The U.S. integrator confirmed earlier announced plans to ax 12,000 jobs. This is due to significant volume declines in the transportation of consumer goods in 2023 and a gloomy outlook for the coming months. The mass layoffs come only months after the delivery company averted a massive strike by agreeing to a new labor contract.
The package delivery company is facing headwinds for almost a year. In MAR23, The Wall Street Journal noted that a decline in e-commerce hit the companies’ payrolls. In a reaction other parcel-delivery companies, truckers and warehousing companies cut nearly 17,000 jobs in the U.S. In the summer months, large retailers have cut back on orders to feed end-of-year peak shopping demand, which lowered transport volumes further. This in turn translated to less shipments, putting pressure on UPS but also some of its peers.
Drop in profits
Ever since, e-commerce demand hasn’t really improved, which continues suffering from low consumer spending. This has an impact on integrators in particular, who have to adjust their business plans downwards.
In Q4, 2023, UPS suffered a drop in profits. Earnings fell to US$2.47 per share from US$3.62 previously, while revenue fell from US$27.0 billion to US$24.9 billion.
UPS CEO Carol Tomé said in a conference call that the job cuts are intended to save one billion dollars (roughly 920 million euros). The layoff of 12,000 employees is around 2.5% of UPS’s global headcount of nearly half a million employees. In addition to job cuts, there are also plans to divest unprofitable subsidiaries in order to reduce costs. One sales candidate could be the trucker Coyote, which UPS only acquired in 2015. Coyote is suffering from a sharp drop in transport prices that went south following the corona virus boom.
Analysts had expected higher sales
Last year, UPS also missed its earnings adjusted downwards several times since volumes kept declining. In addition, significant wage increases for employees have eaten up large portions of the profit. Concerning this year’s business prospects, Group CEO Tomé expects only a slight increase in turnover to around 92 to 94.5 billion dollars, she predicted during the conference call. This is below the 95.57 billion USD sales expected by analysts.
Last year, UPS turnover fell 9.3%, to USD 91 billion, while the adjusted operating profit plummeted by almost 29% to 9.9 billion dollars. At the bottom line, UPS earned 6.7 billion dollars, around 42% less than in the previous year.
In contrast, there was a slight increase in average revenue per parcel, however, it did not suffice to compensate for the decline in shipment volumes. Simultaneously, high inflation dampened consumer demand as did economic uncertainty. In addition, UPS customers were unsettled by strike warnings indicated by The Teamsters union, motivating them to migrate to competitors such as DHL Express and FedEx. Finally, UPS management reached an agreement with the transport workers’ union on wage increases.
No recession looming
The package delivery company joins a number of other major U.S. companies cutting jobs in 2024 amid forecasts for slower economic growth. Among them are Google that laid off hundreds of workers on its hardware, voice assistance and engineering teams to reduce expenditures. Others are Microsoft, eBay, Levis, Macy’s and Wayfair that plan to ax jobs as well.
However, most market analysts forecast that the U.S. will avoid a recession in 2024. Despite the layoffs at UPS and in the tech sector, the U.S. labor market remains very robust seen by 2.7 million new jobs created in 2023.
