At Gain Consulting, we've always kept our finger on the pulse of the supply chain industry, and the recent strategic shifts by UPS in its "Better not Bigger" approach have significant implications for U.S. shippers. Here's a comprehensive look at what's happening, why it matters, and how shippers can adapt in this evolving landscape.
What Happened?
On January 30, 2025, UPS announced a strategic pivot in its "Better not Bigger" strategy, which initially seemed successful during the high-demand anomalies of the global health crisis. However, as market dynamics normalize, the strategy's sustainability is being questioned. UPS's decision to reduce package volumes for major clients like Amazon by over 50% by mid-2026 signals a shift towards higher-margin segments, potentially at the cost of overall volume.
How Did UPS Get Here?
UPS has a storied history of resilience, but recent decisions have led to a departure from its foundational practices:
Cultural Shift: Since going public in 1999, UPS has gradually moved away from its core values like promoting from within and maintaining a conservative financial strategy. This shift was accentuated under the leadership of Carol Tomé, who drove the stock price beyond $200 by 2022 but at the expense of long-term business health.
Focus on Revenue Quality: By targeting higher-margin areas like healthcare and small to medium businesses (SMBs), UPS has seen profitability soar but at the risk of losing market share in the booming B2C sector.
Divestitures: The sale of lower-margin businesses like UPS Freight and Coyote has streamlined operations but potentially weakened its bundled service approach.
Cost Reduction: Significant layoffs and facility closures have been part of cost-cutting efforts. However, these actions might have trimmed too much of the company's operational backbone, affecting long-term capabilities.
Shareholder Focus: Aggressive dividend increases and stock buybacks have pleased investors but might starve the company of capital needed for growth and innovation.
The USPS Factor
The U.S. Postal Service's strategic pricing adjustments have further pressured UPS, particularly in the B2C market. By altering its pricing for services like Parcel Select and Ground Advantage, USPS has made it tougher for UPS to compete on price for low-value shipments. This could lead to a significant shift in market dynamics, especially with changes to services like SurePost and Mail Innovations.
Implications for Shippers
1. Market Share Realignment:
Shippers should anticipate a more contested B2C landscape with players like Amazon, Walmart, and regional carriers potentially gaining ground.
2. Increased Costs:
With UPS pulling back from certain low-margin services, shippers might see increased costs, especially for rural deliveries or returns.
3. Service Diversification:
It's time for shippers to diversify their carrier portfolios. The days of relying on a single provider for all logistics needs are waning.
4. Technological Integration:
Embrace technology for better carrier management. New platforms are emerging that allow for dynamic carrier selection based on shipment specifics, maximizing efficiency and cost-effectiveness.
Strategic Recommendations:
For Shippers:
Review Carrier Contracts: Now is the time to negotiate or renegotiate terms with carriers, focusing on flexibility and cost efficiency.
Leverage Data: Use data analytics to understand your shipping patterns better and match them with the most suitable carriers.
Invest in Relationships: Build strong relationships with multiple carriers to ensure you're not overly dependent on one.
For UPS:
Cultural Revival: Return to foundational values that made UPS robust, fostering a culture where employees feel part of the mission.
Innovation Over Cost-Cutting: Invest in technologies like AI and automation to enhance service offerings rather than just reducing costs.
Strategic Partnerships: Explore collaborations that could expand beyond traditional logistics into data-driven services.
Conclusion
The landscape of parcel delivery is undergoing significant changes, and at Gain Consulting, we advise shippers to be proactive. Understand the strategic shifts, adapt to new pricing models, and be ready to pivot your logistics strategy. UPS, while facing challenges, has the potential to reclaim its position if it focuses on innovation, culture, and strategic growth over mere cost management. As always, the key for U.S. shippers is agility, foresight, and strategic alignment with carriers who can evolve with the market's needs.
Stay tuned with Gain Consulting for more insights and strategies to navigate the dynamic world of supply chain and logistics.
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