The Strategic Shift: Why UPS is Rethinking its Amazon Partnership and What it Means for Last-Mile Delivery
Sunday, February 9, 2025
We’re well in the middle of earnings season, but something stood out to me regarding a firm in particular. UPS revealed a significant shift in its strategy: a reduction in its delivery volume for Amazon by 50% by the end of next year. This move, while surprising to some, is a calculated step aimed at improving UPS’s profitability and streamlining its operations. Let’s delve into the reasons behind this decision and what it means for the future of last-mile delivery.
While Amazon is UPS’s largest customer, accounting for almost 12% of its revenue in 2024, the company believes that reducing its reliance on the e-commerce giant will ultimately benefit its bottom line. UPS is aiming to shift toward more profitable endeavors. This strategic pivot is crucial for enhancing UPS’s margins, which refers to the profit margin, the percentage of revenue a company keeps after subtracting its costs.
About the Change
UPS’s decision also comes amid a larger company-wide transformation The company is reconfiguring its U.S. network and launching multi-year “efficiency reimagined” initiatives to save approximately $1.0 billion through an end-to-end process redesign. This includes an initiative to insource 100% of its UPS SurePost product. These initiatives are designed to make UPS a more profitable, agile, and differentiated company.
It’s All About Last Mile
The term “last mile” refers to the final leg of a shipment’s journey from a transportation hub to the end-user’s final destination. It’s often the most complex, time-consuming, and expensive part of the shipping process. Last-mile logistics costs can be substantial – sometimes more than 50 percent of total shipping costs. Several factors contribute to these costs, including labor costs, route optimization, fleet costs, warehousing, proximity of the delivery points to the warehouse, itself, the locations, and the number of deliveries along a route.
UPS’s move to reduce Amazon deliveries is likely connected to a desire to optimize its last-mile operations and cut costs. By reducing its reliance on one large customer, UPS can gain more control over its delivery network and potentially improve its efficiency and profitability.
UPS’s Financial Performance
UPS’s fourth-quarter 2024 results show a consolidated revenue of $25.3 billion, a 1.5% increase compared to the same period last year. The company’s diluted earnings per share were $2.01, with non-GAAP adjusted diluted earnings per share at $2.75, an 11.3% increase from the previous year. These results indicate a strong financial position. UPS expects 2025 revenue to be approximately $89 billion, with an operating margin of about 10.8%.
The Future
UPS’s decision to reduce its Amazon delivery volume is a strategic move to focus on more profitable projects and enhance its operational efficiency. By optimizing its network and streamlining its last-mile deliveries, UPS is positioning itself for sustainable growth and increased profitability. This shift underscores the importance of managing last-mile logistics effectively in today’s competitive market, where efficiency and customer satisfaction are paramount.
UPS' Q4 earnings report and press release can be found here.