UPS to lay off 12,000 employees as it turns to AI for efficiency

Parcel delivery giant UPS announced on Tuesday that it plans to cut 12,000 jobs, representing approximately 2.5% of its global workforce. The company said the layoff is due to economic challenges and labor disputes that drove away some customers. UPS said the job reductions are anticipated to save the company $1 billion this year.

The company also said that most of these job losses will mainly affect 85,000 management staff and some contractors, with UPS executives confirming that these positions will not be filled even when the business recovers.

In a statement, UPS CEO Carol Tomé described 2023 as a “difficult and disappointing year” and emphasized the company’s focus on investing in artificial intelligence (AI) to improve efficiency. Additionally, she emphasized the return of employees to office work five days a week.

UPS, often viewed as a barometer of economic activity, faced declining sales and profits last year as package volumes decreased. The company attributed this decline to economic softness in Europe and parts of Asia, along with disruptions in the US caused by labor tensions that prompted some customers to switch to competitors.

While UPS has since regained about 60% of lost business, it expects only modest growth this year, with daily volumes in the US remaining flat or up by 2%, and internationally remaining flat or up by 3%.

Despite this outlook, UPS’s forecast fell short of analysts’ expectations, leading to a more than 7% drop in its shares. Moreover, the company cautioned that expenses related to its new contract with the Teamsters Union would continue to impact its finances in the coming six months. Under this agreement, full-time drivers are set to receive a pay and benefits package averaging around $170,000 annually by the contract’s end in 2028.

In addition to the job reduction, UPS is also considering selling Coyote, a truckload brokerage business acquired in 2015, which matches truckers with customers. Tomé expressed optimism about future productivity enhancements, citing advancements in generative AI and its potential applications within the company.

Despite UPS’s capacity to handle up to 50 million packages on its busiest days in the US and deliver over 30 million parcels globally, concerns persist about disruptions from conflicts in the Red Sea and drought in the Panama Canal, which have hindered normal shipping routes.

The news of the job cuts has sparked concerns and worries about how it will affect workers and whether automation might replace human jobs in the logistics field. Despite these concerns, UPS maintains that these adjustments are vital to secure the company’s competitiveness in a swiftly changing market.

In recent years, UPS has poured billions of dollars into automation technologies like self-driving delivery vehicles and robotic sorting systems. It’s worth noting that UPS isn’t alone in this shift toward AI and automation; competitors like FedEx and Amazon are also heavily investing in similar initiatives.

Early this month, the International Monetary Fund (IMF) warned that artificial intelligence is poised to transform a majority of work in developed economies as the looming job shift. In a statement, IMF Managing Director Kristalina Georgieva warned that AI will impact 60 percent of jobs in advanced economies. According to the IMF report, nearly 40 percent of global employment is exposed to the influence of AI.

The IMF report also found that half of the jobs affected by AI may face negative consequences, while the remaining portion could experience improved productivity due to AI advancements.