Dive Brief:
- UPS will reduce the amount of Amazon volume it delivers by more than 50% by the second half of 2026 under an agreement in principle reached by the two companies, UPS announced Thursday.
- The carrier determined if it took no action on its relationship with Amazon, it would likely result in diminishing returns, CEO Carol Tomé said on a Q4 earnings call.
- "Amazon is our largest customer, but it's not our most profitable customer," Tomé said. "Its margin is very dilutive to the U.S. domestic business."
Dive Insight:
The agreement marks an acceleration of UPS' yearslong push to reduce its reliance on Amazon for volume and revenue. The carrier is striving to capture volume from more profitable segments like healthcare product shippers and small- and medium-sized businesses.
Amazon has built out its own logistics network to deliver more customer orders itself but still uses a mix of carriers to cover the remainder of its orders. According to Amazon, it offered to increase UPS' volumes as the e-commerce giant’s delivery needs continued to grow.
“Due to their operational needs, UPS requested a reduction in volume and we certainly respect their decision," Amazon spokesperson Kelly Nantel said in a statement emailed to Supply Chain Dive. "We’ll continue to partner with them and many other carriers to serve our customers.”
Even with previous volume reduction efforts, Amazon still makes up a large portion of UPS' business. Executives said about 20% to 25% of volume in UPS' U.S. network is tied to Amazon, and the percentage of revenue derived from the company last year was 11.8%.
The decline in Amazon volume will lead to fewer packages being delivered by UPS, but at more profitable rates. In 2025, UPS expects average daily U.S. volume to drop about 8.5% year over year while revenue per package is projected to increase by 6%, per an earnings presentation.
"The results of this change will be lower overall volume levels, but an improved customer base at a significantly higher revenue per piece," EVP and CFO Brian Dykes said, adding that UPS will adjust its network as necessary to match capacity with demand.
Tomé said she doesn't believe the remainder of Amazon's volume is on the chopping block, noting Amazon's reliance on The UPS Store locations for customer returns.
"I don't think it will go all away," Tomé said. "I think we're landing at the right spot with this accelerated glide down."
