UPS Terminates Relationship with Its Largest Client
United Parcel Service (UPS) is significantly reducing its business relationship with Amazon, which has raised eyebrows among investors. By the end of 2026, UPS plans to decrease deliveries for Amazon by over 50%. This shift will likely lead to a decline in annual revenue and necessitate a major restructuring of UPS’s delivery network to accommodate the lower package volume.
Impact of Reducing Amazon Deliveries
In 2024, Amazon represented 11% of UPS’s total revenue and accounted for 20% to 25% of the company’s U.S. network volume. Despite being its largest customer, the relationship with Amazon was not the most profitable. The low-margin packages from Amazon contributed to UPS’s capacity but adversely affected profit margins.
Significant Reductions Planned
Starting in 2025, UPS implemented a plan to cut Amazon package volume by 1 million pieces per day. The goal is to reduce this further by an equal amount in 2026, optimizing the company’s operations for better economic viability.
- UPS closed 93 U.S. facilities in 2025.
- Cost savings from network optimization estimated at $3.5 billion.
- Reduction of 48,000 jobs in 2025, including 15,000 seasonal roles.
- Further cuts of 30,000 jobs planned for 2026.
By streamlining operations, UPS aims to lower labor hours by 26.9 million in 2025 and an additional 25 million in 2026.
Financial Performance and Future Outlook
Despite a 10.8% decline in average daily package volume in the fourth quarter of 2025, UPS saw an 8.3% increase in revenue per piece. The adjusted operating margin for the U.S. segment rose to 10.2%, a slight improvement from the previous year.
For 2026, UPS anticipates an overall adjusted operating margin of 9.6%, down from 9.8% the previous year. This projection is significantly lower than earlier forecasts, which estimated margins of at least 13% prior to the reduced reliance on Amazon.
Key Data Points
| Market Cap | $91B |
|---|---|
| Current Price | $104.02 |
| 52-week Range | $82.00 – $136.58 |
| Volume | 5.9M |
| Dividend Yield | 6.12% |
While the transition might be turbulent, UPS is optimistic about recovery. The removal of low-margin revenue is expected to facilitate growth and improvements in profit margins as UPS transitions into 2027 and beyond. The company believes that the second half of 2026 will mark a significant improvement for its U.S. business.
