UPS Caps Driver Severance at $150K, Diesel Hike of Nearly 50% Squeezes Margins
Diesel prices have climbed almost 50% since late February, pushing fuel surcharges to 2022 highs and adding to United Parcel Service’s cost pressures. UPS agreed with Teamsters to cap severance buyouts for 7,500 drivers at $150,000 each through 2026, spurring Bank of America to cut its price target to $105.
1. Diesel Price Surge and Fuel Surcharges
Diesel costs climbed nearly 50% since late February, pushing weekly fuel surcharges to their highest levels since 2022. Tight truck capacity and falling driver employment have prevented carriers, including UPS, from absorbing these increased expenses and have passed higher fuel surcharges on to shippers.
2. Teamsters Severance Buyout Cap
UPS negotiated a Teamsters agreement limiting severance buyouts to 7,500 drivers with maximum payouts of $150,000 each through 2026 as part of its network reshaping plan. This cap aims to contain labor-related charges amid broader inflationary pressures on operating costs.
3. Analyst Reaction and Price Target Cut
Bank of America trimmed its UPS price target to $105, citing sustained cost pressures from higher fuel surcharges and capped severance expenses that are delaying margin recovery. Investors may need to revise earnings forecasts given these compounded headwinds.