UPS US Equity☆

Item 1A.Risk Factors

Our business, financial condition and results of operations are and will remain subject to numerous risks and uncertainties. You should carefully consider the following risk factors, which may have materially affected or could materially affect us, including impacting our business, financial condition, results of operations, stock price, credit rating or reputation. You should read these risk factors in conjunction with "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 and our "Financial Statements and Supplementary Data" in Item 8. These are not the only risks we face. We could also be affected by other unknown events, factors, uncertainties, or risks that we do not currently consider to be material.

Business and Operating Risks

Changes in general economic conditions, in the U.S. and internationally, may adversely affect us.

We conduct operations in over 200 countries and territories. Our operations are subject to national and international economic factors, as well as the local economic environments in which we operate. Changes in general economic conditions are beyond our control, and it may be difficult for us to adjust our business model. For example, we are affected by industrial production, inflation, unemployment, consumer spending and retail activity levels. We have been, and may in the future be, materially affected by adverse developments in these aspects of the economy. We have also been, and may in the future be, adversely impacted by changes in general economic conditions resulting from geopolitical uncertainty and/or conflicts in or arising from the countries and regions where we operate, including the European Union, Ukraine, the Russian Federation, the Middle East and the Trans-Pacific region. Changes in general economic conditions, or our inability to accurately forecast these changes or mitigate the impact of these conditions on our business, could materially adversely affect us.

Our industry is rapidly evolving. We expect to continue to face significant competition, which could materially adversely affect us.

Our industry continues to rapidly evolve, including demands for faster deliveries, increased visibility into shipments and development of other services. We expect to continue to face significant local, regional, national and international competition. Competitors include the U.S. and international postal services, various motor carriers, express companies, freight forwarders, air couriers, large transportation companies, e-commerce companies and other retailers that continue to make significant investments in their own technology and logistics capabilities, some of whom are currently our customers. We also face competition from start-ups and other smaller companies that combine technologies with flexible labor solutions such as crowdsourcing. New and emerging technologies are also creating additional sources of competition. Competitors have cost, operational and organizational structures that differ from ours and may offer services or pricing terms that we are not willing to offer. Additionally, from time to time we have raised, and may in the future raise, prices and our customers may not be willing to accept these higher prices. If we do not appropriately respond to competitive pressures, including retaining or replacing volume lost to competitors or maintaining our profitability, we could be materially adversely affected.

Industry growth, or lack thereof, may further increase competition. As a result, opportunities for growth could be limited or competitors may improve their financial capacity and strengthen their competitive positions. Business combinations could also result in competitors providing a wider variety of services and products at competitive prices, which could also materially adversely affect us.

Changes in our relationships with any of our significant customers, including the loss or reduction in business from one or more of them, could have a material adverse effect on us.

For the year ended December 31, 2024, one customer, Amazon.com, Inc. and its affiliates, accounted for 11.8% of our consolidated revenues. In the first quarter of 2025, we entered into an agreement in principle with this customer that will provide for a reduction in their volume by more than 50% by June 2026. In connection therewith, we are making certain business and operational changes intended to match our workforce to our activity and eliminate our stranded costs. In the event we are not able to successfully reduce our costs in connection therewith, our profitability could be materially impacted. For additional information on the expected operational and financial impacts arising from this agreement, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Some of our other larger customers can account for a relatively significant portion of our volume and revenues in a particular quarter or year. Customer impact on our revenue and profitability can vary based on a number of factors, including: contractual volume amounts; pricing terms; product launches; e-commerce or other industry trends, including those related to the holiday season; business combinations and the overall growth of a customer's underlying business; as well as any disruptions to their businesses. Customers could choose, and have in the past chosen, to divert all or a portion of their business

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with us to one of our competitors, demand pricing concessions, request enhanced services that increase our costs, or develop their own logistics capabilities. In addition, certain of our significant customer contracts include termination rights of either party upon the occurrence of certain events or without cause upon advance notice to the other party. If all or a portion of our business relationships with one or more significant customers were to terminate or significantly change, this could materially adversely affect us.

Failure to attract or retain qualified employees could materially adversely affect us.

We depend on the skills and continued service of our large workforce. We also regularly hire a large number of part-time and seasonal workers. We must be able to attract, develop and retain a large and diverse global workforce. If we are unable to hire, properly train or retain qualified employees, we could experience higher labor costs, reduced revenues, further increased workers' compensation and automobile liability claims costs, regulatory noncompliance, customer losses and diminution of our brand value or company culture, which could materially adversely affect us. Our ability to control labor costs has in the past been, and is expected to continue to be, subject to numerous factors, including labor-related contractual obligations, turnover, training costs, regulatory changes, market pressures, inflation, unemployment levels and healthcare and other benefit costs.

In addition, we continue to strive to lower our cost to serve, including labor costs, through various strategic initiatives. Our inability to continue to retain experienced and motivated employees through the execution of these initiatives may also materially adversely affect us.

Strikes, work stoppages or slowdowns by our employees could materially adversely affect us.

Many of our U.S. employees are employed under a national master agreement and various supplemental agreements with local unions affiliated with the International Brotherhood of Teamsters (the "Teamsters"). Our national master agreement with the Teamsters runs through July 31, 2028. Our airline pilots, airline mechanics, ground mechanics and certain other employees are employed under other collective bargaining agreements that expire at various times. In addition, some of our international employees are employed under collective bargaining or similar agreements. Other employees may choose to organize in the future. Actual or threatened strikes, work stoppages or slowdowns by our employees could adversely affect our ability to meet our customers' needs. As a result, customers have in the past reduced, and in the future may reduce, their business or stop doing business with us if they believe that such actions or threatened actions may adversely affect our ability to provide services. We may permanently lose customers if we are unable to provide uninterrupted service, and this could materially adversely affect us. The terms of collective bargaining agreements also may affect our competitive position and results of operations. Furthermore, our actions or responses to any such negotiations, labor disputes, strikes or work stoppages could negatively impact how our brand is perceived and our reputation and could have adverse effects on our business, including our results of operations.

We maintain significant physical operations. Increases in operational security requirements impose substantial costs on us and we could be the target of an attack or have a security breach, which could materially adversely affect us.

As a result of concerns about global terrorism and physical security, various governments have adopted and may adopt additional heightened security requirements, resulting in significantly increased operating costs. Regulatory and legislative requirements may change periodically in response to evolving threats. We cannot determine the effect that any new requirements will have on our operations, cost structure or operating results, and new rules or other future security requirements may significantly increase our operating costs and reduce operating efficiencies. Compliance with security requirements or our own security measures may not prevent attacks or security breaches, which could materially adversely affect one or more of our operations, or our business.

A significant cybersecurity incident, or increased data protection regulations, could materially adversely affect us.

We rely on information technology networks and systems and other operational technologies, including the internet and a number of internally-developed systems and applications, as well as certain technology systems from third-party vendors (collectively referred to as "IT"), to operate our business. For example, we rely on these technologies to receive package level information in advance of the physical receipt of packages, move and track packages through our operations, efficiently plan deliveries, execute billing processes, provide information to package recipients, manage employee data and track and report financial and operational data. Our franchise locations and subsidiaries also rely on IT systems to manage their business processes and activities.

IT and other systems (ours, as well as those of our franchisees, acquired businesses, and third-party service providers) have been and will continue in the future to be susceptible to damage, disruptions and shutdowns due to programming errors, defects or other vulnerabilities, power outages, hardware failures, misconfigurations, computer viruses, cyber-attacks, encryption caused by ransomware or malware attacks, exfiltration of data, attacks by foreign governments, state-sponsored

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actors, or criminal groups, theft, misconduct by employees or other insiders, telecommunications failures, misuse, human errors or other catastrophic events. In recent periods, the frequency and sophistication of cyber-attacks have increased and are expected to continue to increase, including as a result of state-sponsored cybersecurity attacks during periods of geopolitical conflict, such as the ongoing conflicts in Ukraine and the Middle East. In addition, the rapid evolution and increased adoption of artificial intelligence technologies may intensify our cybersecurity risks. Accordingly, we may be unable to anticipate these techniques or to implement adequate measures to recognize, detect or prevent the occurrence of any of the events described above. In addition, our security processes, protocols and standards may not prove to be sufficient, effective or may not be complied with, either intentionally or inadvertently. To date, we have not experienced a material cybersecurity incident. However, cybersecurity incidents have in the past and may in the future expose us, our customers, employees, franchisees, service providers or others, to loss, disclosure or misuse of proprietary information and sensitive or confidential data or result in disruptions to our operations or those of our customers, franchisees, service providers or others.For example, cyber criminals have in the past gained access, and are expected to continue to try to gain access to customer accounts. The type of activity includes fraudulently inserting, diverting and misappropriating items being transported in our network, fraudulently charging shipment fees to customer or franchisee accounts, and fraudulently sending text messages to recipients purporting to be from UPS. The occurrence of any of the events described above could result in material disruptions in our business, the loss of existing or potential customers, damage to our brand and reputation, additional regulatory scrutiny, litigation and other potential material liability. We also may not discover the occurrence of any of the events described above for a significant period of time after the event occurs. Additionally, it may take considerable time for us to investigate and evaluate the full impact of incidents, particularly for sophisticated attacks. These factors may inhibit our ability to provide prompt, full, and reliable information about the incident to our customers, regulators and the public.

We utilize and interact with the IT networks and systems of third parties for many aspects of our business, including related to our customers, franchisees and service providers such as cloud service providers and third-party delivery services. These third parties have access to information we maintain about our company, operations, customers, employees and vendors, or operating systems that are critical to or can significantly impact our business operations. These third parties are subject to risks described above, and other risks, that could damage, disrupt or close down their networks or systems. Security processes, protocols and standards that we implement and contractual provisions requiring security measures that we impose on such third parties, may not be sufficient or effective at preventing such events or may not be adhered to. These events have in the past and could in the future result in unauthorized access to, or disruptions or denials of access to, misuse or disclosure of, information or systems that are important to us, including proprietary information, sensitive or confidential data, and other information about our operations, customers, employees and suppliers, including personal information.

We have invested and expect to continue to invest in IT security initiatives, IT risk management and disaster recovery capabilities. The costs and operational consequences of implementing, maintaining and enhancing further data or system protection measures could increase significantly to overcome increasingly frequent, complex and sophisticated cyber threats and regulatory requirements.

In addition, our customers’ confidence in our ability to protect data and systems and to provide services consistent with their expectations could be impacted, further disrupting our operations. While we maintain cyber insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim.

Although to date we are unaware of any material data breach or cybersecurity incident, including an information system disruption, we cannot provide any assurances that such material events and impacts will not occur in the future. Our efforts to deter, identify, mitigate and/or eliminate future breaches or cybersecurity incidents may require significant additional effort and expense and may not be successful.

In addition, there has recently been heightened regulatory and enforcement focus relating to the collection, use, retention, transfer, and processing of personal data in the U.S. (at both the state and federal level) and internationally, including the EU’s General Data Protection Regulation, the California Privacy Rights Act, the Virginia Consumer Data Protection Act, and other similar laws that have been or are expected to be enacted by other jurisdictions. In addition, China and certain other jurisdictions have enacted more stringent data localization requirements. An actual or alleged failure to comply with applicable data protection laws, regulations, or other data protection standards has in the past and may in the future expose us to litigation, fines, sanctions, or other penalties, which could harm our reputation and adversely affect our business, results of operations, and financial condition. The regulatory environment is increasingly challenging, based on discretionary factors, and difficult to predict. Consequently, compliance with applicable regulations in the various jurisdictions in which we do business may present material obligations and risks to our business, including significantly expanded compliance burdens, costs, and enforcement risks which are expected to increase over time; require us to make extensive system or operational changes; or adversely affect the cost or attractiveness of the services we offer.

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Failure to maintain our brand image and corporate reputation could materially adversely affect us.

Our success depends in part on our reputation and our ability to maintain the image of the UPS brand. Service quality issues, actual or perceived, could tarnish the image of our brand and may cause customers not to use UPS services. Also, adverse publicity or public sentiment surrounding labor relations, safety matters, environmental, sustainability and governance concerns, physical or cyber security matters, political activities and similar matters, or attempts to connect our company to such issues, either in the U.S. or elsewhere, could materially adversely affect us. For example, damage to our reputation or loss of brand equity could require the allocation of resources to rebuild our reputation and restore the value of our brand. The proliferation of social media may increase the likelihood, speed, and magnitude of negative brand events.

Global climate change could materially adversely affect us.

The effects of climate change present financial and operational risks to our business, both directly and indirectly. We have publicly stated our intention to reduce our carbon emissions, including our goal to achieve carbon neutrality in our global operations by 2050 and our other short- and mid-term environmental sustainability goals.

Our ability to meet our goals will depend in part on significant technological advancements, many of which are outside of our control. This includes the development and availability of reliable, affordable and low emission energy solutions, including sustainable aviation fuel and alternative fuel and battery electric vehicles. There can be no assurances that our goals and strategic plans to achieve those goals will be successful, that the related costs will not be higher than expected, that the necessary technological advancements will occur in the timeframe we expect, or at all, that the severity of and or the pace of negative climate-related effects will not accelerate faster than expected, or that proposed regulation or deregulation related to climate change will not have a negative competitive impact, any one of which could have a material adverse effect on our capital expenditures or other expenses, revenue or results of operations.

Furthermore, methodologies for reporting climate-related information may change and previously reported information may be adjusted to reflect new reporting protocols or regulations. Other changes could include improvements in the availability and quality of third-party data, changing assumptions, changes in the nature and scope of our operations and other changes in circumstances. Our processes and controls for reporting climate-related information across our operations are evolving along with multiple disparate standards for identifying, measuring and reporting sustainability metrics, including disclosures that may be required by the SEC, European and other regulators. Such standards may change over time, which could result in significant revisions to our current goals, reported progress in achieving such goals, or our ability to achieve such goals in the future. Changes in regulation or technology impacting our business could require us to write down the carrying value of assets, which could result in material impairment charges.

Moreover, we may determine that it is in our best interests to prioritize other business, social, governance or sustainable investments over the achievement of our current goals based on economic, regulatory or social factors, business strategy or other factors. If we do not meet these goals or there is perception that we failed to meet these goals, then, in addition to regulatory and legal risks related to compliance, we could incur adverse publicity and reaction, which could adversely impact our reputation, and in turn adversely impact our results of operations.

Severe weather or other natural or man-made disasters could materially adversely affect us.

The increased severity or frequency of certain weather conditions (including as a result of climate change) or other natural or man-made disasters, including storms, floods, fires, wind gusts, earthquakes, rising temperatures, epidemics, pandemics, conflicts, civil or political unrest, or terrorist attacks, have in the past and may in the future disrupt our business. Customers may reduce shipments, supply chains may be disrupted, demand may be negatively impacted, property may be damaged, employees may be injured, or our costs to operate our business may increase, any of which could have a material adverse effect on us. Any such event affecting one of our major facilities could result in a significant interruption in or disruption of our business. To the extent that weather conditions or other disasters become more frequent or severe, disruptions to our business and those of our customers and costs to repair damaged facilities or maintain or resume operations could increase. Furthermore, as a result of the impact of climate change on the frequency or severity of weather conditions and other disasters, insurance providers may reduce the availability or increase the cost of insurance.

Economic, political, or social developments and other risks associated with international operations could materially adversely affect us.

We have significant international operations and, as a result, we are exposed to changing economic, political and social developments in a number of countries, all of which are beyond our control. Emerging markets are often more volatile than those in other countries, and any broad-based downturn in these markets could reduce our revenues and materially adversely

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affect our business, financial condition and results of operations. We are subject to many laws governing our international operations, including those that prohibit improper payments to government officials and commercial customers, govern our environmental impact or labor matters, restrict where we can do business, regulate our shipments to certain countries and limit information that we can provide to non-U.S. governments. Our failure to manage and anticipate these and other risks associated with our international operations could materially adversely affect us.

Our inability to effectively integrate any acquired businesses and realize the anticipated benefits of any acquisitions, joint ventures or strategic alliances could materially adversely affect us.

From time to time we acquire businesses, form joint ventures and enter into strategic alliances. Whether we realize the anticipated benefits from these transactions depends, in part, upon successful integration between the businesses involved, the performance of the underlying operations, capabilities or technologies and the management of the acquired operations. Accordingly, our financial results could be materially adversely affected by our failure to effectively integrate acquired operations, unanticipated performance or other issues or transaction-related charges.

Financial Risks

Changing fuel and energy prices, including gasoline, diesel and jet fuel, and interruptions in supplies of these commodities could materially adversely affect us.

Fuel and energy costs have a significant impact on our operations. We require significant quantities of fuel for our aircraft and delivery vehicles and are exposed to the risks associated with variations in the market price for petroleum products, including gasoline, diesel and jet fuel. We seek to mitigate our exposure to changing fuel prices through our pricing strategy and have in the past and may in the future utilize hedging transactions. There can be no assurance that this strategy will be effective. If we are unable to maintain or increase our fuel surcharges, higher fuel costs could materially adversely impact our operating results. Even if we are able to offset changes in fuel costs with surcharges, high fuel surcharges have in the past, and may in the future result in a shift from our higher-yielding products to lower-yielding products or an overall reduction in volume, revenue and profitability. Moreover, we could experience a disruption in energy supplies as a result of new or increased regulation, war or other conflicts, weather-related events or natural disasters, actions by producers (including as part of their own sustainability efforts) or other factors beyond our control, which could have a material adverse effect on us.

Changes in foreign currency exchange rates or interest rates may have a material adverse effect on us.

We conduct business in a number of countries, with a significant portion of our revenue derived from operations outside the United States. Our international operations are affected by changes in the exchange rates for local currencies, in particular the Euro, British Pound Sterling, Canadian Dollar, Chinese Renminbi and Hong Kong Dollar.

We are exposed to changes in interest rates, primarily on our short-term debt and that portion of our long-term debt that carries floating interest rates. Additionally, changes in interest rates impact the valuation of our pension and postretirement benefit obligations and the related costs recognized in the statements of consolidated income. The impact of changes in interest rates on our pension and postretirement benefit obligations and costs, and on our debt, is discussed further in Part I, "Item 7 - Critical Accounting Estimates," and Part II, "Item 7A - Quantitative and Qualitative Disclosures about Market Risk", respectively, of this report.

We monitor and manage foreign currency exchange rate and interest rate exposures, and use derivative instruments to mitigate the impact of changes in these rates on our financial condition and results of operations; however, changes in foreign currency exchange rates and interest rates cannot always be predicted or effectively hedged, and may have a material adverse effect on us.

Our business requires significant capital and other investments; if we do not accurately forecast our future investment needs, we could be materially adversely affected.

Our business requires significant capital investments, including in aircraft, vehicles, technology, facilities and sortation and other equipment. In addition to forecasting our capital investment requirements, we adjust other elements of our operations and cost structure in response to economic and regulatory conditions. These investments support both our existing business and anticipated growth. Forecasting amounts, types and timing of investments involves many factors which are subject to uncertainty and may be beyond our control, such as technological changes, general economic trends, revenues, profitability, changes in governmental regulation and competition. If we do not accurately forecast our future capital investment needs, we could under- or over-invest, or have excess capacity or insufficient capacity, any of which could negatively affect our revenues and profitability.

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Employee health and retiree health and pension benefit costs represent a significant expense to us; further cost increases could materially adversely affect us.

Our employee health, retiree health and pension benefit expenses are significant. In recent years, we have experienced increases in some of these costs, in particular, increases in healthcare costs in excess of the rate of inflation and discount rates that we use to value our company-sponsored defined benefit plan obligations. Increasing healthcare costs, volatility in investment returns and discount rates, as well as changes in laws, regulations and assumptions used to calculate retiree health and pension benefit expenses, may materially adversely affect our business, financial condition, or results of operations, and have required, and may in the future require significant contributions to our benefit plans. Our national master agreement with the Teamsters includes provisions that are designed to mitigate certain healthcare expenses, but there can be no assurance that our efforts will be successful or that these efforts will not materially adversely affect us.

We participate in various trustee-managed multiemployer pension and health and welfare plans for employees covered under collective bargaining agreements. As part of the overall collective bargaining process for wage and benefit levels, we have agreed to contribute certain amounts to the multiemployer benefit plans during the contract period. The multiemployer benefit plans set benefit levels and are responsible for benefit delivery to participants. Future contribution amounts to multiemployer benefit plans will be determined through collective bargaining. However, in future collective bargaining negotiations, we could agree to make significantly higher future contributions to one or more of these plans. At this time, we are unable to determine the amount of additional future contributions, if any, or whether any material adverse effect on us could result from our participation in these plans.

Insurance and claims expense could materially adversely affect us.

We have a combination of both self-insurance and high-deductible insurance programs for the risks arising out of our business and operations, including claims exposure resulting from cargo loss, cyber-attacks, personal injury, property damage, aircraft and related liabilities, business interruption and workers' compensation. Self-insured workers' compensation, automobile and general liabilities are determined using actuarial estimates of the aggregate liability for claims incurred and an estimate of incurred but not reported claims, on an undiscounted basis. Our accruals for insurance reserves reflect certain actuarial assumptions and management judgments, which are subject to a high degree of variability. If the number, severity or cost of claims for which we retain risk continues to increase, our financial condition and results of operations could be materially adversely affected. If we lose our ability to, or decide not to, self-insure these risks, our insurance cost could materially increase and we may find it difficult to obtain adequate levels of insurance coverage.

Changes in markets and our business plans have resulted, and may in the future result, in substantial impairments of the carrying value of our assets, thereby reducing our net income.

We regularly assess the carrying values of our assets relative to their estimated fair values. If the carrying value of an asset exceeds its estimated fair value, we may be required to incur charges to reduce the carrying value thereof. The determination of fair value is dependent on a significant number of estimates and assumptions that could be impacted by a variety of factors, including changes in business strategy, revenue, expenses, government regulations, including regulation related to climate change, costs of capital and economic or market conditions. The use of different estimates or assumptions could also result in different estimates of fair value. Our estimates of fair value have resulted from time to time, and may in the future result, in substantial impairments of our assets. For example, during the year ended December 31, 2023, as a result of a number of factors including changes in business strategy and challenging macroeconomic conditions such as increases in the risk-free interest rate and volatility of the stock prices of market comparables, we incurred impairment charges of $125 and $111 million in respect of goodwill and indefinite-lived intangible assets, respectively. While we did not identify any impairment of goodwill during 2024, certain of our reporting units experienced a decrease in the excess of their estimated fair values over their respective carrying values. Additional decreases could result in goodwill or other impairment charges, which could be material. We have been and may be required in the future to recognize impairments of long-lived assets, including definite-lived intangible assets, property, plant and equipment and leases. Furthermore, we have been and may be required in the future to recognize increased depreciation and amortization charges if we determine the useful lives or salvage values of our assets are less than we originally estimated. Changes in our business plans, including anticipated changes to our network in 2025, have previously and may in the future lead to revisions in our estimates of useful lives or salvage values of our assets. Such charges have in the past, and may in the future, reduce our net income, potentially materially.

We may have significant additional tax liabilities that could materially adversely affect us.

We are subject to income taxes in the U.S. and many foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes. There are many transactions and calculations where the ultimate tax determination is uncertain.

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We are regularly under audit by tax authorities in many jurisdictions. Economic and political pressures to increase tax revenue may make resolving tax disputes more difficult. The final determination of tax audits and any related litigation could be materially different from our historical income tax provisions and accruals. In addition, changes in U.S. federal and state or international tax laws, other fundamental law changes currently being considered by many countries, and changes in taxing jurisdictions’ administrative interpretations, decisions, policies and positions may materially adversely impact our tax expense and cash flows.

Regulatory and Legal Risks

Increasingly complex and stringent laws, regulations and policies could materially increase our operating costs.

We are subject to complex and stringent aviation, transportation, environmental, security, labor, employment, safety, privacy, disclosure and data protection and other governmental laws, regulations and policies, both in the U.S. and internationally. In addition, we are impacted by laws, regulations and policies that affect global trade, including tariff and trade policies, export requirements, embargoes, sanctions, taxes, monetary policies and other restrictions and charges. Trade discussions and arrangements between the U.S. and various of its trading partners are fluid, and existing and future trade agreements are, and are expected to continue to be, subject to a number of uncertainties, including the imposition of new tariffs or adjustments and changes to the products covered by existing tariffs. The impact of new laws, regulations and policies or decisions or interpretations by authorities applying those laws and regulations, cannot be predicted. Compliance with any new laws, regulations or policies may increase our operating costs or require significant capital expenditures. Any failure to comply with applicable laws, regulations or policies in the U.S. or other countries could result in substantial fines or possible revocation of our authority to conduct our operations, which could materially adversely affect us. For example, as previously disclosed, the SEC recently investigated our controls and practices surrounding impairment analyses in connection with the divestiture of UPS Freight in April 2021. On November 22, 2024, we entered into a settlement with the SEC, without admitting or denying the SEC’s findings in connection with alleged violations of Section 17(a)(2) and (3) of the Securities Act of 1933 (and related provisions), resolving the investigation. Under the terms of the settlement, we agreed to pay a civil penalty, and agreed to remedial actions, training and process changes.

Increasingly stringent regulations related to climate change, including reporting obligations, could materially increase our operating costs.

Regulation and required disclosures of greenhouse gas ("GHG") emissions and related matters exposes us to potentially significant new taxes, fees, disclosure and compliance obligations and other costs. Compliance with such regulation, and any increased or additional regulation, or the associated costs is further complicated by the fact that various countries and regions may adopt different approaches to climate change regulation and disclosures.

In the U.S., Congress has considered but, to date, not passed various bills that would regulate GHG emissions. Nevertheless, we believe some form of federal climate change legislation is possible in the future. Even in the absence of such legislation, the Environmental Protection Agency could determine to regulate GHG emissions, especially aircraft or diesel engine emissions, and this could impose substantial costs on us.

International regulations also continue to increase and could materially increase our operating costs. For example, the ReFuelEU Aviation initiative, a European regulation, mandates jet fuel suppliers in Europe supply a target percentage of sustainable aviation fuel (“SAF”) at airports inside the European Union. The SAF target percentage starts at 2% in 2025 and increases to 70% by 2050. The cost of SAF can be higher than conventional jet fuel, and these suppliers can pass this cost along to purchasers, which can increase our operating costs, potentially significantly. In addition, the Carbon Offsetting and Reduction Scheme for International Aviation ("CORSIA"), a global, market-based emissions offset program to encourage carbon-neutral growth began a voluntary pilot phase in 2021, with mandatory participation scheduled to begin in 2027. Details regarding implementation of CORSIA continue to develop, and compliance may increase our operating costs, potentially significantly.

In addition, in January 2025, the President of the U.S. signed an executive order indicating that the U.S. would withdraw from the Paris Climate Accords. The effect that the withdrawal may have on future U.S. policy regarding GHG emissions, on CORSIA and on other GHG regulation remains uncertain. The extent to which other countries implement those accords could also have a material adverse effect on us.

Increased regulation relating to GHG emissions in the U.S. or abroad, especially aircraft, gasoline or diesel engine emissions, could, among other things, increase the cost of fuel and other energy we purchase and the capital costs associated with updating or replacing our aircraft or vehicles prematurely. We cannot predict the impact any future regulation will have on our cost structure or our operating results. It is likely that such regulation could significantly increase our operating costs and

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that we may not be willing or able to pass such costs along to our customers. Moreover, even without such regulation, increased awareness and any adverse publicity in the global marketplace about the GHGs emitted by companies in the airline and transportation industries could harm our reputation and reduce customer demand for our services, especially our air services.

Furthermore, many countries, as well as U.S. states, in which we operate or are subject to regulation have adopted, or are expected to adopt, additional requirements relating to the disclosure of GHG emissions and related matters. In many cases these requirements differ and may conflict from country to country. Compliance with these disclosure requirements may increase our operating costs or require significant management time and attention. Any failure to comply with applicable disclosure regulations in the U.S. (at either the federal or state level) or other countries could result in substantial fines or other penalties, which could materially adversely affect us.

We may be subject to various claims and lawsuits that could result in significant expenditures which may materially adversely affect us.

The nature of our business exposes us to the potential for various claims and litigation related to labor and employment, personal injury, property damage, business practices, environmental liability and other matters. Any material litigation or a catastrophic accident or series of accidents could result in significant expenditures and have a material adverse effect on us.

Item 1B.Unresolved Staff Comments

None.

Information About Our Executive Officers

For information about our executive officers, see Part III, "Item 10. Directors, Executive Officers and Corporate Governance".

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Item 1C. Cybersecurity

The Board regularly discusses our most significant risks and how these risks are being managed. The Board has appointed a Risk Committee, consisting entirely of independent directors, whose responsibilities include assisting the Board in overseeing management’s identification and evaluation of strategic enterprise risks, including risks associated with privacy, technology, information security, cybersecurity and cyber incident response and business continuity. The Risk Committee regularly updates the Board on these activities.

The Risk Committee oversees the Company’s approach to cybersecurity risk assessment and mitigation by, among other things, (i) reviewing the Company’s cybersecurity insurance program, (ii) reviewing the Company’s cybersecurity budget, (iii) discussing the results of various internal cybersecurity audits and periodic independent third-party assessments of the Company’s cybersecurity programs, (iv) being briefed on cybersecurity matters by outside experts, and (v) receiving regular updates from the Company’s Chief Information Security Officer (“CISO”) and others on cybersecurity risks, operational metrics, compliance and regulatory developments, training programs, risk mitigation activities, key projects and industry developments. The Company's Chief Legal and Compliance Officer ("CLCO"), Chief Digital and Technology Officer ("CDTO"), CISO and Vice President of Compliance and Internal Audit participate in Risk Committee meetings and meet individually with the Risk Committee on a periodic basis to discuss and address relevant matters, including the Company’s approach to cybersecurity risk assessment and mitigation. The CISO reports to the CDTO, who in turn reports to the Chief Executive Officer ("CEO"). The CISO has more than thirty years of IT experience, has served many years in various information security management roles and has multiple cybersecurity certifications.

The Company maintains an enterprise risk management process designed to identify potential events that may affect the achievement of the Company's objectives or have a material adverse effect on the Company. Cybersecurity is among the risks considered as a part of this process. The Company's management, including the CISO, also participates on the Company's Information Security & Privacy Governance Council (“ISPGC”). The ISPGC meets periodically to consider information security and privacy matters.

The Company utilizes various technical and qualitative processes to assist in identifying, assessing and managing cybersecurity risks. The Company's processes include periodic discussions and risk reviews with management. These processes also include, depending on facts and circumstances, internal audits, third-party assessments, post-remediation reviews, engagements with independent third-party service providers and key governmental agencies, regular employee training, an incident response plan and backup and recovery plans. Our periodic engagements with independent third-party service providers are designed to provide qualitative and technical cybersecurity assessments. The Company has a corporate-level cybersecurity team, led by the CISO, that, among other responsibilities, receives and reviews reports regarding potential threats, trends and remediation strategies. The cybersecurity team evaluates threat intelligence and information obtained from various sources, including internal, public or private sources, government agencies and external consultants. Certain of the Company's subsidiaries have separate cybersecurity teams that, along with the corporate-level cybersecurity team, play a role in the Company's efforts to monitor, identify, assess and manage cybersecurity risks.

The Company interacts with the information technology networks and systems of third parties for many aspects of our business. We consider and evaluate cybersecurity risks associated with the use of independent third-party service providers. To help UPS understand and mitigate potential cybersecurity risks related to third parties, we generally utilize measures such as vendor risk assessments, periodic technical assessments of third-party vendors' controls and contracts governing the use of and access to our data and compliance with our security requirements.

We maintain an Incident Response Plan that includes processes and procedures for reviewing and responding to cybersecurity incidents. We periodically test our readiness to respond to a cybersecurity incident through various scenario-based drills. The Incident Response Plan includes processes for escalation to the CISO, the Executive Leadership Team, including the CEO, the Risk Committee and the Board, and a process for consideration of whether a cybersecurity incident is material and may require disclosure in SEC filings.

For additional information on cybersecurity risks and the impact they may have on our business strategy, results of operations or financial condition see "Risk Factors – Business and Operating Risks – A significant cybersecurity incident, or increased data protection regulations, could materially adversely affect us".

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Item 2.Properties

Operating Facilities

We own our corporate headquarters in Atlanta, Georgia and our information technology headquarters, located in Parsippany, New Jersey. Our primary information technology operations are consolidated in an owned facility in New Jersey.

We own or lease approximately 1,000 package facilities in the U.S., with approximately 90 million square feet of floor space. These facilities have vehicles and drivers stationed for the pickup and delivery of packages, and capacity to sort and transfer packages. Our larger facilities also service our vehicles and equipment, and employ specialized mechanical equipment for the sorting and handling of packages. We own or lease approximately 800 facilities in our international package operations, with approximately 22 million square feet of floor space.

Our aircraft are operated in a hub and spoke pattern in the U.S., with our principal air hub, Worldport, located in Louisville, Kentucky. Our major air hub in Europe is located in Germany, and in Asia we operate multiple major air hubs in China and Hong Kong.

We own or lease more than 600 facilities, with approximately 47 million square feet of floor space, which support our freight forwarding and logistics operations. This includes approximately 16 million square feet of healthcare-compliant warehousing. We own and operate a logistics campus consisting of approximately 4 million square feet in Louisville, Kentucky.

We also own a number of ancillary properties that support our global operations.

Fleet

Aircraft

The following table shows information about our aircraft fleet as of December 31, 2024:

Boeing MD-11 29 — — —

Vehicles

As of December 31, 2024, we operated a global ground fleet of approximately 128,000 package cars, vans, tractors and motorcycles, including approximately 19,000 alternative fuel and advanced technology vehicles.

Item 3.Legal Proceedings

See note 10 to the audited, consolidated financial statements for a discussion of judicial proceedings and other matters arising from the conduct of our business activities.

Item 4.Mine Safety Disclosures

Not applicable.

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PART II

Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our class A common stock is not listed on a national securities exchange or traded in an organized over-the-counter market, but each share of our class A common stock is convertible into one share of our class B common stock. Our class B common stock is listed on the New York Stock Exchange under the symbol “UPS”.

As of February 3, 2025, there were 155,418 and 19,626 shareowners of record of our class A and class B common stock, respectively.

Our practice has been to pay dividends on a quarterly basis. The declaration of dividends is subject to the discretion of the Board of Directors and will depend on various factors, including our net income, financial condition, cash requirements, future prospects and other relevant factors.

On February 5, 2025, our Board declared a dividend of $1.64 per share, which is payable on March 6, 2025 to shareowners of record on February 18, 2025.

In January 2023, the Board of Directors approved a share repurchase authorization for $5.0 billion of class A and class B common stock. We did not repurchase any shares during the fourth quarter of 2024. During the year ended December 31, 2024, we repurchased 3.9 million shares of class B common stock for $500 million under this authorization. On February 3, 2025, we entered into an accelerated share repurchase agreement for $1.0 billion worth of shares. This agreement is expected to settle in the first quarter of 2025. We do not anticipate further share repurchases in 2025. As of December 31, 2024, we had $2.3 billion available under our share repurchase authorization.

For additional information on our share repurchase activities, see note 12 to the audited, consolidated financial statements.

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Shareowner Return Performance Graph

The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that the Company specifically incorporates such information by reference into such filing.

The following graph shows a five-year comparison of cumulative total shareowners’ returns for our class B common stock, the Standard & Poor’s 500 Index and the Dow Jones Transportation Average. The comparison of the total cumulative return on investment, which is the change in the stock price plus reinvested dividends for each of the quarterly periods, assumes that $100 was invested on December 31, 2019 in the Standard & Poor’s 500 Index, the Dow Jones Transportation Average and our class B common stock.

For information regarding our equity compensation plans, see Item 12 of this report.

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Item 6. [Reserved]

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Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are executing our Customer First, People Led and Innovation Driven strategy to grow in the most attractive parts of the market including healthcare, small and medium-sized businesses (“SMBs”) and International.

During 2024, we took several steps in furtherance of our strategy. We continued to focus on providing excellent service to our customers, delivering industry-leading on-time performance during 2024. Our Digital Access Program grew year over year, contributing to our consolidated volume growth and continued expansion within the United States ("U.S.") SMB market. Also in 2024, we executed on our Network of the Future initiatives, which are intended to enhance the efficiency of our network through automation and operational sort consolidation. For example, we are moving from a scanning to a sensing network through our Smart Package Smart Facility RFID initiative, which is helping us reduce manual scans and enhance package visibility for our customers. Additionally, we completed the onboarding of air cargo volumes from the United States Postal Service ("USPS"). Under our agreement with the USPS, UPS is the primary air cargo provider for the USPS within the United States. Within our international and healthcare operations, we expect to grow both organically and inorganically, having previously announced that we entered into agreements to acquire Estafeta, a leading domestic small package provider in Mexico, and Frigo-Trans, an industry-leading, complex healthcare logistics provider based in Germany. The acquisitions of Frigo-Trans and related entities were completed during January 2025, and the acquisition of Estafeta is expected to close in the first half of 2025, subject to customary regulatory reviews and approvals. In September 2024, we finalized the previously announced divestiture of our truckload brokerage business ("Coyote").

Effective January 1, 2025, we insourced the delivery of all SurePost volume, which we expect to result in additional deliveries within our network. We made this change in order to have greater operational control and maintain the service quality of this product. Also in January 2025, we implemented a 9.9% average rate increase on this product.

In the first quarter of 2025, as previously disclosed, we entered into an agreement in principle with our largest customer to significantly reduce the volume we deliver for them. We expect volume from this customer to decline to approximately 50% of year-end 2024 levels by mid-2026. We are making a deliberate shift in our business to increase our focus on growing higher yielding volume. We expect that these actions will result in a reduction in revenue within our U.S. Domestic Package segment, as described below, during 2025 relative to 2024.

In conjunction therewith, as disclosed on January 30, 2025, we are beginning a network reconfiguration within the U.S. which is expected to lead to consolidations of our facilities and workforce as well as an end-to-end process redesign through 2027. This network reconfiguration, which is an expansion of our Network of the Future program, is expected to result in exit activities that could result in the closure of up to 10% of our buildings in 2025, a reduction in the size of our vehicle and aircraft fleets, and a decrease in the size of our workforce, which we expect will lead to additional expense. We are not yet able to determine the specific assets or extent of our workforce that will be impacted by this network reconfiguration, the timing of those changes or any associated charges and expenses and therefore are not currently able to provide an estimate of the total cost or the cost by period. We expect that impacted assets will remain in use during some or all of the periods of our network reconfiguration.

We expect to partially offset the anticipated costs associated with this network reconfiguration through our Efficiency Reimagined initiatives. Efficiency Reimagined initiatives are an end-to-end process redesign being undertaken to align our organizational processes to the network reconfiguration. These initiatives are expected to yield approximately $1.0 billion in annualized savings, which we expect to begin realizing during 2025. We incurred related costs of $35 million for the three months ended December 31, 2024. We expect to incur related costs of approximately $300 to $400 million during 2025 and incremental costs in 2026 and 2027 to complete Efficiency Reimagined, primarily relating to outside professional service fees and severance costs.

We have two reportable segments: U.S. Domestic Package and International Package, which are together referred to as our global small package operations. Our remaining businesses are reported as Supply Chain Solutions. As of the fourth quarter of 2024 based on a change in our management reporting structure, U.S. Air Cargo is presented within our U.S. Domestic Package segment and prior periods have been recast. This recast did not have any impact on previously reported consolidated results.

We experienced volume and revenue growth in our global small package operations during the year, primarily the result of a strong second half of 2024. Within our U.S. Domestic Package operations, we captured growth through additional e-

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commerce customers and SMBs that leveraged our Digital Access Program. In our International Package operations, we experienced average daily volume growth in our export products, which drove a year-over-year revenue increase. In Supply Chain Solutions, revenue decreased for the year, driven by the impact of the divestiture of Coyote, partially offset by revenue growth in our other Supply Chain Solutions businesses. This growth was primarily due to the impact of the acquisition of MNX Global Logistics in the fourth quarter of 2023 and revenue growth in our freight forwarding business driven by continued strong market demand out of Asia.

During the year, we continued to execute on various initiatives under our previously announced transformation strategy programs, Transformation 2.0 and Fit to Serve, which are contributing to fundamental changes to our back-office technologies and organizational structure. We realized benefits from our Fit to Serve initiative during the year, which helped offset declines in operating profit. For additional information on these programs and the benefits, see “Supplemental Information - Items Affecting Comparability".

During 2024, we also returned cash to shareholders in the form of dividends of $6.52 per share, for a total of $5.4 billion, and $500 million of share repurchases. For the year, capital expenditures were $3.9 billion.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Highlights of our results for the years ended December 31, 2024 and 2023, which are discussed in more detail in the sections that follow, include (dollars in millions, except per share and per piece amounts):

Year Ended December 31, Change

Operating Margin 9.3 % 10.0 %

Average Daily Package Volume (in thousands) 22,418 22,290 0.6 %

•Average daily package volume in our global small package operations increased for the year primarily in our U.S. Domestic Package segment due to growth in our SurePost product, with those increases partially offset by the impact of planned volume reductions from our largest customer under the terms of our contract with them. Within our International package segment, challenging macroeconomic conditions led to a slight volume decline.

•Revenue was relatively flat for the year. Within our U.S. Domestic Package segment, revenue growth was attributable to air cargo and overall volume growth, but was largely offset by unfavorable shifts in product mix and declines in fuel surcharge revenue. In our International Package segment, revenue benefited from growth in our export products and increases in revenue per piece for our domestic products. Revenue in our Supply Chain Solutions businesses declined primarily as a result of the September 2024 divestiture of Coyote, with the decline partially offset by growth in Logistics and our other businesses.

•Operating expenses increased for the year, primarily due to increased compensation expense in our U.S. Domestic Package segment as a result of higher wage rates paid to our Teamster employees. These increases were partially offset by decreases in the costs of operating our integrated air and ground network, benefits from our Fit to Serve initiative, as well as a gain related to the divestiture of Coyote.

•Operating profit and operating margin decreased for the year as revenue increases only partly offset the operating expense increases.

•Net income was $5.8 billion and diluted earnings per share were $6.75 for the year. Non-GAAP adjusted diluted earnings per share were $7.72 for the year after adjusting for the after-tax impacts of:

◦a gain on the divestiture of Coyote of $152 million or $0.18 per diluted share;

◦a payment, including interest, to settle a one-time international regulatory matter of $94 million, or $0.11 per diluted share;

◦non-cash asset impairment charges of $81 million, or $0.09 per diluted share;

◦total transformation strategy costs of $245 million, or $0.29 per diluted share;

◦a charge related to a regulatory matter unrelated to our ongoing operations of $45 million, or $0.05 per diluted share;

◦an expense to withdraw from a multiemployer pension plan of $14 million, or $0.02 per diluted share; and

◦defined benefit pension and postretirement medical benefit plan mark-to-market loss outside of a 10% corridor of $506 million, or $0.59 per diluted share.

For additional operational results for the quarter and year-to-date periods specific to our segments: U.S. Domestic Package, International Package and Supply Chain Solutions refer to the respective segment discussions below.

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2023 compared to 2022

See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company's Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission on February 20, 2024.

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Supplemental Information - Items Affecting Comparability

We supplement the reporting of our financial information determined under generally accepted accounting principles ("GAAP") with certain non-GAAP adjusted financial measures.

Non-GAAP adjusted financial measures should be considered in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP. Our non-GAAP adjusted financial measures do not represent a comprehensive basis of accounting and therefore may not be comparable to similarly titled measures reported by other companies.

Non-GAAP adjusted amounts reflect the following (in millions):

Year Ended December 31,

Operating Expenses:

Transformation Strategy Costs:

Transformation 1.0 $ — $ 13

Transformation 2.0

Spans and Layers — 86

Business Portfolio Review 29 84

Financial Systems 54 36

Other Initiatives — 4

Network Reconfiguration and Efficiency Reimagined 35 —

Total Transformation Strategy Costs 322 435

Gain on Divestiture of Coyote (156) —

One-Time Payment for International Regulatory Matter 88 —

Goodwill and Asset Impairment Charges 108 236

One-Time Compensation Payment — 61

Expense for Regulatory Matter 45 —

Multiemployer Pension Plan Withdrawal Expense 19 —

Total Adjustments to Non-GAAP Operating Expenses $ 426 $ 732

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Other Income and (Expense):

Defined Benefit Pension and Postretirement Medical Plan Loss $ 665 $ 359

Total Adjustments to Non-GAAP Other Income and (Expense) $ 671 $ 359

Total Adjustments to Non-GAAP Income Before Income Taxes $ 1,097 $ 1,091

Income Tax (Benefit) Expense:

Transformation Strategy Costs:

Transformation 1.0 $ — $ 3

Transformation 2.0

Spans and Layers — 21

Business Portfolio Review 7 15

Financial Systems 13 10

Other Initiatives — 1

Network Reconfiguration and Efficiency Reimagined 8 —

Total Transformation Strategy Costs 77 102

Gain on Divestiture of Coyote (4) —

One-Time Payment for International Regulatory Matter — —

Goodwill and Asset Impairment Charges 27 43

One-Time Compensation Payment — 15

Expense for Regulatory Matter — —

Multiemployer Pension Plan Withdrawal Expense 5 —

Defined Benefit Pension and Postretirement Medical Plan Loss 159 85

Total Adjustments to Non-GAAP Income Tax Expense $ 264 $ 245

Total Adjustments to Non-GAAP Net Income $ 833 $ 846

The income tax impacts of these items are calculated by multiplying the statutory tax rates applicable in each tax jurisdiction, including the U.S. federal jurisdiction and various U.S. state and non-U.S. jurisdictions, by the tax-deductible adjustments. The blended average effective income tax rates for the years ended December 31, 2024 and 2023 were 24.1% and 22.5%, respectively.

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We supplement the presentation of operating profit, operating margin, income before income taxes, net income and earnings per share with non-GAAP measures that exclude the impact of the following items:

Transformation Strategy Costs

We exclude the impact of charges related to activities within our transformation strategy. Our transformation activities have spanned several years to fundamentally change the spans and layers of our organization structure, processes, technologies and the composition of our business portfolio. While earlier stages of these transformation activities were complete in 2023 (Transformation 1.0), certain systems implementations and portfolio review activities (Transformation 2.0) are ongoing and expected to continue through 2025. We previously announced initiatives under Fit to Serve to right-size our business which resulted in a workforce reduction of approximately 14,000 positions, primarily within management, throughout 2024 and contributed to a more efficient operating model and enhanced responsiveness to changing market dynamics. Various circumstances precipitated these initiatives, including identification and prioritization of investments as a result of executive leadership changes, developments and changes in competitive landscapes, inflationary pressures, consumer behaviors, and other factors including post-COVID normalization and volume diversions attributed to our 2023 labor negotiations.

Our transformation strategy has included the following programs and initiatives:

Transformation 1.0: In the first quarter of 2018, we announced and began implementation of a multi-year, enterprise-wide program contemplating a reduction in non-operations management personnel, investments impacting global direct and indirect operating costs, and changes in processes and technology, which were undertaken and completed as multiple discrete initiatives (such projects, collectively, “Transformation 1.0”). In 2018, we announced that we expected to achieve approximately $1.0 billion in savings, which would benefit earnings, from Transformation 1.0. On a cumulative basis and net of amounts reinvested into the business, we had substantially achieved the expected benefits associated with Transformation 1.0 as of the second quarter of 2020. Transformation 1.0 was completed in 2023.

Transformation 2.0: Based on a number of factors including evaluating efficiencies gained as a part of Transformation 1.0, and in connection with changes in our executive leadership in 2020, we identified and reprioritized certain then-current and future investments, including additional investments in our workforce, portfolio of businesses and technology (such projects, collectively, “Transformation 2.0”). Specifically, we identified opportunities to reduce spans and layers of management, began a review of our business portfolio and identified opportunities to invest in certain technologies, including financial reporting and certain schedule, time and pay systems, to reduce global indirect operating costs, provide better visibility, and reduce reliance on legacy systems and coding languages. Our organizational structure review indicated an opportunity to realize initial savings of approximately $400 million with potential opportunities to save up to an additional $240 million through the reduction of spans and layers of management with an anticipation that these savings would be recurring. The business portfolio review was expanded in 2022. As a result, we determined to exit certain businesses that were not aligned with our corporate strategy and determined to make new investments into certain businesses, including healthcare-focused businesses, better aligned to our strategic targets. In connection therewith, we incurred costs primarily consisting of outside professional fees related to these reviews and other costs associated with these transactions. Lastly, our review of our systems and technologies identified certain areas of our business that were reliant on outdated technologies. Our reviews determined that continued use of these legacy technologies would likely increase maintenance costs and that investments into new technologies would enhance our ability to leverage our data and allow us to establish a more flexible system architecture. As of December 31, 2023, we substantially completed our initiatives to reduce spans and layers of management and achieved savings in line with our anticipated benefits. Our ongoing efforts under Transformation 2.0 include initiatives related to our financial systems and our business portfolio review. As of December 31, 2024, we have incurred $798 million of costs as part of Transformation 2.0. Transformation 2.0 initiatives are expected to conclude during 2025 with anticipated remaining costs of approximately $90 million primarily related to completion of our technology initiatives. Costs associated with Transformation 2.0 have primarily consisted of compensation and benefit costs related to reductions in our workforce and fees paid to third-party consultants. Additional detail relating to the projects, initiatives and timing of costs as a part of Transformation 2.0 are contained in the table above. Investments in technology are expected to provide enhanced quality of reporting for both internal and external purposes in part through simplification and standardization of data to better enable migration into cloud-based tools and automation of manual activities, including transitioning general ledger, consolidation, and planning tools along with U.S. payroll from older programs and software supporting our freight forwarding business. These efforts to enhance our technology are expected to reduce the need for future investments; we expect to begin to realize benefits therefrom in 2025. Investments in our business portfolio review are expected to lead to better alignment of our businesses in support of our corporate strategy. We are realigning businesses within Supply Chain Solutions to better execute our strategy; the operational performance of these businesses is included in our GAAP and non-GAAP adjusted results.

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Fit to Serve: In 2023, a number of factors, including macroeconomic headwinds and volume diversion resulting from our labor negotiations with the International Brotherhood of Teamsters, contributed to volume declines in our U.S. Domestic Package business. In addition, our International Package and Supply Chain Solutions businesses were also negatively impacted by a number of challenging macroeconomic conditions during 2023. In response to these factors, we began to undertake our Fit to Serve initiative with the intent to right-size our business to create a more efficient operating model that was more responsive to market dynamics through a workforce reduction of approximately 14,000 positions, primarily within management, throughout 2024. We have incurred total costs of $416 million under Fit to Serve, which primarily consist of benefit costs related to reductions in our workforce. We expect to complete this initiative during 2025 with expected remaining costs of approximately $45 million. We achieved savings of approximately $1.0 billion in 2024 through reductions in our compensation and benefit expense.

Network Reconfiguration and Efficiency Reimagined: On January 30, 2025, in connection with our agreement in principle with our largest customer, we announced a network reconfiguration which is expected to lead to consolidations of our facilities and workforce as well as end-to-end process redesign from 2025 through 2027. Our network reconfiguration is expected to result in exit activities that could result in the closure of up to 10% of our buildings in 2025, a reduction in the size of our vehicle and aircraft fleets, and a decrease in the size of our workforce. The costs directly associated with these exit activities are in addition to operational costs that we may incur. We are not yet able to determine the specific assets or extent of our workforce that will be impacted by our network redesign, the timing of those future changes or the associated charges we will incur and therefore are not currently able to provide an estimate of the total cost or the cost by period. We expect that impacted assets will remain in use during some or all of the periods of our network reconfiguration.

We expect to partially offset costs to complete our network reconfiguration through end-to-end process redesign carried out during our network reconfiguration through our Efficiency Reimagined initiatives. These initiatives are being undertaken to align our organizational processes to the operational changes expected to occur in our network reconfiguration and drive organizational efficiency. These initiatives are expected to yield approximately $1.0 billion in annualized savings beginning in 2025. We incurred related costs of $35 million in the year ended December 31, 2024. We expect to incur related costs of approximately $300 to $400 million during 2025, and incremental costs in 2026 and 2027, to complete the program which will primarily consist of outside professional services and severance costs. Upon the completion of our network reconfiguration and Efficiency Reimagined initiatives, we expect to realize further benefits in subsequent periods from lower expense, including depreciation, compensation and benefits, as well as lower capital requirements.

We do not consider the related costs to be ordinary because each program involves separate and distinct activities that may span multiple periods and are not expected to drive incremental revenue, and because the scope of the programs exceeds that of routine, ongoing efforts to enhance profitability. These initiatives are in addition to ordinary, ongoing efforts to enhance our business performance.

For more information regarding transformation strategy activities, see note 18 to the audited, consolidated financial statements.

Gain on Divestiture of Coyote

In the third quarter of 2024, we completed the previously announced divestiture of Coyote. In connection therewith, we recorded a pre-tax gain of $156 million ($152 million after tax) during the year ended December 31, 2024. The gain was recognized within Other expenses in the statements of consolidated income. We supplement the presentation of operating profit, operating margin, income before income taxes, net income and earnings per share with non-GAAP measures that exclude the impact of this gain as it is not a component of our ongoing operations and is not expected to recur. For more information regarding the gain on divestiture of Coyote, see note 8 to the audited, consolidated financial statements.

One-Time Payment for International Regulatory Matter

In the second quarter of 2024, we made a payment of $94 million of previously restricted cash to settle a previously-disclosed challenge by Italian tax authorities to the deductibility of Value Added Tax payments by UPS to certain third-party service providers. We supplement the presentation of operating profit, operating margin, interest expense, total other income and (expense), income before income taxes, net income and earnings per share with non-GAAP measures that exclude the impact of this payment. We do not believe this is a component of our ongoing operations and we do not expect this or similar payments to recur.

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Goodwill and Asset Impairment Charges

We exclude the impact of goodwill and asset impairment charges which we do not consider when evaluating the operating performance of our business units, making decisions to allocate resources or in determining incentive compensation awards. For more information regarding goodwill and current year asset impairment charges, see note 7 to the audited, consolidated financial statements.

One-Time Compensation Payment

We exclude the impact of a one-time payment made to certain U.S.-based, non-union part-time supervisors following the ratification of our labor agreement with the Teamsters in 2023. We do not expect this or similar payments to recur.

Expense for Regulatory Matter

We exclude the impact of a charge to settle a regulatory matter that we consider to be unrelated to our ongoing operations and that we do not expect to recur. For more information regarding this regulatory matter, see note 10 to the audited, consolidated financial statements.

Multiemployer Pension Plan Withdrawal Expense

We exclude the impact of a charge related to the withdrawal from a multiemployer pension plan within the United States. We do not consider this expense to be related to our ongoing operations. For more information regarding our multiemployer pension plans, see note 6 to the audited, consolidated financial statements.

Defined Benefit Pension and Postretirement Medical Plan Gains and Losses

We incur certain employment-related expenses associated with pension and postretirement medical benefits. These pension and postretirement medical benefits costs for company-sponsored defined benefit plans are calculated using various actuarial assumptions and methodologies, including discount rates, expected returns on plan assets, healthcare cost trend rates, inflation, compensation increase rates, mortality rates and coordination of benefits with plans not sponsored by UPS. Actuarial assumptions are reviewed on an annual basis, unless circumstances require an interim remeasurement of any of our plans.

We recognize changes in the fair value of plan assets and net actuarial gains and losses in excess of a 10% corridor (defined as 10% of the greater of the fair value of plan assets or the plan's projected benefit obligation), as well as gains and losses resulting from plan curtailments and settlements, for our defined benefit pension and postretirement medical plans immediately as part of Investment income (expense) and other in the statements of consolidated income. We supplement the presentation of our income before income taxes, net income and earnings per share with adjusted measures that exclude the impact of these gains and losses and the related income tax effects. We believe excluding these defined benefit pension and postretirement medical plan gains and losses provides important supplemental information by removing the volatility associated with plan amendments and short-term changes in market interest rates, equity values and similar factors.

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The remeasurement of our defined benefit pension and postretirement medical plans' assets and liabilities resulted in losses of $0.7 and $0.4 billion for the years ended December 31, 2024 and 2023, respectively. The table below shows the amounts associated with each component of the loss, as well as the weighted-average actuarial assumptions used to determine our net periodic benefit cost, for each year:

Year Ended December 31,

Demographic and other assumption changes 120 4

Total mark-to-market loss 665 351

Curtailment and settlement loss — 8

Total defined benefit pension and postretirement medical plan loss $ 665 $ 359

Year Ended December 31,

Weighted-average actuarial assumptions: 2024 2023

Actual rate of return on plan assets (1.29) % 6.64 %

Discount rate used in determining net periodic benefit cost 5.40 % 5.77 %

Discount rate at measurement date 5.85 % 5.40 %

Pre-tax defined benefit plan gains and losses for the years ended December 31, 2024 and 2023 consisted of the following:

2024 - $0.7 billion pre-tax defined benefit plan loss:

•Discount Rates ($127 million pre-tax gain): The weighted-average discount rate for our pension and postretirement medical plans increased from 5.40% as of December 31, 2023 to 5.85% as of December 31, 2024, primarily due to an increase in treasury yields on AA-rated corporate bonds.

•Return on Assets ($672 million pre-tax loss): The actual rate of return on plan assets in our U.S. pension plans was lower than our expected rate of return, primarily due to weaker than expected bond market performance.

•Demographic and Other Assumption Changes ($120 million pre-tax loss): This loss was due to differences between actual and estimated participant data and demographic factors, including healthcare cost trends, compensation rate increases and rates of termination, retirement and mortality.

2023 - $0.4 billion pre-tax defined benefit plan loss:

•Discount Rates ($384 million pre-tax loss): The weighted-average discount rate for our pension and postretirement medical plans decreased from 5.77% as of December 31, 2022 to 5.40% as of December 31, 2023, primarily due to a decrease in credit spreads on AA-rated corporate bonds in 2023.

•Return on Assets ($37 million pre-tax gain): The actual rate of return on plan assets in certain of our pension plans was higher than our expected rate of return, primarily due to strong global equity market performance.

•Demographic and Other Assumption Changes ($4 million pre-tax loss): This loss was due to differences between actual and estimated participant data and demographic factors, including healthcare cost trends, compensation rate increases and rates of termination, retirement and mortality.

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Non-GAAP Adjusted Cost per Piece

We evaluate the efficiency of our operations using various metrics, including non-GAAP adjusted cost per piece. Non-GAAP adjusted cost per piece is calculated as non-GAAP adjusted operating expenses in a period divided by total volume for that period. Because non-GAAP adjusted operating expenses exclude costs or charges that we do not consider a part of underlying business performance when monitoring and evaluating the operating performance of our business units, making decisions to allocate resources or in determining incentive compensation awards, we believe this is the appropriate metric on which to base reviews and evaluations of the efficiency of our operational performance.

Expense Allocations

Certain operating expenses are allocated between our operating segments using activity-based costing methods. These activity-based costing methods require us to make estimates that impact the amount of each expense category that is attributed to each segment. Changes in these estimates directly impact the amount of expense allocated to each segment and therefore the operating profit of each reporting segment. Our allocation methodologies are refined periodically, as necessary, to reflect changes in our businesses. There were no significant changes to our allocation methodologies for 2024 relative to 2023.

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U.S. Domestic Package

Year Ended December 31, Change

Average Daily Package Volume (in thousands):

Average Revenue Per Piece:

Operating Days in Period 253 254

Revenue (in millions):

Operating Expenses (in millions):

Non-GAAP adjustments to operating expenses

Goodwill and Asset Impairment Charges (5) — (5) N/A

One-Time Compensation Payment — (61) 61 (100.0) %

Multiemployer Pension Plan Withdrawal Expense (19) — (19) N/A

Operating Profit (in millions) and Operating Margin:

Operating Margin 7.2 % 8.6 %

Non-GAAP Adjusted Operating Margin 7.5 % 9.1 %

Revenue

The change in revenue was due to the following factors:

Comparative results were impacted by having one less operating day in 2024 compared to 2023. The growth in rates / product mix shown above includes the growth we experienced in our air cargo product during 2024 as we onboarded more air cargo under our contract with the USPS. Air cargo is measured by weight, not on a per piece basis, and therefore does not impact the volume and revenue per piece discussions below. We expect continued growth in this product during 2025.

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Volume

We returned to annual average daily volume growth in 2024 for the first time in three years, driven primarily by increases in our SurePost product. The increase occurred across multiple industries including retail, professional services and healthcare, and was led by our addition of e-commerce customers and more SMBs leveraging our Digital Access Program. This growth more than offset the volume decline from our largest customer as we continued to reduce their volume with us as planned. As previously disclosed, we expect average daily volume to decline by approximately 8.5% in 2025 as we execute on our plans to accelerate the volume reductions from our largest customer. We expect these volume decreases will be more pronounced during the second half of 2025 as planned volume reductions increase.

Business-to-consumer volume increased 3.0% during the year, due primarily to volume from the additional e-commerce customers noted above, and continued growth in online consumer spending.

Business-to-business volume decreased 2.6%, primarily due to challenging macroeconomic factors and a slowdown in manufacturing activity which were partially offset by returns volume increases as a result of growth in e-commerce activity.

Within our Air products, average daily volume decreased 9.1% during the year, driven by continued reductions in air volume from our largest customer as planned, as well as by other customers that made cost trade-offs and utilized the enhanced speed in our ground network. While air volume is expected to decline in 2025 due to our largest customer, these declines are expected to be partially offset by growth from SMB and Enterprise accounts.

Ground commercial average daily volume decreased 2.4%, primarily driven by declines across certain large customers and SMBs, partially offset by continued growth within our Digital Access Program. Ground residential average daily volume increased 6.1%, primarily due to an increase in SurePost volume from e-commerce customers. We expect our ground volumes will decrease in 2025 due to the planned volume reductions from our largest customer. We expect that continued growth in SMBs will partially offset these anticipated declines. We expect that our recent pricing actions on our SurePost product may result in SurePost volume declines. The insourcing of our SurePost product does not affect our measurement of average daily volume.

Revenue Per Piece

Revenue per piece declined 0.5% for the year due primarily to the decrease in fuel surcharges discussed below. The negative impact of changes in product mix, including an increase in lighter weight, shorter zone shipments, were partially offset by the positive impact of pricing actions to address revenue quality, including demand related surcharges, which led to sequential improvement in the revenue per piece growth rate during the second half of the year. In December 2023, we implemented an average 5.9% net increase in base and accessorial rates for both our Air and Ground products. Revenue per piece from our Air products increased due to changes in customer mix while revenue per piece from our Ground products declined due to changes in both customer and product mix.

We expect revenue per piece to increase during 2025 as we focus on growing higher yielding volume from customers that value our end-to-end integrated network and the impact of an average 5.9% net increase in base and accessorial rates implemented in December 2024.

Fuel Surcharges

We apply a fuel surcharge on our domestic air and ground services that adjusts weekly. Our air fuel surcharge is based on the U.S. Department of Energy's ("DOE") Gulf Coast spot price for a gallon of kerosene-type fuel, and our ground fuel surcharge is based on the DOE's On-Highway Diesel Fuel price.

In 2024, fuel surcharge revenue decreased $270 million, driven by reductions in the price per gallon, partially offset by increases in volume and the impact of our pricing initiatives. Based on the anticipated declines in volume, we expect fuel surcharge revenue to decrease in 2025.

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Operating Expenses

Operating expenses and non-GAAP adjusted operating expenses increased year over year. Pickup and delivery costs increased $1.1 billion and package sortation costs increased $291 million, slightly offset by a $173 million decrease in the costs of operating our integrated air and ground network, a decrease in other operating costs of $53 million and the impact from one less operating day in 2024 compared to 2023.

The cost increases were primarily due to an increase of $1.4 billion in compensation and benefits expense which was driven by the impact of wage and benefit rate increases for our union workforce under our contract with the International Brotherhood of Teamsters ("IBT"), which became effective August 1, 2023. Third-party delivery costs for our SurePost product increased $213 million due to higher SurePost volume.

The cost decreases were primarily due to a reduction in fuel expense, driven by decreases in the cost of jet and ground fuel, a decrease in worker's compensation expense and the impact of reductions in our workforce under our Fit to Serve initiative.

As of the fourth quarter of 2024, U.S. air cargo operating expense is presented within our U.S. Domestic Package segment and prior periods have been recast.

Our non-GAAP adjusted operating expenses in this segment exclude the impact of total transformation strategy costs of $147 million, a pre-tax charge to withdraw from a multiemployer pension plan of $19 million and asset impairment charges of $5 million. Total transformation strategy costs within the segment during 2024 were related to our Fit to Serve, Transformation 2.0 and Efficiency Reimagined programs. Within these programs, we incurred compensation and benefits costs related to workforce reductions as we right-size our business. Additionally, within Transformation 2.0 and Efficiency Reimagined, we incurred costs related to outside professional service providers. For additional information on these enterprise programs, our expected benefits and the related costs, see “Supplemental Information - Items Affecting Comparability”.

Cost per piece increased 0.6% for the year and non-GAAP adjusted cost per piece increased 0.8%, as expense increases, driven by an increase in compensation and benefits expense, outpaced growth in average daily volume. Cost per piece is expected to increase during 2025 as we expect to incur costs to further our strategic initiatives and we expect average daily volume to decrease as discussed above.

Operating Profit and Margin

As a result of the factors described above, operating profit decreased $811 million, with operating margin decreasing 140 basis points to 7.2%. Non-GAAP adjusted operating profit decreased $967 million, with non-GAAP adjusted operating margin decreasing 160 basis points to 7.5%.

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International Package

Year Ended December 31, Change

Average Daily Package Volume (in thousands):

Total Average Daily Package Volume 3,257 3,260 (0.1) %

Average Revenue Per Piece:

Operating Days in Period 253 254

Revenue (in millions):

Operating Expenses (in millions):

Non-GAAP adjustments to operating expenses

One-Time Payment for Int'l Regulatory Matter (88) — (88) N/A

Asset Impairment Charges (2) — (2) N/A

Transformation Strategy Costs (79) (51) (28) 54.9 %

Operating Profit (in millions) and Operating Margin:

Non-GAAP Adjusted Operating Profit $ 3,360 $ 3,282 $ 78 2.4 %

Non-GAAP Adjusted Operating Margin 18.7 % 18.4 %

Currency Translation Benefit / (Cost)—(in millions)*:

Operating Expenses 67

Operating Profit $ (48)

Revenue

The change in revenue was due to the following:

Comparative results were impacted by having one less operating day in 2024 compared to 2023.

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Volume

Average daily volume was relatively flat during 2024 as decreases in our domestic products were largely offset by growth in our export products. We expect our expanded weekend deliveries and anticipated improvements in macroeconomic conditions to contribute to volume growth in 2025, subject to uncertainty around the impact of global trade policies.

Domestic volume declines were largest in Europe, partially offset by growth in the Americas. Volume declines in Europe were primarily driven by challenging economic conditions which began to moderate during the year. Volume growth in the Americas was largely driven by the Canadian retail sector during the fourth quarter as a result of temporary supply chain disruptions, which ended in December 2024.

Export volume increased for the year, driven by continued growth on Americas and Asia to U.S. trade lanes and U.S. to Americas trade lanes. Improvements in the Americas to U.S. trade lanes were driven by growth in the retail sector, while the Asia to U.S. trade lanes growth was driven by increased SMB volume in retail, high tech and manufacturing sectors.

By export product, growth in our non-premium products more than offset a slight decline in our premium offerings. Volume in our non-premium export products increased 3.2%, driven by growth in our Transborder Standard products from customers in the retail sector in Canada, as well as European healthcare and diversified vehicles and parts customers. Non-premium product growth was also driven by an increase in our Worldwide Expedited products, primarily due to increases in the retail sector within Asia. Our premium export products experienced a volume decline of 1.3%, primarily driven by reductions in our Worldwide Express and Transborder Express products, as customers shifted toward economy products. Volume growth in our Worldwide Express Saver product largely offset these declines, driven by growth across multiple sectors within Asia and Europe.

Revenue Per Piece

Total revenue per piece increased 1.5% during 2024, primarily due to base rate increases. Currency had a negative impact of 70 basis points on revenue per piece due to strengthening of the U.S. Dollar. Rate changes for shipments originating outside the U.S. are made throughout the year and vary by geographic market. We expect overall revenue per piece to slightly increase in 2025 driven by favorable trends in product mix and the impact of increases in base and accessorial rates implemented in December 2024.

Domestic revenue per piece increased 4.1%, primarily due to base rate increases and favorable shifts in customer mix. Currency had a negative impact of 140 basis points on domestic revenue per piece.

Export revenue per piece decreased 0.6%, driven by lower fuel surcharge rates and unfavorable product mix shifts. These decreases were mostly offset by base rate increases and adjustments to demand-related surcharges introduced during the second half of the year. Demand-related surcharges are expected to decline in 2025, subject to market conditions. Currency had a negative impact of 50 basis points on export revenue per piece.

Fuel Surcharges

The fuel surcharge we apply to international air services originating inside or outside the U.S. is largely indexed to the DOE's Gulf Coast spot price for a gallon of kerosene-type jet fuel. The fuel surcharges for ground services originating outside the U.S. are indexed to fuel prices in the region or country where the shipment originates.

Total international fuel surcharge revenue decreased by $10 million, driven primarily by a decrease in the fuel price per gallon, which was mostly offset by increased export volumes. We anticipate an increase in fuel surcharge revenue in the first half of 2025, driven by an expectation of increased volume partially offset by lower anticipated fuel prices.

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Operating Expenses

Operating expenses, and non-GAAP adjusted operating expenses, increased year over year. Pickup and delivery costs increased $187 million driven by increased total delivery stops and costs of purchased transportation. Package sortation costs increased $54 million, as a result of higher year-over-year export volumes, and expanded weekend operations, included in this activity are compensation and benefit costs. Additionally, we incurred an $88 million expense during 2024 related to the settlement of a previously disclosed one-time international regulatory matter. These increases were partially offset by reductions in air network costs of $126 million, driven by lower average fuel prices and reductions in air charters and aircraft block hours in response to lower volumes in the first half of the year. We expect overall operating expenses to increase in 2025 primarily as a result of expected volume increases.

Non-GAAP adjusted operating expenses in 2024 exclude the impact of the $88 million regulatory expense noted above, $2 million in asset impairment charges and $79 million in transformation strategy expenses. Transformation strategy activities within our International Package segment during 2024 primarily consisted of compensation and benefits expenses related to workforce reductions under our Fit to Serve program. For additional information on these programs and the related costs, see “Supplemental Information - Items Affecting Comparability.”

Operating Profit and Margin

As a result of the factors described above, operating profit decreased $40 million, with operating margin decreasing 30 basis points to 17.8%. Non-GAAP adjusted operating profit increased $78 million and non-GAAP adjusted operating margin increased 30 basis points to 18.7%.

During 2024, we completed the previously disclosed liquidation of our Small Package subsidiaries in Russia and Belarus. The process of liquidating our Forwarding and Logistics subsidiaries in Russia are on-going and we expect to finalize the liquidation in 2025. Substantially all of our operations in Ukraine remain indefinitely suspended. These actions have not had, and are not expected to have, a material impact on us.

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Supply Chain Solutions

Year Ended December 31, Change

Revenue (in millions):

Operating Expenses (in millions):

Transformation Strategy Costs (96) (118) 22 (18.6) %

Gain on Divestiture of Coyote 156 — 156 N/A

Goodwill and Asset Impairment Charges (101) (236) 135 (57.2) %

Expense for Regulatory Matter (45) — (45) N/A

Operating Profit (in millions) and Operating Margins:

Operating Margin 7.3 % 5.8 %

Non-GAAP Adjusted Operating Margin 8.0 % 8.6 %

Currency Translation Benefit / (Cost)—(in millions)*:

Revenue (68)

Operating Expenses 86

Operating Profit 18

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Year Ended December 31, Change

Non-GAAP adjustments to Operating Expenses (in millions):

Transformation Strategy Costs

Total Transformation Strategy Costs 96 118 (22) (18.6) %

Gain on Divestiture of Coyote

Total Gain on Divestiture of Coyote (156) — (156) N/A

Goodwill and Asset Impairment Charges

Total Goodwill and Asset Impairment Charges 101 236 (135) (57.2) %

Expense for Regulatory Matter

Other SCS 45 — 45 N/A

Total Expense for Regulatory Matter 45 — 45 N/A

Total non-GAAP Adjustments to Operating Expenses $ 86 $ 354 $ (268) (75.7) %

Revenue

Total revenue within Supply Chain Solutions decreased, primarily driven by the September 2024 divestiture of Coyote. These reductions were partially offset by growth in Logistics and certain of our other businesses.

Within our Logistics businesses revenue increased $510 million. The acquisition of MNX Global Logistics in the fourth quarter of 2023 contributed $303 million of the increase, including revenue related to healthcare customers. Revenue in mail services increased $206 million driven by new customer volume and rate increases in the second half of the year. We expect continued growth within our Logistics businesses in 2025, driven by expected growth from our healthcare customers.

Within our Forwarding businesses, revenue decreased $806 million. Revenue from Coyote decreased $976 million due to lower volumes, continued softness in market rates, and the completion of the divestiture. International airfreight revenue increased $52 million, primarily due to increases in market rates. Volume also grew during the year, particularly on the Asia export lanes, driven by growth from e-commerce customers. We expect revenue growth to continue during 2025, driven by improving customer mix. Ocean freight forwarding revenue also increased, driven by an increase in market rates resulting from improved market dynamics as the year progressed, which more than offset lower volumes during the year. We expect revenue growth to continue into 2025 driven by these higher rates.

Revenue from our other businesses within Supply Chain Solutions increased. In our digital businesses, revenue increased $163 million, driven by volume growth at Roadie and the full-year impact of Happy Returns, which was acquired in the fourth quarter of 2023.

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Operating Expenses

Total operating expenses and non-GAAP adjusted operating expenses within Supply Chain Solutions decreased.

Forwarding operating expenses decreased $1.1 billion, and on a non-GAAP adjusted basis, operating expenses decreased $786 million, primarily driven by decreases of $949 million in Coyote due to lower activity levels during 2024 and the September 2024 divestiture. These decreases were partially offset by a $163 million increase in expenses in our freight forwarding business, driven by market rates for third-party transportation during the second half of 2024. We expect Forwarding operating expenses will decrease in the first half of 2025 driven by the impact of the Coyote divestiture, partially offset by continued growth in our freight forwarding businesses. Non-GAAP adjusted operating expense in our Forwarding business excludes $39 million in expense in 2024 related to projects undertaken as part of our transformation strategy, and a gain of $156 million related to the divestiture of Coyote recognized during the third quarter. For the year ended December 31, 2023, non-GAAP adjusted operating expenses in this business excluded the impact of transformation strategy costs and goodwill and intangible impairments as shown in the table above.

Logistics operating expenses increased $657 million, and on a non-GAAP adjusted basis increased $543 million. Increases in Logistics operating expense were driven primarily by the impact of the acquisition of MNX Global Logistics, which contributed $288 million of the increase, and by a $188 million increase in operating expenses in mail services, driven by volume growth and rate increases in the second half of 2024. We expect rate increases in 2025 to drive higher operating expenses in our mail services business. Non-GAAP adjusted operating expenses within Logistics exclude the impact of $57 million primarily related to projects undertaken as part of our transformation strategy and $101 million in asset impairment charges consisting of a $41 million write down in the value of certain trade names acquired as part of the Bomi Group acquisition in the first quarter of 2024, and $60 million in impairments of IT systems and fixed assets. During 2023, we recognized $48 million in transformation strategy costs.

Expenses in our other Supply Chain Solutions businesses increased $71 million, and on a non-GAAP adjusted basis, increased $145 million. Within our digital businesses, operating costs increased $181 million, driven by volume growth and the impact of acquiring Happy Returns in the fourth quarter of 2023. In 2024, non-GAAP adjusted operating expense for these businesses excluded the impact of $45 million related to a regulatory matter which is further discussed in note 10. For the year ended December 31, 2023, non-GAAP adjusted operating expense excluded the impact of goodwill impairment charges of $117 million.

As discussed above, our non-GAAP adjusted operating expenses exclude the impact of various transformation strategy costs. Within Supply Chain Solutions, these total costs were $96 million in 2024 and $118 million in 2023. Transformation strategy costs reflected within Supply Chain Solutions during these periods are related to our Transformation 2.0 and Fit to Serve programs. Within Transformation 2.0, we incurred impairment costs resulting from our business portfolio review and costs related to financial system investments in Forwarding. Within Fit to Serve, we incurred severance costs. For additional information on these programs and the related costs, see “Supplemental Information - Items Affecting Comparability.”

Operating Profit and Margin

As a result of the factors described above, total operating profit increased $178 million, with operating margin increasing 150 basis points to 7.3%. On a non-GAAP adjusted basis, operating profit decreased $90 million, with non-GAAP adjusted operating margin decreasing 60 basis points to 8.0%.

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Consolidated Operating Expenses

Year Ended December 31, Change

Operating Expenses (in millions):

Multiemployer Pension Plan Withdrawal Expense (19) — (19) N/A

One-Time Compensation Payment — (61) 61 (100.0) %

Transformation Strategy Costs (109) (98) (11) 11.2 %

Gain on Divestiture of Coyote 156 — 156 N/A

One-Time Payment for International Regulatory Matter (88) — (88) N/A

Goodwill and Asset Impairment Charges (108) (236) 128 (54.2) %

Expense for Regulatory Matter (45) — (45) N/A

Non-GAAP Adjusted Total Other Expenses $ 34,315 $ 34,391 $ (76) (0.2) %

Currency (Benefit) / Cost - (in millions)* (152)

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Year Ended December 31, Change

Non-GAAP Adjustments to Operating Expenses (in millions):

Transformation Strategy Costs

Gain on Divestiture of Coyote

Other expenses (156) — (156) N/A

One-Time Payment for International Regulatory Matter

Other expenses 88 — 88 N/A

Goodwill and Asset Impairment Charges

One-Time Compensation Payment

Expense for Regulatory Matter

Other expenses 45 — 45 N/A

Multiemployer Pension Plan Withdrawal Expense

Total Non-GAAP Adjustments to Operating Expenses $ 426 $ 732 $ (306) (41.8) %

Compensation and Benefits

Total compensation and benefits, and total non-GAAP adjusted compensation and benefits, increased.

Compensation costs, and non-GAAP adjusted compensation costs, both increased $1.1 billion. The principal factors contributing to the overall increase were:

•Direct labor costs increased $1.2 billion. Contractual wage rate increases for our U.S. union workforce resulted in an increase in costs of $793 million. Increased seniority within our union workforce contributed $300 million of the increase. We expect wage rate growth to moderate during 2025 in accordance with the terms of our IBT contract. Additionally, labor costs in our air operations increased by $128 million associated with increases in our U.S. air cargo volume.

•Management compensation costs decreased $127 million due to lower overall headcount, partially offset by higher incentive compensation expense.

Benefits costs decreased $77 million, and on a non-GAAP adjusted basis increased $91 million. The principal factors contributing to the overall changes were:

•Workers' compensation expense decreased $228 million due to favorable developments in prior year claims.

•Accruals for paid time off, payroll taxes and other costs increased $158 million, primarily due to contractual wage rate growth in the first half of the year.

•Health and welfare costs increased $149 million, driven by increased contributions to multiemployer plans as a result of contractually-mandated rate increases.

•Pension and other postretirement benefits costs increased $19 million, driven by a 2024 expense related to a withdrawal from a multiemployer pension plan in the United States. On a non-GAAP adjusted basis, pension and other postretirement benefits costs remained relatively flat.

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•Other employee benefits expense decreased $174 million due to higher separation costs incurred in 2023. On a non-GAAP adjusted basis, other employee benefits expense remained relatively flat.

Non-GAAP adjusted operating expenses exclude the impact of costs incurred under certain of our transformation strategy programs, Fit to Serve and Transformation 2.0, as well as expense related to a withdrawal from a multiemployer pension plan, and primarily impacted other employee benefits expense and related payroll tax expense as discussed above. Compensation and benefit expenses for these items for 2024 were $232 million. These costs decreased by $105 million as compared to 2023. During 2023, non-GAAP adjusted operating expenses excluded costs incurred under certain of our transformation strategy programs, and a one-time compensation payment. See Supplemental Information - Items Affecting Comparability for additional discussion.

Repairs and Maintenance

Repairs and maintenance expense increased, primarily attributable to a $59 million increase in routine repairs to buildings and facilities. Expense also increased for aircraft maintenance, due to the timing of required engine maintenance, and for ground equipment maintenance as a result of increased driving miles.

Depreciation and Amortization

Depreciation expense increased $243 million as a result of facility automation and expansion projects aligned with our strategic objectives. Amortization expense for capitalized software investments increased as a result of further technology investments, and we recorded additional amortization expense for intangible assets arising from the acquisitions of MNX Global Logistics and Happy Returns in 2023.

Purchased Transportation

Third-party transportation expense charged to us by air, ocean and ground carriers decreased by $51 million. The decreases were primarily driven a decrease of $788 million from the disposition of Coyote in September 2024, which also experienced volume declines and lower market rates prior to divestiture.

This decrease was partly offset by the impact of an increase in delivery costs related to volume growth in our SurePost product ($213 million), the acquisition of MNX Global Logistics ($174 million), volume growth in our mail services business ($146 million) and increases in our healthcare subsidiaries ($106 million) attributable to both volume and rates. The remaining movement within purchased transportation related to increases in expense attributable to market rates in our freight forwarding business ($99 million).

Fuel

The decrease in fuel expense was mainly attributable to lower prices for jet fuel, diesel and gasoline, which more than offset expense increases driven by volume growth. Market prices and the manner in which we purchase fuel influence our costs. The majority of our fuel purchases utilize index-based pricing formulas plus or minus a fixed locational/supplier differential. While many of the indices are correlated, each index may respond differently to changes in underlying prices, which in turn can drive variability in our costs.

Other Occupancy

Other occupancy expense increased, primarily due to increases in property rents. A reduction in certain rebates and increases to temporary structural costs also contributed to the increase.

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Other Expenses

Other expenses decreased $209 million, and on a non-GAAP adjusted basis other expenses decreased $67 million. The principal factors contributing to the decreases were:

•Vehicle lease expense decreased $124 million due to the impact of network optimization efforts and volume declines in the first quarter.

•A reduction in outsourcing and consulting fees of $112 million, driven by a decrease in project-based engagements.

•Other gains and losses decreased $260 million. During 2024, a $77 million net gain was driven by a $156 million gain from the divestiture of Coyote offset by expense from disposal of other assets during the year. During 2023, a $183 million net expense was primarily driven by asset impairment charges.

•Credit losses increased $106 million as a result of changes in the composition of our accounts receivable and specific customer matters.

•Commissions paid increased $114 million primarily due to growth in our Digital Access Program.

Other expense changes included higher costs for software and an increase related to airline operations, primarily due to increased flight activity in the fourth quarter. These were offset by lower marketing and advertising costs.

Non-GAAP adjusted operating expenses exclude the impact of:

•Transformation strategy costs of $109 million, an increase of $11 million when compared to 2023.

•Goodwill and asset impairment charges of $108 million, a decrease of $128 million when compared to 2023. In 2024 we recorded $60 million of asset impairment charges related to healthcare operations IT systems and fixed assets. We also incurred a $41 million pre-tax charge to write down the value of certain trade names acquired as part of our acquisition of Bomi Group as we consolidated our brands and a $7 million pre-tax impairment charge related to software licenses. In 2023, we recorded $125 million of impairment charges primarily relating to our Roadie and Delivery Solutions reporting units, as well as a $111 million impairment related to a tradename.

•We made a $45 million payment related to a regulatory matter and $94 million payment, including interest, to settle a previously-disclosed international regulatory matter, both in the first half of 2024. We recorded a pre-tax gain of $156 million in connection with the divestiture of Coyote. We did not have any similar charges in 2023.

We expect to incur additional other expenses under our Fit to Serve and Transformation 2.0 programs during 2025 as we complete these programs. We expect to incur additional costs under our Network Reconfiguration and Efficiency Reimagined initiatives during 2025. See "Supplemental Information - Items Affecting Comparability" for additional discussion.

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Other Income and (Expense)

The following table sets forth investment income (expense) and other and interest expense for the years ended December 31, 2024 and 2023 (in millions):

Year Ended December 31, Change

Investment Income (Expense) and Other $ (160) $ 219 $ (379) N/A

Defined Benefit Pension and Postretirement Medical Plan Loss 665 359 306 85.2 %

Non-GAAP Adjusted Interest Expense $ (860) $ (787) $ (73) 9.3 %

Investment Income (Expense) and Other

Investment income (expense) and other decreased $379 million. Remeasurements of our defined benefit plans resulted in a $665 million mark-to-market loss in 2024 compared to a $359 million loss in 2023. Excluding the impact of these remeasurements, non-GAAP adjusted investment income (expense) and other decreased $73 million, driven by lower average invested balances and year-over-year changes in certain non-current investments, partially offset by a reduction in foreign currency losses.

Interest Expense

Interest expense increased primarily due to higher interest rates on new debt issuances in 2024.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Income Tax Expense

The following table sets forth income tax expense and our effective tax rate for the years ended December 31, 2024 and 2023 (in millions):

Year Ended December 31, Change

Income Tax Impact of:

Transformation Strategy Costs:

Transformation 2.0

Business Portfolio Review 7 15 (8) (53.3) %

Other Initiatives — 1 (1) (100.0) %

Network Reconfiguration and Efficiency Reimagined 8 — 8 N/A

Total Transformation Strategy Costs 77 102 (25) (24.5) %

Gain on Divestiture of Coyote (4) — (4) N/A

One-Time Payment for International Regulatory Matter — — — N/A

Goodwill and Asset Impairment Charges 27 43 (16) (37.2) %

One-Time Compensation Payment — 15 (15) (100.0) %

Expense for Regulatory Matter — — — N/A

Multiemployer Pension Plan Withdrawal Expense 5 — 5 N/A

Defined Benefit Pension and Postretirement Medical Plan Loss 159 85 74 87.1 %

Non-GAAP Adjusted Income Tax Expense $ 1,924 $ 2,110 $ (186) (8.8) %

Effective Tax Rate 22.3 % 21.8 %

Non-GAAP Adjusted Effective Tax Rate 22.5 % 21.8 %

For additional information on income tax expense and our effective tax rate, see note 15 to the audited, consolidated financial statements.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Liquidity and Capital Resources

We deploy a disciplined and balanced approach to capital allocation, including returns to shareowners through dividends and share repurchases. As of December 31, 2024, we had $6.3 billion in cash, cash equivalents, and marketable securities. We believe that these positions, expected cash from operations, access to commercial paper programs and capital markets and other available liquidity options will be adequate to fund our material short- and long-term cash requirements, including our business operations, planned capital expenditures, anticipated pension contributions, planned and potential acquisitions, debt obligations and planned shareowner returns. We regularly evaluate opportunities to optimize our capital structure, including through issuances of debt to refinance existing debt and to fund operations.

Cash Flows From Operating Activities

The following is a summary of the significant sources (uses) of cash from operating activities (in millions):

Hedge margin receivables and payables (90) (444)

Income tax receivables and payables 313 (294)

Changes in working capital and other non-current assets and liabilities 33 366

Other operating activities (14) (142)

Net cash from operating activities $ 10,122 $ 10,238

(1) Represents depreciation and amortization, gains and losses on derivative transactions and foreign currency exchange, deferred income taxes, allowances for expected credit losses, pension and postretirement medical benefit plan (income) expense, stock compensation expense, changes in casualty self-insurance reserves, goodwill and other asset impairment charges and other non-cash items.

Net cash from operating activities decreased $116 million in 2024, driven by the following:

•The reduction in net income.

•Increased 401(k) plan contributions.

The decreases were partially offset by:

•An increase in our U.S income tax position as a result of the tax deferral related to Hurricane Helene.

•A payment in 2023 for deferred employer payroll taxes that did not repeat.

•A favorable reduction in hedge margin collateral outflows, driven by changes in the fair value of derivative contracts used in our currency hedging programs and an increase in the threshold at which we exchange collateral with counterparties.

Cash payments for income taxes were $1.3 and $2.0 billion for the years ended December 31, 2024 and 2023, respectively, with the decrease corresponding to the tax deferral related to Hurricane Helene and the reduction in net income.

As of December 31, 2024 approximately $2.5 billion of our total worldwide holdings of cash, cash equivalents and marketable securities were held by foreign subsidiaries. The amount of cash, cash equivalents and marketable securities held by our U.S. and foreign subsidiaries fluctuates throughout the year due to a variety of factors, including the timing of cash receipts, strategic operating needs and disbursements in the normal course of business. Cash provided by operating activities in the U.S. continues to be our primary source of funds to finance our business operations, planned capital expenditures, pension contributions, potential and planned acquisitions, transformation strategy costs, debt obligations and planned shareowner returns. All cash, cash equivalents and marketable securities held by foreign subsidiaries are generally available for distribution to the U.S. without any U.S. federal income taxes. Any such distributions may be subject to foreign withholding and U.S. state taxes. When amounts earned by foreign subsidiaries are expected to be indefinitely reinvested, no accrual for taxes is provided.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Cash Flows From Investing Activities

Our primary sources (uses) of cash from investing activities for the years ended December 31, 2024 and 2023 were as follows (in millions):

Net cash used in investing activities $ (217) $ (7,133)

Capital Expenditures:

Buildings, facilities and plant equipment $ (1,563) $ (2,211)

Information technology (825) (877)

Total Capital Expenditures(1): $ (3,909) $ (5,158)