Shortly after announcing they will cut significant amounts of business with Amazon, the United Parcel Service (UPS) stock plummeted to the single largest loss in company history. Stock valuation dropped as much as a whopping 14.29%, while Amazon stock decreased on 0.49%.
UPS explained to investors and customers that this decision stems from a desire to focus on greater profitability from deliveries rather than increasing the total number of delivers. Carol Tomé, CEO of UPS, said “Amazon is our largest customer, but it’s not our most profitable customer.” This may have been a surprise to many, considering that Amazon accounted for about 11.8% of UPS’s total revenue for the year, or about $10.7 billion. On top of that UPS also missed their quarterly revenue goals, and expects revenues to decline in 2025, even though Wall Street was expecting the opposite.
How is the UPS Business Model Changing?
UPS and Amazon have reached an agreement to decrease total volume by more than 50% by the end of 2026. UPS’s contract with Amazon was up for renewal this year, making leadership to reevaluate the partnership. Of this, Tomé said “if we take no action, it will likely result in diminishing returns.” Tomé claims there are plenty of assets and resources to support Amazon packages, but that as volume declines, the need to support declines as well. Tomé believes this would lead to lower costs and increased margins for each package.
When working with Amazon, UPS would send small packages just a short distance, which has low margins and slow growth. Tomé and her team believe that by focusing on longer and more complex shipments, the company would earn more. UPS also plans on delivering more for industries with more requirements for shipping, such as healthcare, since those jobs pay significantly more. While this would lead to greater profits, the closing of the short distance delivery business would impact many employees. If the company takes this route, 11 buildings are expected to be closed permanently, and the company would save about $1 billion.
What do you think about UPS’s game plan? Will it work out and save the company money, or is it a bad idea to cut ties with a significant partner? Let us know in the comments
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