UPS is tightening its belt in 2024 to the tune of $1 billion in cost savings, laying off 12,000 employees, or 14 percent of managers, in the process.
Roughly 75 percent of the cuts will take place in the first half of the year, according to UPS chief financial officer Brian Newman. Most of the roles being axed will come from management, along with some contractors. UPS has about 85,000 full- and part-time managers as part of its global workforce of 495,000 employees.
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“It’s a change in the way we work,” said Newman. “As volume returns to the system, we don’t expect these jobs to come back. It’s changing the effective way that we operate.”
Since peak demand during the Covid-19 pandemic in 2021, staff at the company has been reduced by 45,000 employees.
The $1 billion in savings comes after a 2024 which CEO Carol Tomé bluntly called a “difficult and disappointing year.”
The layoffs represent yet another round of job cuts within the wider logistics industry, and illustrate the pressures that the company has been under since agreeing on a new five-year contract with the Teamsters. That deal tacked on $500 million more expenses in the back half of 2023 than UPS initially expected, further holding down margins at the company.
As part of the cost cuts, Tomé revealed America’s largest package delivery company is exploring strategic alternatives for Coyote Logistics, which has gone through multiple rounds of layoffs since the beginning of 2023.
UPS acquired Coyote in 2015 to expand its portfolio into freight brokering, but Tomé acquiesced during the call that the logistics giant did not understand at the time how cyclical the freight business was. “Boom” and “bust” freight cycles, such as the current freight recession that has been ongoing since late 2022, are a major contributor to declining revenues at freight brokerages industrywide.
While Coyote peaked to over $4 billion in revenue during the Covid-19 pandemic amid increased e-commerce demand, revenue has “come way down since then,” Tomé said. Noting that the company’s supply chain solutions unit saw a $3 billion revenue decline to $13.2 billion in 2023, she explained that Coyote made up 38 percent of that yearly decline, and 40 percent of the fourth-quarter revenue dip.
“If you’ve got that kind of volatility on the revenue line, you’re going to have even more volatility on the earnings line,” Tomé said.
UPS is also shuttering 30 UPS Stores as part of the consolidation—a small cutback on the company’s roughly 5,500 locations.
The changes to the business come as UPS saw drops in revenue, volume and net income across all business segments in the fourth quarter. The Atlanta-headquartered courier issued a disappointing revenue outlook for 2024, with the company expecting global revenue between $92 billion to $94.5 billion. Analysts surveyed by Refinitiv had been expecting revenue of at least $95.6 billion. The current forecast would be a 1.1 percent to 3.8 percent jump from 2023 revenue numbers.
For the fourth quarter, revenue declined 7.8 percent to $24.9 billion from $27 billion last year, while average daily domestic volume dropped 7.4 percent and average international volume declined 8.3 percent.
In the same period, UPS reported net income of $1.61 billion, or $1.87 per share, compared with $3.45 billion, or $3.96 per share, a year earlier.
Tomé said the volume decline was “heavily weighted in Europe,” noting that the dip was 94 percent driven by the softness in the continent.
The firm is still pushing to bring back more packages that were diverted during the Teamsters labor negotiations, when concerns of a labor strike existed ahead of the negotiation deadline. Tomé revealed that the company got back nearly 60 percent of the volume by December—up from 40 percent in October.
For the coming year, UPS expects revenues of flat to down 2 percent in the first half, with sales up 4 percent to 8 percent in the second half, said Brian Newman, chief financial officer at UPS.
Newman called the expected profit a “tale of two cities,” with the second half anticipated to reel in 20 percent to 30 percent income growth.
“Q1 will be the biggest challenge because we’re lapping from a volume perspective and a full [Teamsters] contract, but on a full-year basis we’re looking at operating margin of 10 to 10.6 [percent],” said Newman. “I think you can expect the second half of the year to be in 11 to 12 [percent].”
UPS plans to give more details on its cost-savings strategies and multi-year performance targets during its investor day event on March 26.