UPS vs. FedEx: Navigating Tariff Storms in 2026 – Where to Find Value?

The logistics sector faces a perfect storm in 2026 as tariff policies reshape global trade. For UPS and FedEx, the loss of the de minimis exemption—a tariff-free threshold for low-value imports—is poised to hit international earnings hard. UBS analysts warn UPS's International EBIT could drop by over $200 million per quarter from Q2 2026 onward, while FedEx's 2026 guidance already accounts for a $170 million quarterly headwind. Meanwhile, DHL's struggles in Europe and Asia serve as a stark reminder of the sector's vulnerability to trade policy shifts. Here's how investors should position themselves.

The Tariff Tsunami: Why 2026 Will Be a Crucial Year

The de minimis exemption, which allowed imports under $800 to enter the U.S. tariff-free, is being phased out. This change forces consumers and businesses to absorb higher costs for cross-border shipments, directly impacting logistics giants reliant on international volumes. UBS estimates UPS's International segment, which contributed $4.2 billion to EBIT in 2023, could see a 15% YoY decline in Q2 2026. FedEx, having already guided investors to expect tariffs as a drag, may face less downside surprise but still grapple with margin pressure.

UPS: Domestic Resilience vs. International Pain

UPS's domestic package business—a cash cow with consistent volume growth—offers a critical buffer. UBS notes this segment remains “in line with internal guidance” despite macro noise. However, its international exposure, particularly in trade-heavy routes like Asia-Pacific, is a vulnerability. The lowered price target to $124 from $128 reflects investor anxiety, but this discount could be a buying opportunity if UPS's cost-cutting and pricing strategies offset tariff losses.

Key UPS Advantage: Its ground network and e-commerce dominance in the U.S. are less tariff-sensitive. A **visual>UPS's domestic vs. international revenue mix would show why its core business remains robust.

FedEx: Preemptive Guidance, But Risks Remain

FedEx's early acknowledgment of tariff impacts has spared it some surprise-driven volatility. Its 2026 guidance already factors in reduced international volumes, and its TNT Express subsidiary in Europe provides diversification. Yet, FedEx's reliance on air freight—more exposed to trade cycles than UPS's ground operations—could amplify pain if global growth stalls. DHL's EUR 7 billion 2026 EBIT target, down from a prior EUR 7.5–8.5B range, underscores how even diversified players struggle.

Valuation: When to Bet on the Underdogs

• UPS: At current prices, UPS trades at 14x 2026E EBIT estimates, below its 5-year average of 16x. The UBS price target implies a 12% upside from current levels if the company meets lowered expectations. Its dividend yield of 2.1% adds a safety net.
• FedEx: At 11x 2026E EBIT, FedEx is cheaper, but its balance sheet—burdened by aircraft leases and pension liabilities—is a concern. A **visual>FedEx's debt-to-EBITDA ratio over 5 years would highlight this risk.

Investment Thesis: Buy UPS for Its Discount, Watch FedEx for Turnaround

• UPS: The near-term tariff pain is priced in. Investors should focus on its domestic dominance and cost discipline. A 2027 rebound in global trade (as DHL's Trade Atlas projects 3.1% annual growth) could revive international margins.
• FedEx: Requires patience. Its share repurchase program and TNT synergies may stabilize earnings, but success hinges on airfreight demand resilience.

Avoid: Both companies face risks if tariffs escalate further, but DHL's struggles suggest the sector's pain isn't fully reflected in valuations.

Final Take: Tariffs Are a Headwind, Not a Death Sentence

While tariffs will compress margins in 2026, logistics giants have tools to adapt—pricing hikes, route optimization, and diversification into high-margin sectors like healthcare logistics (see DHL's $2.2B healthcare investment thesis). For now, UPS's discounted valuation and domestic moat make it the better entry point. FedEx, while cheaper, requires clearer signs of cost control and a recovery in airfreight demand.

Investors should allocate 5–10% of a diversified portfolio to logistics plays, with a preference for UPS. Pair this with a sell discipline if 2026E estimates get further downgraded. The road ahead is bumpy, but the sector's long-term relevance in global commerce ensures eventual rewards for patient investors.