2,000 drivers left UPS after taking buyouts, analyst says

About 2,000 unionized delivery drivers accepted a buyout offer from UPS in the third quarter, according to an estimate by Satish Jindel, a long-time parcel shipping consultant and president of ShipMatrix.

UPS CEO Carol Tomé said during Tuesday’s earnings briefing that the buyouts will cost the company $175 million. The Atlanta-based parcel logistics giant has not disclosed the actual number of drivers that agreed to take a voluntary separation package.

In July, UPS (NYSE: UPS) offered delivery drivers severance packages worth $1,800 for every year of service, part of a major streamlining campaign that includes closing dozens of package stations to align capacity with lower domestic package volumes. UPS extended the acceptance deadline until mid-August because of low interest in the early retirement plan.

A driver with 27 years of experience would receive a $48,000 buyout, according to the UPS offer sheet. Management previously said that drivers with 25 to 40 years of service were the most likely candidates to take the offer. The Teamsters union said the early retirement offer was insufficient and urged members not to sign up.

Assuming most drivers who accepted the UPS offer had more than 35 years of service, the cash payout would be between $63,000 and $72,000. The average driver likely received about $86,400 when benefits worth 20% of the cash payout are added, according to calculations by Jindel that were shared with FreightWaves. Applying the estimated severance package value against UPS’s total expense suggests that about 2,000 out of 70,000 drivers, or 2.9% of the driver workforce, ultimately took the deal.

Despite the seemingly low turnout, the package “is still good for both the drivers ready to move on and for the company since it amounts to about half of the total compensation it would pay a driver in a full year,” Jindel said.

It should be noted that $175 million paid for the early exit packages is a small amount for a company with $91 billion in revenue.

Other industry observers have said that the UPS offer wasn’t lucrative enough for most drivers with less experience to accept.

Executives said they have eliminated about 32,000 warehouse jobs so far this year through its network consolidation program. In April, UPS said it planned to remove 20,000 jobs in sortation centers because of reduced volumes from Amazon after UPS opted to drop 50% of business with its largest customer because it was barely profitable. Over the past 18 months, UPS has also cut 14,000 management positions. The combined workforce reduction over that period totals 48,000 jobs.

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UPS will start to realize savings from the driver buyouts during the fourth quarter, CFO Brian Dykes said.

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