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By Abhinav Parmar and Lisa Baertlein
(Reuters) -United Parcel Service forecast on Thursday downbeat 2025 revenue as it accelerates a plan to slash millions of deliveries for its largest customer, Amazon.com, a surprise move that sent shares tumbling as much as 18%.
UPS plans to shrink profit-denting Amazon volumes more than 50% by the second half of 2026 - five times faster than it did between 2021 and 2024. That will allow the company to focus on fewer but more lucrative deliveries while it also cuts about $1 billion in costs for buildings, trucks, planes and labor, executives said.
"Amazon is our largest customer, but it's not our most profitable customer," said UPS CEO Carol Tome, adding that the business is "extraordinarily dilutive" to margins.
"This was UPS taking control of our destiny," she said.
Executives said the world's biggest package carrier is setting itself up to squeeze more profit per package. It has been adding deliveries for new customers such as bargain internet sellers Temu and Shein as well as packages it used to hand off to mail carriers that come with higher margins than from Amazon.
UPS and rival FedEx are revamping operating strategies to cope with stubbornly weak demand for premium services, such as overnight delivery, that has left the industry reliant on lower-profit e-commerce deliveries. The two companies are locked in a fierce battle to win and keep the best customers.
UPS forecast 2025 revenue of $89 billion, below analysts' average estimate of $94.88 billion, according to data compiled by LSEG.
Atlanta-based UPS is making moves that align with its "long-term focus on profitability over volume but that may weigh on near-term earnings," Edward Jones analyst Faisal Hersi said.
UPS shares sunk 13.6% to $115.60 in afternoon trading as investors absorbed the news, which dragged FedEx shares down 2%.
"The agreement with Amazon to reduce volumes by more than 50% in 18 months is a surprise," Evercore ISI analyst Jonathan Chappell said in a note, adding that UPS' dependence on emerging delivery rival Amazon was a long-term risk.
SHIFTING RELIANCE
Amazon accounted for 11.8% of UPS' overall revenue in 2024.
Between 2021 and 2024, UPS on average reduced the number of packages it delivered for Amazon by about 250,000 per day. The acceleration will result in about 1.25 million fewer daily Amazon deliveries, UPS said.
The e-commerce company confirmed that UPS requested the reduction in volume.
"We certainly respect their decision. We'll continue to partner with them and many other carriers to serve our customers," Amazon said in a statement.