UPS is remaking its business around higher-margin logistics services, but the strategy is raising questions about the company’s long-term commitment to parcel delivery and its ability to compete with lower-cost operators. As talks about the next collective bargaining agreement with the International Brotherhood of Teamsters are about to begin, experts disagree on whether the airline is positioning itself for a dramatic restructuring or gearing up for a potentially disruptive showdown in 2028.
Over the last 18 months, United Parcel Service has been talking about reducing unprofitable e-commerce shipments, focusing on more complex, higher-value work. These include business-to-business (B2B) distribution, healthcare, automotive logistics and services for small and medium-sized businesses.
The move has fueled speculation that UPS may retreat from last-mile delivery for business-to-consumer (B2C), where competition from cheaper players has heated up. UPS’s decision to cut 50% of its business with Amazon has only cemented that impression, but it’s not a sign that UPS plans to get out of the residential parcel delivery business.
The company also said it has introduced a new global operating model that focuses on integrated logistics services, another step in the company’s evolution away from its traditional identity as a small-package carrier.
“But industry observers question whether UPS can succeed in growing its integrated logistics business while deliberately cutting parcel volume. ShipMatrix founder and president Satish Jindel thinks the company’s public messaging might hide a different agenda: to maintain its footing in parcel delivery while rivals downplay its game.
“The transformation is hard to execute,” said Richard Metzler, a veteran of the logistics industry who has held senior executive roles at DHL Express, Greatwide Logistics, XPO and uShip.
“They are a parcel delivery. It’s a “plain and simple” argument, Metzler told FreightWaves, that logistics services alone may not make up for the parcel business UPS is willing to give up. But he did concede that Supply Chain Services was a bona fide logistics business.
Another complication is Amazon’s foray into third-party freight, distribution, fulfillment and parcel delivery via Amazon Supply Chain Services. “Amazon competition could put pressure on margins in the very logistics segments that UPS hopes to prioritize,” Metzler said.
A potential turning point in the UPS-Teamsters relationship
The company’s strategic choices cannot be separated from the labor negotiations expected to take place before the current contract expires in 2028.
In early August, Jindel warned that negotiations covering more than 300,000 UPS drivers, truck drivers and package handlers could trigger a major confrontation with consequences extending across the parcel industry. Depending on the outcome, he argued, UPS could emerge as the dominant player or lose ground to competing carriers.
The concern centers partly on labor costs. The lucrative 2023 agreement negotiated by the Teamsters has substantially increased UPS’s cost structure, according to industry observers, making its services increasingly expensive for retail shippers compared with competing alternatives.
Jindel has gone further, predicting that UPS management could actually welcome a strike led by the union and its president, Sean O’Brien. O’Brien has already adopted a confrontational position ahead of the negotiations, raising the prospect of a work stoppage that could disrupt operations in 2028.
In Jindel’s assessment, UPS could use such a confrontation to restructure its costs and strengthen its competitive position.
He believes the company’s emphasis on revenue quality rather than parcel volume may be intended to mislead rivals such as FedEx and Amazon. If those companies underestimate the importance UPS continues to attach to parcel delivery, they might be less prepared for a large-scale departure of Teamsters-represented drivers during a strike.
That situation could give UPS an opportunity to recruit drivers from competitors and rebuild its cost structure, potentially restoring the market dominance it enjoyed during the 1990s.
The theory is particularly striking given the scale of UPS’s recent domestic restructuring. The company has eliminated 150 sorting centers, approximately 30,000 positions and 50 million labor hours as it adjusted its network to lower volumes following the reduction of its Amazon business.
Jindel argues that UPS would be unlikely to commit more than $8 billion to facility automation over four years if it intended to abandon deliveries from fulfillment centers to consumers’ homes.
In his view, the company is encouraging competitors and the Teamsters to believe that it is withdrawing from short-haul parcel delivery when its longer-term plans may point in the opposite direction.
“This is a Trojan horse to misguide competitors and the Teamsters,” Jindel told FreightWaves.
ShipMatrix provides parcel visibility, analytics, invoice processing, auditing and carrier-selection services to hundreds of shippers. Jindel has also been credited with anticipating industry developments and making recommendations that were subsequently adopted, including the separation of FedEx Freight and the industry’s response to consumer demand for free, extremely fast delivery.
Roadie and the changing structure of UPS delivery
UPS’s internal reorganization provides another element in Jindel’s argument.
In an August 31 announcement that emphasized the company’s broader logistics ambitions, UPS named Matt Guffey chief U.S. domestic officer. His responsibilities cover five parcel and delivery businesses: small-package operations, Roadie, Happy Returns, The UPS Stores and Mail Innovations, the company’s consolidation arrangement with the U.S. Postal Service for lightweight parcels.
UPS acquired Roadie in 2021 for $548 million. Unlike the company’s conventional parcel network, the platform specializes in same-day and urgent deliveries that do not pass through UPS’s traditional sorting infrastructure.
Roadie connects orders from established retailers with independent drivers who use their own vehicles to deliver goods to homes and businesses.
Jindel interprets the decision to place all five businesses under one executive as a sign that UPS could increasingly rely on non-union workers across these operations. For the first time, the company’s parcel-related services have been brought together under a single domestic executive, potentially allowing UPS to direct shipments through whichever network offers the most efficient and economical solution.
The approach is consistent with a scenario Jindel outlined last November. Under that proposal, Roadie would handle B2C deliveries originating from UPS Stores, while Teamsters drivers would continue operating shuttle routes between parcel hubs and retail outlets.
The Teamsters would be unlikely to accept such an arrangement, Jindel suggested, potentially increasing the likelihood of a strike. However, if UPS had already recruited sufficient independent drivers through the Roadie application and ensured that packages could be routed to UPS Stores, management could potentially maintain a degree of service during a labor stoppage.
UPS executives have privately cautioned against interpreting the August 31 announcement as evidence that small-package delivery is being abandoned. The company’s position is that its core capabilities increasingly involve transportation movements requiring several complementary services, while parcel delivery remains an essential component of the overall logistics offering.
Chief Executive Carol Tomé reinforced that message during the company’s second-quarter earnings briefing.
“Our number one priority is to move the right packages and the right mix of volume through our network. The market has changed and we’re adapting to it,” she said.
Tomé also argued that UPS is challenging the traditional assumption that greater scale automatically produces better profitability. The company is targeting premium market segments and reports that small and medium-sized businesses, together with B2B shipments, are accounting for a larger share of its total U.S. volume.
According to the CEO, improvements in shipment mix are generating meaningful growth in revenue per package, supported by differentiated services and innovation.
Selective customer and shipment acceptance, however, can reduce overall revenue. UPS and FedEx have also increasingly introduced surcharges during the contract year, a relatively recent approach to increasing revenue per package.
Experts in the industry disagree about the likelihood of a strike
There is concern across the shipping industry about the increasingly strident language coming from Teamsters president Sean O’Brien. His calls for tougher contract protections and warnings that a work stoppage may be hard to avoid have prompted questions about why tensions are rising almost two years before the current contract expires.
However, not all industry figures expect a strike to happen, Jindel among them. Many acknowledge that talks could be tough without assuming a shutdown is inevitable.
UPS needs to get its costs more in line with the market,” said James Cochrane, chief executive of the Package Shippers Association.
Cochrane said the disparity in compensation levels across the delivery industry is striking in a keynote address he gave at Parcel Forum 26 last month. He said its previous contract with UPS had added significantly to its cost to serve customers and asked whether the resulting cost structure would be sustainable in the longer term.
He remembered also the harm inflicted by the 1997 Teamsters strike when UPS lost business to FedEx and then took time to win back those customers.
Cochrane said he doesn’t expect another strike but acknowledged UPS is in a difficult negotiating position. He noted that contractual terms rarely go backward, and it’s difficult to claw back increases in compensation workers have already won. One way to address that imbalance, he suggested, is to adopt a more distributed operating model, perhaps one that involves lower starting pay for some new employees for a defined period of time.
One example of the difficulty is the pay gap.
The best UPS drivers make $49 an hour. When you add in healthcare and other benefits that equals about $65 an hour in total compensation. In comparison, the average total compensation for FedEx drivers is about $35 to $39 per hour.
Industry experts say regional carriers that rely heavily on contracted fleets or gig-economy workers can pay as little as $15 an hour or less for last-mile delivery drivers.
Metzler believes Roadie could be a hot-button issue in the 2028 negotiations. In a comment on a FreightWaves article, he said that separating unionized middle-mile transportation from gig-based last-mile delivery may be necessary for UPS to remain competitive.
So the $548 million UPS is pouring into Roadie could have new strategic significance as the company seeks ways to reduce the cost of reaching residential customers.
Startup carrier Gofo’s chief sales officer, Vincent D’Amato, is more skeptical of strike predictions. During the 17 years he’s worked at FedEx, he said, customers were always advised in previous UPS contract-renewal cycles to book shipping capacity ahead of time. But those warnings ultimately didn’t result in the shutdowns that were feared, he said.
D’Amato has not ruled out a strike but thinks the market might be pricing in too much possibility. But he warned disruption would have serious consequences for business and shipping networks.
He said alternative providers would find it hard to absorb UPS’s parcel volumes. FedEx would have to manage carefully what shipments it accepted and at what prices. Amazon and the USPS could pick up some of the displaced traffic.
So a major UPS outage could mean delivery delays across the country and leave many shippers without enough immediate alternatives.
Why last-mile delivery may be tough to ditch
The battle for UPS’s future also raises a core question for integrated logistics: Can a company deliver end-to-end services while exiting the last mile?
Jindel says integrated logistics means a provider must have its own assets and network. In that sense, cutting back too much on parcel operations could hurt the bigger service portfolio UPS wants to build.
Joanne Strong, senior manager and the warehouse management system practice lead at Deloitte, also stressed the need to cater to both businesses and individual consumers.
In a panel discussion she said B2B and B2C delivery capabilities are complementary. For example, a logistics provider may be required to ship pharmaceuticals to a hospital in one case and the patient’s home in another. Customer requirements are different according to the situation, and there are more and more operating models competing for the same business.
And Metzler asked whether UPS could just keep the most lucrative shipments. Shippers won’t give one carrier all their premium parcels and send the less attractive deliveries elsewhere.
“Carriers need to offer last-mile services for their broader operations to be viable,” said Gartner senior director analyst for logistics, customer fulfillment and network design Chris Kina.
To develop a viable network, physical infrastructure, enough freight volumes and ability to connect different transportation stages are needed. New technology, he said, could allow carriers to expand their service portfolios, but the fundamental need for operational density remains.
The competition is also coming from outside traditional parcel companies.
“DoorDash and Uber have grown from restaurant and grocery delivery to retail shipments,” said Nate Skiver, founder of LPF Spend Management. Their services increasingly include orders from big and small retailers, such as Costco and Ace Hardware. Walmart and others are also shipping more packages through their own networks.
These developments could put pressure on the volume available to traditional parcel specialists, increasing the competition for higher-margin shipments.
UPS and FedEx, is there enough premium parcel volume to support both? Critical question for the industry, asked Skiver.
A pullout by UPS from the B2C delivery market would mean a major downsizing of its network, D’Amato said. Metzler also warned that the company may have little flexibility after the 2023 Teamsters deal.
O’Brien has said the next contract could involve working with Roadie, UPS Stores and Supply Chain Services, and Metzler expects the company to face pressure from many fronts. The fixed costs of its network could make its business model increasingly difficult to sustain if parcel density on individual routes falls.
Shippers told to get ready well before 2028
Customers’ first priority is not to guess which prediction about UPS will be correct. It’s making sure that a potential labor disruption wouldn’t put a total stop to their shipping operations.”
Some parcel shipping consultants say they are already helping some businesses put contingency plans in place as fears grow over the potential fallout for the wider industry from a UPS strike.
Customers are calling to ask how to prepare for a disruption, he said, like how to add alternate carriers to their automated manifesting and shipping-label generation systems. The questions came after his Aug. 11 commentary that warned the UPS-Teamsters talks could be a major turning point for the parcel sector.
“We’re seeing some shippers diversify their carrier relationships because of the increased use of surcharges. Customers are getting frustrated with rising prices in peak season, fuel surcharges, large package fees and extra delivery charges for non-urban areas and are looking for alternatives.
“Carrier diversification is already a topic of conversation with increasing costs and service issues,” Robyn Meyer, senior vise president of parcel strategy and solutions at Transportation Insight, told FreightWaves in an interview. With another potential UPS strike, those conversations are more urgent now.
But Meyer cautioned that it was the risk of disruption, not the inevitability of disruption. Her biggest takeaway from 2023 is that companies shouldn’t wait until a crisis is looming to make alternative arrangements.
Other carriers have limited spare capacity and it takes time to develop reliable working relationships. Thus shippers will need to start looking at potential providers sooner rather than trying to move large volumes once a strike is already underway.
Jindel recommends alternative carriers pre-integrated into WMS/TMS. That would allow companies to share shipment data and more quickly re-route parcels if their primary carrier is unavailable.
If you wait until 2028 you could be in competition with thousands of other shippers to get onboarded. If carriers can’t pick up the extra accounts fast enough, parcels could start piling up at warehouses and distribution centers.
We also have to look at the financial implications. This could affect contractual incentives and volume commitments in place which could lead to lower discounts on existing agreements.
Meyer said he expects contingency planning talks to continue through 2027, especially among larger shippers that rely heavily on UPS.
“Some businesses are already asking UPS to put language into contract renewals that would waive minimum-volume requirements tied to discounted rates if there is a labor disruption and they are forced to divert shipments,” Jindel said.
These types of clauses can give customers more flexibility without having to walk away from negotiated pricing arrangements when volumes fall short of contractually established thresholds.
A strategic gamble that has implications for the entire parcel market
UPS’s shift to higher-value logistics services comes at a time when labor costs, alternative delivery models and changing customer expectations put pressure on the traditional parcel business.
The company says it is adapting its network to market conditions, not abandoning small-package delivery. The investment in automation, the restructuring of its domestic operations and the consolidation of parcel-related businesses under Matt Guffey indicate its future model will hinge on coordinating several delivery networks.
But analysts are split on whether the strategy can generate sustainable profitability without sacrificing the parcel volumes needed to support UPS’s infrastructure.
Jindel suspects the company’s public messaging may be concealing plans to preserve and strengthen its parcel business—maybe using a labor fight to reshape its cost structure. But other observers are less certain that a strike will occur, even as they acknowledge the financial and operational pressures on UPS.
What is clearer is that a long-term shutdown would stretch the capacity of the entire parcel industry. Some of the lost shipments may be picked up by FedEx, Amazon, the USPS and regional carriers, but it is unclear how much of the total they can process.
It would be a risky approach for shippers to wait to see how negotiations would play out. “Building relationships with alternative carriers, integrating their systems and reviewing contractual flexibility today may be critical should disruption occur.”
So the key question is not just if UPS plans to back away from last-mile delivery. It’s whether the company can balance its premium-service ambitions, high labor costs and vast physical network and still compete in a market where more players are vying for the same shipments.
The answer may hinge as much on the next Teamsters contract as on UPS’ broader logistics strategy.
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