United Parcel Service (NYSE: UPS) announced Monday afternoon that it is adopting a new operating model and leadership structure designed to make better use of its global network and accelerate profit growth, as the company continues its evolution from a traditional small package carrier into a more integrated logistics provider.

The reorganization comes just as UPS largely completed, by the end of June, the major phase-out of its low-margin Amazon business and the downsizing of its domestic parcel network.

Under the new approach, UPS will standardize processes and procedures across geographies while retaining the flexibility to address the unique needs of local markets. The company said the goal is to give customers greater consistency, agility, and scale as it deemphasizes its traditional identity as a small package carrier in favor of operating as an integrated logistics provider.

The shift comes as UPS parcel volumes have stagnated, with e-commerce growth normalizing after the Covid-fueled boom and low-cost delivery competitors entering the market. UPS is not alone in recalibrating: rival FedEx has been undertaking its own multiyear network restructuring, and Amazon has steadily expanded its in-house delivery capacity, both contributing to pricing pressure across the parcel sector. The changes at UPS also follow U.S. Postal Service pricing decisions that affected the economics of last-mile partnerships such as UPS's Mail Innovations program.

Why it matters: For two years, UPS has stressed its intention to move away from last-mile delivery of e-commerce packages and toward high-value, premium market segments such as healthcare, industrial, and automotive logistics, as well as services for small and medium-sized businesses. The reorganization provides more concrete evidence of the direction the company is taking. The new structure consolidates operational authority under a single global operations executive and separates domestic commercial operations from global network management — a setup investors and customers will be watching as UPS reports how the slimmed-down network performs without Amazon volume.

Leadership changes

UPS appointed Nando Cesarone as executive vice president and chief global operations officer, with responsibility for the company's global air network and airport gateways, surface transportation, building and engineering operations, Intelligent Network of the Future initiatives, automotive operations, and sustainability functions. Cesarone previously served as president of U.S. operations.

Matt Guffey was named chief U.S. domestic officer, overseeing UPS's U.S. businesses, including small package, Roadie same-day delivery, Happy Returns, The UPS Stores, and Mail Innovations, the company's delivery partnership with the U.S. Postal Service. He previously served as chief commercial and strategy officer.

UPS is also creating a new role of chief global commercial strategy officer, responsible for global strategy, marketing and communications, product management, and pricing. A search to fill the position is underway.

Additionally, UPS announced that Kate Gutmann, president of international, healthcare and supply chain solutions, will retire for personal family reasons, ending a 37-year career at the company. Over the past six years, she played a key role in driving UPS into the upper echelons of healthcare logistics — now a nearly $12 billion business for the company — and in navigating the international segment through a period of rising U.S. protectionism.

Network downsizing

Over an 18-month period, UPS eliminated 50% of its Amazon volume, roughly 2 million pieces per day, because it was no longer economical to handle. During that time the company also closed 150 parcel sort centers and laid off 30,000 workers. The open question for the slimmer network is whether healthcare, industrial, and SMB-focused revenue can offset the volume and density the Amazon pullback removed from the system.

UPS stock is essentially flat for the year, closing Monday at $104.23. The share price is down from $127 two years ago and $169 on Aug. 31, 2023.

Source: FreightWaves, by Eric Kulisch (ekulisch@freightwaves.com)