United Parcel Service (UPS) is rapidly cutting costs, closing facilities, and shedding jobs—but not for the reasons some headlines suggest. While the company’s decision to reduce its business with Amazon has drawn attention, the real driver of these changes is the financial strain imposed by its 2023 Teamsters contract. The union secured significant wage increases and benefits for its 340,000 workers, but those gains have accelerated UPS’s automation timeline and forced a drastic reassessment of its operational footprint.
UPS’s Q4 2024 earnings report made clear the scale of the challenge. The company is undergoing a network reconfiguration through 2027, which will include closing up to 10% of its facilities, reducing fleet size, and cutting jobs. This comes as labor costs rise at a 3.3% annual rate, with the company absorbing $500 million in unexpected contract-related expenses in late 2023 alone. Investors have responded accordingly—UPS shares have dropped approximately 22% year-over-year and are down nearly 50% from early 2022.
While initial takeaways from the relatively underwhelming earnings report focused on reactions to news that the big brown trucks would be cutting deliveries for their largest customer by half, the downsizing of Amazon deliveries was a red herring distracting from the very real and ongoing downsizing UPS has been doing and plans in the future because of ballooning labor costs under their new Teamster contract.
Yes, UPS is stepping away from lower-margin deliveries, but that’s not the full story. The real issue is the company's shrinking ability to absorb higher operating costs. As one UPS driver told NBC News, despite wage hikes, reduced hours and shift realignments have cut annual earnings by $22,000 for some workers. The same Teamsters contract hailed as “historic” has made jobs less secure, not more.
In March 2024, UPS announced plans to close or consolidate 200 U.S. facilities under its “Network of the Future” initiative, aiming to save $3 billion by 2028 through automation and operational streamlining. These plans are now moving forward faster than expected, with layoffs in Colorado, Oklahoma, and California and the closure of a major Oregon hub by 2025—where automation is projected to eliminate up to 80% of warehouse jobs.
Union leadership has been notably silent. Reports suggest that union leadership concealed automation plans while pushing the contract through, and workers say their concerns about job security were ignored. The UPS Workers Rank-and-File Committee issued an open letter in April 2024 demanding answers from Teamsters President Sean O’Brien, but it has gone unanswered. Meanwhile, O’Brien continues to push aggressive labor demands elsewhere, including at Costco.
UPS’s predicament should serve as a lesson: when wage and benefit increases outpace a company’s ability to generate returns, cost-cutting and automation inevitably follow. The Teamsters won the contract, but at what cost? The workers who were supposed to benefit are now seeing their jobs replaced by machines, and UPS, facing mounting financial pressure, is making sure it happens faster than anyone anticipated.