What’s behind UPS losing volume from top customers? (2024)

Dive Brief:

• A mix of factors led some major UPS customers to reduce their volumes with the delivery giant late last year, contributing to its challenging fourth quarter, CEO Carol Tomé said on an earnings call last week.
• UPS' "top five decliners" included its top customer, Amazon, which has continued to decrease its delivery activity with UPS as part of a mutually agreed reduction in volume. While Amazon has expanded its own logistics capabilities since the COVID-19 pandemic, UPS has prioritized growth in more profitable segments outside of e-commerce.
• Another large customer shifted more packages to another carrier.The remaining three either ramped up their efforts to have customers pick up online orders at their stores or "their business is just way off," Tomé said.

Dive Insight:

Volume declines among these large-scale UPS customers are at risk of continuing into 2024.

Amazon has plenty of internal delivery capacity it can leverage and is even inching toward direct competition with UPS. Tomé suspects the unnamed shipper relying more on an alternative carrier will "stay dual-sourcing." And major retailers like Target and Best Buy continue to expand their buy online, pick up in store efforts to reduce delivery costs.

UPS could shake off volume declines from major customers by picking up more business from small and medium-sized businesses and healthcare product shippers, both long-standing priorities for the company.

Small and medium-sized businesses made up 28.6% of UPS' total U.S. volume in 2023, up from 28% the previous year. UPS wants to grow that number grow to 30% or more, EVP and CFO Brian Newman said.

Tomé pointed out a couple of reasons for UPS seeing a larger share of its volume come from smaller shippers.

UPS recently introduced its SurePost product, a delivery service focused on lightweight and non-urgent residential shipments, to its Deal Manager tool, Tomé said. Deal Manager aims to close shipping deals faster with small and medium-sized businesses by leaning on AI and machine learning for pricing quotes.

"We introduced SurePost into the Deal Manager, and we're getting some good return on that," Tomé said. "That's particularly attractive for our small and medium-sized customers."

UPS also generated 22% more revenue from its Digital Access Program year over year. Through the initiative, UPS has connected with leading e-commerce platforms to offer discounted shipping rates and other services for sellers. It "has transformed how small companies do business with UPS," Tomé noted.

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