Shares of United Parcel Service Inc. suffered their worst day ever on Thursday, after the package-delivery giant announced an agreement that would cut its business with Amazon.com Inc., its largest customer, by more than half.

While UPS explained that the move was part of its plan to focus on more profitable deliveries rather than on simply increasing volume, the news still sent shockwaves through Wall Street.

“Amazon is our largest customer, but it’s not our most profitable customer,” Chief Executive Carol Tomé said on a call with analysts, according to an AlphaSense transcript. “Its margin is very dilutive to the U.S. domestic business.”

Considering that Amazon accounted for 11.8% of UPS’s total revenue for the year, which translates to roughly $10.7 billion, it didn’t help that the delivery giant also resumed its pattern of quarterly revenue misses and warned that 2025 revenue would decline, while Wall Street was projecting growth.

UPS’s stock tumbled a record 14.1% to close at $114.90. That broke the previous record selloff of 12.1% seen on July 23, 2024.

The stock, which closed at the lowest price since July 13, 2020, was by far the S&P 500 index’s biggest decliner on the day.

Meanwhile, Amazon’s stock fell 1%, and shares of UPS rival FedEx Corp. declined 2.1%.

UPS said it reached an agreement in principle with Amazon to lower its volume by more than 50% by the second half of 2026.

Tomé said that because the contract with Amazon came up for renewal this year, it was time to reassess the near 30-year relationship. “Because if we take no action, it will likely result in diminishing returns,” she said.

She said that there are a lot of assets and resources that support the volume of Amazon packages.

As that volume declines, the need to support those resources also declines, Tomé said, leading to lower costs and to increased margins, or profitability per package.

“Due to their operational needs, UPS requested a reduction in volume and we certainly respect their decision,” said Amazon spokesperson Kelly Nantel, in an emailed statement to MarketWatch. “We’ll continue to partner with them and many other carriers to serve our customers.”

UPS’s move addresses two key challenges the company is facing, she said. One is that the U.S. small-package market is a “slow-growth market” with lower margins, and the second is growing concern over how much of UPS’s volume and revenue is concentrated with one customer.

Basically, transporting smaller packages over shorter distances is getting less and less profitable, so the company wants to focus more on deliveries that have more complex transport requirements, such as its healthcare business, because those pay more.

The company is looking to offset declines in volume by cutting costs with the actions taken, which include the permanent closing of 11 buildings in 2024, expected to save the company $1 billion.

And it’s not just the Amazon relationship that is changing.

The company also said that effective Jan. 1, it had brought all of its UPS SurePost product in house. UPS had previously used the U.S. Postal Service for a portion of the last-mile delivery of that service.

Tomé noted that USPS was changing its operating model, which would affect service by increasing delivery times and would also raise costs.

“The value proposition of an increased cost as well as deteriorating service, well, that didn’t work for us,” Tomé said.

Evercore ISI analyst Jonathan Chappell said while the fourth-quarter results had some positives, such as a solid beat on profits and on operating margins for the domestic package business, there were still negatives.

“Even though the SurePost insourcing agreement was well known, though not clear on impact, the agreement with [Amazon] to reduce volumes by more than 50% in 18 months is a surprise and acceleration of the glide down of this business that has long represented a tail risk,” Chappell wrote in a note to clients.

And analyst Faisal Hersi at Edward Jones said that while the moves should streamline operations and boost profitability over the longer term, “we see a near-term headwind on package volume and profitability in the domestic package business.”

UPS also releases its fourth-quarter report
For the fourth quarter, UPS reported revenue that rose 1.5% from a year ago to $25.3 billion, below the FactSet consensus of $25.41 billion. That resumed the pattern of misses, after the previous quarter’s results briefly snapped a streak of eight straight quarterly misses.

For 2025, the company expects revenue of $89 billion, which is less than 2024 revenue of $91.1 billion. The current FactSet consensus for 2025 revenue called for a rise to $95 billion.

Among UPS business segments, fourth-quarter U.S. domestic revenue rose 2.2% to $17.31 billion, to beat the FactSet consensus of $17.22 billion.

International revenue increased 6.9% to $4.92 billion, topping expectations of $4.79 billion, while supply-chain-solutions revenue dropped 9.1% to $3.07 billion, to miss forecasts of $3.36 billion.

Net income rose to $1.72 billion, or $2.01 a share, from $1.61 billion, or $1.87 a share.

Excluding nonrecurring items, such as $639 million in charges, which include a $506 million pension charge, adjusted earnings per share rose 11% to $2.75 to beat the FactSet consensus of $2.53.

UPS’s stock has now shed 20.8% over the past 12 months, while FedEx shares have gained 10.5% and the S&P 500 index has advanced 23.3%.