non-Amazon business experienced a sharper decline.
- "From an Amazon perspective, we finished the year at 11.8%" of revenue, UPS CFO Brian Newman said on a January earnings call. "And that was not due to an increase in the business. We're still executing our plan with them in terms of a glide-down."
UPS' Amazon revenue shrinks in 2023 but at slower pace than other business
Dive Insight:
A carrier weathering reduced revenue from its largest customer would normally be something to avoid, but UPS' shrinking Amazon business is intentional. The e-commerce titan has been gradually relying on UPS less for deliveries under an arranged agreement between the two companies.
UPS has long highlighted its efforts to capture more volume from small- and medium-sized businesses and healthcare product shippers, all of which are generally more profitable for the company to deliver than e-commerce orders destined for homes.
Meanwhile, Amazon aggressively expanded its logistics infrastructure during the COVID-19 pandemic as demand surged and capacity was limited at carriers such as UPS.
While this allowed it to deliver more customer orders in-house, it created a period of surging operational costs in 2022. Amazon adjusted by slowing its pace of expansion and shifting to a regional fulfillment model that has trimmed expenses and boosted delivery speeds.
"We doubled the size of our fulfillment center network in 18 months and built out a last mile transportation network the size of UPS in 18 months," Amazon President and CEO Andy Jassy said on a Feb. 1 earnings call. "It was disruptive to get that optimized. But one of the things that was very useful was, it really caused us to relook at everything we were doing with the fulfillment network."
