UPS is implementing measures to address financial challenges, including job cuts, a potential sale of its truck brokerage business, and a focus on efficiency and higher-profit deliveries. The company faces headwinds from soft demand, higher labor costs, and disruptions in the global supply chain.
1. Job Cuts and Coyote Truck Brokerage Sale:
- UPS plans to cut 12,000 jobs and explore the sale of its Coyote truck brokerage business.
- The job reduction is expected to save $1 billion in the current year.
2. Return to Office and Stock Impact:
- CEO Carol Tomé announced plans to ask workers to return to the office five days a week in 2024.
- The company’s shares fell as much as 7.6% in early U.S. trading following the announcement.
3. Financial Challenges and Guidance:
- UPS reported a 9.3% drop in annual sales and forecasted a modest upswing of as little as 1.1% in 2024.
- Soft demand in Europe and the U.S. contributed to a 7.5% decline in fourth-quarter delivery volumes.
- Higher labor costs and lower package demand resulted in fourth-quarter sales and 2024 guidance missing analysts’ expectations.
4. Challenges in Truck Brokerage Business:
- UPS is exploring alternative strategies for its Coyote truck brokerage business, which has seen declining sales amid a freight recession marked by declining rates and overcapacity.
5. Focus on Efficiency and Higher-Profit Deliveries:
- CEO Tomé is focused on boosting efficiency and shifting to higher-profit deliveries, such as medical supplies, to counter the impact of the new labor deal.
6. Impact of Recent Events:
- UPS has reduced flights as air freight faced slack demand, especially from China, and excess capacity.
- The recent shipping disruptions in the Suez Canal and a drought restricting ship movements through the Panama Canal may have unclear effects on shifting more business to air cargo.
7. CEO’s Perspective:
- Tomé described 2023 as a unique and difficult year but emphasized the company’s focus on controlling what they could and staying on strategy to strengthen the foundation for future growth.
8. Efforts to Win Back Business and Market Challenges:
- CEO Tomé is working to win back business lost during contentious union talks in the previous summer.
- Shipping demand has faced challenges as people shifted to more in-store holiday shopping post-pandemic, and inflation impacted buying power