UPS CEO Anticipates Sharp Impacts from Costly Initial Year of New Labor Agreement

UPS Chief Says Year One of Pricey New Labor Deal Will Hurt Most

Labor Agreement Impact on UPS

United Parcel Service Inc. (UPS) is facing a challenging upcoming year as it grapples with the cost implications of its new, five-year labor agreement. CEO Carol Tomé acknowledged that the company will pay out a significant portion of the agreement’s costs in the next 12 months. This financial strain comes as UPS is also focused on winning back customers it lost during the contentious contract talks. The company plans to offer customer-service improvements and implement automation to boost sales and save money.

Cost Consequences and Market Pressure

The end of the pandemic-related package-shipping boom, coupled with the broader slump in the industry, has put additional pressure on UPS. As a result of the labor pact and the economic downturn, UPS shares have declined almost 7% in 2023, while rival FedEx Corp. has experienced a nearly 50% increase in its shares. FedEx’s success can be attributed to its cost-cutting measures and the acquisition of customers who switched from UPS during the labor negotiations.

Addressing Margin Pressure Through Automation

CEO Carol Tomé believes that UPS can achieve a 12% operating profit margin in the US by implementing cost-cutting measures and attracting customers. This goal is achievable even with the higher labor expenses. To achieve this, UPS plans to introduce new technology, such as radio-frequency identification tags on packages to reduce misloaded items. Automation will also be utilized to unload trucks and driverless tugs will be used to move heavy loads. The company aims to focus on productivity improvements while managing costs.

Editorial: Balancing Costs and Customer Service

The labor agreement and subsequent costs have put UPS in a difficult position. However, CEO Carol Tomé’s strategy of recovering lost customers through improved customer service rather than discounts is a commendable approach. By focusing on offering better service to its largest customers during the upcoming holiday season, UPS aims to regain their trust and loyalty. This customer-centric approach aligns with UPS‘s long-term commitment to quality and reliability.

Towards Improved Profitability and Future Growth

UPS will hold an investor meeting in the spring to provide more details on its plans to improve margins. As pay raises decrease and profitability gradually increases, UPS anticipates a smoother path towards achieving its financial goals. Although the first year of the labor agreement presents significant challenges, UPS can overcome them by leveraging automation, implementing cost-cutting measures, and further enhancing its customer service.

Advice for UPS

As UPS navigates this challenging period, it is crucial for the company to strike a balance between managing costs and achieving profitability. Investing in technology and automation will undoubtedly improve operational efficiency and productivity. To ensure long-term success, UPS should continue to prioritize customer needs while keeping a keen eye on market trends and competitors. By maintaining open communication with its customers and providing exceptional service, UPS can regain lost volumes and solidify its position as a leader in the package-shipping industry.