UPS faces rival pressure on profitable small business volume

United Parcel Service (UPS) expects U.S. daily package volume to decline by a mid-single-digit percentage in the third quarter, a forecast that highlights the difficulty of replacing Amazon deliveries with higher-margin work from smaller shippers. The logistics company has spent 18 months scaling back its Amazon delivery volume to target more profitable customers, a strategy that now faces intensified competition from FedEx and Amazon itself for the same specialized accounts.

During its July 28 earnings call, UPS management emphasized a focus on small and medium-sized businesses, health care shippers, and business-to-business deliveries. Analysts questioned how UPS intends to gain market share when FedEx is likely targeting that same customer base, according to Reuters. Amazon also presents a competitive threat; while the e-commerce giant remains a UPS customer accounting for 9% of revenue, management noted in July that approximately 2 million Amazon packages a day have left the UPS network. On that same call, analysts asked whether Amazon is approaching UPS's own customers directly to handle their shipping.

This competitive dynamic primarily affects the U.S. package business, which generated $59.5 billion in fiscal 2025 and represents 67% of UPS's total revenue. That division's revenue dropped 1.4% from the prior year. In the second quarter of 2026, UPS delivered 3.3% fewer packages daily in the U.S. than in the same period a year earlier, largely due to the planned Amazon reductions. Despite the volume drop, U.S. revenue climbed 6% because revenue per package increased 9.3%. Management attributed part of this increase to base rates and a better customer mix, with the remainder coming from fuel costs.

UPS has attempted to secure specialized service contracts to offset these losses. On September 29, the company announced a deal with TikTok Shop that allows UPS to process returns requiring no box or label, Reuters reported. In the second quarter, shipments from small and medium-sized businesses showed a year-over-year increase of 4.3% on a daily basis. Management stated in July that the company was aware of no volume lost specifically to Amazon.

The current share price reflects some of this uncertainty. UPS trades at 17.8 times earnings, compared to 21.9 for the S&P 500. The stock has fallen 14.8% over the past three months, trailing the index's 3.8% gain, and sits 17.7% below its 52-week high. Investors will look to the upcoming third-quarter report to see if daily volume from small and medium-sized businesses can sustain the revenue growth seen in the second quarter, when U.S. revenue rose 6%.