News / 'Outlook not very promising', says UPS CEO, eyeing more cutbacks

Late 2023 for UPS was dominated by plans to trim costs by laying off 12,000 more staff and, possibly, getting rid of its struggling freight brokerage business.

The integrator’s revenue in the fourth quarter was 7.8% down on a year earlier, to $24.9bn, missing analysts’ targets, while consolidated operating profit slumped 22.5%, to $2.5bn, producing net income of $1.61bn.

Over the full year, revenue fell 9.3%, to $91bn, and operating profit dropped 30.2%, to $9.1bn.

In the US market, average daily package volume in Q4 was down 7.4%, with domestic revenue falling 7.3%, to $16.9bn. Average daily international package volume contracted by 8.3%, resulting in a 6.9% drop in revenue, to $4.6bn. Supply Chain Solutions revenue fell 11.4%, to $3.39bn, due to declining market rates and excess capacity in the forwarding segment.

Management attributed the decline in international revenue to soft demand in Asia and Europe, while express volumes carried by air were decimated by a shift to ground services.

UPS CEO Carol Tomé stressed that the company had succeeded in recovering about 60% of the volumes lost during its contract negotiations with the Teamsters union that prompted shippers to shift traffic to other carriers.

However, management still sees a need to trim costs, as the outlook for this year is not very promising, said Ms Tomé. She expects less than 1% growth in the parcel business and “just some improvement” in the other segments. The projection for full-year revenue is between $92bn and $94.5bn.

“They’re in a difficult spot. Costs are going up, but the outlook for growth is not bright,” noted John Haber, chief strategy officer of Transportation Insight. He added that UPS had invested in capacity expansion in response to the surge in traffic but now has to scale down capacity to match lower demand, and reduce cost.

Industry observers and consultants have predicted parcel rates to soften in the coming weeks, as lacklustre demand gives customers room to negotiate discounts.

UPS looks to save $1 billion in costs by reducing its head count by 12,000, which follows earlier cuts that reduced its workforce from 540,000, at the height of the parcel tsunami of 2021, to the current 495,000. According to UPS CFO Brian Newman, 75% of the job losses will occur in the first half of the year.

“It’s a change in the way we work,” he said during this week’s earnings call. “As volume returns to the system, we don’t expect these jobs to come back.”

Ms Tomé said the layoffs would play out largely among UPS’s 85,000 management-level employees and some contractors, with the unionised workers not affected. However, Mr Haber believes this move could pave the way for even more job cuts affecting Teamsters members.

The UPS move raises questions about job security at other parcel giants, notably FedEx and Amazon. Mr Haber reckoned the revamp of the FedEx network might entail more job cuts, whereas Amazon’s moves to take more parcel traffic in-house suggests it may recruit, rather than lay off, workers.

Apart from jobs, UPS may also take a knife to its freight brokerage business. Mr Tomé announced an impending strategic review of the Coyote arm, acquired in 2015 for $1.8bn. At the time, management had not fully understood the massively cyclical nature of that business, said Ms Tomé.

Freight brokerages have struggled. Convoy went out of business last year and Uber Freight and Coyote recently made job cuts. Mr Haber said he would not be surprised if UPS sold Coyote. He pointed to UPS Freight, which it sold to TFI International in 2021.

“Margins are much higher in parcels than in brokerage or LTL,” he noted.