Analysts watch UPS automation efforts to offset rising wage costs

Analysts watch UPS automation efforts to offset rising wage costs

United Parcel Service (UPS) vehicles are parked at a UPS facility in Los Angeles, California, July 22, 2008.REUTERS / Fred Prouser / File Photo

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NEW YORK, NY, Jan.31 (Reuters) – Rising labor costs during the pandemic-plagued holiday season could erode profits for United Parcel Service (UPS.N), the world’s largest package delivery company, which will report quarterly earnings on Tuesday.

Investors will be keeping an eye on the impact on margins of the company’s mostly unionized delivery workforce. UPS has hired nearly 100,000 people for the holiday season and plans to keep some of those workers on board.

The company raised employee pay in some regions to an average of $ 18 an hour from $ 15, it said in June.

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Union pay and benefits for UPS drivers, sorting center workers, and package shippers generally outweigh those of non-union stores like Amazon.com, UPS’s largest customer and a growing delivery rival.

Analysts estimate revenue growth of 8.7% year-on-year to $ 27.1 billion for the fourth quarter, reflecting higher delivery volumes and surcharges since the rise in COVID-19 cases caused by the Omicron variant prompted more customers to shop online during the holidays. They expect earnings per share of $ 3.10, up 16.5% from the previous year, according to Refinitiv data.

From FedEx (FDX.N) to DHL to the US Postal Service, delivery companies “have to shell out money” to hire and keep workers, said Cathy Morrow Roberson, president of consulting firm Logistics Trends & Insights.

“UPS has had to raise pay in some areas of the country to attract some workers, but not to the same level as perhaps FedEx or a post office,” he said.

When last year the turnover and shortage of workers on rival FedEx’s land unit resulted in delays in deliveries, inefficient workflows and hundreds of millions of dollars in additional costs, UPS executives said they were not feeling hard. trial.

UPS had more predictable labor costs related to the stability of its unionized workforce. FedEx uses less well-paid contractors in its ground operations who handle many e-commerce deliveries.

The COVID-19 union protections have also helped UPS attract more workers than its competitors, Roberson said.

However, investors want to learn more about how the company will use automation to increase efficiency and reduce costs.

UPS has invested in more automation tools since 2020 to increase efficiency in its fulfillment process. The 114-year-old carrier beat FedEx and USPS with nearly 97% of deliveries on time during the holiday season, aided by large staff, warm weather and a longer shopping season that has spread the “peak” of deliveries during the holiday season. the holidays over several days, Cowen analyst Helane Becker said in a report.

Now, analysts are watching how these technologies, wage increases and price increases are affecting profit margins.

“I think we will see leadership focus more on automation capabilities within sorting facilities,” said Donnelly, senior analyst at Third Bridge Group. “This, over time, will isolate them more and more from the dynamics of short-term work.”

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Additional reporting by Lisa Baertlein in Los Angeles; Editing by Bernadette Baum

Our Standards: Thomson Reuters Trust Principles.

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