UPS is laying off employees in the Dallas-Fort Worth area as part of a regional restructuring plan.
The job cuts come as America’s biggest parcel carrier recently finalized a massive new contract covering 340,000 employees represented by the Teamsters. The deal will boost wages and benefits for unionized workers by an average 3.3 percent annual rate over the next five years. The new contract will cost UPS roughly $500 million more this year than it originally planned.
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“We regularly align our staffing to meet the needs of our customers and current demand. We have made the difficult decision to eliminate some management positions in the Dallas area,” a UPS representative told Sourcing Journal on Friday. “We are well positioned for continued and future growth, and this move is designed to create an even stronger UPS.”
A person familiar with the matter told Sourcing Journal that 50 percent of all Dallas-Fort Worth-area managers have been been asked either to accept a severance package or take a demotion to the role of full-time supervisor. One-quarter of all full-time supervisors have been presented with the separation plan. Employees have until the end of September to find another job, the person said.
UPS did not reveal how many employees are affected by the layoffs.
“This has naturally raised concerns about the impact on the workforce, as well as the motivations behind such a decision,” the source said.
Jeremy Tancredi, a partner in the operations excellence practice at consulting firm West Monroe and a former industrial engineer at UPS, said he expected that any UPS job cuts would affect management roles.
“UPS will be looking to offset the costs associated with the higher Teamster pay, which will most likely come in the form of operations management,” Tancredi told Sourcing Journal. “When volume peaked during the pandemic, UPS increased their operations management to handle the additional volume. Now that some of the volume has receded, they will look to reduce management head count to ultimately protect margins and shareholder value.”
UPS cut 2,500 management positions and more than 1,700 operations and overhead function roles in the second quarter versus 12 months prior, company executives told investors on an Aug. 8 conference call.
The cuts free up resources to help fund the new labor contract. Full-time annual driver pay and benefits will average about $170,000 by the contract’s final year. Part-time union employees will earn $25.75 per hour in the final year, along with full healthcare and pension benefits.
The threat of a Teamsters strike cost UPS $200 million in lost sales. The company handled approximately 1 million fewer packages per day compared to the year prior as concerned customers gave their business to other carriers.
UPS was already dealing with falling package demand this year as people got cautious with spending. When not accounting for the strike threat itself, the company said it lost out on another 200,000 packages per day compared to 2022.
UPS revenue declined 10.9 percent to $22.1 billion in the second quarter. Consolidated operating profit declined 21.4 percent to $2.8 billion. The Atlanta-based company cut its full-year revenue and profitability targets for full-year 2023.
The company is adjusting delivery surcharges, chief financial officer Brian Newman said in a presentation Monday, and using automation and RFID to enhance productivity.
Despite the moves to increase margins and cut costs, UPS authorized a 5.9 percent general rate increase (GRI) to match chief competitor, FedEx.
Analysts had speculated that UPS could break from tradition this year and implement a higher rate than its rival. But both companies went for a smaller increase than they did for2023, when they put 6.9 percent GRIs into effect.
FedEx on Thursday said it was laying off staff to cut $4 billion in costs by 2025, saying it would reduce IT and finance positions. FedEx did not disclose the exact number of or locations of layoffs, but said it was a “small percentage” of positions in the two departments.