Shares of shipping service and supply chain management specialist United Parcel Service (NYSE:UPS) slipped modestly on Friday following an announcement yesterday about upcoming layoffs. The workforce reduction — slated for February — will impact employees at the company’s Centennial Ground Hub in Louisville, Kentucky. The UPS layoffs occur amid a backdrop of fewer shipments of consumer goods.
According to a local news report, the Centennial is a hub for ground packages near UPS’ Worldport global air hub at Louisville Muhammad Ali International Airport. “As a result of fewer packages in our network, we are reducing package sorting operations at the Louisville Centennial ground hub,” UPS declared in a statement.
Specifically, the “Day sort” unit at the hub will close on Feb. 16, while the “Twilight sort” will not be impacted.
Further, management did not disclose the number of workers to be cut under the UPS layoffs. However, it did state that some employees will be able to transfer to other positions. Impacted workers include some segments of part-time sorters, administrative staff and members of management. However, drivers will not be affected.
Awkwardly, the UPS layoffs come weeks after the Teamsters union threatened to strike over following an initial termination of 35 specialists and administrative workers after they voted to join the Local 89 union. Subsequently, UPS backtracked and returned the jobs to the workers, including full back pay.
This time around, UPS stated that the cuts are “operational.”
UPS Layoffs Occur Following Consumer Goods Shipment Decline
A spokesperson provided a blunt assessment of the UPS layoffs. “In our industry, packages equal jobs, and we need to match capacity and the number of jobs with current package volume.” Unfortunately, the evidence points in that very direction, posing concerns for UPS stock heading into the new year.
In March, The Wall Street Journal noted that a slowdown in e-commerce hit logistics companies’ payrolls. A month earlier, parcel-delivery carriers, truckers and warehousing companies cut nearly 17,000 jobs. And that figure followed a drop of 2,200 jobs in January. To be fair, the timeframe is typically a soft cycle for logistics hiring. However, experts stated that the cuts represent a broader demand cooldown.
Another headwind for UPS stock centers on tumbling ship freight rates as U.S. consumers bought fewer goods. In an October article by the WSJ, European consumers also pulled back on their consumer goods purchases. Subsequently, shipping companies have been bracing for leaner times following a surge in business due to the Covid-19 outbreak.
Downstream, big retailers have declined to order larger amounts of cargo in the summer months to feed end-of-year shopping demand. And that in turn translates to fewer parcels, pressuring UPS stock and its peers.
Why It Matters
At the moment, analysts within the past three months rate UPS stock a consensus moderate buy. This assessment breaks down as seven buys, 12 holds and one sell. Also, the average target comes in at $165.40, implying modest upside of 6%.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
