UPS Q2 Earnings Call: LJM Analysis 

UPS has completed one of the largest structural changes to its U.S. parcel network in recent years.

After reducing approximately 2 million lower-yield Amazon packages per day, closing facilities, cutting labor hours, and removing approximately $4.5 billion in annualized related expense, UPS says its network is now leaner, more automated, and ready to grow.

The key message from the company’s second-quarter earnings call is that UPS does not intend to replace that lost volume package for package.

Management said it is focused on capturing premium volume from SMB, healthcare, and B2B customers while continuing to improve revenue quality and margins.

For shippers, this creates both opportunity and risk. UPS has more flexible capacity and wants new business, but it is placing a higher value on certain industries, package profiles, and service needs.

Understanding where a shipper fits within that strategy may become an important source of contract leverage.

Revenue growth is coming from several pricing levers

UPS reported a 9.3% year-over-year increase in U.S. Domestic revenue per piece.

More than half of that increase came from what the carrier described as healthy base rates and customer mix improvements. Fuel accounted for the remainder.

UPS did not separate the impact of base pricing from customer mix. That distinction matters because customer mix can reflect growth in premium services, higher-yield accounts, specialized verticals, and package profiles with greater accessorial exposure.

Another indicator of UPS's strategy is how profitability improved during the quarter. Management noted that revenue per piece grew approximately 130 basis points faster than cost per piece, reflecting both pricing discipline and productivity improvements. For shippers, that reinforces why understanding which parts of your shipping profile UPS values most can materially influence contract negotiations. 

Shipper Tip: Shippers should not evaluate a parcel agreement only by its headline transportation discount. UPS is improving yield through a combination of:

• Base-rate increases
• Customer and service mix
• Fuel surcharges
• Premium services
• Accessorial charges
• Peak pricing

Minimum charges, residential fees, delivery-area surcharges, Additional Handling, Large Package charges, and fuel surcharges are where UPS keeps its promise to shareholders. That means these are particularly important areas for shippers to negotiate in their contracts in order to stay on the controlled side of UPS’s margin flex. 

UPS is doubling down on higher-value segments

UPS identified SMB, healthcare, and B2B as major premium-volume priorities.

SMB average daily volume grew 4.3%, led by high tech and healthcare. B2B performance improved, with high tech and automotive identified as areas of strength. B2B volume through UPS’s Digital Access Program increased 34%.

Healthcare remains especially important. UPS generated more than $3 billion in healthcare revenue for the second consecutive quarter, driven by what management described as “end-to-end control”. UPS highlighted its ability to combine refrigerated transportation, air assets, warehousing, RFID visibility, and temperature monitoring within a single network.

UPS is making a similar move in automotive and industrial logistics. It expanded air freight services supporting trade between the United States and Mexico and created a dedicated team of more than 300 specialists serving automotive and industrial customers.

These investments show where UPS sees pricing power and long-term growth.

Shipper Tip: Shippers in these sectors may have stronger negotiating leverage because UPS wants their business. At the same time, the carrier may use specialized technology and service capabilities to justify premium pricing and increase switching costs.

Fuel surcharges may be doing more than covering costs

UPS said higher fuel prices increased both revenue and expense during the quarter.

Management stated:

“While higher fuel prices were a positive to revenue, the corresponding increase in expense meant that the net impact to consolidated operating profit dollars was modest.”

The word “modest” is important. It does not mean zero – at least, not by our read.

UPS also said its fuel surcharge mechanisms functioned as designed and covered the increase in fuel expense. Taken together, those comments suggest that fuel surcharge programs may contribute more than simple cost recovery during periods of fuel-price volatility.

Shipper Tip: For shippers, fuel should not be treated as a fixed pass-through that cannot be analyzed or negotiated. Even a modest discount or fee cap can become material across a large parcel portfolio.

Amazon competition could create leverage

Analysts repeatedly questioned UPS about Amazon’s growth as a third-party delivery competitor.

UPS responded by emphasizing service, customer relationships, RFID, healthcare, returns, and premium capabilities. Management also said more than 300 senior UPS executives maintain relationships with customers at the CEO and CFO levels. According to UPS, Amazon’s edge is “on lightweight, short zone, urban.” 

Shipper Tip: Shippers evaluating Amazon Shipping, regional carriers, postal solutions, or a broader multi-carrier strategy may be able to use that competitive interest to seek stronger UPS pricing, service commitments, executive attention, or technology support.

A credible alternative carries more negotiating weight than a general request for lower rates.

Peak is expected to be more manageable, but not less expensive

Peak season was one of the most important shipper-facing topics on the call. As of publication, FedEx has announced its 2026 Peak Season rates, while UPS has not yet announced its 2026 Peak Season rates.

UPS expects U.S. volume to rise approximately 24% from Q3 to Q4, similar to last year. Management said the reconfigured network should produce a more manageable peak with a more stable customer base.

That does not mean UPS expects to reduce peak pricing.

Management said pricing remains rational, that UPS will price according to demand, and that holiday demand surcharges support the company’s financial guidance.

Shipper Tip: Shippers should begin reviewing historical peak-week volume, weekly thresholds, residential activity, Additional Handling, Large Package exposure, service mix, and carrier allocation options now.

What shippers should do next

UPS has built a more efficient network and now wants to fill it with higher-value volume.

The strongest contract position will come from understanding which characteristics of your shipping profile UPS values most, what charges are driving revenue per piece, where competing carriers can handle meaningful volume, and what the shipper should receive in exchange for a long-term commitment.

LJM helps businesses understand carrier incentives, quantify surcharge exposure, and negotiate agreements based on the true value of their shipping profile.

Talk to an expert today. 

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