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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The $247bn of goods Amazon sold online last year don’t just ship themselves. Over the years, the ecommerce giant has been transforming itself into a logistics beast. Running its own network of planes, trucks, vans and contractors has helped keep a lid on delivery costs, one factor in the near doubling of its earnings in 2024 to $59bn.
Not everyone is benefiting equally from the future of retail landing on their doorstep. UPS, for example, has been delivering packages for Amazon for almost 30 years. But making money from this partnership has grown harder for the $97bn logistics company. UPS’s ability to demand higher shipping rates has been constrained by the fact that Amazon is both its largest customer and competitor.
This tension is no longer under wraps. UPS said it was “taking control” of its destiny and cutting back on package deliveries by 50 per cent by the second half of 2026. The challenge for UPS is to replace the Amazon business with something better to keep its networks humming.
On paper, prioritising quality over quantity makes sense. While Amazon is UPS’s largest customer, accounting for almost 12 per cent, or $11bn, of total revenue last year, the business has been — in the words of boss Carol Tomé — “extraordinarily dilutive” to profit margin.
Instead, UPS wants to focus on building up premium services such as healthcare logistics, where it can charge more to deliver vaccines and other injectable medicines overnight. It is a $10.5bn-a-year business that UPS thinks can pull in $20bn of revenue by 2026.
Smaller but better works as long as UPS can offset the decline in package volume with higher prices. Even without Amazon, UPS’s core delivery services are an $80bn-a-year business. Tomé’s problem is much of this is low growth. Cash-strapped Americans are shunning next-day delivery in favour of cheaper ground shipping, and higher-margin business-to-business deliveries have dropped off.
Complicating matters is UPS’s decision to bring its SurePost service in-house. UPS had previously used the US Postal Service for a portion of the last-mile delivery of that service. Now it has to figure out how to deliver millions of additional packages cost-effectively to far-flung and rural destinations, while also trying to streamline.
Meanwhile, Amazon will only continue to grow its logistics network. It now delivers non-Amazon orders, making it an even more formidable competitor to UPS and FedEx. Chief executive Andy Jassy can count on his lucrative cloud business to subsidise the foray into logistics. That has a 37 per cent operating margin — three times as big as UPS’s.
Look at Amazon in isolation and investors might worry about where all of this investment is headed. Its shares fell on Thursday after its projections for the coming quarter, weighed on by a strong dollar, disappointed investors. But stand back and it’s still an Amazon world — unfortunately for some of those, like UPS, who live in it.
