Why FedEx and UPS Are Losing in the Small Parcel War

For decades, FedEx and UPS were untouchable. If you were shipping parcels across the country, one of them was your first call. Their nationwide networks, reliability, and scale made them the obvious choices for businesses of all sizes. But in 2025, the small parcel war has new rules, and the Big 2 are no longer winning.

A growing wave of regional carriers, tech-driven logistics startups, and gig economy delivery models is reshaping the market, offering shippers more choices, greater flexibility, and often lower costs. Meanwhile, labor challenges, rising rates, and operational rigidity have left FedEx and UPS struggling to keep pace. In this article, we’ll explore why the old giants are losing ground, who’s stepping in to take their place, how to adapt your shipping strategy, and what it means for the future of shipping.

The rules have changed

Today’s eCommerce landscape is dominated by lightweight, residential deliveries that need to be fast, flexible, and affordable. The problem? UPS and FedEx were built for an era centered on commercial delivery, high-volume contracts, and dense urban hubs.

As consumer behavior shifted, new players rose to meet the moment.

• Amazon Logistics optimized for sub-5 lb residential parcels. With the logistics infrastructure of Amazon, it’s no wonder they were able to do this so well.
• Gig economy carriers emerged to deliver parcels the Big 2 couldn’t profitably serve. Consider on-demand delivery services and food delivery apps.
• Retailers like Walmart and Target began fulfilling from stores, bypassing UPS and FedEx entirely.

The data doesn’t lie

In 2019, FedEx, UPS, and USPS accounted for nearly all parcel deliveries in the U.S.

In 2025, that story looks very different:

• Amazon Logistics now handles approximately 25% of all U.S. parcel volume
• UPS and FedEx have both lost market share
• Gig and regional carriers are growing fast in residential zones

And yet shipping costs from UPS and FedEx continue to rise.

Where FedEx and UPS are struggling

It’s not that the Big 2 have disappeared. They still dominate in revenue, but they’re increasingly outmatched in agility, cost, and scalability when it comes to lightweight parcel delivery.

Here’s why:

• Cost-to-serve is too high for lightweight, last-mile residential shipments
• Labor constraints make it harder to scale or adapt quickly
• Technology and routing still lag behind Amazon’s real-time, vertically integrated model
• Volume loss to Amazon has forced both carriers to protect yield, often by cutting service or raising rates

FedEx and UPS are fighting for a shrinking slice of a growing market.

Who’s filling the gap?

As the Big 2 pull back from unprofitable delivery segments, a fragmented field is rising to fill the void:

• Amazon Logistics, with its ground network and gig drivers, is handling more third-party volume
• Retailers like Walmart are using store networks as local hubs for same-day shipping
• Regional carriers and gig economy carriers/providers (like UniUni, OnTrac, and SpeedX) are covering residential routes more affordably

These carriers offer speed and cost advantages, but often lack national reach or consistent performance. That’s where strategy becomes essential.

What this means for brands

Shippers today face a more complex, volatile parcel environment than ever before:

• You can’t count on a single carrier to meet every need
• Overpaying is easy if you’re locked into one network
• Poor carrier fit leads to delays, lost packages, and higher customer churn

In short: carrier loyalty now comes at a cost.

What smart shippers are doing

To stay competitive in this fragmented market, forward-thinking brands are:

• Auditing their carrier mix to identify overreliance or cost gaps
• Leveraging fulfillment partners that offer access to gig, regional, and Amazon Logistics
• Using multi-carrier platforms to automate routing based on weight, zone, and cost
• Aligning parcel profiles to the carriers best suited to deliver them

The best carrier today depends on the shipment, not the logo on the truck.

Have you updated your FedEx and UPS shipping strategy?

FedEx and UPS aren’t going away. But they’re no longer the best or only option for most eCommerce brands.

The small parcel war hasn’t been lost. It’s just been reinvented. And the shippers who win from here on out will be the ones who stay flexible, tech-driven, and carrier-agnostic.

Ready to see if your carrier mix is working for you? Download our Carrier Diversification Checklist (coming soon).

Want it done for you? Contact iDrive Logistics to review your carrier mix.