UPS Shipping Limits for Amazon Threaten to Delay Holiday Deliveries

⚠️ Brace for potential delivery delays in Q4 as UPS places shipping limits on Amazon to pursue more profitable shipments, such as B2B.

Sudden Drop in eCommerce Parcel Volume

After experiencing a surge in revenue and parcel deliveries in 2020 and 2021, the average US daily volume for UPS dropped 4% during the second quarter of 2022. The unexpected drop was greater than expected as eComm delivery growth has finally slowed.

“The fear is that, after a strong 2-year period, UPS could see revenue growth waver thanks to high inflation. We can expect parcel volumes to decrease in line with consumer spending,” said Senior Analyst at Third Bridge, Patrick Donnelly.

The company’s decision to put limits on Amazon’s package volume also contributed to the decline, according to CEO Carol Tome. The eComm giant is UPS’s largest customer, accounting for 13.3% of its total revenue in 2020 and 11.7% in 2021. However, by throttling Amazon’s delivery volume, it will now only make up 11% of UPS revenue by Q4.

“We’ve contractually agreed on what makes sense for us versus what makes sense for them. That means that the volume and revenue for Amazon is coming down,” said Tome.

The shipping restrictions also came after Amazon launched Buy with Prime, which allows non-Amazon sellers to leverage 1- and 2-day shipping through its own fulfillment empire. Although Amazon’s logistics service is expanding rapidly and could potentially surpass UPS, the eComm giant still relies on the legacy carrier to carry out millions of last-mile deliveries for them.

In addition, with fewer parcels coming in, UPS has more Q4 capacity it can use to “go out and win’’ new customers.

Therefore, entering into a mutually beneficial agreement on what Amazon parcels UPS delivers versus what is fulfilled in-house definitely makes a lot of sense.

Putting More Focus on B2B Deliveries

Despite the decline in its core domestic unit, UPS’ per-package revenue grew 11.9%, thanks to price hikes and putting limits on discounts usually given to bulk customers.

UPS also plans to focus on B2B shipments to make up for the eCommerce slowdown. In 2019, the carrier’s B2B delivery volume grew 3.4%, representing an important growth area for the company. However, in 2020, its growth stalled when stay-at-home orders were implemented across the country to mitigate Coronavirus transmission. Since most office buildings were unoccupied, and thus a reduced need for essential business items and shipping services, buyers had to cut back on spending.

But as COVID restrictions ease up across the globe, UPS expects more and more B2B buyers will revert back toward spending on services.

Effects of UPS Shipping Restrictions on Sellers

• Shipping delays. With limited UPS services available to Amazon sellers, we might see shipping delays during the Prime Early Access Sale in October, Black Friday/Cyber Monday in November, and the holiday season.
• Sellers might have to seek alternative options or backup carriers such as 3PLs or Shopify’s Shop Promise to continue offering speedy shipping to customers. While Amazon has sunk a lot of dough into its warehouse and transportation this past year to keep up with demand, it still depends on UPS to deliver millions of packages to homes. So, without UPS in their back pocket, Amazon might find it difficult to handle shipping during the holiday rush.
• Amazon might bring back restock limits even if mildly. Amazon does have a lot of storage space that they invested in, but congestion may become an issue in Q4 due to these shipping concerns. Hence why, placing inventory restrictions on sellers before the holiday rush may be utilized as a means to control the influx of inventory into their fulfillment centers. This is a long shot based on what we know about their new, bolstered warehousing network but something not to be ruled out based on their faltering shipping infrastructure.

💡 To prepare for potential shipping delays, consider keeping some buffer stock in your 3PL warehouse or with your supplier and sending additional stock into FBA as needed. You could also switch over to FBM in order to fulfill orders yourself or use Amazon Upstream Storage to circumvent restock limits if imposed. Securing early delivery appointments with FBA is also crucial to avoid check-in delays, so be sure to discuss your options with your 3PL or preferred carrier.