We are officially in the midst of peak season for small parcel. Retailers are (hopefully) basking in the post-Black Friday glow, while shipping companies stretch to accommodate the spike in consumer-driven volume. Usually, more is more, but for UPS, that may not be the case.
UPS finds themselves stuck between dropping parcel rates, stiff-armed union leverage, and even stiffer competition from their peers.
UPS has been looking for creative ways to make ends meet without disappointing the public, some of which seem to go against their past decisions. For the first time ever, they offered drivers a buyout, and they have been working with gig drivers to absorb seasonal volume without paying expensive union overtime.
In this week’s Art of Supply, I study UPS’s current challenges, look at how they are attempting to handle them, and consider what both indicate about changes in the nature of the service they have provided for almost 120 years.
UPS Breaks with Tradition
I’ve covered UPS before, but what brought them back to my attention was a recent article in The Wall Street Journal about the company’s decision to use gig workers to make deliveries.
There are a few unique and surprising things about this decision. UPS is known for having high appearance standards for drivers and trucks alike, but these gig workers drive their own cars and wear reflective vests. It is not very UPS-like.
The Teamsters, who represent the vast majority of UPS’s drivers and warehouse workers, are not likely to take such a move in stride, balance sheet be damned.
That said, UPS has used gig workers in the past, and the Teamsters certainly noticed. They first used gig workers in 2015, a decision that Teamsters’ General President Sean O’Brien promised to address in the last round of contract renegotiations.
UPS unionized drivers make $65 per hour today, while FedEx’s non-unionized drivers make $35. By the end of the current Teamsters agreement, drivers will make $80 on average per hour, not have to pay healthcare premiums, and earn up to 7 weeks of vacation every year. By comparison, gig drivers make as little as $15, making them an attractive option for cash-strapped UPS.
UPS needs to save that money. Their domestic unit’s profit margin was 6.4% in the third quarter of 2025, less than half of the 14.2% they enjoyed a decade ago.
Rather than attempting to boost revenue, the company is looking to reduce expenses. UPS laid off 34,000 drivers and warehouse workers this year, a number that climbs to 48,000 when you include non-unionized workers. Those layoffs accounted for about 10% of the company’s total workforce.
For all of the critical headlines, their strategies are working. UPS has achieved a total expense reduction of $2.2 Billion so far this year on their way towards a one-year savings goal of $3.5 Billion.
Outsized Influence of Union Labor
We can’t look at UPS’s current situation without acknowledging the role of union labor.
When the Teamsters negotiated their current collective bargaining agreement in 2023, it was the largest contract of its kind ever put in place. That negotiation took place against another Teamsters-represented company’s demise: Yellow Freight. They declared bankruptcy in 2023 and sold themselves off as real estate.
Sean O’Brien is not showing any signs that Yellow is going out of business, and eliminating 22,000 union jobs taught him to pull his punches. He says he doesn’t care about management job losses and said the union wouldn’t object if UPS downsizes management, but “UPS will be in for a hell of a fight” if it moves to eliminate Teamsters jobs.
The Teamsters fought back against UPS’s driver buyout, even releasing (a.k.a. leaking) news of it before UPS had communicated the opportunity to drivers.
UPS has been renovating the distribution centers it plans to keep open. In many cases, those renovations have included automation to handle tasks previously carried out by union workers, bringing to mind the objections raised by East and Gulf Coast Port Workers.
UPS is absorbing the revenue shock associated with the transition from B2B to B2C parcel deliveries, but the union isn’t playing ball. Only time will tell if UPS’s many creative approaches (including gig workers and driver buyouts) will be enough to make ends meet.