UPS profit and revenue dip as tariffs, trade war drive uncertainty

Sandy Springs-based UPS saw its second quarter revenue and profit decline compared with a year ago as it faces trade volatility and decreased U.S. shipping volumes.

UPS is a bellwether for the global economy, a barometer of both business and consumer health. President Donald Trump’s trade war weighed on economic growth earlier this year, and risks remain — though so far, the economy has proved resilient.

The shipping giant reported $1.28 billion in net income for the second quarter, down nearly 9% from $1.4 billion a year ago.

Its quarterly revenue was $21.2 billion, down nearly 3% from $21.8 billion a year earlier.

“Despite uncertainties around trade policy, in the second quarter the overall U.S. economy demonstrated continued resilience,” said UPS CEO Carol Tomé during an investor conference call. “But our sector, specifically the U.S. small package market, was unfavorably impacted by U.S. consumer sentiment that was near historic lows.”

UPS declined to forecast its future revenue and operating profit, citing “macro-economic uncertainty.”

“This remains a very unsettling time. Changes in trade policy have not been cemented, and the impact on customer demand and the overall economy is unknown,” Tomé said. Large companies may be able to thwart the impact of rising costs because of tariffs, she said, but many small- and medium-sized businesses may not be able to, she said.

Some of those businesses may have sold down their inventory and now need to replenish it and could face significantly higher costs. “We just think there might be some risks to (small- and medium-sized businesses) in the third quarter. We just don’t know.”

“The dynamics impacting today’s marketplace are very different than the dynamics caused by the pandemic or high inflation or labor disruptions or war,” she said.

The U.S. has recently announced framework trade deals with several countries, which include higher tariffs than before Trump returned to the White House. There are new tariffs slated to take effect Aug. 1, but “we don’t know if that’s going to happen or not. There only have been six trade deals that have been negotiated. So there’s a lot of uncertainty,” Tomé said.

The company earlier this year announced a more than 50% cutback in volume it moves for Amazon — which Tomé said is the largest customer for UPS but “not our most profitable customer.”

The company has been “accelerating the glide-down of Amazon volume,” Tomé said. Amazon delivery volume handled by UPS will decline about 30% year over year in the second half of this year.

“We have a very complicated relationship with Amazon, and part of it is volume that we want to grow and keep, and part of it is volume that we want them to deliver,” Tomé said.

UPS saw a decline in quarterly package volumes, which it partially offset with higher shipping rates.

Internationally, the company also saw tariffs drive a decline in business and an increase in uncertainty.

“Generally, tariffs are not good for trade,” Tomé said. In the China-U.S. trade lane — the most profitable one for UPS — higher tariffs and the elimination of an exception for small goods resulted in a nearly 35% year-over-year drop in average daily volume in May and June, she said.

At the same time, UPS saw a 22.4% increase in volume from China to the rest of the world.

“Our customers are coming to us for solutions that will help them navigate tariff uncertainty,” Tomé said.

UPS saw an increase in delivery costs after insourcing last-mile deliveries that were previously handled by the U.S. Postal Service as a product called “SurePost.”

Tomé said UPS has “reengaged with USPS. There’s new leadership there. They have excess capacity.” Embattled Postmaster General Louis DeJoy stepped down earlier this year, with David Steiner stepping into the role this month. She said she doesn’t yet know the outcome of the USPS discussions.

The company also saw a decline in revenue in its supply chain business after selling its Coyote Logistics freight brokerage unit last year.

Earlier this year, UPS said it would cut 20,000 jobs and close 10% of its buildings amid a cutback in its deliveries for Amazon and a larger push to make the network more “efficient.” It has cut about 9,500 jobs in its operations so far this year but has had less attrition than expected as it closes buildings.

The company expects to reduce expenses by $3.5 billion this year and has closed 74 buildings so far. The company also cut 12,000 management roles last year.

Earlier this month, UPS announced it would offer voluntary buyouts to all of its full-time drivers for the first time in its history.

The shipping giant said it was navigating “an unprecedented business landscape” and a massive network reconfiguration.

The Teamsters union, which represents about 340,000 UPS employees, urged its members to reject the buyout offers. Teamsters General President Sean O’Brien called the offers “illegal and haphazard.”

The package, which would be in addition to any earned retirement benefits, provides $1,800 per year of service at UPS, regardless of tenure — with a minimum payout of $10,000 and no cap.