The relationship between UPS and Amazon has always been a bit like a high-stakes marriage of convenience. They need each other, but they don't always like the terms. For years, the brown trucks were the backbone of the "Prime" promise, hauling millions of yellow-taped boxes to every doorstep in America. But things have changed. Recent financial shifts and strategic pivots at UPS headquarters in Atlanta show that the shipping giant is actively choosing to reduce its Amazon volume. It isn't a breakup, exactly. It's more of a tactical retreat. Carol Tomé, the CEO of UPS, has been incredibly vocal about this "better, not bigger" strategy. Basically, if a package doesn't make the company enough money, UPS doesn't want it in their network anymore.
The Problem with the Amazon Volume
UPS is significantly reducing its Amazon deliveries citing profitability because, quite frankly, low-margin residential stops are a drag on the books. Think about it. When a driver has to pull over, kill the engine, walk up a driveway, and leave a single $5 book, the profit margin is razor-thin. Amazon is a master at negotiating. They use their massive scale to squeeze carriers on pricing. For a long time, UPS accepted this because the sheer volume helped fill their planes and trucks. It kept the "density" high. But as labor costs surged—especially after the 2023 Teamsters contract—those thin margins started looking a lot like losses.
You’ve probably noticed more Amazon-branded blue vans in your neighborhood lately. That’s because Amazon has built its own massive logistics network, often referred to as Amazon Logistics (AMZL). They keep the easy, high-density neighborhood routes for themselves. What do they give to UPS? Often, it’s the stuff they don't want to handle: the heavy, "over-max" items or the rural deliveries where houses are miles apart. UPS looked at the data and realized that being Amazon's "overflow" valve wasn't a sustainable way to keep shareholders happy.
Profitability Over Proximity
The mantra under Tomé has been consistent: "Better, not bigger." This means UPS is chasing small and medium-sized businesses (SMBs) and healthcare shipments. Why? Because those customers pay better. A medical lab shipping temperature-sensitive vials is going to pay a premium compared to a consumer returning a pair of jeans. By capping how much Amazon volume they accept, UPS frees up space in their automated hubs for these higher-value packages. In 2021, Amazon accounted for about 13.3% of UPS's total revenue. By the end of 2023, that number had already started to dip, and the trajectory is clear. They are aiming for a future where they aren't beholden to a single customer who also happens to be a direct competitor.
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It’s a gutsy move. Most companies would be terrified to turn away billions of dollars in revenue. But UPS is playing the long game. They are investing heavily in "Customer First, People Led, Innovation Driven" initiatives. This includes massive automation projects at their "Velocity" facilities. If they can replace manual sorting with robotics, they can lower the cost per package. But even with robots, the math only works if the revenue per piece is high enough. Low-yielding Amazon packages just don't fit that equation anymore.
The Rise of the Regional Carriers and the USPS
So, where is all that extra Amazon volume going? It’s not disappearing. It’s shifting. The United States Postal Service (USPS) has become a massive partner for Amazon’s "last mile" through programs like Ground Advantage. Then there are the regional players like LaserShip (now OnTrac) and Pitney Bowes. These companies are hungry for the volume UPS is leaving on the table. However, they don't have the global reach or the sophisticated air network that UPS maintains.
Amazon is also getting better at "zone skipping." They move goods in their own long-haul trucks to local sort centers, only handing them off to a carrier for the final few miles. This eats into the "middle mile" profits that UPS used to enjoy. By UPS significantly reducing its Amazon deliveries citing profitability, they are essentially telling Amazon: "If you want to use our premium network, you're going to have to pay premium prices."
What This Means for the Average Consumer
Honestly, you might see a few more delays or different people delivering your packages. If you live in a rural area, your Amazon order that used to arrive via a UPS driver might now show up in a dusty USPS LLV or an unmarked white van. For UPS, it means a more stable stock price and better dividends because the company isn't chasing "empty calories" revenue. They’d rather deliver 10 packages at a $2 profit each than 100 packages at a $0.10 profit each. It’s simple math, but in the world of global logistics, it’s a radical shift.
Understanding the Teamsters Impact
We can't talk about UPS's move away from Amazon without mentioning the union. The 2023 contract was a landmark deal. Full-time drivers now see total compensation packages (including benefits) worth around $170,000 by the end of the five-year term. That is a massive expense. When your labor costs go up that significantly, you literally cannot afford to carry low-margin freight. Every minute a driver spends on a low-paying Amazon delivery is a minute they aren't delivering a high-margin B2B (business-to-business) shipment. The union contract essentially forced UPS's hand to accelerate their pivot away from Amazon.
Moving Toward a B2B and Healthcare Future
The shift is already showing up in the quarterly reports. UPS is leaning into "NXF" (North American Air Freight) and specialized logistics. They bought Bomi Group to bolster their healthcare reach in Europe and Latin America. They are building massive "cold chain" facilities. This is where the real money is. Shipping a pallet of Botox or a crate of specialized surgical tools requires a level of precision and insurance that Amazon's household goods just don't require.
UPS is also doubling down on its "Symphony" platform, which helps smaller e-commerce merchants manage their supply chains. They want to be the partner for the next Amazon, not just the delivery boy for the current one. By providing end-to-end tech solutions for smaller retailers, they capture higher margins and build more loyal customer bases than they ever could with a behemoth like Jeff Bezos's empire.
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Actionable Insights for Businesses and Shippers
If you're running a business or just trying to navigate the changing world of shipping, there are a few things to keep in mind as UPS continues this transition.
- Diversify Your Carriers: If you rely solely on UPS, understand that their pricing for low-weight, residential shipping is likely to keep climbing. Look into regional carriers like OnTrac or even the USPS for your lighter, less-urgent items.
- Audit Your Shipping Mix: UPS is looking for high-value freight. If your shipments are "ugly" freight—oversized, heavy, or poorly packaged—expect to see "Area Surcharge" or "Additional Handling" fees skyrocket.
- Leverage B2B Discounts: If you are shipping to other businesses rather than residences, UPS wants your business. You might have more leverage in contract negotiations now than you did three years ago.
- Watch the Surcharges: UPS has become the king of the "demand surcharge." Keep a close eye on your invoices; they are using these fees to weed out unprofitable volume without officially "firing" customers.
- Prepare for "Last Mile" Fragmentation: The days of one or two companies handling everything are over. The shipping landscape is becoming more fragmented, and managing multiple carriers via software is becoming a necessity rather than an option.
The era of UPS being the "Amazon Delivery Service" is officially winding down. It’s a calculated move to prioritize the health of the company over the vanity of volume. While it might lead to some short-term revenue dips, the goal is a leaner, meaner, and much more profitable "Big Brown."