UPS is making headlines with its recent announcement to lay off 12,000 employees, aiming to cut $1 billion in costs amidst forecasting weak demand for parcel delivery in 2024. This decision, revealed on Tuesday, is a significant shift just six months after unionized UPS workers secured a "lucrative" labor deal promising delivery drivers an average of $170,000 in annual pay and benefits by the end of five years. The layoffs predominantly affect management-level and contractor positions following a year UPS CEO Carol Tomé described as "unique, difficult, and disappointing," marked by declines in volume, revenue, and operating profits across all business segments.
The decision to downsize comes in the wake of a 9.3% revenue decline to $91 billion from $100.3 billion in 2022, coupled with a disappointing sales outlook for 2024, which falls short of Wall Street expectations. The domestic business saw a 7.4% drop, partially attributed to the disruption from last summer's labor negotiations with the Teamsters union, representing about 340,000 UPS workers. Despite the eventual agreement, which included higher wages and workplace protections, the uncertainty led customers to turn to competitors like FedEx.
UPS's international business also suffered an 8.3% decrease, mainly due to softness in Europe and freight complications in key maritime routes. The pandemic years had brought record levels of business to UPS due to a surge in online shopping, but the return to in-person shopping and inflation-driven spending cuts have challenged the company to maintain those highs. The company had already reduced its workforce from 540,000 at the pandemic's peak to about 495,000 by the end of 2023 through attrition and decreased flying hours instead of layoffs.
The current layoffs signify a fundamental shift in UPS's operational strategy, with CFO Brian Newman indicating that these jobs are unlikely to return even as volume increases. This new approach, dubbed "Fit to Serve" by Tomé, aims to align the organization's resources with its strategic priorities more effectively. Following the announcement, UPS shares saw an 8% drop and remained stable in pre-market trading the following Wednesday, signaling the market's reaction to the company's drastic restructuring efforts.