UPS cuts back on delivering Amazon packages

by | Feb 3, 2025 | E-commerce News

UPS announced that it would be cutting its business with Amazon, its largest customer, by more than 50% by the second half of 2026, to focus on smaller, more profitable clients, rather than on simply increasing volume. Amazon accounted for 11.8% of UPS's total revenue for the year, or about $10.7B.

CEO Carol Tomé said on a call with analysts, “Amazon is our largest customer, but it's not our most profitable customer. Its margin is very dilutive to the U.S. domestic business.”

Tomé said that because the contract with Amazon came up for renewal this year, it was time to reassess the near 30-year relationship, “because if we take no action, it will likely result in diminishing returns.”

She noted that decreasing the volume of Amazon packages would also reduce the need to support a large amount of assets and resources used to fulfill those packages, leading to lower costs and increased margins per package. Transporting smaller packages over shorter distances for the last-mile is becoming less profitable, so UPS wants to focus more on deliveries that have more complex transport requirements and higher margins, such as its healthcare business.

Thomas Black, a Bloomberg Opinion columnist wrote:

“To make up for the volume decline, UPS will shrink the number of sorting facilities, delivery trucks and aircraft, driving $1 billion of cost savings. The result will be a domestic operating margin of at least 12% in the fourth quarter of 2026, Tomé said, up from about 9.2% for 2024. Revenue for 2025 is expected to drop a little more than 2% to $89 billion. In other words, UPS will be a bit smaller but more profitable.”

I agree with the decision 100% and think it's a smart long term move.

Who wants to dedicate business resources towards catering to Amazon when the company is actively competing against your own services? The handwriting has long been on the wall that Amazon wants to completely replace 3rd party couriers with its own delivery network. 

Twenty years ago, nearly every Amazon package was shipped via 3rd party couriers like UPS and FedEx, but now, Amazon delivers more than 70% of its packages using its in‑house network, and that number is expected to climb.

Plus, don't forget that Amazon launched Amazon Shipping in Aug 2023, which lets consumers and businesses send packages directly from one location to another—even for non‑Amazon orders—to compete directly UPS and FedEx.

Kudos to CEO Carol Tomé for looking ahead and not continuing to indulge an enemy disguised as a business partner.

What are your thoughts on the decision? Join the convo on my LinkedIn post

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