UPS’s E-Commerce Bonanza Amps Up Dependence on Amazon

Written by
Thomas Black
Written by

Thomas Black

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(Bloomberg) -- United Parcel Service Inc. used a pandemic-fueled boom in online shopping to post record sales last year. The surge also increased the courier's dependence on its biggest customer: Amazon.com Inc.

Revenue from the retail behemoth jumped 31% to $11.3 billion. Amazon accounted for 13.3% of UPS's total sales, up from 11.6% in 2019.

The relationship, said UPS Chief Executive Officer Carol Tome, is “unique,” because Amazon is both a customer and competitor.

“They are important to us and we are important to them,” Tome said in an interview Tuesday after the courier reported earnings. “It's about niche-ing out where you have a mutually beneficial relationship, and I think that's what we've got with Amazon.”

Depending so heavily on one customer poses a risk, especially since Amazon has made preliminary stabs at delivering packages for third parties. The e-commerce company does that in the U.K. and tried it in the U.S. on a limited basis before stopping when the pandemic sent volume surging. Tome declined to predict if Amazon's share of sales would rise this year.

UPS's volume with Amazon jumped in 2019 after FedEx Corp. and the retailer parted ways.

Amazon, meanwhile, has been increasing its own ground delivery network and has been buying used wide-body aircraft. The company competes with FedEx and UPS by enticing retailers to join its massive online market place and offering to handle warehousing and shipping.

Last Mile

The parcel market is grappling with the last-mile delivery of some 2 million packages a day, however, leaving UPS and its established network in a strong position.

In the most recent holiday peak season, the courier limited pickups and raised prices for massive retailers to make room for smaller customers, which generate higher profit margins because they don't negotiate volume discounts. Fourth-quarter volume from small- and midsize businesses rose almost 29% compared with 4% for large customers, Tome said.

By flexing its muscle, UPS drove away some customers, she acknowledged.

“We were OK with that because we filled the network back up with another customer who valued our end-to-end network,” she said. It's part of a strategy Tome laid out when she became CEO in June.

“This is really what better, not bigger means,” she said