UPS reduces Amazon business to improve profits

UPS

The management of UPS is under pressure. The company released its fourth quarter results on Friday that saw revenue up 1.5% year-on-year at US$25.3bn and operating profit up 18.1% year-on-year at US$2.9bn, yet over the quarter the company took a number of policy decisions that will have a major effect on profits and growth in the short, and possibly, the long-term.

Most high profile of these is the decision to reduce UPS’ business with Amazon. In its statement around the results UPS said that it had “reached an agreement in principle” with what it called “its largest customer” to lower the volume of packages handles “by more than 50% by the second half of 2026; second, effective January 1, 2025”. This, and other decisions such as the insourcing of all of its ‘SurePost’ product, are part of what UPS calls its “efficiency reimagined” project, that aims to create “$1.0 billion in savings through an end-to-end process redesign”.

Speaking to the media after the release of the results, Carol Tomé, CEO of UPS, commented that the Amazon’s contract was coming up for renewal and this “and it gave us an opportunity to step back and assess how we wanted to drive the relationship going forward”. Essentially UPS has made the decision to focus on profits rather than sales growth. As Carol Tomé said “Amazon are our largest customer but they are not our most profitable customer”.

In the wider picture UPS’ fourth quarter numbers saw the company deliver moderate numbers within its individual businesses. The core ‘US Domestic Express’ business saw revenue grow 2.2% year-on-year and it hardened its profit margins. ‘International Express’ saw revenue grow faster, at 6.9%, although margins softened here. UPS Supply Chain saw falling revenue due to the sale of the Cayote freight brokerage but operational profit jumped by 62% year-on-year to $226m.

Undoubtedly the move away from Amazon is important but it is surely unsurprising. UPS has been focussed on improving its profitability since Carol Tomé took over as CEO, with the sale of Coyote being an example of its move to achieve greater focus.

“We are making business and operational changes that, along with the foundational changes we’ve already made, will put us further down the path to becoming a more profitable, agile and differentiated UPS that is growing in the best parts of the market,” said Tomé.

Author: Thomas Cullen

Source: Ti Insight 


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