"Amazon is our largest customer, but it's not our most profitable customer"
- Carol Tome, UPS CEO
UPS has announced a 50% reduction in its long-standing partnership with Amazon, stunning the logistics industry.
This significant scaling back of services marks one of the most substantial shifts in the relationship between the two shipping giants.
The decision, which surprised many industry analysts, represents a strategic pivot for UPS as it restructures its business model. Furthermore, this move is expected to reshape the entire e-commerce delivery landscape, affecting shipping costs, carrier relationships, and market dynamics.
Breaking down the UPS-Amazon split
"This was UPS taking control of our destiny,"
- Carol Tome, UPS CEO
Under a groundbreaking agreement between the two companies, UPS will reduce its Amazon-related shipping volume by more than 50% by the second half of 2026. This shift marks a significant change in the current logistics landscape.
Timeline of partnership reduction
Over recent years, the partnership between the two shipping giants has experienced a steady decline. The reason for the decline? Amazon has been building its own logistics and fulfillment operations. Amazon now has its own blue fleet and is no longer wondering “what brown can do” for them.
Initial reaction & market impact
The market response to this announcement was immediate and dramatic with shares from UPS plunging more than 17% following the news.
The announcement surprised many analysts, particularly in regards to the timing and scale of the reduction. For example, Ravi Shanker, a Morgan Stanley analyst, noted that Amazon could account for between 35% and 40% of UPS’s domestic volumes. Yes, it's less than in previous years, but it's not an inconsequential amount. It's still a decent chunk of UPS’s domestic volumes. Which, again, makes us wonder why the great split between UPS and Amazon is happening now.
Strategic shift in UPS operations
Last year, UPS unveiled an extensive operational transformation plan centered on premium services and network efficiency. The company’s goal? To position itself as the leading logistics partner – worldwide.
How is UPS planning on achieving said goal? Let’s take a look, shall we?
Concentrate on high-margin customers
UPS has kept it no secret. It is now actively pursuing growth in the healthcare sector, and has set an ambitious target to double its healthcare-related revenue to 20 billion by 2026. Why? The healthcare logistics market is where the money is at, with growth projected to expand from 130 billion to 152 billion by 2026. The pharmaceutical industry has also been a darling of UPS, with pharmaceutical customers generating 45% of UPS’s early morning delivery volume.
Cost reduction initiatives
As part of its efficiency push, UPS announced plans to save 3 billion annually by 2028. To help with these efforts, early last year, UPS eliminated 12,000 non-union positions. UPS is also accelerating its automation initiatives across its facilities. By 2026, UPS plans to triple the number of buildings with automated technologies to 400 across the United States.
Network optimization plans
In March 2024, UPS rolled out its new initiative — “Network of the Future.” Here are some of the UPS optimization plans that were included in the new initiative:
- Closing 200 facilities (approximately) through network consolidation
- Implementing major automation projects at 63 sites
- Reducing both morning and evening ground and air feeds in multiple locations
- Standardizing facilities to eliminate client-specific customizations
Industry-wide ripple effect
The logistics industry faces a significant transformation as competitors and regional carriers position themselves to capture market share from the realignment of UPS and Amazon. This shift will provide opportunities while also reshaping the logistics landscape.
Only time will tell how this great split will shake out.
Final thoughts
UPS’s decision to slash its Amazon partnership marks a defining moment in the evolution of logistics. Rather than continue maintaining traditional carrier relationships, companies now seek diverse shipping solutions across an expanding network of providers.
Therefore, UPS’s pivot toward premium services, especially when it comes to the healthcare industry, demonstrates the company's commitment to higher-margin business segments. Pair that with UPS’s cost reduction initiatives, and you can expect that there will be more shakeups on the horizon if UPS wants to meet all the goals they set for 2026.
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