UPS to revamp U.S. small-package business, lay off 1,800

Transportation giant says restructuring will not result in closure of any U.S. operating facilities.

By Mark B. Solomon

UPS Inc. said today it plans to restructure its U.S. small-package operations, reducing the number of regions to three from five and eliminating 1,800 management and administrative positions.

The restructuring, which takes effect in April, will also reduce the number of districts UPS serves to 20 from 46. UPS said it has no plans to close any U.S. operating facilities. The restructuring will not affect the company's international operations or other parts of its domestic business. UPS, the nation's largest transportation company, has 63,000 U.S.-based managers out of a U.S. workforce of about 340,000.

UPS also announced it was raising its initial earnings estimates for the fourth quarter of 2009, citing "better-than-expected results" from its domestic and international services, as well as increased cost savings.

UPS said it expects fourth-quarter earnings to come in between 73 cents and 75 cents a share. UPS previously forecast earnings of between 58 cents and 65 cents a share. Kurt Kuehn, UPS's chief financial officer, said in a statement the company expects a "gradual economic recovery with improvement more evident as 2010 progresses." UPS will release its fourth-quarter results on Feb. 2.

Jon A. Langenfeld, analyst at Milwaukee-based investment firm Robert W. Baird & Co., said the stronger-than-expected fourth-quarter earnings reflect an improving economy and growing demand for shipping services, as well as UPS's powerful competitive position. Of the four major global parcel companies—UPS, FedEx Corp., DHL Express, and TNT—only UPS has "credible scale" in the three major geographies of North America, Europe, and Asia, Langenfeld said.

Langenfeld, who forecast the U.S. small-parcel market to grow faster in 2010 than the gross domestic product (GDP), believes UPS will benefit from the absence of DHL, whose exit from U.S. domestic service will now be fully felt as the economy enters a cyclical upturn. Langenfeld sees even more upside for the international parcel market in general, with growth doubling that of GDP.

The domestic package business, which includes parcels shipped by air and ground, represents about 60 percent of UPS's total revenue and operating income. Since the late 1990s, however, UPS's dominance of the U.S. parcel market—especially the ground parcel category, where it once controlled more than 90 percent of the business—has been eroded by the encroachment of FedEx's FedEx Ground unit. FedEx in 1997 acquired Caliber System Inc., the parent of UPS rival Roadway Package System Inc., and over the years has made significant inroads in UPS's once-impregnable market share position.

In its third quarter, UPS's U.S. small-package revenue was $6.87 billion, down from $7.84 billion in the same period in 2008. Total volumes fell 3.6 percent to 799 million pieces, UPS said. The company attributed the results to weakness in the U.S. economy.

More articles by Mark B. Solomon

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