News / No happy new year for FedEx and UPS staff as culls look set to continue

© Grzegorz Kieca

FedEx and UPS have entered the new year with plans to trim their workforce more, starting 2024 on a defensive note.

At FedEx, more cutbacks loom over the integrator’s pilots, while UPS intends to eliminate positions at its Centennial hub in Louisville.

According to a report by FreightWaves, FedEx management is looking for as many as 400 redundancies in its flight crews through early retirement, flanked by reductions in the minimum hours pilots are paid for.

Citing internal FedEx communications, FreightWaves reported that the company was aiming to reduce the minimum guarantee of 68 paid flights hours per month to its pilots by 13%.

The early retirement scheme is expected to kick in after management and the Air Line Pilots Association (ALPA) agree a new employment contract. The two sides had reached an agreement last summer, but this was rejected by a narrow majority of the pilots, which sent the parties back to the negotiating table. Talks are in progress under federal mediation, with two sessions scheduled for this month.

ALPA pointed out that the pay rise offer of 30% over four-and-a-half years is below the increases for pilots at US passenger airlines, and argues that FedEx pilots should be compensated for the “sacrifices and risks” they shouldered during the pandemic that produced record results for the company.

The intended cuts are part of the integrator’s Drive programme, which aims to eliminate $4bn in costs – market developments presumably heightened management’s sense of urgency about this.

In the company’s second quarter of the current fiscal year, tabled on 19 December, revenues dropped 2.6%, but consolidated operating income was up 9%.

For the express division, operating income sank due to lower revenue, which was only partially offset by reduced operating expenses. Management attributed the lower revenue to volume declines, lower fuel surcharges, reduced demand surcharges and a shift to lower-yielding services. Average daily express parcel volume was down 2% on a year ago.

For fiscal 2024, FedEx projects a low single-digit decline in revenue.

For its air network, more headwinds are expected, which could trigger a push for even more redundancies in the pilot ranks. The company’s contract with the US Postal Service (USPS) for domestic air transport and international deliveries expires in September. Pursuing an aggressive push of traffic to ground transport, the postal agency has drastically slashed expenditure on air transport.

“Our ability to drive margin improvement in the near term has been constrained by transitory factors, including the year-over-year decline in the US Postal Service volume, combined with minimum required service obligations associated with our current USPS contract, said FedEx president and CEO Raj Subramaniam, in the earnings call following the presentation of the Q2 results.

The USPS has been the largest customer of FedEx Express.

In December, FedEx announced plans for a sweeping restructure of its air network that would reduce the hub-and-spoke operation to high-priority, high-margin volumes to be supplemented by off-cycle flights on its own aircraft and lift provided by other cargo carriers.

“With the rapid growth of e-commerce and as volume mix continues to shift to deferred, we recognise the need to reconfigure our network to focus on both speed and density,” said Mr Subramaniam.

Job cuts are also on the cards at UPS, which is preparing to lay off an undisclosed number of workers at the Centennial hub, as it intends to stop day-sort activities there. It says it needs “to match capacity and the number of jobs with current package volume”.

Apparently, some of the affected workers will have an opportunity to move to other positions with the integrator.

The Louisville hub made headlines in December when the Teamsters union threatened to stage a work stoppage in response to the termination of 35 specialist and administrative workers who had joined the union in October after a lengthy dispute with the company. A strike was averted when management agreed to reinstate them.

UPS has been struggling to regain business lost during the contract negotiations with the Teamsters last year, which had prompted many customers to divert their business to other carriers in order to avert potential disruption from a labour conflict at the integrator.

John Haber, founder and CEO of Bella Investment Group, expects headwinds for the integrators which they will try to navigate via a combination of cost management and dynamic pricing.

“Logistics and transportation providers across the globe will continue to navigate a very challenging environment as we transition into 2024. Cost management is the core focus for most providers – it’s the most prudent solution to achieving profitability goals – volume and revenue growth are not the realistic strategy for most in the current market,” he said.