What the Teamsters Strike Threat Cost UPS
UPS attributed roughly $200 million in lost sales to the averted strike of 340,000 unionized Teamsters employees, CEO Carol Tomé confirmed in the package delivery giant’s Aug. 8 earnings call.
America’s biggest parcel carrier handled an average of 1.2 million fewer packages per day in the second quarter than the year prior, with approximately 1 million attributed to volume diverted to other carriers by customers worried about a labor disruption.
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Tomé believes UPS will bounce back. An “all hands on deck” affair is helping the FedEx rival “already [see] some volume return,” she said.
“We think by the end of the year, we will pull back everything that diverted,” said Tomé. “And I think we’re going to win that extra 200,000 packages as well.”
While the company dealt with capacity concerns as customers awaited results of the Teamsters contract negotiations, UPS leaned on machine learning-powered Network Planning Tools (NPT) technology to match capacity with the lower volumes.
“By using NPT with our total service plan, we quickly match the network to volume levels,” Tomé said. “This resulted in a nearly 10 percent reduction in labor hours in the U.S., in line with the decline in volume. Additionally, NPT enabled us to further reduce semi-variable and fixed costs…There is no finish line when it comes to driving efficiency.”
The NPT technology helps the company efficiently direct package volume across its network and optimize capacity at sorting facilities. Engineers at the company can view activity at UPS facilities via the app and route shipments to facilities with the most available capacity.
The tech provides an overview of package volume and distribution across the UPS pickup and delivery network, as well as details about packages in transit, including their weight, volume and delivery deadlines. In tandem with its Orion route optimization software, NPT can route shipments to the facilities with the most capacity and move volume to lower-cost transportation modes, if possible.
Engineers can also use the app to preemptively reroute packages to alternative lanes, and create forecasts about package volume and weight based on analysis of historical data.
According to Tomé, “NPT can do in an afternoon what it used to take a team of engineers months to do.”
“When we saw the volume starting to slow down and actually divert, we were able, through our tools, to move volume away from unautomated hubs to automated hubs,” said Tomé.
Tomé said the company has been introducing new technology in these facilities. This includes automated label application, automated bagging and robotic small sort induction. Today, 57 percent of package volume flows through an automated hub, compared to 53 percent in the year prior, according to the CEO.
While total volume in the quarter was down 9.9 percent, UPS reduced the volume in its non-automated facilities by 18 percent thanks to improvements in network planning.
The CEO said the automation enhancements would help offset some of the wage pressure the company expects to see over the next year as it prepares to pay $30 billion under the tentative Teamsters deal.
In line with how Amazon and FedEx cut costs by using technology to improve fulfillment network efficiency, UPS cut $889 million of expenses year-over-year, which chief financial officer Brian Newman called the largest year-over-year cost reduction in the company’s history.
UPS is also making progress in rolling out its Smart Package, Smart Facility RFID initiative, with almost 50 percent of U.S. buildings operating with this technology by the end of the second quarter.
Half of the RFID-fitted buildings have seen improper loading incidents improve from one in 400 to one in 1,000, according to Tomé. The shipping giant expects to expand the technology across its more than 1,000 facilities in the U.S. by the end of the year.
In the call, Tomé identified a sales pipeline of $7 billion in potential new customers for UPS as it tries to win back revenue, with a focus on small- and medium-sized businesses, healthcare and enterprise-scale clients.
The bullish attitude also extends to the “very good relationship” UPS has with Amazon, its largest customer. That “business is operating as we would expect it to be,” Tomé said. “We’re on a glide path, but not a glide out.”
UPS reported total revenue declining 10.9 percent to $22.1 billion in the second quarter from $24.8 billion in the year-ago period. Consolidated operating profit declined 21.4 percent to $2.8 billion.
