Jan 31, 2024
UPS (UPS) employees are in the news once again — but this time, it’s not gone their way.
The shipping giant, which forecast weak demand for parcel delivery in 2024, has said it plans to lay off 12,000 employees to save $1 billion in costs. It’s also mulling a sale of its Coyote brokerage unit.
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This shocking announcement made on Tuesday comes just six months after unionized UPS workers landed a “lucrative” new labor deal, which will see delivery drivers earning an average of $170,000 in annual pay and benefits by the end of the five years.
“2023 was a unique, and quite candidly, difficult and disappointing year,” said UPS CEO Carol Tomé during the company’s earnings call. “We experienced declines in volume, revenue and operating profits and all three of our business segments.”
She attributed the weak performance to increased labor costs, challenges in the broader U.S. economy, freight complications abroad and the disruption tied to labor negotiations last summer that diverted business to rivals.
Here’s what’s really going on with the embattled shipping giant.
A drop in business
The mass layoffs mainly target management-level and contractor positions. They come after the shipping giant saw its revenue decline by 9.3% to $91 billion from $100.3 billion in 2022.
The company also issued a disappointing sales outlook for 2024, with projected global revenue of between $92 billion to $94.5 billion — about a billion dollars short of Wall Street analysts’ expectations.
UPS saw its domestic business drop by 7.4% in 2023. This was partly due to the disruption caused by the strike action threatened by the Teamsters union — which represents about 340,000 UPS workers — during heated contract negotiations last summer.
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The unionized workers eventually secured higher wages for full- and part-time UPS workers and workplace protections, like air conditioning in UPS trucks — but not before UPS customers, concerned about delays to their shipments, switched to rival carriers like FedEx.
During the company earnings call, UPS CEO Tomé assured shareholders that the company has so far won back nearly 60% of the business it lost during those contract negotiations.
This directly contradicts the claim made by FedEx Chief Customer Officer Brie Carere in December that her company was "holding on to all of the share" it had taken from UPS.
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‘A change in the way we work’
It wasn’t just the Teamsters saga that hurt the shipping company’s finances in 2023.
UPS reported an 8.3% decrease in its international business as well, mainly due to “softness in Europe,” as well as freight complications in the Red Sea region and the Panama and Suez Canals.
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The company’s business surged to record levels in the early years of the pandemic as more people chose to shop online. But it has struggled to top that benchmark when consumers returned to in-person shopping and curbed their spending amid high inflation.
It tried to adapt by trimming employee headcount from 540,000 during the coronavirus peak to about 495,000 by the end of 2023, through attrition and reduced flying hours, rather than layoffs.
But, unfortunately for the UPS employees affected by the job cuts, leadership appears to have found new cost-saving ways to conduct business.
“It’s a change in the way we work,” said CFO Brian Newman. “As volume returns to the system, we don’t expect these jobs to come back. It’s changing the effective way that we operate.”
“We are going to fit our organization to our strategy and align our resources against what's wildly important,” said Tomé. “... we've identified new ways of working and are calling this Fit to Serve.”
UPS shares ended the day down over 8% and were flat in pre-market trading Wednesday.
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Bethan Moorcraft is a reporter for Moneywise with experience in news editing and business reporting across international markets.
