Analysis
United Parcel Service (UPS) has been significantly impacted by the U.S. reciprocal tariffs and "Liberation Day" trade policy changes introduced in April 2025. These changes, which included a 145% tariff on Chinese goods and the elimination of the $800 de minimis exemption, triggered a substantial shift in global trade patterns and pressured the company's high-margin international trade lanes.
The primary impact has been a forced shift in trade lane mix away from the highly profitable China-to-U.S. lane toward lower-margin lanes, such as China-to-Europe and rest-of-world-to-U.S. In the fourth quarter of 2025, International segment operating profit declined by $154 million year-over-year, with management attributing more than half of this decline directly to trade policy changes. For the full year 2025, the International segment's adjusted operating profit fell by $425 million, or 12.6%, largely driven by these lane shifts and the loss of demand-related surcharges.
UPS initially experienced a surge in U.S. inbound volume during the first quarter of 2025 as customers "pulled forward" inventory ahead of the May 2, 2025, tariff implementation. While this provided a temporary revenue boost, it created a "tough comparison" headwind for 2026. The company's Supply Chain Solutions (Forwarding) business also saw a $245 million revenue decline (excluding divestitures) in 2025, which was attributed to trade policy uncertainty and demand softness on the China-to-U.S. lane.
To mitigate these impacts, UPS has focused on Asia diversification, leveraging new air hubs in the Philippines, Vietnam, and Hong Kong to capture growing trade outside of the China-U.S. corridor. The company also employs next-generation brokerage technology and artificial intelligence to automate 85-90% of cross-border transactions, helping customers navigate complex Harmonized Tariff Schedule (HTS) reclassifications and guaranteed landed cost calculations.
Looking ahead to 2026, UPS anticipates a 30% year-over-year decline in International operating profit for the first quarter as it laps the 2025 front-running boost and continues to manage the mixed shift. The company expects to anniversary the initial tariff impact in May 2026 and the de minimis changes in September 2026. Current 2026 guidance does not assume any additional significant changes to the tariff landscape beyond those already enacted.
Data
($M, except percentages)
| Metric | FY24A | FY25A | Change |
|---|---|---|---|
| International Adjusted Operating Profit | $3,360 | $2,935 | (12.6%) |
| International Operating Margin | 18.7% | 15.8% | (290bps) |
| SCS Forwarding Revenue (ex-Coyote) | $3,128 | $2,883 | (7.8%) |
Source: Annual Report FY-2025, Transcript FY-2025, Marvin Labs
Financial Impact
- Revenue Impact (Historic): $245M
- Cost Impact (Historic): $212M
- Cost Impact (Forward-Looking): $196M
Sources
Operating profit in the International segment was $908mn, down $154 million year-over-year, with more than half of the decline related to trade policy changes, which resulted in a shift away from more profitable U.S. import lanes.
The administration has announced, as you know, a 145% tariff on China goods starting May 2nd and the elimination of the de minimis exception. Our SMBs who don't have the working capital capabilities to pull forward inventory are saying, 'Wow, how are we going to handle this cost increase that's coming our way?'
Outside the U.S., export volume growth is expected to be subdued, partly due to the tough comparisons coming from the boost of tariff front-running in 2025.