UPS Cutting Costs and Amazon Cutting Jobs

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1:20Bloomberg Audio Studios. Podcasts, radio, news. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. One of the stock stories in the news, folks, is it is Amazon cutting 14 ,000 jobs. I was doing some reading of Bloomberg News and they had like almost doubled their headcount pre-pandemic. Sure. Coming out of the pandemic. And so it makes sense that they should be shedding some jobs perhaps. Let's check in with Putnam Goyal, senior U.S.

2:02e-commerce and retail analyst for Bloomberg Intelligence. Putnam, talk to us about Amazon here. 14 ,000 jobs, it seems like a big number, but I do know, and for those affected, it is a big number, but they have over a million employees. So what's happening at Amazon? Yeah, it sounds like a big number, but in the grand scheme of things, and for Amazon, it's not needle-moving, right? It's 14 ,000 is about 4 % of its corporate workforce and even smaller when you look at it on a base of 1.55 million employees worldwide. So still very small, but they're cutting, right? And that's the thing. They've been cutting since after the pandemic, as you mentioned.

2:38And we think this is just the beginning. We're just scratching the surface. There will be more cuts with Amazon, especially as automation and AI continue to fuel efficiencies across the organization. We haven't even got to warehouses yet, right, where there's a lot of automation going on. So is AI the main reason behind the layoffs? I mean, is the company trying to offset that rising AI CapEx? I mean, it helps, right, because they're continuing to invest in AI and CapEx through AWS. But how do they drive margin efficiencies? It's through using some of those efficiencies and paring back on the employee headcount.

3:12That and automation, those are, I think, two biggest things that are going to drive the need for more efficiency and then give back to the company through fewer headcounts. I don't know, Lisa, call me cynical, but I believe, this is my opinion, that AI is going to be a net job taker. And I think in size, too, for a lot of industries. I think this is going to be a real issue. We're continuing to see it in different stories. I think so. And some CEOs are trying to paint a different picture. So, all right, Poonam, let's take a look. You're the boss of all things retail. How's this holiday season going to be here?

3:46Is this going to be a good year? I think so. I think the consumer has been holding up relatively well. Spending is higher, and we think Amazon's continuing to take share. They're going to be reporting this Thursday, and we're expecting solid retail sales numbers, high single digits, and we do think that they're going to take share once again this holiday season. Overall, I think the consumer will show up. Can you dig into, go back to Andy Jassy's kind of role in the company? It seems to be filled with job cuts, changing different programs. What's his focus right now? I mean, he clearly said that he's going to be cutting back on jobs earlier this year in the summer.

4:25So we do see that rolling out. I think the focus is to invest in long-term growth. I mean, he was very clear in his statements that, you know, we can't worry about the intra-quarter, the quarter-to-quarter trends, and we really need to stay focused on the longer run. How does Amazon continue to remain the leader that it has been? Because as you know, it's very easy to now operate an online business, whether it's through Shopify, everyone almost has the same playing ground to compete in. So how does Amazon differentiate? And the only way to do it is continue to invest in the future. And right now that's AI, whether it's Gen AI, Agentec AI, wherever it may lead us, it is AI.

5:08Stay with us. More from Bloomberg Intelligence coming up after this. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real. Lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders.

5:44These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at Vanguard.com slash audio. That's Vanguard.com slash audio. All investing and subject to risk, Vanguard Marketing Corporation Distributor. Hello, I'm Stephen Carroll. I'm in Brussels, where many of Europe's biggest decisions get made. And I'm Caroline Hepker in London. We're the hosts of the Bloomberg Daybreak Europe podcast. We're up early every weekday, keeping an eye on what's happening across Europe and around the world. We do it early so the news is fresh, not recycled, and so you know what actually matters as the day gets going.

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7:02You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. UPS is in the news today. They've reported some numbers cutting some headcount. The street likes it. The stock's up 7.5%. It's down 24 % year to date, but a good day for United Parcel Service. Let's break it down with Lee Clasgow. He's our senior logistics analyst for Bloomberg Intelligence. He covers the rails, the trucks, the shipping, the air freight. He covers it all.

7:37We didn't really talk to Lee too much until the pandemic. And then logistics, we all became experts on logistics. And we're like, Lee, help us out. We don't know what's going on. So, Lee, thanks for joining us here. Talk to us about UPS. What's going on there? Yeah, trust me, I enjoy being a flavor of the month. So I'm glad to be here and talk about transport. You know, what's going on with UPS is they are making progress and they're executing on their plan. And their plan really is to create a network that can not only handle but thrive in an ever-changing environment. And that change is being driven by e-commerce.

8:15It's being driven by the uncertainty around tariffs. And what they've been able to do is increase productivity through technology, whether it's automation or AI. And that also they were stepping away from business from Amazon. You know, they noted on their morning call that they're three quarters into a six quarter glide down of Amazon business. And the reason why they want to move away from Amazon business, it tends to be lower margin, lower yielding packages. But that's not to say that they don't want to totally walk away from Amazon because their return business is a good business for them.

8:55And we're seeing, you know, the success in the numbers. And, you know, going into the quarter, I think investors were cautious or at low expectations. And management kind of exceeded those with the results. and their outlook really shows us that, you know, expectations for the fourth quarter in 2026, at least as it relates to, you know, sell-side analyst consensus, is probably a bit low and it needs to move higher. Lee, can you get more into the cuts that we were talking about? 34 ,000 job cuts. Where were they seeing it? And what kind of, let's say, year-over-year cost savings does it expect in 2025 from all of this?

9:36Yeah. Yeah so you know what they're trying to do their overall cost savings which includes you know the headcount reductions. You know they're looking to get three point five billion dollars in cost savings this year. They've done around two point two billion of that so far. And some of the reductions are driven by you know they offered early retirement for some of their drivers. They said they've had pretty good pickup with that. And that payoff should be about a year from what it costs. cost something$175,$180 million. And they mentioned on the call that it will take about a year to make those costs back up.

10:13So it really should be paying for itself. And they're closing a lot of facilities. So they've closed something like a 90, 95 facilities so far. And that's being driven by they don't need the network they had when they were really handling a lot of Amazon business. And now that, like I mentioned earlier, they're kind of reconfiguring their network. And they're also, you know, as I mentioned, they're increasing overall automation. You know, they noted on their call that they've added automation to around 35 more facilities, and about 66 % of their packages touch these automated facilities, which is around 300 basis points more than was last year.

10:58And that number is just going to continue as management makes more inroads at modernizing their facilities facilities. Lee, what is UPS and maybe FedEx for that matter? How are they kind of talking to you guys about tariffs and how it might be impacting their business just as a big, big part of the supply chain? Yeah, you know, it's interesting. So for like a UPS, you know, there's good and bad when it comes to the tariffs and the more protectionist policies in the U.S. You know, we've ended the de minimis exemptions, which, you know, stated that if a shipment came into the United States and it was worth$800 or less.

11:32It didn't have to pay a duty or a tariff. You know, the Biden administration was working towards getting rid of that. The Trump administration brought that to the finish line. You know, first, it was just packages that were coming in from China and Hong Kong. And now that's been, you know, all packages coming to the United States. And that's hurting volumes. They noted their U.S. or their China to U.S. volumes were down around 20%. And that's having a negative impact. Now, you look at their forwarding business, you know, because of all these packages are now, if they are going to be coming in, lower value packages have to pay duty.

12:10They need to lean more heavily on their customs business. So you've seen their supply chain business outperform this quarter. And I suspect a lot of that had to do with the additional fees that they generate from helping shippers clear packages through customs. Stay with us. More from Bloomberg Intelligence coming up after this.

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13:52BAM Mutual headquarters down in Lower Manhattan. This is what I call the Oppenheimer Building. I call it World Financial Center, but the kids call it Brookfield Place. I don't know what's going on down here, but it is a great part of town. I worked down here pre-9-11, and what they've done down here, folks, if you're not from the New York area, if you come to the city, you have to come down to Lower Manhattan and see what they've done down here. It's just extraordinary. It's just really, really vibrant down here. We're joined right now by Sean McCarthy. He's the CEO of BAM Mutual. Sean, thanks for having us back to your offices.

14:19We appreciate it, sir. You know, thank you, Paul and Lisa, for coming. This is an annual tradition, and we really appreciate it. Absolutely. I think when I was here last year at this time, you said 2024 was going to be a record year in municipal bond issuance. That was what happened. How about this year? This year is going to be, in all probability, another record. Wow. The growth of the business has been really robust. A number of factors that make that happen. First, the state and local governments, the responsibility is being pushed down on them to issue more infrastructure debt. So if you think about infrastructure, 80 % of what you think about is just infrastructure is financed at the state and local government level, not at the federal level.

15:08So this has been a year where many, many issuers have come to market, and that's a result of a lack of a change in the federal support from health care to other programs. And so we think the state and local government is going to pick up where the federal government is stepping back. And so I think it's going to be a record year this year and probably pretty robust next year. Now, are there certain areas of muni that have performed better than others? So, well, I think from an activity standpoint, it's been across the board. So you see a lot of health care, general obligations, which are full faith from state and local governments themselves.

15:46Lots and lots of projects across the country. I think one of the areas that's going to be most dynamic going forward is power. You know, if you think about AI, the amount of power in data centers that are in their demands. I was speaking to one of the heads of one of the largest municipal power agencies, and he said that the demand that they're being asked for – now, let's assume that some of it's double counting – is going to be four to ten times what they produce right now. So, Sean, just for the folks that don't know what you guys do, BAM insures municipal bonds, giving another level of certainty for investors.

16:26That's correct. So we are a AA rated insurance company by Standard & Poor's. And really what we do is guarantee, different than other kinds of insurance, we guarantee timely payment of principal and interest when due. So that means if there is a credit event that would cause a default, we pay first and then mitigate later. But one of the unique things that we do and the reason why at this point we've, through our inception, which is 13 years, we've guaranteed$170 billion worth of transactions. And we've had no defaults on these transactions. And that's really because we focus on municipal essential infrastructure, state and local government obligations.

17:15And we work with municipalities. If there are bumps in the road, like what happened during COVID, we're proactive in working with municipalities to make sure that they're in the best financial health that could be. And how have munis been performing compared to treasuries? Well, I mean, I think that the way we look at it, it's when. When issuers are coming to market and what the performance of municipal bonds are, we're going to have an investor come speak a little bit later today, I think. And the relative performance has been really quite robust, and I think that's going to sort of augur into the next year.

17:53Talk to us about just credit quality of the municipal bond market. I haven't really heard or seen or read about major blowups, whether it was years ago, Puerto Rico or Chicago or just Illinois in general, quite frankly. We haven't really seen that too much. So I think massive individual credit problems is not what's happening at the moment. I think what you're going to see happening, what we feel is happening, is a greater differentiation among credits. So, for example, if you take health care, there are lots of very big financial hospital systems, large single hospital institutions and a lot of small rural hospitals how they're going to be affected by what happens to medicare and medicaid payments and how technology changes the way health care is delivered is going to create a different sense of who who the winners are and who the losers are would be a good example of that are you expecting a a slowdown by the end of the year maybe november do things tend to i think the end of the year i think you're right i I think volume will tail off in the fourth quarter.

19:01It usually does, unless there's a change in the tax law. But one of the important things that happened earlier this year was that when the big, beautiful bill was passed, tax exemption of municipal bonds really was not affected. So that enabled, at the beginning of the year, if you think issuers were trying to come to market because they weren't sure what the outcome was going to be, and then later the market environment was so favorable that they continued to participate in the market to bring their new issues to market. We'd see going forward, if interest rates continue to decline, you probably have a better idea of what's going to happen tomorrow than I do, but if you think about that effect, there'll be a greater number of refinancings as well.

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