Parcel delivery company UPS has announced plans to eliminate 12,000 jobs, citing the impact of a sluggish economy and a labor dispute that deterred certain customers.
CEO Carol Tomé acknowledged 2023 as a “challenging and disappointing year,” highlighting the company’s strategic investment in artificial intelligence (AI) to bolster efficiency.
Carol Tomé has directed staff to return to the office five days a week, with the expected job cuts aimed at achieving a cost reduction of $1 billion (£790 million) this year.
UPS, considered a barometer of broader economic conditions, faced challenges in the past year, experiencing a decline in both sales and profits due to a reduction in the volume of packages handled by the company.
The company pointed to economic weaknesses in Europe and select parts of Asia, coupled with disruptions in the US. The potential strike threatened by staff over the summer prompted certain customers to shift their business to competitors.
Having regained around 60% of the lost business, UPS foresees a slow return to modest growth in the current year. The company expects average daily volumes to either remain flat or increase by 2% in the US and to remain flat or increase by 3% internationally.
UPS presented a forecast that fell short of analysts’ expectations, resulting in a more than 7% drop in shares. The company also alerted investors that costs related to its new contract with the Teamsters union would continue to impact the company for the next six months.
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As a component of the agreement, the average full-time driver achieved a comprehensive pay and benefits package amounting to around $170,000 (£135,000) per year.
The planned 12,000 job cuts equate to roughly 2.5% of the company’s global workforce, a workforce that has already reduced since the pandemic, with a notable surge in online shopping contributing to heightened business activity.
Most of the positions slated for cuts, including those from its 85,000 management staff and some contractors, will not be reinstated even as the business undergoes recovery, according to executives.
“It’s a change in the way we work,” said chief financial officer Brian Newman.
Executives clarified that a significant portion of the positions earmarked for cuts, mainly from its 85,000 management staff and some contractors, will not be brought back, even as the business improves.
“Technology has changed so much in the past year when you think about the advent of generative AI and applications inside our business,” she said. “I’m really excited about what the changes will mean.”
The company is examining the possibility of selling Coyote, a truckload brokerage business acquired in 2015, specializing in connecting truckers to customers. Ms. Tomé stated that the firm perceives various opportunities in the upcoming years to elevate productivity.