UPS is reducing its workforce by 12,000 jobs due to a package delivery demand slowdown, as announced by executives on Tuesday.

Cutting About 2.4% of UPS's Global Workforce

The layoffs will remove approximately 2.4% of UPS's global workforce of roughly 495,000, with about 75% anticipated in the first half of 2024. On Tuesday, Chief Financial Officer Brian Newman stated during a conference call with analysts that the job cuts represent a shift in the company's work approach, saying they do not anticipate these jobs returning as the volume returns to the system.

Package Volume Decreasing After Pandemic

UPS experienced a boost in online shopping early in the pandemic, but package volume experienced a significant decline as time passed, with a reported 7.8% decrease year-over-year. CEO Carol Tomé mentioned in a statement that 2023 "was a unique and difficult year," where the company had to stay focused on managing what they could control, adhere to their strategy, and fortify the foundation for future growth.

UPS is still navigating the shift away from the retail economy of 2020 and 2021, which was shaped by the pandemic, said Jim O'Rourke, a business professor at the University of Notre Dame, citing, "Now you can get in the car, on the bus, you can go shopping yourself, and so you don't have the demand for packages shipped."

While the consumer economy in the United States remained robust, Europe faced challenges in industrial manufacturing, causing a decline in the demand for package deliveries, as noted by Tomé.

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Other Carriers Facing the Same Revenue Decline

In 2023, many private carriers also faced difficulties. DHL Group reported a significant 19.3% decline in revenue in its recent quarter. FedEx also experienced a drop in income, with CEO Raj Subramaniam attributing it to an "uncertain demand environment."

The U.S. Postal Service informed Congress in a recent report that its volume had decreased by 8.9% for the year, which Postmaster General Louis DeJoy attributed to digital communication and online shopping changes, noting that substantial economic and social shifts have significantly affected the Postal Service's business model, making recovery challenging.

Increased Labor Cost Factor

UPS executives also mentioned increased labor costs as a factor. Last summer, UPS agreed with the Teamsters on a deal that involved raises of up to 55% over five years for specific workers. The company has already decreased its workforce by around 45,000 since the pandemic peak, primarily through attrition and reduced hours, as noted by Tomé during Tuesday's call.

Investors were disappointed by the company's sales outlook for 2024. UPS projected revenue to be between $92 billion and $94.5 billion, representing an increase of 1% to 3.8%. However, according to news reports citing financial data provider Refinitiv, analysts had anticipated a higher outlook, where UPS expects the U.S. small-package market to grow by less than 1% in 2024. As a result, UPS stock declined by over 8% on Tuesday.

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