By Abhinav Parmar, Lisa Baertlein
(Reuters) -United Parcel Service on Thursday forecast downbeat 2025 revenue as it cuts back deliveries for its largest customer, Amazon.com, and grapples with stubbornly soft demand for lucrative overnight service and commercial shipments.
Shares in the world’s largest parcel delivery firm were down about 15% in early trading after the company said it had reached an agreement to cut transported Amazon volumes by more than 50% by the second half of 2026.
The move surprised some analysts. UPS and rival FedEx are grappling with how to fill their networks and shelter profits from a shift toward lower-margin deliveries.
“Amazon is our largest customer, but it’s not our most profitable customer,” said UPS CEO Carol Tome, adding that the business is “extraordinarily dilutive” to margins.
“This was UPS taking control of our destiny,” she said.
On the volume front, UPS has been adding bargain e-commerce sellers such as Temu and Shein as customers. And, starting this year, it is delivering small packages that it had previously handed off to the United States Postal Service for delivery. It also is expanding its premium healthcare business and selling assets, including its Coyote Logistics freight business.
The Atlanta-based company aims to slash about $1 billion in costs by closing buildings, reducing aircraft, truck and labor costs, automating sorting and introducing radio frequency identification package tagging.
After a sharp post-pandemic rebound, shares of UPS have struggled. The stock has lost more than one-third of its value in the past three years, compared with a 36% increase in the broad S&P 500 index. Shares in FedEx, which is in a fierce battle with UPS for customers, dropped more than 3% on Thursday.
Amazon and its affiliates accounted for 11.8% of UPS’ overall revenue in 2024.
“The agreement with Amazon to reduce volumes by more than 50% in 18 months is a surprise and acceleration of the glide down of this business that has long represented a tail risk,” Evercore ISI analyst Jonathan Chappell said in a note.
Tome said the lowered Amazon guidance between 2024 and 2026 will be 1.25 million packages per day per year.
Still, UPS said carrying less freight for Amazon will eventually boost its revenue per piece.
The company is taking steps to “put us further down the path to becoming a more profitable, agile and differentiated UPS,” Tome said.
UPS forecast 2025 revenue of $89 billion, compared with analysts’ average estimate of $94.88 billion, according to data compiled by LSEG.
