UPS is cutting 12,000 jobs as wages rise and package volumes fall

United Parcel Service plans to cut about 12,000 jobs this year as the company tries to cut costs in the face of declining package volumes and higher wages tied to a new union contract it signed in the summer.

UPS CEO Carol Tomé told analysts on an earnings call Tuesday that it had been a “difficult and disappointing year.” Last year, sales fell by more than 9 percent and profits fell by a third.

Ms Tomé said most of the job cuts would occur in the first half of the year and would reduce costs by about $1 billion. UPS employs nearly 500,000 people.

UPS narrowly averted a strike over the summer when the union representing more than 300,000 workers, the International Brotherhood of Teamsters, threatened to walk away if a labor agreement that included higher wages was not reached. A contract was agreed shortly after the previous agreement expired, but uncertainty over a possible walk-off has negatively affected the company's parcel volumes. UPS said that by the end of December, about 60 percent of the volume it lost during the standoff had returned.

The positions that would be eliminated this year are not union jobs, according to the Teamsters. The layoffs will instead affect executive staff “across the world and in all functions,” according to a statement from UPS. These steps reflect a “change in the way we work,” Ms. Tomé said, and even if things recover, those jobs may not return. Employees are also expected to work in the office five days a week, she added.

UPS said it recorded a 12 percent pay increase for union workers in the fourth quarter as a result of the new contract. To limit the hit to profits, the company cut working hours by about 10 percent last quarter.

Shares of UPS fell more than 8 percent Tuesday morning.

The company said it expected parcel volumes to continue to decline in the first half of this year, before posting positive growth in the second half. The company's weak demand forecasts and job losses are in stark contrast to recent economic indicators showing resilient global growth and signs of an economic “soft landing,” defying predictions of a deeper downturn.

Still, the number of laid-off workers in the United States rose slightly in December, according to data from the Labor Department released on Tuesday. And several tech and media companies have announced major layoffs in recent months.

While the overall number of layoffs is low compared to pre-pandemic levels, certain sectors are being affected more than others. “If you work in these industries, you're probably feeling pretty uncomfortable right now,” said Julia Pollak, chief economist at ZipRecruiter.