United Parcel Service (UPS) shares took a sharp dive as the company announced plans to cut its business with Amazon by more than 50% by 2026. This decision, coupled with a weaker-than-expected revenue forecast, sent UPS stock price tumbling, leaving investors concerned about the future of the shipping giant. The company’s strategy shift reflects a broader effort to focus on profitability rather than sheer volume, but the move has raised questions about whether UPS can navigate its current challenges effectively.
UPS Struggles with Falling Demand
UPS has been dealing with a prolonged slump in package volumes since the post-pandemic period. During the COVID-19 era, demand for home deliveries surged, pushing UPS profits to new heights. However, as consumer behavior normalized, shipping volumes declined, and many customers opted for cheaper, economy services over premium options. This shift has squeezed UPS’s profit margins, forcing the company to rethink its approach.
By cutting back on lower-margin deliveries and focusing on more profitable shipments, UPS aims to stabilize its financial performance. The company’s leadership believes that reducing reliance on Amazon, which accounts for nearly 12% of its total revenue, is a necessary step. CEO Carol Tomé emphasized this point, stating, “Amazon is our largest customer, but it’s not our most profitable customer.”
UPS Stock Price Plummets After Revenue Forecast Misses Expectations
Investors reacted negatively to UPS’s latest revenue forecast. The company projected $89 billion in revenue for 2025, significantly below analysts’ expectations of $94.9 billion. The news triggered a sharp selloff, with UPS stock price plunging 18%—its biggest intraday drop since 2008.
This latest decline adds to a troubling trend for UPS. The stock has lost nearly half its value since early 2022 and continues to struggle under the leadership of Carol Tomé. Despite efforts to streamline operations and improve profitability, UPS has been unable to reignite growth.
Amazon and UPS: A Changing Partnership
The relationship between UPS and Amazon has been evolving for years. While Amazon remains one of UPS’s largest customers, it has also built its own logistics network to reduce dependence on third-party carriers. This shift has put pressure on UPS and other delivery companies, forcing them to rethink their business models.
UPS initially benefited from Amazon’s massive shipping volumes, but as margins thinned, the company realized that its heavy reliance on the e-commerce giant was not sustainable. In response, UPS negotiated an agreement to reduce its Amazon shipments by over 50% by the second half of 2026.
Amazon, for its part, confirmed the reduction, with spokesperson Kelly Nantel stating, “We’ll continue to partner with them and many other carriers to serve our customers.” This suggests that while Amazon will still use UPS for deliveries, it will increasingly rely on its own logistics network and other shipping partners.
UPS vs. FedEx: A Tale of Two Strategies
While UPS struggles with declining volumes and margin pressures, its main competitor, FedEx, has been on a different trajectory. FedEx took a more aggressive approach in reducing its reliance on Amazon, focusing instead on restructuring and improving profitability. This strategy has paid off, with FedEx experiencing stronger financial performance in recent years.
Analysts point out that UPS’s decision to scale back Amazon shipments aligns with its long-term goal of becoming a more efficient, high-margin business. However, the immediate impact on revenue has been severe, leaving investors uncertain about the company’s ability to recover in the short term.
Cost-Cutting Measures and Future Outlook
To offset declining shipping volumes, UPS has been aggressively cutting costs. In 2024 alone, the company permanently closed 11 facilities and completed 49 operational closures. CFO Brian Dykes announced that UPS plans to shut down up to 10% of its buildings, reduce its fleet size, and trim its workforce in response to the leaner demand environment.
Additionally, UPS is undergoing a multi-year network redesign aimed at saving $1 billion. This includes automation investments and operational streamlining to make the company more efficient in the long run. However, with labor costs rising due to a costly deal with the Teamsters union, UPS faces a tough balancing act between cost-cutting and maintaining service quality.
Despite these challenges, UPS continues to invest in higher-margin segments, such as healthcare logistics. The company aims to generate $20 billion in healthcare-related revenue by 2026, positioning itself as a key player in medical shipments and specialized deliveries.
Analyst Concerns: When Will the Turnaround Happen?
Market analysts remain skeptical about UPS’s ability to stage a turnaround in the near future. The company’s fourth-quarter earnings were better than expected, with adjusted earnings per share of $2.75 compared to analysts’ estimates of $2.53. However, these results were largely driven by the holiday shipping rush rather than a sustainable improvement in demand.
Melius Research analyst Conor Cunningham summed up the market’s frustration, saying, “It’s hard to glean what’s actually happened from an efficiency standpoint without the volumes really being there. It’s just this perpetual waiting game.” Many investors and analysts feel that UPS has been stuck in a cycle of declining demand and cost-cutting measures, with no clear timeline for when growth will return.
Final Thoughts: Can UPS Regain Investor Confidence?
The dramatic drop in UPS stock price highlights the challenges the company faces in an evolving logistics landscape. While the decision to reduce Amazon shipments aligns with UPS’s long-term goal of prioritizing profitability, the immediate financial impact has shaken investor confidence.
To regain momentum, UPS will need to prove that its cost-cutting efforts and strategic shifts can drive sustainable growth. Whether through automation, higher-margin services, or a more efficient network, the company must demonstrate that it can thrive even as demand patterns change.
For now, UPS stock remains under pressure, and the road to recovery appears uncertain. Investors will be watching closely to see if the company can turn its strategy into tangible results—or if further declines lie ahead.
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Disclaimer: The information provided in this article is for informational and educational purposes only and should not be considered financial or investment advice. Stock prices are subject to market risks, and past performance is not indicative of future results. Readers should conduct their own research and consult with a qualified financial advisor before making any investment decisions. The author and publisher are not responsible for any financial losses incurred as a result of the information provided.
