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UPS looks to ‘saw wood’ with operational productivity changes

Company wants to get out front of higher labor costs with cost-saving programs

UPS to increase SurePost rates 6.9% (Photo: Jim Allen/FreightWaves)

The founder of UPS Inc., James E. Casey, didn’t think of himself as an innovator. In an industry in which success depended on the mastery of repetitive tasks, Casey took pride in improving on processes already in place. His mission, encapsulated in three words during a 1957 speech to mark UPS’ 50th anniversary, was to “keep sawing wood.”

Nearly 115 years since its founding and 39 years since Casey’s death, UPS (NYSE: UPS) is still brandishing the saw. It is working on multiple projects that, if they come to fruition, could dramatically transform an operation that delivers 22 million packages a day, about 19 million of those in the U.S.

The big kahuna, which is on the drawing board, is to affix radio frequency identification devices (RFID) tags to every daily shipment, a monumental task even for a company of UPS’ size and technological prowess. The program is underway in 100 buildings and is being rolled out to support the expansion of the company’s “Premier” health care logistics initiative, in which high-value, mission-critical shipments get delivery priority. 

Taking the RFID program systemwide would effectively eliminate the need for UPS to manually scan parcels prior to loading, an expensive, time-consuming task that is subject to an uncomfortable degree of human error, CEO Carol B. Tomé has said.

On Tuesday, UPS announced it had rolled out a program on July 11 in the U.S. called Total Service Plan designed to increase precision and predictability into its vast domestic business. Nando Cesarone, head of UPS’ U.S. operations, said the program is aimed at fostering
“a predictable environment where our operators can plan with a lot of confidence on start time, finish time, sorts bands and how we can better utilize our automated facilities and move volume from legacy facilities to our newer, more automated facilities.” 

The scale of UPS’ U.S. network is such that a 10-minute improvement in delivery times and schedules translates into $257 million in cost savings, Tomé said.


One area that executives singled out for improvement was road feeder arrivals and departures. In a sign of the impact such a program would have on UPS drivers, operations executives have met face-to-face with 64,000 drivers to discuss how their schedules would fit with the initiative.

In addition, UPS teased out more information about a program, first made public last October, to build package density at the front end of a customer’s supply chain. UPS plans to go live next quarter with an unidentified IT provider that runs most retailers’ order management systems. Under the program, the IT company will hold an order until it can match another order bound for the same address. At that point, the system will release two orders, Tomé said.

By building density at the front end, UPS can lower its cost to serve per package and return those savings to customers, according to Tomé. The so-called virtual hold on packages would not violate the company’s service-level agreements (SLA) with customers because the hold would last only as long as the SLA allows, Tomé said. She called this a new way for UPS to support customer supply chains because the traditional approach of trying to build package density via the final mile wasn’t working.

UPS’ efficiency drive has somewhat of a sense of urgency to it. Starting Sunday, a 12-month clock will begin ticking toward the July 31, 2023, expiration of UPS’ five-year contract with about 370,000 Teamster union members. Negotiations won’t begin in earnest until the first half of next year. However, given the militancy of new Teamster General President Sean O’ Brien and broad concerns about labor cost inflation and supply chain disruptions, it would likely be prudent for UPS to seek cost savings and productivity gains wherever it can find them.

Last year’s contractual wage increase of 90 cents an hour, combined with a cost of living adjustment (COLA), resulted in an aggregate increase per union worker of $1.23 an hour, according to UPS CFO Brian Newman. This year, the aggregate increase is $1.82 cents an hour, which is a $1 hour wage increase combined with a 82 cents per hour COLA. One analyst, Bascome Majors of Susquehanna Investment Group, has modeled a $600 million year-over-year second-half bottom-line hit due to the near-term impact of contract cost escalation.

34 Comments

  1. Dean

    Go ahead and walk out. I dare you to find another employer who delivers packages with the same High Wages, Retirement, and Complete Medical paid.
    90% of the drivers will be crawling back in a week. UPS may close its doors and reopen under a new name with LOWER WAGES & BENIFITS.
    UPS has a stock pile of money stached away. UPS is the king when it comes to cost cutting, I know, I was in Air IE for UPS for 30 yrs.

  2. Chad Castine

    I can’t even list all the flaws in here. I’m just going to list some of the main ones.

    1-Rfid on 22million packages a day? Amazon uses rfid on trailer seals and can’t track them all because technology has limits still. Who is going to create that many rfid chips? How are rfid going to become attached to packages?Who is going to track them? Ups large centers are already set up with barcode scanners and automated belts that reduce labor. Adding that same technique that was previously planned to smaller buildings where the labor is high would be a more economical update.

    2- As a customer I want all of my packages asap and not held waiting for another. Pretend I’m a mechanic working on two customer cars. I need a part for both. If I get one part for one then I can fix that one and get it back to my customer to then bring in another customer’s car to start working on it. If I have to wait until both parts arrive than my business is slowed down. If you’re slowing down my business than I am not going to be a ups customer.

    3-Where are the packages going to be held? There are videos and photos of ups facilities overloaded with packages not being held for later.

    4-Who met “face-to-face with 64,000 drivers”? Meeting face to face for 5 minute increments without any time in between would take two years of 53 hours per week.

    5-Those pay increases listed only apply to a small percentage of employees. At $600 million increase in wages that is also a very small percentage compared to the profit increase and inflation that those employees are experiencing. The pay increase for those employees that did receive it equates to approximately 4.7% I believe with inflation posted as 9.1%. Profits per google-“ATLANTA – UPS (NYSE:UPS) today announced first-quarter 2022 consolidated revenue of $24.4 billion, a 6.4% increase over the first quarter of 2021. Consolidated operating profit was $3.3 billion, up 17.6% compared to the first quarter of 2021, and up 12.1% on an adjusted basis.”

  3. Robert

    Its still well over 100 degrees at 2 am in the morning in my hub..management is setting in offices that are air conditioned.those folks in Atlanta have no clue.there will be a reckoning.

  4. David Banks

    Tome at 7000.00 per hour and a profit that is remarkable has no airconditioning in facilities no heat no air conditioning in package cars will fire workers for going to the bathroom before clocking out. Cant get trucks or package cars to the right dock at the right time or provide equipment that works consistently. Ups state of the art buildings are run on trailing edge technology wont provide uniforms or water . Most ice machines have been broken since forever. Tome is a sweat shop operator those who make the profit should share in the profit . It’s easy to tell the wood cutter hes doing it wrong tome roll up your sleeves and show em how it’s done or stop your veiled make wrong and sit in your air conditioned office and sip your latte

  5. Douglas Corbett

    Those two dollar amounts are 2 of the three cost of living raises I seen in my 31 years so don’t let them fool you. Usually we get on an average of 75 cents a year. The last two were thanks to the current White House administration

  6. Seek the truth

    i.e. mgmt having drivers skip lunch to show that time savings due to poor mgmt, halting all purchases of toilet paper, paper towels, and soap in facilities across the us to show profit due to poor mgmt, the increase in mangers on the clock every quarter with no justifications of why(not wrapped, poor dispatch) always pointing fingers but forget 4 are pointing right back at them.

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Mark Solomon

Formerly the Executive Editor at DC Velocity, Mark Solomon joined FreightWaves as Managing Editor of Freight Markets. Solomon began his journalistic career in 1982 at Traffic World magazine, ran his own public relations firm (Media Based Solutions) from 1994 to 2008, and has been at DC Velocity since then. Over the course of his career, Solomon has covered nearly the whole gamut of the transportation and logistics industry, including trucking, railroads, maritime, 3PLs, and regulatory issues. Solomon witnessed and narrated the rise of Amazon and XPO Logistics and the shift of the U.S. Postal Service from a mail-focused service to parcel, as well as the exponential, e-commerce-driven growth of warehouse square footage and omnichannel fulfillment.