The surprise announcement last month that UPS will sharply curtail its delivery of packages from Amazon.com was precipitated by a U.S. Postal Service policy change that is likely to force the online retailer to expand its own logistics network.

The abrupt decision by UPS came after a USPS contract to deliver packages from postal facilities to nearby consumers’ homes expired at the end of last year. USPS and UPS failed to agree on terms for an extension.

UPS said in its January 30 announcement of 2024 financial results that it had agreed with its biggest customer to more than halve the volume of packages carried by the middle of 2026. 

“Amazon is our largest customer, but it’s not our most profitable customer,” Carol B. Tomé, the chief executive officer, said on a conference call that day to discuss its earnings. Although Amazon accounted for 11.8 percent of 2024 UPS revenue, she said, “Its margin is very dilutive to the U.S. domestic business.”

What would have made that thin margin even thinner was the end of the arrangement for the USPS to take over the so-called last mile of delivery of Amazon packages shipped by UPS. 

Amazon had been delivering its own parcels to easily served destinations, such as those in and near urban centers, according to Jerry Hempstead, a retired logistics consultant in Orlando who still keeps tabs on the market. It left those destined for more remote areas to UPS, which would deliver to nearby USPS facilities that would then take the parcels to buyers’ homes.

The concept was that USPS visits every mailbox nearly every day, so it can deliver more cheaply than UPS, but the post office decided it was providing its services at too low of a cost.

Without mentioning UPS by name, USPS said on its website that “Prior agreements failed to reflect operational and financial realities, the evolving postal network, or the enhancements to our portfolio of product offerings.” Mr. Hempstead’s translation: The postal service wants companies to ship packages to regional centers that would sort and send them on for final delivery, charging more for the longer amount of time the mail spent in the USPS system.

UPS can still use the Post Office’s Parcel Select offering, but it would not be as advantageous for the quick and inexpensive deliveries that consumers have come to rely on.

Amazon has made its mark in America with fast shipping that includes free delivery on millions of items within two days for subscribers to its Prime service. There are approximately 180 million domestic Prime users, according to Statista. Prime costs $139 a year, and has benefits beyond the free shipping, including discounts and access to the company’s video streaming service, which offers some titles for free.

With UPS and rival Fedex pretty much out of the picture, the most likely path for Amazon to take is to build out its own delivery system. That means effectively acquiring much of the low-margin business that UPS did not want. Amazon and other logistics companies it might hire have far cheaper labor costs than the unionized UPS, said Jindel Satish, president of ShipMatrix and SJ Consulting. He estimated Amazon drivers are paid $35 an hour versus $65 for those at UPS. 

What does all this mean for the companies, their customers, and investors?

UPS stock lost 14.1 percent of its value on January 30, reacting to the Amazon news and tumbling to $114.90 after trading above $135 earlier in that week. It has since slipped to $113.10. Amazon, by contrast, edged only slightly lower the day of the UPS announcement and reached a record high of $242.06 on February 4. It fell sharply on Friday, however,  ending at $229.15 after its earnings estimates  disappointed investors.

Mr. Satish said he thinks the Amazon-UPS situation is “misunderstood by investors, by media, and everyone.” He agreed with Ms. Tomé’s plan for UPS to replace the jettisoned Amazon deliveries with higher-return customers such as small and medium-sized enterprises, business-to-business commerce, healthcare clients, and international shipments.

He also noted that Fedex stepped away from its business with the e-tailer in 2019. “Bigger customers do not have the profit margin of smaller customers,” he said.

Amazon, he added, will expand its logistics services to compensate for the diminished UPS business. He said it already has a larger delivery network than UPS, Fedex, and USPS.

A spokesperson for Amazon who asked not to be named, said the company already delivers two-thirds of its domestic packages and expects to be able to accommodate more without affecting consumers.

Mr. Satish agreed with that, pointing to the labor-cost differential, but Mr. Hempstead did not, saying the expense of servicing remote areas would be larger.

“Somebody is going to have to eat that cost,” said Mr. Hempstead, “and it is not going to be Jeff Bezos.”