UPS to cut 12,000 jobs as revenue, profit drop in 2023

UPS announced it is cutting 12,000 jobs, after rocky economic conditions and lost business from labor negotiations last year led to a sharp decline in its 2023 revenue and profit.

The Georgia-based shipping giant on Tuesday reported a $6.7 billion profit for the full year, down nearly 42% from 2022.

The company has nearly 500,000 employees, 85,000 of which are full-time and part-time management. UPS CEO Carol Tomé said plans are to cut about $1 billion in costs through reductions of management positions and contractors.

While UPS headquarters are in Sandy Springs, Georgia, the job cuts will be at UPS locations around the world over the next several months and will amount to a reduction of about 14% in management headcount.

The cuts announced Tuesday will not affect the vast unionized workforce of UPS drivers, package handlers and others. The company has been adjusting its operational headcount through attrition and reducing operations, and UPS said it plans to continue to “align staffing in our operations to the needs of our business.”

But with the cuts announced Tuesday, “This is really about a new way of working,” Tomé said during an investor conference call, citing changes in technology and generative AI. “We’re just getting started. And I’m really excited about what the future will mean in terms of driving productivity and as well as improving the customer experience.”

Because of the drive to increase efficiency through the cuts, “As volume returns to the system, we don’t expect these jobs to come back,” said UPS Chief Financial Officer Brian Newman. He said three-quarters of the job cuts will occur in the first half of the year.

The cuts come as UPS reported its revenue declined 9.3% in 2023 to about $91 billion.

“2023 was a unique, and quite candidly, a difficult and disappointing year,” Tomé said. “We experienced declines in volume, revenue and operating profit in all three of our business segments.”

She said some of the poor performance was due to the macroeconomic environment, “and some of it was due to the disruption associated with our labor contract negotiations, as well as higher costs associated with the new contract.”

UPS is often a barometer for the U.S. economy and global economic conditions. But in 2023, the company not only faced softening demand but also tense labor negotiations with the Teamsters that raised the threat of a potential strike that spurred some customers to shift their business elsewhere amid uncertainty.

Though the threat of a strike was resolved by a long-term contract – and UPS said Tuesday it has won back nearly 60% of the lost business – the company is still working to recover from the impact.

The company slashed management and operations headcount last year to cut costs, but not as quickly as revenue fell. Operating expenses were $81.8 billion for the year, down 6.2%.

Tomé also announced Tuesday that the company would “explore strategic alternatives” for Coyote Logistics, a truckload brokerage business it bought in 2015.

Tomé said she was on the board of UPS when the acquisition was made, but “what I don’t think we fully understood at the time was just how cyclical this business is,” bringing drastic shifts in revenue and low margins.

The cuts and potential sale of Coyote are part of UPS’s response to the tumultuous shifts in shipping volumes it has seen since the pandemic, which drove a spike in demand for shipping during COVID-19 stay-at-home protocols, followed by a drop afterward.

UPS said it saw declines last year in package volumes in U.S. domestic markets as well as internationally, including in Europe.

Looking at fourth-quarter results, UPS reported $1.6 billion in net income, down 53.5%. Quarterly revenue declined 7.8% to $24.9 billion.

The financial pressures also mean shipping costs are going up. This month, new UPS “demand surcharges” took effect, with extra charges for many shipments, in addition to a 5.9% increase in shipping rates.

The drop in business in 2023 was expected at the start of last year, when UPS said it was seeing signs of economic uncertainty, cutbacks in consumer spending, rising interest rates, high inflation, war in Eastern Europe and other disruptions, including its labor contract negotiations with the Teamsters union, which concluded over the summer.

However, the decline was sharper than expected. A year ago, UPS expected its 2023 revenue to decline to $97 billion-$99.4 billion from a high of $100.3 billion in 2022.

UPS slashed its revenue forecasts as the year went on, to $97 billion, $93 billion and then $91.2 billion-$92.3 billion – before reporting actual results of $91 billion in revenue for the year.

Looking forward, UPS does not expect a full bounce-back in revenue for 2024, but aims for some growth. This year, the company said it expects full-year revenue of $92 billion-$94.5 billion.

“We look at 2024 as a year to pivot away from negative volume to positive volume growth, and from high labor cost inflation to a much lower growth rate,” Newman said.

UPS rival FedEx also reported a decline in revenue in its most recent quarterly results, but had an increase in profit. FedEx has also been seeing slower demand, and said it expects a low single-digit percentage decline in revenue in its current fiscal year.