Consultant’s Insight: How UPS plans to mitigate Teamsters contract costs

“ UPS has put $30 billion in new money on the table as a direct result of these negotiations,” Teamsters General President Sean M. O’Brien said in a July 25 statement announcing a tentative five-year contract agreement with UPS. The historic tentative contract puts added pressure on UPS in a market that has seen package volumes drop year over year, normalizing to pre-pandemic levels while costs have increased during the same period. Still, UPS Chief Executive Carol Tome told analysts during the company’s second-quarter earnings call on Tuesday, “We have the best people, and our new contract continues to reward our employees with the best pay and benefits in our industry.” Tech investment offsets staffing costs UPS plans to step up its operations technology investments to offset some of the costs of these pay and benefits rewards, the company stated. [caption id="attachment_76185" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo Next columnist[/caption] “The U.S. domestic team took out $889 million of expense year over year, which is the largest year-over-year cost reduction in our history,” UPS Chief Financial Officer Brian Newman said on the earnings call. “How did we do it? We leveraged our technology and the agility of our integrated network.” Examples of this, said Newman, are: UPS reducing labor hours by nearly 10%; With total volume down 9.9%, UPS is taking advantage of its smart package marketability strategy and reducing the volume in its nonautomated building by 18%, enabling UPS to reduce operations headcount by 7% YoY; Reducing feeder movements by continuing to manage cube utilization in UPS trailers and bringing on more UPS feeder drivers; and Pulling more air activity into WorldPort, UPS’ global air hub, enabling UPS to move more volume via next-day flights and reduce second-day flights, thereby lowering domestic block hours by 6.5% YoY. Tome credited the company’s network planning technology (NPT) for UPS’ success in achieving agility. NPT is a set of technologies that uses AI and machine learning to harness the value of UPS data to quickly make changes to planning, scheduling and volume flows across the network. “By using NPT with our total service plan, we quickly match the network to volume levels,” Tome said. “This resulted in a nearly 10% reduction in hours in the U.S., in line with the decline in volume.” Additionally, in what sounds like dynamic pricing, UPS has identified “about 50 customers that are target customers for our new pricing architecture, which we call ‘Architecture of Tomorrow,’” Tome told analysts. “The new pricing architecture doesn’t fit everybody, but it does fit some, based on their shipping needs.” Pricing modifiers could include day of the week, ZIP+4 codes and cube optimization. “It won’t be for everybody — but for some — so we’ll lean into that in a big way,” Tome said. Expanding tech offerings Despite a downgraded outlook, UPS capital expenditures are still expected to be about $5.3 billion, which includes completing the deployment of the first phase of its smart package marketability strategy in the United States, continuing to expand its health care logistics footprint globally, expanding the company’s digital access platform internationally and investing in its logistics-as-a-service platform. UPS also plans to lean further into SurePost, its hybrid service, with the U.S. Postal Service completing the final mile because of its delivery density capabilities. Lastly, UPS will continue to acquire “enabling capabilities, particularly in areas we really want to own,” Tome told analysts. “ Health care logistics would certainly be one of those. Technology investments that give us platforms to accelerate the digital experience for our customers absolutely expect us to lean into that space.” Join Air Cargo Next for its second annual Air Cargo Tech Summit on Sept. 18-19 in Brussels, sponsored by Unisys and Brussels Airport and featuring a fireside chat with Brian Hodges, managing director, American Airlines Cargo. For more details and to register, click here .

Consultant’s Insight: How UPS plans to mitigate Teamsters contract costs

DHL adds another used 777F

FedEx feeds regional fleet with 15th ATR 72-600F

Related Posts

From the Cockpit with K2 Aviation’s Karl Ryan

Production freighter activity highlights May FATs

Widebodies account for more than half of April’s transactions

FedEx feeds regional fleet with 15th ATR 72-600F

Cargo Facts Free Newsletters

Cargo Facts Connect Podcast

Follow Us

Welcome Back!

Retrieve your password