UPS Establishes $3 Billion Cost-Savings Plan, Will Close 200 Facilities

Glenn Taylor
·4 min read

UPS is joining FedEx in introducing a massive cost-cutting initiative, setting a goal to save $3 billion by the end of the 2028 fiscal year with a heavy emphasis on automation across its logistics network.

As part of the parcel delivery company’s “Network of the Future” plan, UPS is closing roughly 200 facilities as part of a network consolidation designed to flow more volume into automated warehouses and reduce the number of sortation centers. After closing 30 sorts last year, UPS is closing another 40 in 2024.

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“Every single work area is being scrutinized for automation opportunities, not just our sortation hubs,” said Nando Cesarone, president of U.S. at UPS at the company’s investor day event on Tuesday.

Cesarone highlighted examples of areas that would be improved by automation, including address corrections and redirects, dispatch for package car drivers and feeder operations, as well as fixing pre-load assist labels to packages.

One such automation project, the Smart Package, Smart Facility RFID package-tagging initiative established across company warehouses, improves package flow per hour by 30 to 35 percent, according to Cesarone.

By the end of 2028, UPS plans on implementing major automation projections at 63 sites, and says it will triple the number of buildings with automated technologies to 400 across the U.S. Ten automation projects are planned to be built from the ground up, with the majority of the projects expected to be completed in existing buildings.

“These building consolidations and automations yield real savings,” Cesarone said. “For example, we’ll have fewer feeder (tractor trailer) runs. We’ll be able to eliminate both a.m. and p.m. ground and air feeds in many, many locations.”

On the downside, the 12,000 layoffs UPS conducted to kick off 2024 could be just the beginning, with the Network of the Future initiative expected to “significantly reduce our dependency on labor,” Cesarone said. Of the $3 billion in anticipated savings, UPS expects half to be realized by the close of 2026.

Bala Subramanian, chief digital and technology officer at UPS, emphasized the company’s use of robotics to further drive productivity and efficiency in its logistics network.

“We have robotic arms to convert existing manual, small-parcel interactions to an automated solution,” said Subramanian. “We’re also having technology deployed at our bagging positions that allows us to fill, seal and label our small-package consolidation containers.”

In September, UPS unveiled the deployment of multiple automation technologies across its business, such as the use of pick-and-place technologies powered by Dexterity, Fortna and Plus One Robotics to help employees sort small packages. The business also began leveraging unloading technologies from Pickle Robot to make the role of unloading trailers less physically demanding.

The company is using autonomous guided vehicles (AGVs) powered by Dane Technologies, Geek+, Locus Robotics, Crown Lift Trucks and Toyota-Raymond, in an effort to enable workers to more safely and easily move small packages and irregular-sized shipments through facilities.

As of August 2023, 57 percent of UPS’ package volume flowed through an automated hub, compared to 53 percent in the year prior, according to CEO Carol Tomé.

The changes are part of UPS’ larger goal to increase to revenue per piece (RPP) faster than cost per piece (CPP). Over the next three years, the company expects to increase RPP 2.5 percent per year, while increasing CPP 1 percent per year. The company has already accelerated its pieces moved per hour since 2021, with the metric jumped from 64.8 per hour in 2022 to 67.6 per hour per in 2023, saving more than 4 million hours.

The Atlanta-based logistics giant also created its own metric—volume per resource—to measure the efficiency improvements assisted by the automation developments. This metric currently stands at 51, representing average delivery volume divided by the company’s U.S.-based employees. By 2026, UPS plans to increase that number to 59.

UPS also laid out its financial targets for the 2026 fiscal year during the investor call, with expectations of consolidated revenue ranging from approximately $108 billion to approximately $114 billion, which would represent a 5.9 percent to 7.8 percent compound annual growth rate (CAGR) above the $91 billion generated in 2023.

Adjusted operating margin is projected to be above 13 percent, up from the 10.9 percent throughout 2023. Free cash flow is expected to be between $17 billion and $18 billion, up from $5.3 billion.

The long-term targets didn’t impress Wall Street, with UPS stock falling 8.5 percent Tuesday.