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UPS announced it would cut 12,000 jobs in an effort to save $1bn just months after agreeing a costly pay deal with its Teamsters union and as weak demand for its delivery services underpinned a soft annual revenue outlook.
The delivery company said on Tuesday the headcount reductions would target its 85,000 workers in management, along with some contractors, with three-quarters of the lay-offs expected to occur in the first half of the year. UPS, which employs 495,000 workers worldwide, does not expect these jobs to come back.
Describing the job cut as being about a “new way of working” chief executive Carol Tomé also confirmed the company was returning to a policy of employees coming to the office five days a week.
UPS in July reached a pay deal with the Teamsters, which represents 340,000 of its employees, that resulted in a 12.1 per cent increase in union wage rates. The agreement helped avert a potential strike, which threatened to cause economic chaos by stranding more than a quarter of all parcels in the US, but the company cut its financial guidance several times over subsequent months and warned the deal would weigh on revenue and margins.
Often regarded as a bellwether for the global economy owing to the breadth of packages and documents it ships, UPS said on Tuesday it now expected revenues in a range between $92bn and $94.5bn in 2024, below Wall Street forecasts for $95.6bn. Its revenue in 2023 was $91bn, a 9.3 per cent drop from 2022.
“2023 was a unique and, quite candidly, a difficult and disappointing year,” Tomé told analysts on Tuesday. “Some of this performance was due to the macro environment, and some of it was due to the disruption associated with our labour contract negotiations, as well as higher costs associated with the new contract.”
Chief financial officer Brian Newman said that the macroeconomic environment “showed improvement” in the fourth quarter, but “the transportation and logistics sector conditions remained under pressure both in the US and internationally due to soft demand and overcapacity in the market”.
In a sign of the patchy conditions UPS may encounter this year, Newman said customers in its biggest market, the US, sought more economical products and moved to ground deliveries instead of air.
And although volumes of small packages in its profitable China to US lane ticked up in late 2023, the company remains cautious on the outlook. In European countries experiencing recessions, demand for express services fell.
Tomé said that UPS was in a “good position” to take advantage of the rerouting of shipments in response to the drought in the Panama Canal and the escalating conflict in the Red Sea.
UPS reported fourth-quarter revenue of $24.9bn that was down 8 per cent year on year and missed Wall Street forecasts as average daily parcel volumes fell.
The company also announced it would explore “strategic alternatives” for its acquisition of Coyote, a truckload brokerage business, which made up 38 per cent of the revenue decline in the company’s supply chain solutions business during 2023.
UPS shares were down 7.3 per cent in lunchtime trading in New York on Tuesday.