On Tuesday, the shipping giant UPS announced they will layoff 12,000 employees internationally and domestically in response to the new union contracts and drops in shipping volume.

According to CNBC, the layoffs that were announced are due to an effort of realigning resources throughout the company while still employing over 500,000 people.

On a recent fourth quarter earnings call, the CEO Carol Tome said the removal of the 12,000 employees would save the company $1 billion in costs.

“2023 was a unique, and quite candidly, difficult and disappointing year. We experienced declines in volume, revenue and operating profits and all three of our business segments,” the UPS CEO said. “We are going to fit our organization to our strategy and align our resources against what’s wildly important.”

During the earnings call, UPS reported a 7.4% drop in the daily volume of domestically shipped items and a 8.3% drop in shipments internationally.

In 2023, UPS faced a massive labor renegotiation agreement with the Teamsters Union which increased drivers pay and benefits $170,000 by the end of the deal but skyrocketed the companies operating expenses.

However at the time, Tomé said “When you look at total compensation, by the end of the new contract, the average UPS full-time driver will make about $170,000 annually in pay and benefits. And for all part-time union employees that are already working at UPS, by the end of this contract, they will be making at least $25.75 per hour while receiving full health care and pension benefits. We will be improving the working conditions for all employees, including air conditioning in every new U.S. packaged car, starting in January 2024.”

UPS also expanded its childcare program for its employees in 2023 increasing the costs.  According to CNBC, UPS had a reported $1.61 billion in revenue for the past three months of 2023 while a year earlier they reported $3.45 billion in revenue, a massive drop in a year.