Consultant’s Insight: Teamsters contract to increase UPS costs 3.3% CAGR

UPS anticipates its new Teamsters union contract to increase costs at a 3.3% compounded annual growth rate over the life of the agreement. Most of the costs, 46%, will occur in the first year, according to UPS. [caption id="attachment_76185" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo Next columnist[/caption] While the first-year costs are higher than forecasted, the company will grow the business and expand margins over the five years of the contract, UPS Chief Financial Officer Brian Newman said yesterday in a recorded update. UPS will focus first on what Newman described as disciplined revenue quality — pricing for the value UPS brings to its customers. Since the contract became effective last month, UPS has matched FedEx’s 5.9% general rate increase (GRI) for 2024, which is lower than the 6.9% GRI for this year, and announced slightly higher demand surcharges for the peak holiday season. UPS will also grow in the “best parts of the market,” Newman said. This includes the health care industry. UPS is heavily invested in this market, including specialized warehousing, technology and its 2016 acquisition of life sciences supply chain firm Marken . For the first six months of 2023, revenue from its health care portfolio reached $4.7 billion. The goal for this year is $10 billion. It also is focused on its Digital Access Program (DAP), a platform that assists e-commerce providers by providing them with a one-stop solution for services, including order management, delivery and tracking. In the first six months of this year, DAP generated more than $1.4 billion in revenue. UPS’ goal for this year is $3 billion. But, perhaps most of all, the spotlight will be on UPS’ productivity investments as it continues to invest in its network and implement automation throughout its buildings. Increased productivity through tech Newman noted on yesterday’s call that the new Teamsters contract allows UPS the flexibility to deploy technology to improve productivity. One such productivity initiative is its smart package/smart facility initiative, which involves linking packages, trucks and facilities in a digital network using radio frequency identification (RFID) tags on packages. “Smart package/smart facility really drives productivity inside the buildings, but it also improves the customer experience by reducing misloads,” cases where the shipment is in the wrong package car, Newman said this year. Misloads are typically caused by human error, which the system is designed to reduce. The technology has reduced misloads from one in 400 to about one in 1,000, Newman said. UPS plans to invest $246 million in this initiative this year. Other productivity initiatives include expanding the use of robotics in facilities and packaging redesigns. UPS has also undertaken a review of its existing network and is redesigning its footprint in North America. Aptly called the “network of the future,” the plan is in response to changes in demand and will move closer to customers to build density within its network. Indeed, UPS parcel volumes have declined since reaching pandemic-level highs and more was lost as UPS and the Teamsters negotiated the new contract. While UPS works to win back lost volumes, it is also working to address general market declines in volumes by retooling its network to become more agile and responsive to market changes. The clock is ticking! It is your last chance to 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: Teamsters contract to increase UPS costs 3.3% CAGR

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