UPS Chief Warns of Potential Impact of Expensive New Labor Agreement in First Year

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

By Thomas Black, Bloomberg News

(Bloomberg) — United Parcel Service Inc. will pay out the biggest portion of its new, five-year labor pact over the next 12 months while trying to win back customers it lost during the contentious contract talks, making for a challenging upcoming year, its chief executive said.

Covering the Costs

The labor deal, which took effect in August, has put UPS in a difficult position. The company will have to cover the large initial pay rise secured by the Teamsters, while also dealing with the end of the pandemic-related package-shipping boom. UPS CEO Carol Tomé believes that by offering customer-service improvements and leaning into automation, the company can boost sales and save money to compensate for the increased labor expenses.

The Challenge of Lost Customers

The contentious contract negotiations with the Teamsters resulted in the loss of approximately 1.2 million packages per day for UPS, either to competitors or new business that didn’t occur. To recover those customers, UPS plans to focus on providing better service rather than offering discounts. The company has already informed at least 200 of its largest customers that it won’t cap the volume of items they ship during the upcoming holiday season. Additionally, UPS will hold an investor meeting in the spring to provide more details on how it plans to improve margins.

The Role of Automation

UPS will be implementing new technology into its facilities to achieve cost-cutting measures. The company has already introduced radio-frequency identification tags on packages to reduce misloaded items and allow trucks to scan parcels. Automation will also be used to unload trucks and employ driverless tugs to move heavy loads. Tomé emphasized the importance of productivity and ensuring that automation is a key focus moving forward.

Looking Ahead

Tomé believes that UPS can reach a 12% operating profit margin in the US despite the higher labor expenses by implementing her cost-cutting and customer-wooing plans. However, this goal is slightly higher than earlier projections and higher than the 8.3% analysts expect this quarter. UPS will face increased costs in the first year of the labor agreement, covering 46% of the total cost increase, but labor costs will only rise 3.3% on average each year over the life of the five-year deal. Tomé reassured investors that the overall expense is within the company’s budget and expects profitability to improve in the fall as pay rises shrink.

Editorial: Navigating Challenges with Innovation

The challenges faced by UPS in the aftermath of the labor negotiations are substantial. However, Carol Tomé’s approach, focused on customer service improvements, automation, and innovation, reflects a commitment to adaptability and resilience. Technology, such as the use of radio-frequency identification tags and automation, has the potential to significantly improve efficiency, reduce costs, and enhance the customer experience.

Furthermore, UPS‘s decision to prioritize recovery of lost customers through improved service rather than discounts demonstrates a commitment to maintaining value and quality. By communicating to its largest customers that there will be no volume caps during the busy holiday season, UPS is taking proactive steps to rebuild trust and confidence in its services.

While the upcoming year may be challenging for UPS, the company’s strategic approach and long-term vision indicate a commitment to overcoming obstacles and driving sustained growth. By carefully managing costs and investing in technology and customer satisfaction, UPS has the potential to emerge from this period even stronger.

Advice: Time for Growth and Adaptation

As UPS navigates the challenges associated with the new labor deal and the loss of customers, it is crucial for the company to prioritize growth and adaptation. The utilization of automation and innovative technology should be embraced to enhance efficiency, reduce costs, and improve overall productivity.

Additionally, by focusing on customer service improvements, UPS can rebuild its reputation and win back customers lost during the contentious negotiations. The decision to waive volume caps during the holiday season is a step in the right direction, as it demonstrates a dedication to meeting customer demands and providing value.

Furthermore, UPS should continue to explore additional opportunities for growth and expansion. This could involve exploring new markets, expanding its service offerings, or identifying potential strategic partnerships. By diversifying its revenue streams, UPS can mitigate the impact of any future challenges and establish a stronger market position.

In conclusion, while UPS faces significant challenges in the aftermath of the labor negotiations and the loss of customers, the company can overcome these obstacles through innovation, strategic decision-making, and a customer-centric approach. By leveraging technology, prioritizing customer service, and exploring opportunities for growth, UPS has the potential to not only rebound from the current setbacks but also thrive in the long term.

Keywords: Profits, labor agreement, UPS, impact, expensive, chief, warning