American logistics company UPS to fire 12,000 workers; here's the reason

American logistics giant United Parcel Service (UPS) has decided to layoff a massive 12,000 employees as it reported a significant downturn in shipping volumes both domestically and internationally. 

CEO Carol Tomé described 2023 as a "unique and difficult year," with declines in volume, revenue, and operating profits across all business segments. According to media reports, The layoffs are expected to save UPS about $1 billion in costs.

Decline in revenue & shipping volumes

UPS reported a 7.8% decline in revenue to $24.9 billion, missing the projected $25.43 billion. Net income also dropped significantly to $1.61 billion from $3.45 billion a year earlier. 

The company witnessed an 8.3% decrease in international shipping volumes, with notable softness in Europe and freight complications in key global regions. Tomé highlighted these challenges, along with broader macroeconomic factors, as key contributors to the disappointing year. 

Additionally, UPS is considering selling its Coyote truck brokerage business due to its cyclical nature and earnings volatility.

Labour cost to affect profit margins

The new labour contract with the Teamsters, which is effective from August 1, has increased labour costs for the American logistics company.

The deal, which covers approximately 340,000 workers, includes significant wage increases and is expected to impact the company's profit margins in the first half of the year. Despite these challenges, UPS said it is focused on improving efficiency and shifting towards higher-profit deliveries.

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