With 145% tariffs on Chinese imports and the rollback of key customs exemptions, UPS is witnessing a decisive shift in how its customer base responds. On its latest earnings call, the parcel delivery giant revealed that large U.S. shippers are accelerating imports ahead of tariff enforcement, while smaller businesses are turning to Mexico and Southeast Asia in search of viable sourcing alternatives. The impact on U.S.-China trade lanes could reshape logistics flows for quarters to come.
Large Shippers Move Fast And Early
UPS CEO Carol Tomé confirmed that the company’s largest U.S. customers are taking proactive measures to shield operations from sudden cost surges. One common approach is frontloading inventory – importing goods ahead of newly imposed tariffs to avoid immediate cost increases. This tactic, she noted, helped boost UPS’ U.S.-bound international volume by 9.5% in Q1 year-over-year.
But this temporary surge masks deeper concerns. CFO Brian Dykes warned that demand along the crucial China-to-U.S. trade route is expected to soften in Q2. With that corridor contributing 11% of UPS’ international revenue last year, compared to 17% from all other inbound trade lanes, any slowdown could have outsized impact on logistics capacity planning, pricing models, and cross-border service levels.
For large importers, the response goes beyond timing. Many are working upstream to renegotiate supplier agreements, pass on costs to end consumers, or leverage multilateral sourcing strategies. Their scale provides leverage, not just with transportation providers, but with manufacturers under pressure to preserve key client relationships.
Smaller Businesses Face Tougher Trade-Offs
The picture looks very different for small- and mid-sized businesses (SMBs), many of which are far more exposed. According to Tomé, a significant share of SMBs still source 100% of their products from China. With the Biden administration phasing out the de minimis rule for Chinese and Hong Kong shipments, even previously duty-free goods now face steep cost increases.
Unlike their larger counterparts, SMBs often lack the cash flow or warehouse space to frontload. Instead, they are urgently assessing alternative sourcing geographies, particularly Vietnam, Thailand, and Mexico. UPS’ EVP Kate Gutmann noted that exports from these regions into the U.S. are already climbing at near double-digit rates, signaling a tangible shift in procurement behavior.
Still, the challenges are steep. Larger enterprises are first in line to secure production slots and negotiate favorable contract terms with new suppliers. For smaller firms, reshoring or nearshoring ambitions may be slowed by limited capacity, slower onboarding times, and the higher upfront costs of switching vendors—especially in regulated or quality-sensitive sectors.
Tariffs Expose Supply Chain Imbalances
The dynamics unfolding across UPS’ customer base underscore the uneven playing field that tariff regimes often create. While larger firms are equipped to respond tactically – leveraging scale, supplier influence, and inventory strategies – smaller businesses face more structural constraints. Their path forward is likely to involve incremental shifts rather than sweeping changes, especially given limited access to alternative capacity.
For logistics providers, the key challenge will be balancing these divergent needs, offering the scale and responsiveness that enterprise clients demand, while supporting smaller shippers through what may be a longer, more complex transition. The months ahead will reveal how effectively networks can adapt, not just to tariff pressure, but to a more fragmented sourcing landscape.
