Dive Brief:
- UPS plans to cut roughly 20,000 positions throughout its U.S. network in 2025 as the carrier moves forward with its plan to slash its Amazon volume by half, according to a Q1 earnings release Tuesday.
- The carrier also plans to close 73 facilities by the end of June due to the ongoing Amazon volume reduction but did not specify which locations would shut down. UPS is using lessons learned from its closure of 11 buildings in 2024 as a "blueprint" for the initiative, CEO Carol Tomé said on an earnings call following the announcement.
- The shakeup, which UPS referred to as its "Network Reconfiguration," is an expansion of the company's Network of the Future initiative, which is consolidating its operational footprint. UPS expects to realize $3.5 billion in cost savings from the efforts in 2025, about $500 million of which came in Q1, CFO Brian Dykes said on the call.
Dive Insight:
UPS is working to match its U.S. network capacity with a planned decline in volume from its largest customer, resulting in large-scale staffing and building cuts. The company announced in January that the amount of volume it delivers for Amazon would drop by more than 50% by June 2026, driven by its aim to focus on more profitable packages.
So far, UPS is making progress toward that goal. Amazon volume delivered by UPS declined 16% year over year in Q1, Dykes said. UPS is expecting another 16% volume drop from the e-commerce giant in Q2, followed by 30% volume declines in both Q3 and Q4.
The volume reduction targets outbound shipments from Amazon's fulfillment centers, a delivery type that "is not profitable for us, nor a healthy fit for our network," Tomé said. The company is keeping more profitable returns volume and outbound shipments fulfilled by sellers, she added.
"While this may be the largest network reconfiguration in our history, we've got experience that gives us confidence that we will be able to complete our plan with very little customer disruption and at the right cost to serve," Tomé said.
UPS is working with its largest customers to adjust their operating plans in response to the 73 facility closures, according to Tomé. For smaller shippers reliant on buildings UPS is closing, Tomé highlighted the company's The UPS Store, Drop Box and Access Point locations.
"Ninety percent of the U.S. population lives within five miles of these locations, and about two-thirds of them are open on Sunday for added convenience," Tomé said.
As UPS trims its network footprint, it's relying more on hubs with automated sortation processes. Automated hubs currently handle about 64% of UPS' volume, up about 4.5% year over year, Dykes said.
Amid this automation push, UPS' employee count has declined. UPS had about 490,000 employees at the end of 2024, down from 500,000 a year earlier, according to annual financial reports.
