UPS slashes business with Amazon to take 'control of own destiny'

United Parcel Service (UPS) suffered its biggest one-day share drop after shocking the market by slashing business with the world's largest online retailer.

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The move to scale back business with Amazon.com by 50 per cent will allow the courier to focus on more profitable shipments. Ms Carol Tome, the company's chief executive, defended the shift as necessary for future growth.

"We are taking control of our destiny," she said in an interview with Bloomberg. "They are our largest customer, but they are not our most profitable customer."

The company's hand was forced by a subtle change in the economics of package delivery. While big couriers such as UPS specialise in express shipments, they have relied on the US Postal Service (USPS) for last-mile delivery of budget-priced parcels - especially to far-flung rural locations. That model began to crack when USPS hiked fees on UPS as of Jan 1.

That change is sending shock waves through the industry. Citing the steeper costs, UPS allowed its contract with USPS to lapse as at the end of 2024. But the switch poses a challenge for the Atlanta-based firm, which now must put more packages on its own trucks with drivers earning union wages - unlike rivals without labour unions like FedEx and Amazon.

In 2024, a commercial carrier like UPS could pay USPS US$2.79 (S$3.79) to do the final mile of delivery on a 340g package like a golf shirt. But the revised rates meant the same package would now cost US$5.10 to send through USPS, an 83 per cent rise, said Mr Glenn Gooding, president of consulting firm iDrive Logistics.