UPS Adapts Projections Amidst Labor Negotiation Fallout

United Parcel Service lowered its full-year revenue and profitability goals on Tuesday as the largest package delivery company in the world deals with rising labor expenses and battles to regain lost business in the United States following turbulent contract negotiations with the Teamsters.

Just before their contract’s expiration date of July 31st, UPS and the approximately 340,000 American workers represented by the International Brotherhood of Teamsters union negotiated a tentative five-year agreement.

Customers diverted more cargo than anticipated to competitors in the lead-up to the pact as the union threatened to strike, according to UPS CEO Carol Tome in a conference call with analysts.

Competitor FedEx demanded that shippers increase volume prior to the expiration of the UPS contract in order to ensure delivery throughout a potential strike.

Customers of UPS switched to other suppliers for around a million shipments per day, costing the company about $200 million in lost revenue. According to data, the U.S. Postal Service, FedEx, and local competitors each took home roughly one-third of that business, said Tome.

Atlanta-based Moreover, UPS struggled with business losses during earlier contract negotiations. Customers want to benefit from volume savings, thus it is anticipated that a large portion of that will return.

The handshake labor agreement is up for employee ratification until Aug. 22. The agreement calls for pay increases, the elimination of a two-tier pay structure for delivery drivers, the addition of a paid holiday, and the installation of air conditioning in new delivery vehicles starting in 2019.

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Flexibility through Weekend Service and Tech Adoption

With weekend service, temporary holiday workers, and technology adoption, UPS kept its flexibility.

UPS projected annual consolidated sales of $93 billion in 2023, down from a previous estimate of $97 billion, and stated that it anticipated an adjusted operating margin of 11.8% this year, down from an earlier prediction of 12.8%.

Following employee approval of the agreement, UPS said it will provide details on labor expenses.

UPS, frequently regarded as a leading indicator of the U.S. economy, and other logistics firms are dealing with a decline in worldwide shipping demand as a result of bad e-commerce, weak exports, and sluggish industrial production, which has reduced margins.

For the second quarter, the firm posted adjusted earnings of $2.54 per share, exceeding market estimates by 4 cents per share. According to Refinitiv statistics, revenue dropped by around 11% and fell short of projections of $23.1 billion.

UPS cut expenses and concentrated on transporting high-margin packages for healthcare and other sectors in order to protect its profit.

The company’s U.S. segment, which in the second quarter contributed 58% of adjusted operating profit, reduced labor hours by over 10% and management staff by 2,500.

Also, it decreased the number of flights by diverting more air traffic to Louisville, Kentucky’s Worldport hub, and it increased efficiency by diverting package flows from smaller, non-automated buildings to bigger, automated facilities.

Read Next: Voting Underway for UPS Employees on Agreement That Prevented Strike

Source: Reuters