UPS to cut its Amazon business by more than 50%. Here’s why.

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Shares of United Parcel Service Inc. experienced their worst day on record on Thursday, following the company's announcement that it had agreed to significantly reduce its business with Amazon.com Inc., its biggest customer.

While UPS stated that the shift was part of their plan to concentrate on more profitable delivery operations rather than merely boosting volume, the news still triggered a significant impact on Wall Street stocks.

“Amazon is our biggest customer, but it's not the one making us the most money,” Chief Executive Carol Tomé said during a call with analysts, according to an AlphaSense transcript. “The profit margin it provides for our U.S.-based business is very low.”

Considering Amazon accounts for nearly 12% of UPS's total revenue each year, equivalent to approximately $10.7 billion, it was concerning that the delivery company once again missed quarterly revenue expectations and forecasted a decline in 2025 revenue while investors were anticipating growth.

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The stock ended the day at its lowest price since July 13, 2020, and it was the largest decrease of the S&P 500 index on that day.

Meanwhile, Amazon's stock fell by one percent, and shares of UPS' rival, FedEx Corp., declined 2.1 percent.

UPS announced that it has reached a preliminary agreement with Amazon to reduce its volume by more than 50% by the second half of 2026.

Since our contract with Amazon was up for renewal this year, it's time to take another look at the nearly 30-year partnership.

She noted that there are a significant number of assets and resources available to handle the large volume of Amazon packages. As that volume decreases, Tome states that the need to support those assets and resources also decreases, resulting in lower costs and higher profit margins per package.

Due to their operational requirements, UPS asked for a reduction in the volume of work, and we completely understand their decision," said Amazon spokesperson Kelly Nantel in a statement to via email. "We will continue to work with them as well as many other carriers to provide service to our customers.

UPS's move addresses two major issues the company is dealing with, she stated. One is that the U.S. small-package market is a "slow-growth market" with thinner profit margins, and the second is the growing concern over how much of UPS's volume and revenue is relying on just one customer.

Essentially, transporting smaller packages over shorter distances is becoming less and less profitable, so the company wants to concentrate more on deliveries that have more intricate transport needs, such as its healthcare business, because those are more profitable.

The company is looking to make up for declining sales by reducing costs through various actions, which include the permanent closure of 11 buildings next year, expected to save $1 billion.

And it's not just the relationship with Amazon that is changing.

As of January 1, the company announced that it took over the UPS SurePost service entirely, bringing all deliveries within that service's last mile in-house. Previously, UPS had relied on the US Postal Service for a part of the final leg of those deliveries.

Tomé pointed out that the United States Postal Service (USPS) was shifting its operating approach, which would influence its service by lengthening delivery times and causing higher costs.

"The idea of paying more for worse service just didn't fly with us," Tomé said.

Evercore ISI analyst Jonathan Chappell stated that the fourth-quarter results had some good points, including a strong profit beat and a solid operating margin for the domestic package business, but there were still some negative aspects.

While it's been well understood that Postal Service would be insourcing SurePost operations, the exact impact was unclear. The agreement with Amazon to reduce volumes by more than 50% within 18 months is a sudden and unexpected decline of this business, which has long been a concern.

Analyst Faisal Hersi with Edward Jones stated that despite the implementation of these changes, "we expect a near-term drag on package volume and profitability within the company's domestic package business."

United Parcel Service will issue its fourth-quarter report

For the fourth quarter, UPS reported revenue that went up 1.5% from the same time last year, totaling $25.3 billion, which fell short of analysts' expectations at FactSet, who predicted $25.41 billion. This was the latest quarter where the company fell short, ending a small streak where earnings matched predictions, following eight previous quarters where they did not.

For 2025, the company forecasted revenue of $89 billion, a decrease from the 2024 revenue of $91.1 billion. The FactSet consensus for 2025 revenue predicted a rise to $95 billion.

Among UPS business areas, in the U.S., fourth-quarter domestic revenue increased 2.2% to $17.31 billion, surpassing the FactSet expectation of $17.22 billion.

US international revenue rose 6.9% to $4.92 billion, exceeding expectations of $4.79 billion, whereas supply-chain-solutions revenue fell 9.1% to $3.07 billion, coming in short of forecasts at $3.36 billion.

Net income climbed to $1.72 billion, or $2.01 per share, up from $1.61 billion, or $1.87 per share.

Adjusting for one-time items, including a $506 million pension charge, core earnings per share increased 11% to $2.75, surpassing the FactSet consensus of $2.53.

UPS's stock has dropped 20.8% over the past 12 months, while FedEx shares have risen 10.5% and the S&P 500 index has gone up 23.3%.