UPS calls plan to shed low-margin Amazon packages a success

A UPS delivery truck pulls onto a highway in Bangor, Maine. (Graeme Sloan/Bloomberg)

UPS Inc. leadership has turned its focus to future growth with the completion of its network reconfiguration plan July 28.

The Network Reconfiguration and Efficiency Reimagined initiative aimed to improve operational efficiency when it was first revealed in January 2025. This included working closely with its customer Amazon to systematically reduce low-margin package volume in what company executives have referred to as a glide-down.

“Specifically, we eliminated approximately 2 million pieces per day of lower-quality Amazon volume,” UPS CEO Carol Tomé said during a call with investors.

Tomé added that the initiative included further network automation that removed $4.5 billion of related expense, with more planned in 2026. She also noted that incremental volume improvements are now more profitable than before the initiative because of the structural changes.

“This reconfiguration was never the destination,” Tomé said. “It was the foundation. We now have a leaner, more automated, more agile network that will deliver operating leverage as volume grows.”

RFID technology has become a critical pillar in the new network and the deployment of artificial intelligence. The technology uses radio waves to track assets and packages. UPS has completed deployment across all its domestic delivery facilities and package cars.

“Think of RFID as the eyes and ears within our network, and AI as the brain,” Tomé said. “In fact, we believe RFID is the most significant package visibility advancement in a decade. We’re using it to move from a scanning-based network to a sensing network.”

Tomé expects this technology to eliminate hundreds of millions of manual scans every year domestically. She said UPS plans to expand deployment to international operations.

“These capabilities are generating rich, real-time data about the packages in our network,” Tomé said. “This strengthens our ability to dynamically adapt to changing conditions.”

Tomé made the announcement while reporting second-quarter financial results. The Atlanta-based shipping and logistics company posted net income of $604 million, or 71 cents a diluted share, for the three months ending June 30. That compared with $1.28 billion, $1.51, last year. Total consolidated revenue increased 7.6% to $22.8 billion from $21.2 billion.

“The second quarter marks the fourth straight quarter of delivering results that exceeded our expectations,” Tomé said. “Going forward, our No. 1 priority remains moving the right packages and the right mix of volume through our network.”

Tomé expressed confidence that her company entered the second half of the year with momentum despite external factors like war and fuel price volatility. This includes international operations, such as growth among lanes going to China.

Brian Dykes, chief financial officer, noted that while higher fuel prices were positive for revenue, the corresponding increase in expenses limited the impact on consolidated operating profit. The network reconfiguration initiative, he said, is expected to deliver $3 billion in benefits by the end of 2026.

“The successful completion of the Amazon glide-down and related network reconfiguration marks an important inflection point for UPS,” Dykes said. “As we move into the next chapter of growth, our focus is on growing premium, high-quality volume around the world.”

Results by segment

• U.S. Domestic segment revenue increased 6% to $14.9 billion from $14.1 billion. Operating profit decreased 98.3% to $16 million from $916 million.
• International segment revenue increased 12.5% to $5.04 billion from $4.49 billion. Operating profit decreased 7.3% to $623 million from $672 million.
• Supply Chain Solutions revenue increased 7.8% to $2.86 billion from $2.65 billion. Operating profit increased 24.4% to $291 million from $234 million.

TD Cowen was encouraged by the completion of the Amazon phaseout. The financial services company noted in a report that this allows UPS to focus on high-value end markets, small- to medium-sized business penetration and automation to expand margins.

“Execution on this massive network restructure has been impressive and consistent in our view,” Jason Seidl, managing director at TD Cowen, wrote in the report.

UPS ranks No. 1 on the Transport Topics Top 100 list of the largest for-hire carriers in North America. UPS Supply Chain Solutions is No. 5 on the TT Top 100 list of the largest logistics companies. The company also ranks No. 3 on the TT Top 50 list of the largest global freight carriers.