Several headwinds, besides rightsizing capacity, are adding extra costs for the integrated parcel logistics power. The Atlanta-based company is incurring transition expenses as it outsources a portion of its Ground Saver economy product back to the U.S. Postal Service for final-mile delivery after self-delivering to all stops for a year proved expensive. Expenses for hiring third-party cargo airlines to make up for MD-11 capacity lost when the fleet was grounded, and subsequently retired, for safety reasons will wind down during the year as several 767-300 freighter aircraft on order from Boeing join the fleet.

International revenue growth is also challenged in the first half by tough 2025 comparisons. Last year, importers raced to pre-order inventory from China and other countries before a wave of U.S. tariffs took effect, and the Trump administration cancellation of duty-free treatment for small-dollar parcel shipments has eroded e-commerce traffic.

Stock analysts generally agree that the restructuring demonstrates UPS’s discipline and execution ability, as demonstrated by fourth-quarter results that beat consensus expectations by 2% on revenue and 8% on earnings.

Parcel industry professionals say FedEx (NYSE: FDX) and UPS should be mindful that service could degrade as they rationalize their networks and cut staff. So far, delivery performance appears unaffected, but some observers on social media have griped about declines in UPS sales and account support

Despite the closure last year of nearly 10% of UPS’s buildings, the company had no issues with service, Dykes stated. “That’s important because when you want to go have a conversation with a customer about a 5.9% general rate increase, you better hit your service metrics. You better be better than your competition. Good service translates into good revenue per piece the next year. We know we’re the premium provider. We expect to deliver premium service, and we’ve done it now 8 years in a row.”

UPS had the highest on-time delivery rate during the holiday peak shipping season at 97.2% compared to 96.5% in 2024, according to ShipMatrix.

Network carriers like UPS require a certain amount of package density on each route to make deliveries economical, according to analysts. The danger from pushing out Amazon volumes is that costs go up with less density because they are spread over fewer customers per route, creating pressure to raise rates. FedEx and UPS in the past two years have aggressively hiked base rates and peak season surcharges in an effort to make up for slower revenue growth, which is pushing more online retailers to low-cost independent couriers.

The operating team at UPS, led by U.S. President Nando Cesarone, has a “phenomenal” job taking out costs, said Satish Jindel, president of ShipMatrix in a phone interview. “The pace at which they have executed is faster than the pace of FedEx merging their two networks. If it wasn’t for that their profitability would have been down big time.”

UPS, unlike FedEx, didn’t have excess facilities. It is removing them because the Amazon volume is contracting, the parcel industry consultant added.

UPS has continued to maintain its culture in tumultuous times. “If they find an ounce of fat on the body they will trim it off. They are a great operating company and they are providing that in managing this glide down in Amazon volume,” Jindel said.

Research by Barclays equity analyst Brandon Oglenski shows that UPS estimates for flat domestic operating income in 2026 stands in contrast to historical periods of volume downturns this century, when income declines far exceed the volume drop in percentage terms.

The parcel carrier is holding onto Amazon business that remains lucrative. The part being shed is outbound deliveries from local Amazon fulfillment centers located within 50 miles of a residential delivery address. “You don’t need an integrated end-to-end network in order to move that kind of volume. Amazon has invested tremendously in their own supply chain. They can do that really, really well. And so we’ve decided that they can in-source that piece of the business, and we’ll focus on other pieces of the business. They’re still going to be one of our largest customers,” said Dykes.

UPS, for example, will continue to handle a large amount of Amazon merchandise returns through the UPS Store network and help small sellers on the Amazon marketplace.

“I think this is still a very collaborative relationship. We’ve got multiyear contracts on the other pieces of the business. But this will allow us to really focus our business on the places where we want to invest and drive growth,” Dykes told investors.

UPS also pivoted from chasing volume when it shed unprofitable Chinese e-commerce customers that were injecting low-value parcels into the UPS network, which contributed to the 10.6% decline in average daily volume during the fourth quarter. The carrier made that decision after pulling out of its USPS partnership because of new rules requiring bulk shippers to drop off parcels at upstream distribution centers rather than destination post offices for last-mile delivery. UPS decided to handle the entire delivery because of concerns about service degradation and raised rates to cover the higher cost, effectively pushing out Shein, Temu and other Chinese sellers.

Dykes forecast that UPS will wrap-up Chinese e-commerce relationships this quarter and begin showing mid-single-digit revenue growth from small-and-medium business as the year progresses.

“It’s not a shrink-the-company strategy. It’s a growth strategy. But it’s a growth strategy in the places where we can drive accretive growth. So our focus is really on how do you — grow our enterprise customers, particularly in B2B and health care and industrial verticals where we can drive higher revenue per piece and better characteristics for our network,” combined with helping smaller businesses, especially those engaged in cross-border commerce, by integrating parcel shipping solutions into their electronic storefronts and management systems, said Dykes.

A better customer mix allowed UPS to grow revenue per piece by 8.3% in the fourth quarter. More than a third of the revenue hike was from raising the base rate, with another third driven by more high-yielding volume and the remainder from higher fuel surcharges.

“Healthcare, high-value goods, complex supply chains are really sticky. When you’re 99.99% on-time delivery for clinical trials drugs, they don’t care if you put a 5% price increase through. It’s a whole different ball game than if you’re talking about a T-shirt going to a residence,” said Dykes. UPS guidance is for revenue per piece to grow 6.5% in 2026 and then settle into a 3% growth rate in the coming years.

T-shirt is a dirty word now for legacy carriers. FedEx’s Chief Customer Officer Brie Carere said during last month’s Investor Day event that FedEx isn’t much interested anymore in shipping T-shirts.

UPS shares gained 21% over the past three months, before falling after the U.S. and Israel attacked Iran on worries about high fuel prices and slower global trade.

Click here for more FreightWaves/American Shipper stories by Eric Kulisch.

Write to Eric Kulisch at ekulisch@freightwaves.com.

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