UPS and the Art of Strategic Disengagement

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The esteemed United Parcel Service, a logistical behemoth not entirely unfamiliar with the vagaries of commerce, has embarked upon a most curious undertaking. It is divesting itself, you see, of a rather substantial client – a certain online emporium known for its…enthusiasm. The market, initially perplexed, is now, with a characteristic delay, beginning to grasp the audacity of this maneuver. One might say they are finally noticing the elephant, or rather, the five million daily packages, exiting the room.

Investors, those delicate flowers, expressed a certain displeasure when UPS announced its intention to reduce deliveries for Amazon by a figure exceeding half. A decline in revenue was predicted, a restructuring loomed. As if a company the size of UPS hadn’t seen a downturn before! It’s as if they believed profit grew on trees, or, more accurately, in cardboard boxes.

The End of a Lopsided Partnership

Amazon, it appears, accounted for a not insignificant 11% of UPS’s revenue. However, and this is the crux of the matter, they also constituted a full 20-25% of the domestic package volume. A delightful illustration of the principle that quantity does not always equate to quality, or, in this case, profitability. UPS, it seems, was acting as a glorified delivery service for a company that was quite capable of handling things itself. A most unseemly arrangement, really.

In 2025 alone, UPS reduced Amazon volume by a million pieces per day. A staggering number, akin to releasing a small nation’s worth of parcels back into the wild. The plan for 2026 is to repeat the feat, bringing the Amazon business down to a level that won’t require the company to sell its soul for a few pennies per shipment. They’ve even begun closing facilities – 93 of them last year – consolidating their network as if preparing for a siege. The savings, a respectable $3.5 billion, are merely a byproduct of common sense, one might say.

The workforce, naturally, has felt the pinch. 48,000 positions eliminated, including a reduction in seasonal help. A regrettable necessity, of course, but one cannot make an omelet without breaking a few eggs…or, in this case, delivering a few pink slips. They plan another 30,000 cuts in 2026, along with further facility closures. A veritable pruning of the logistical garden, if you will.

The numbers, predictably, tell a tale of temporary hardship. U.S. average daily volume declined by over 10%. However, revenue per piece increased by over 8%. A subtle shift, a delicate recalibration. Adjusted operating profit dipped slightly, but the operating margin improved. UPS managed a 10.2% margin in the U.S. segment, up from 10.1% the previous year. A triumph of accounting, perhaps, but a triumph nonetheless, even if achieved while temporarily grounding a portion of its aircraft fleet. A curious detail, that.

A Path Paved with Restructuring

The road ahead will undoubtedly be bumpy. Revenue declines are expected, and the costs associated with closing facilities and reorganizing the network will weigh on results. For 2026, the company anticipates an adjusted operating margin of 9.6%, a slight dip from 9.8% in 2025. A modest setback, one might say, for a company accustomed to navigating the treacherous currents of global commerce.

This forecast is, notably, less optimistic than the projections made back in mid-2024. Then, the company confidently predicted an adjusted operating margin of at least 13% and substantially higher revenue. Ah, the best-laid plans of mice and men! But such is the nature of business. One must adapt, improvise, and occasionally, sever ties with demanding clients.

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In the long run, generating more revenue per piece and reducing costs across the network will drive margin expansion. UPS is calling 2026 an inflection point, with the U.S. business expected to improve meaningfully once the Amazon plan is completed. With a large portion of low-margin revenue removed from the equation, the worst, they claim, will be over. One can only hope they are correct. After all, even the most astute logistical operator cannot defy the laws of economics indefinitely.

UPS’s deliberate downsizing has been painful for investors, as the stock has tumbled from its recent highs. But the light at the end of the tunnel is now visible, and UPS is positioned for healthy growth and margin expansion in 2027 and beyond. Or so they say. One should always approach such pronouncements with a healthy dose of skepticism. After all, in the world of finance, optimism is often merely a prelude to disappointment.

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2026-01-28 17:22