UPS plans to shed about 20,000 front-line positions in 2025 as it manages the decline in unprofitable business from Amazon and a huge restructuring of its delivery network, executives said Tuesday during a first-quarter earnings briefing.
The integrated parcel and logistics giant in January reached an agreement to reduce Amazon volumes in its network by more than 50% by June 2026. Outbound deliveries from Amazon fulfillment centers are not profitable compared to returns and outbound volumes from retailers that sell on the Amazon marketplace. About 60% of UPS’s Amazon business is lossmaking.
Meanwhile, UPS (NYSE: UPS) one year ago announced an aggressive strategy for network consolidation and automation aimed at improving profitability by better matching capacity and labor with lower parcel volumes. Management told analysts on Tuesday that the Amazon transition plan has been factored into the company’s network reconfiguration.
The optimization plan, called Network of the Future, envisions closing 200 sortation centers over five years. UPS intends to close 164 operational shifts in the first phase of the program, including 73 buildings by the end of June, Chief Financial Officer Brian Dykes said on the earnings conference call. The company, for example, recently disclosed plans to temporarily close a facility in Portland, Oregon, this summer to enable renovations.
Dykes said the initiative is expected to eliminate $3.5 billion in expenses this year alone.
About 35% of the savings will come from culling 25 million operating hours across the workforce. Semi-variable costs will be reduced by a similar amount through the reduction of 20,000 positions across the entire U.S. network. Both of those cost reductions are directly tied to the separation from Amazon, UPS’ largest customer. An additional 30% of the savings is attributed to lower fixed costs such as fewer buildings and support functions.
“United Parcel Service is contractually obligated to create 30,000 Teamsters jobs under our current national master agreement. If UPS wants to continue to downsize corporate management, the Teamsters won’t stand in its way. But if the company intends to violate our contract or makes any attempt to go after hard-fought, good-paying Teamsters jobs, UPS will be in for a hell of a fight,” Teamsters President Sean O’Brien said in a statement responding to UPS’ plan to take out 20,000 jobs.
The shrinkage of Amazon volumes during the first half of 2025 tracks with expectations, the executive team said. Average daily volume decline is expected to accelerate to 30% in the second half after declining about 16% in the first half of the year.
“While our building footprint is changing, our pickup and delivery footprint is not. We remain committed to providing industry leading reliability to all customers across the country. We’ll just do it with fewer buildings,” CEO Carol Tome said. “For our larger customers, we are working with them to update their operating plan and for our [small and medium businesses] in the areas where we’re closing buildings, UPS will still be accessible and convenient for customer dropoffs and pickups” through its retail stores, drop boxes and access points.
At the end of the network restructuring, there will be 400 facilities that are partially or fully automated, said Nando Cesarone, president, U.S. operations. “The end result will be a much more efficient operation with less dependency on labor,” he said.
In addition to automating sort centers, UPS is studying the use of robotics for automatic label application, unloading and loading trailers, and other sort functions, Tome said.
The efficiency programs combined with jettisoning unprofitable Amazon business gives management confidence it can hit its 12% target for U.S. operating margin, she added.
UPS earlier this year also launched an efficiency drive aimed at redesigning internal processes that it estimates will save $1 billion by next year.
Some analysts suggested UPS should be generating more savings from its restructuring. Investors were expecting $5 billion in savings over the next 18 months on top of previously announced cost take outs, Morgan Stanley analyst Ravi Shankar said in a client note.
Management is essentially replacing the previous 2028 target of $4 billion in annual spending reductions ($3 billion from Network of the Future and $1 billion from the process efficiency initiative) with a three-year program “of undisclosed size but with $3.5 billion coming in 2025 – making it very hard to tell how much” in incremental savings are still possible, he wrote.
Tariff headwinds
UPS results in the first quarter slightly beat analysts’ expectations, which were lowered in recent weeks because of the turmoil in global markets caused by the U.S. government’s aggressive global tariff policies.
Revenue slipped 0.7% year over year to $21.5 billion, while adjusted operating profit inched up 1% to $1.7 billion.
UPS did not provide updated full-year guidance because of the uncertain macroeconomic environment triggered by the U.S. government’s aggressive global tariff policies. But projections in the second quarter are negative year over year.
Revenue is expected to be $21 billion, down from $21.8 billion, with average daily domestic volume down about 9% year over year. International revenue will be down about 2% due to lower demand-related surcharges and tariff uncertainty.
UPS’ direct exposure to tariffs is limited. U.S. import volume is about 400,000 pieces per day, which represents less than 2% of total global average daily volume. China to the United States is the most profitable trade for UPS, representing 11% of total international revenue. Revenue from other countries to the U.S. is about 17% of total international revenue.
During the first quarter, international revenue increased 2.7%, driven by a 7.1% increase in average daily volume. UPS said it saw demand for U.S. inbound service surge as customers pulled forward inventory purchases ahead of expected tariff changes.
UPS expects weakening demand for U.S. imports from China, which faces tariffs of 145%, to be offset by growth on China-to non-U.S. trade lanes, as well as growth from other parts of the world to the U.S. It is running models for all types of scenarios so it can make operational adjustments as the year progresses.
The company’s top 100 customers are exploring a range of tactics to cope with tariffs, including absorbing the costs, passing them to consumers and asking suppliers to eat some of the increase, said Tome. The company has also surveyed nearly 45,000 freight forwarding customers, most of which said they are using existing inventory levels to support sales. Many large importers stockpiled merchandise 30 to 90 days earlier than usual to avoid the tariffs that kicked in earlier this month. The deferred orders are leading to lower shipping activity. Importers also say they are shifting more shipments from airfreight to ocean freight, where possible.
Air cargo containers are moved on a special floor with rollers at the UPS Worldport in Louisville, Kentucky. (Photo: Eric Kulisch/FreightWaves)
“We do see some volume deceleration in both enterprise and small and medium business, particularly in SMB, because they do not have the tools to deal with the changes that our enterprise customers do. That will put some pressure on revenue per package and margin,” Dykes said.
Smaller companies don’t have the working capital to pre-order inventory and have less ability to get contract manufacturers to switch to non-China countries than large retailers, Tome added.
Online shoppers on Chinese platforms will experience huge price hikes on May 2, when the U.S. ends a tariff exemption for low-dollar shipments, triggering the 145% duties plus other processing costs. Temu and fast-fashion merchant Shein are showing consumers the import fees during checkout, and Amazon reportedly will do the same thing.
UPS has long promoted its ability to make it easier for small businesses to engage in global trade by accessing its closed-loop global network, expertise and technology. It recently introduced a new tool for retailers called Global Checkout. It uses AI to assess items in the shopping cart and calculate the correct import duty, shipping and handling fees, and taxes at time of purchase
Other domestic developments
Average domestic daily volume was lower than expected because of a pullback by some customers in response to tariff uncertainty created by the Trump administration.
During the quarter, UPS completed the insourcing of its SurePost final-mile delivery product from the U.S. Postal Service and changed the name of its most economical shipping service to Ground Saver. Regaining full control of the product, which is primarily used by large retailers to ship goods to residences, gives UPS more operational flexibility and reliability with nearly no increase in cost after the Postal Service began to raise transportation prices. Tome said on-time delivery for Ground Saver was 97% during the first quarter.
The parcel giant also reintroduced ground delivery with freight pricing for shipments greater than 150 pounds, offering parcel-like pricing for less-than-truckload shipments. UPS sold its UPS Freight business to TFI International four years ago.
Domestic revenue grew 1.4%, driven by increases in air cargo and a 4.5% improvement in revenue per piece, which partially offset a decline in volume. The domestic segment increased operating profit by $164 million year over year.
Average daily ground volume decreased 2.5% year over year, and total air volume was down 9.6%, in part because of the glide down in Amazon business. Excluding the volume decline from Amazon, total air average daily volume grew 6.2% driven by demand from health care and high-tech customers, UPS said.
Revenue at Supply Chain Solutions fell 14.8%, primarily due to the sale of truck brokerage Coyote Logistics. Airfreight revenue was slightly lower year over year due to lower volume, which was more than offset by higher market rates in ocean.
