In their April 29th Q1 2025 earnings call, UPS revealed the most substantial network reconfiguration in company history.
Unlike previous eras where carriers prioritized volume growth at almost any cost, UPS is now executing a strategy that emphasizes profitability over package count. This shift has significant implications for businesses of all sizes that rely on UPS for shipping.
Understanding the Strategy Shift
UPS is making several major operational changes that signal this strategic pivot:
UPS is accelerating its “glide down” of Amazon volume, with plans to reduce Amazon packages by more than 50% by June 2026. Importantly, the company is specifically cutting Amazon’s fulfillment center outbound volume, which it described as neither profitable nor a healthy fit for its network. It plans to retain only profitable Amazon volume, like returns and seller-fulfilled packages.
To adjust to this volume reduction, UPS is undertaking an unprecedented network transformation. The company will close 73 buildings by the end of June 2025 as part of 164 operational closures in this first phase, with more to come, according to executives. About two-thirds of these closures will be in the Eastern US.
These facility changes are part of a larger $3.5 billion cost reduction target for 2025, balanced across variable costs (35%), semi-variable costs like operational positions (35%), and fixed costs (30%).
The ultimate goal? UPS aims to reach a 12% U.S. operating margin by the end of 2026, up from 7% in Q1 2025. The company is betting that shedding unprofitable volume and streamlining operations will create a more profitable, agile business model.
How This Will Impact Shippers
What does this transformation mean for businesses that ship with UPS? Several key impacts are already emerging:
Rising Revenue Per Package
Despite a 3.5% decline in U.S. domestic volume, UPS reported revenue per piece increased 4.5% year-over-year in Q1 2025 – their strongest RPP growth in eight quarters. This represents a fundamental shift in the carrier-shipper relationship.
When RPP increases while volume decreases, it signals that UPS is successfully shedding lower-yield packages while raising prices on remaining volume. The traditional bargaining power of volume commitments is diminishing as UPS prioritizes package profitability over network growth.
For shippers, this means higher costs are outpacing volume losses, suggesting most customers are absorbing rate increases rather than finding alternatives. UPS’s willingness to sacrifice volume for profitability emboldens further increases and indicates it’s exerting more control over which business it accepts at what price points.
Service Network Adjustments
While UPS emphasized that their pickup and delivery footprint is not changing, the consolidation of facilities will inevitably alter how packages flow through their network. It maintains its commitment to providing industry-leading reliability, but with fewer buildings.
For shippers, this means watching carefully for any changes in service performance, particularly for time-sensitive deliveries. UPS noted it’s working with larger customers to update their operating plans, but smaller businesses may need to adjust to new operational realities.
Greater Selectivity
UPS is becoming more selective about the volume it accepts into its network. The Amazon volume reduction is just one example of this approach. Throughout the earnings call, executives repeatedly emphasized their focus on quality revenue over raw volume growth.
This selectivity is also evident in their economy offerings. Their Ground Saver product (formerly SurePost) saw an 8.4% volume decline, attributed to “pricing actions we took to grow yields on e-commerce volume.” This indicates UPS is willing to sacrifice volume for better margins across all service levels.
Strategic Considerations for Shippers
As UPS reshapes its operation, businesses should consider several high-level strategies:
Assess Your Shipping Profile
Understanding how carriers view your shipping profile has never been more important. UPS is clearly prioritizing certain types of shipments over others, specifically mentioning healthcare, international, B2B, and SMBs as strategic growth priorities.
Consider the profitability metrics that matter to carriers: package density, zone distribution, residential versus commercial delivery percentages, and dimensional weight characteristics. Improving these aspects of your shipping profile can enhance your negotiating position. Understanding the shipper-carrier relationship and what it means to be a “Shipper of Choice” is becoming increasingly more important.
Explore Carrier Diversification
UPS’s strategic shift creates both risks and opportunities for diversifying your parcel carrier mix. When a carrier becomes more selective about the volume it accepts, having competitive alternatives becomes crucial for both risk mitigation and negotiation leverage.
This isn’t simply about adding carriers – it’s about strategically engaging multiple carriers in competitive bidding processes. As UPS focuses more on profitability than market share, the traditional leverage of volume commitments diminishes in effectiveness. Creating genuine competition for your shipping volume becomes especially valuable when carriers become more selective about the business they pursue.
Prioritize Contract Optimization
With UPS clearly focusing on margin improvement rather than volume growth, expert parcel contract negotiation becomes more critical than ever. This shift fundamentally changes the dynamics of carrier negotiations.
When carriers prioritize profitability over volume, they become more sophisticated in how they structure agreements. Shippers need to be equally sophisticated in analyzing contract terms, minimum charges, accessorial surcharges, and volume commitments. Parcel agreements are complex (on purpose), working in the carrier’s advantage. But as the blueprint for the shipping arrangements between the shipper and its carrier, it’s critical to fully understand those terms to remove that advantage. Many third-party parcel negotiators offer support in this area. Shipware even offers a complimentary parcel contract analysis.
The most successful shippers will approach negotiations with comprehensive data analysis that identifies all potential cost savings opportunities, not just headline discounts. This includes scrutinizing minimum charges (which UPS has steadily increased), examining accessorial fees (which often increase at rates higher than UPS’s General Rate Increase), and understanding how operational changes like the Ground Saver transition might impact your specific shipping profile.
Furthermore, as UPS and FedEx both pursue similar profitability strategies, the importance of conducting formal RFPs with multiple carriers increases substantially. This competitive bidding process creates pressure that can counterbalance the carriers’ increasing selectivity.
Conclusion
UPS’s pivot to prioritize profitability over volume marks a significant shift in the carrier landscape. As they continue their network reconfiguration and focus on “revenue quality,” businesses must adapt their approach to shipping strategy and carrier relationships.
By understanding how these changes affect your specific shipping profile and implementing strategies like competitive bidding and sophisticated contract analysis, you can navigate this changing environment successfully. While UPS’s strategy may create challenges, it also presents opportunities for shippers who can position themselves as attractive customers while maintaining competitive alternatives.
