UPS and Amazon still need each other, even if they don’t like it
UPS and Amazon are moving further away from each other as both companies shift approaches, but the relationship remains mutually useful
Amazon and UPS strategies stand increasingly at odds with the other company’s approach, as they try to reduce reliance on each other and make new moves, but shifting away is easier said than done.
While Amazon is working to build its own logistics empire in order to have greater control over transit times and to improve the end customer’s delivery experience, UPS is looking to areas beyond e-commerce to boost profits and is seeing the number of Amazon packages it handles decline.
Amazon packages handled by UPS declined from 1.41 billion in 2021 to 1.3 billion in 2022 and UPS revenue from Amazon fell from 13.3% in 2020 to 11.3% in 2022.
In 2020, UPS revenue via Amazon jumped due to the COVID-19 pandemic, but in the subsequent two years it fell as UPS sought more profitable deliveries from healthcare companies and smaller shippers. That strategy is why UPS expects volume decline in the US segment to continue. For the time being, UPS will continue to fulfil deliveries in areas where Amazon’s logistics facilities are weak or non-existent.
Amazon, for its part, is continuing its programme of building sortation centres, delivery stations and transportation infrastructure to increase its in-house capability. In contrast to UPS, its market share for US parcel volumes grew to 22% in 2021.
According to Amazon president and CEO, Andy Jassy, the company has doubled its fulfilment centre footprint in little more than two years recently.
However, with Amazon closing several warehouses and cancelling future plans for new facilities as it attempts to trim operating expenses, the company could find itself having an equal or greater reliance on UPS compared to 2022, according to Marc Wulfraat, president of MWPVL International, a company with a history of tracking Amazon’s growth.
With Amazon’s cost-cutting culture, the company will use the lowest-cost option, whether that be in-house or via a third party. On that basis, Amazon is likely to maintain its relationship with UPS to retain options. According to e-commerce shipping platform Shipium co-founder and CEO Jason Murray (former VP supply chain and retail services at Amazon): “If they see softness in UPS’ demand and cost structure, they will jump on that and bring down their own cost structure by taking advantage of that.”