“They are our largest customer, but they are not our most profitable customer,” UPS CEO Carol Tomé said in an interview with Bloomberg Television, describing the move as “taking control of our destiny.”
Three months later, that destiny has become clearer as UPS announces plans to slash 20,000 jobs, close 73 facilities, and retool its shipping network to use less human labor—changes the shipper said were “in line” with the Amazon volume it was losing, but also set it up to be more profitable going forward.
The Amazon deliveries UPS is dropping are “not profitable for us, nor a healthy fit for our network,” she said. What’s more, UPS plans to increase automation, she said, which will “lessen our dependency on labor [and] reduce the capital requirements needed to run the network.”
About half of the buildings to be closed are in the eastern U.S., CFO Brian Dykes said. The 20,000 jobs cut will “be made across the entire U.S. network.”
UPS’ modernization push, parts of which have been previously announced, involves consolidating and closing 200 sorting facilities over five years. Under the plan, nicknamed “Network of the Future,” the shipper has been automating package sorting; it’s also looking at using robotics for tasks like loading and unloading trailers and applying labels, Tomé told investors.
Ultimately, some 400 facilities in UPS’ network will be partially or fully automated, Nando Cesarone, president of U.S., told investors. “The end result will be a much more efficient operation with less dependency on labor,” he said.
That upheaval meant fewer shipments for UPS in February and March, and led the shipper to yank earnings guidance for the rest of the year.
“The world hasn’t been faced with such enormous potential impacts to trade in more than 100 years,” Tomé said. “The only thing we’re certain of is we don’t know which, if any, of our scenarios will play out.”
Only about 2% of UPS’ volume comes from international packages, executives said. Still, UPS’ China-to-U.S. trade lines are the company’s most profitable, Tomé told investors. But as that route dries up, the company sees demand growing in shipments from China to the rest of the world, as well as from Europe, Thailand, and Vietnam.
The company is expecting a 9% drop in U.S. shipping in the second quarter and a modest drop in revenue.
“There’s so much uncertainty around China, now it’s been announced,” Tomé said. “We don’t know actually what will happen. We don’t know if it will fit. There are many things we don’t know.”
