UPS Q1 Earnings Call Reveals Its Leaner, Higher-Margin Strategy

You may have seen the news that UPS will reduce its business by 50% with Amazon — its biggest customer — by the second half of 2026. While this seems like a counter-intuitive decision for the carrier, the Q1 UPS earnings call revealed that it’s actually part of a longer-term strategy to operate leaner and focus on higher-margin business segments.  

Cutting its Amazon business in half enables UPS to reduce its low-margin fulfillment center outbound volume. The result? UPS will cut 20,000 jobs and close more than 70 facilities, driving significant operations cost savings. 

Perhaps as part of its effort to improve margins, UPS just announced new rate increases, effective June 2, that will negatively impact oversized shipments, heavy packages, and outlying rural delivery areas. The new UPS large package surcharge now mirrors FedEx’s charges for Zones 7–8. This continues a pattern of the two large carriers converging on rate increases. 

In an interesting development, FedEx and Amazon just announced a multi-year agreement that will have FedEx delivering large packages to Amazon’s residential customers.  

Analysts speculate this means FedEx is ahead of UPS in its network optimization efforts, as the carrier can clearly operate at a profitable margin as it takes on Amazon’s large, harder-to-handle product shipments. While over two-thirds of Amazon packages are delivered through its in-house logistics network, large packages are outsourced due to their special handling needs. 

Some Key Details From the Earnings Call 

What other announcements were made by UPS on its Q1 earnings call?  

UPS is benefiting from increasing product returns volumes (up 8.8%) and growth in the small- to medium-sized business (SMB) segment (up 4%). SMB shipments now represent almost a third (31.2%) of the carrier’s total U.S. volume. But the carrier’s package service mix has hurt UPS, with shippers choosing lower cost services like Ground and Ground Saver (formerly SurePost). 

Looking ahead, UPS plans to reduce its operating expenses by $3.5 billion this year to further improve efficiencies and margins. Those savings will be driven by: 

• A network reconfiguration that will eliminate 164 facilities, including the 73 immediate closures, to better align the supply chain with a changing volume mix, increase productivity, and reduce fixed costs.

• An investment in automation and digital tools that will yield over $1 billion in annual savings by optimizing procurement processes and daily business workflows.

• A refined industry focus targeting continued growth in the SMB segment, as well as an expansion of its healthcare, business-to-business (B2B), and international export volumes.

• New products and services such as a UPS Ground with Freight Pricing offering that enables shippers to send shipments with a combined weight over 150 pounds with parcel-like convenience and pricing. 

“The strategic actions we launched in January to reconfigure our network and reduce costs across the business cannot be timelier,” said UPS CEO Carol Tomé in the quarterly earnings call. “The environment may be uncertain, but with our actions, we will emerge as an even stronger, more nimble UPS.” 

What Does This News Mean for Shippers? 

While UPS is reducing its Amazon business volume for strategic reasons, this move still creates an opportunity for other shippers to fill that volume gap. Shippers can leverage the carrier’s lower shipping volumes to negotiate better contracts and rates with UPS.  

In the earnings call, the carrier was reluctant to make any future revenue projections based on today’s market uncertainty, so it seems logical that UPS would be looking for new business to increase its confidence. While UPS is clearly making smarter decisions that protect its own margins, it’s likely still open to rate flexibility and positive negotiation.  

And, as cost-cutting measures proceed toward that $3.5 billion goal, UPS margins will naturally improve, creating more flexibility to work with individual shippers. 

If analysts are correct — and FedEx is ahead in operating efficiency and cost control — then shippers should also work to negotiate with FedEx for lower rates and more favorable contracts. 

Adapt to Every Market Change with Redwood 

The recent announcements from UPS and FedEx are among many forces shaping the parcel shipping landscape right now, including tariffs, lagging consumer confidence, and inflation. Whatever the future holds, Redwood’s Parcel Advisory team can help you navigate market changes and create your own smart, strategic response. 

Redwood’s team can analyze your shipping patterns and behaviors, parcel sizes and weights, carrier mix, and other factors to help you create a parcel optimization plan. We also coach customers in rate negotiation, carrier pricing, and contracts. In addition, our proprietary Redwood Parcel Cloud solution is an all-in-one execution toolkit that helps you optimize and automate all your parcel shipping activities, saving time and costs. 

If you partner with UPS or FedEx for parcel shipping, and you’re looking to boost your own financials in 2025 and beyond, why not reach out to Redwood today?