United Parcel Service is navigating one of the most consequential restructurings in its 117-year history, a transformation that has already generated $3.5 billion in savings but requires eliminating tens of thousands of jobs while simultaneously investing billions in new capabilities. The Atlanta-based delivery giant’s decision to dramatically reduce its dependence on Amazon.com—once its largest customer—has set in motion a multi-year effort to fundamentally reshape operations, workforce composition, and strategic priorities.

The company’s Chief Financial Officer Brian Dykes acknowledges the road ahead remains challenging despite progress to date. “As with any kind of big restructuring like this, the last third is harder than the first third,” Dykes told The Wall Street Journal. “There is a lot of planning that goes into how we’re going to sequence the buildings that we’re going to consolidate, and when and how we reduce the staffing.”

The Human Cost of Right-Sizing

UPS plans to eliminate 30,000 operational positions in 2026, following the elimination of 48,000 operational positions in 2025—a combined reduction representing roughly 16% of its 490,000-person global workforce. The company closed more than 90 facilities in 2025 and intends to shutter at least 24 additional buildings in the first half of this year. “The reality is with less volume, we need less positions in order to support that volume,” Dykes explained to the Journal. “Fewer hours for packaged orders and drivers.”

Most of the 2026 job eliminations will occur through voluntary attrition, with the remainder handled through voluntary buyouts for full-time drivers, according to Dykes. This approach reflects the constraints imposed by UPS’s 2023 labor agreement with the International Brotherhood of Teamsters, a five-year contract that granted the average full-time driver $170,000 in annual pay and benefits. Since that contract’s ratification, UPS shares have declined 36% as of the most recent trading session, underscoring investor concerns about the company’s ability to balance labor costs with operational efficiency.

The Amazon Divorce and Its Ripple Effects

The decision to scale back Amazon shipments stemmed from UPS’s determination that the e-commerce giant’s high-volume business wasn’t sufficiently profitable and was dragging down overall margins. This strategic pivot, announced in January 2025, coincided with a confluence of external challenges that compounded the difficulty of the transition. The company contended with tariff-fueled trade disruptions, the elimination of the de minimis exemption for low-value imports, and higher-than-anticipated delivery expenses for its Ground Saver offering.

“Last year was a hard year,” Dykes acknowledged in his interview with The Wall Street Journal. “A lot of things were different than what we set out expecting.” Despite these headwinds, Dykes maintains an optimistic outlook on the company’s positioning amid global trade turbulence: “We see this moment of global trade disruption as an opportunity.”

The Trump administration’s decision to end the so-called de minimis tariff exemption—first for packages from China in May and then for goods from all other countries in August—added another layer of complexity to UPS’s operational environment. This policy shift affected the flow of low-value shipments that had become a significant component of cross-border e-commerce, forcing logistics providers to adapt their pricing and handling procedures.

Near-Term Headwinds and Fleet Modernization

David Vernon, a senior analyst at Bernstein Research, anticipates continued pressure on UPS’s cost structure in the coming months. The company faces the dual challenge of further reducing Amazon volume while replacing its MD-11 aircraft fleet following a November cargo-plane crash. “They still have to get through the first half of this year, which is going to be hideous,” Vernon told the Journal, though he expects conditions to improve thereafter.

The fleet modernization represents a necessary but expensive undertaking that will temporarily limit UPS’s ability to extract costs from operations. The MD-11 aircraft, while workhorses of the company’s air network for years, have become increasingly expensive to maintain and operate compared to newer, more fuel-efficient alternatives. The timing of this fleet transition, coinciding with the broader restructuring, creates a period of elevated capital requirements precisely when the company is working to improve cash generation.

Strategic Investments Amid Restructuring

Paradoxically, even as UPS eliminates positions and closes facilities, it has invested approximately $2 billion in acquisitions over the past year, focusing on healthcare logistics and international expansion. The company’s largest recent acquisition was Canada’s Andlauer Healthcare Group, purchased for roughly $1.6 billion. Additional investments have targeted capabilities in Hong Kong and the Philippines, reflecting UPS’s belief that specialized, higher-margin services represent the path to sustainable profitability.

“As we come out of the back of the Amazon drawdown, you’ll be able to see the growth associated with those investments,” Dykes told The Wall Street Journal. The healthcare logistics sector, in particular, offers attractive margins due to the specialized handling requirements, temperature control needs, and time-sensitive nature of pharmaceutical and medical device shipments. These characteristics create natural barriers to competition and pricing power that mass-market package delivery cannot match.

UPS is planning approximately $3 billion in capital expenditures for 2026, a decrease from the nearly $3.5 billion spent in 2025. This reduction in capex reflects the company’s transition from expansion mode to optimization, with investments focused on automation, technology infrastructure, and selective facility upgrades rather than broad network expansion. The lower capital intensity should support improved free cash flow generation, a metric closely watched by investors concerned about the sustainability of UPS’s dividend payments.

Financial Performance Shows Early Progress

Despite the operational turbulence, UPS’s financial results suggest the restructuring strategy is beginning to bear fruit. The company reported $1.79 billion in profit for the quarter ended December, up from $1.72 billion in the prior-year period. This improvement, while modest, demonstrates that UPS can maintain profitability even as it deliberately reduces volume from its former largest customer.

Jason Seidl, a senior transportation analyst at TD Cowen, highlighted the improving cash flow dynamics as particularly significant. UPS’s reduced maintenance capital expenditure requirements are expected to generate more free cash flow to fund dividend payments in 2026—a crucial development given that the company has previously needed to borrow to cover shortfalls between cash generation and dividend obligations. “In the future, it looks like they can actually avoid that, which is a good thing,” Seidl told the Journal.

The dividend sustainability question looms large for UPS investors, many of whom are attracted to the stock specifically for its income characteristics. The company’s ability to self-fund its dividend from operating cash flow, rather than relying on debt markets, would represent an important milestone in the restructuring journey and likely support improved investor sentiment.

The Complexity of Network Optimization

The logistical challenges of UPS’s restructuring extend far beyond simple headcount reduction. The company must carefully sequence facility consolidations to avoid service disruptions that could drive additional customers away. Each building closure requires rerouting package flows, reassigning personnel, and ensuring that service commitments to remaining customers are maintained or improved. The complexity multiplies when considering that UPS operates an integrated air and ground network where changes in one component affect the entire system.

Dykes’s comment about the difficulty of “the last third” of the restructuring reflects these operational realities. The initial phases of a restructuring typically target the most obvious inefficiencies and redundancies—facilities with clear overcapacity, routes with poor economics, and voluntary separations from employees ready to retire. The later phases require more surgical precision, balancing cost reduction against service quality and competitive positioning in specific markets.

Industry Context and Competitive Dynamics

UPS’s restructuring unfolds against a backdrop of significant change in the logistics industry. Amazon has continued building its own delivery network, reducing its reliance on third-party carriers including UPS, FedEx, and the U.S. Postal Service. This vertical integration by the world’s largest e-commerce company has fundamentally altered competitive dynamics, forcing traditional carriers to adapt their strategies and customer mix.

FedEx, UPS’s primary competitor, is pursuing its own transformation, separating its freight business and investing heavily in automation and efficiency improvements. The competitive pressure from regional carriers and last-mile delivery specialists has intensified, particularly in residential delivery where costs are highest and margins thinnest. UPS’s pivot toward healthcare, international, and business-to-business shipments represents an effort to compete in segments where its scale and capabilities provide clearer advantages.

The broader economic environment adds another layer of uncertainty. Trade policy volatility, including tariff changes and shifts in international commerce patterns, directly affects package volumes and routing decisions. UPS must maintain sufficient flexibility to respond to these external factors while executing its multi-year restructuring plan—a balancing act that requires both strategic clarity and tactical adaptability.

The Path Forward

UPS’s transformation represents a fundamental test of whether a century-old logistics giant can successfully reinvent its business model in response to changing customer needs and competitive pressures. The $3.5 billion in savings achieved to date provides validation that the strategy can work, but the company’s own executives acknowledge that significant challenges remain. The planned elimination of 30,000 additional positions in 2026 will test UPS’s ability to maintain service quality and employee morale while driving efficiency improvements.

The success or failure of this restructuring will likely influence strategic thinking across the logistics industry. If UPS can demonstrate that deliberately reducing volume from low-margin customers while investing in specialized, higher-margin services produces superior financial returns, other carriers may follow suit. Conversely, if the transition proves too disruptive or the company struggles to replace lost Amazon volume with more profitable business, it could validate alternative approaches that prioritize volume and market share.

For now, UPS is committed to its chosen path, betting that smaller can indeed be more profitable in an industry where scale has traditionally been paramount. The coming quarters will reveal whether this wager pays off, with implications extending far beyond UPS’s own financial performance to shape the future structure of global logistics networks. As Dykes noted, the company views current trade disruptions as opportunity—a perspective that will be tested as UPS works through what its CFO candidly describes as the hardest phase of its restructuring journey.