Say what you want about UPS, they are steering the ship, however they are operating in rough waters. The rough waters are the slow growth of the US small parcel market ex-Amazon, USPS rate and service changes, and the company's dependence on Amazon for growth.

* UPS is steering away from Amazon. 50% of its volume from Amazon will reduce by the end of 2026.

A few interesting stats on the call related to UPS biggest customer:

** Amazon's contract came up this year, and it seems to me UPS was itching to change it. Carol Tome likely thought Amazon was taking advantage of UPS.

** Amazon is 20% of UPS volume but only 12% of revenue. I imagine profit is less than that, so it's a lot of song and dance for difficult output.

** As part of this glide-down in volume, UPS will also close about 10% of its facilities. These are real hard costs, which will reduce Capex, maintenance, and importantly labor costs -- all of which UPS has been focused on.

* Incidentally this glide down in volume from Amazon is 5x faster than their reduction in Amazon volumes in the last 4 years.

* USPS is steering its last-mile service to incent shippers to inject further upstream, and not just use USPS for its last mile services. This has caused UPS to drop USPS from SurePost entirely as of Jan 1, 2025.

The upshot of these changes? UPS is expecting to move US domestic operating margin from 10% to north of 12% by Q4 2026. Those are big moves. In order to do that, UPS had to give up on its revenue growth ambitions.

You read that correctly, UPS is giving 2026 margin guidance. That is a gutsy move.

In terms of Q4, delivery performance was good:

* Average on-time service led the industry by 470 basis points over our "closest competitor" (FedEx)

* Revenue per piece flipped positive, but on the back of pricing increases primarily.

This will make UPS a more resilient, more efficient, leaner company. At the expense of being the biggest. Where have I heard this before? Better Not Bigger was Carol Tome's strategy since she took over UPS -- seeing the writing on the wall that you can't out-Amazon Amazon.

Instead, UPS hopes to drive away price-sensitive customers and drive towards customers that will give them more pricing power. And that means stepping away from US domestic parcel volume growth, because the volume growth would have taken the investors into an ocean of red ink. And likely putting the company in a very unstable position.

Whether you like UPS performance or not, Carol Tome has a plan and is executing it. There have been missteps with Union contracts and USPS neogtiations, but there is a steady hand on the rudder here.

If you have the margin to devote to its reliability, UPS desperately wants your business, but it's going to cost. Price-sensitive customers need not apply and should trade down, constructing their own network from regional carriers, zone skipping, and inventory placement.