Air freight could be disrupted, but most e-commerce parcels are already onshore
It’s been twenty years since the last time a strike shut down UPS. 185,000 Teamsters went on strike for sixteen days under the slogan “Part-Time America Won’t Work” beginning on August 4, 1997, and created the largest, most popular American labor demonstration in a generation. The strike ended in a victory for the union with a new contract that raised wages, secured already existing benefits, and promised increased job security—and the work shutdown alone cost UPS $600M. That strike put a massive amount of freight onto the market, creating a huge boon for team expedited shippers who were able to take advantage of a sudden capacity crunch.
Now UPS management is trying to avert another catastrophic contract dispute as different parts of their workforce threaten at least two strikes that would disrupt one of the busiest holiday season shipping seasons ever (Americans spent a record $6.9B on Cyber Monday, according to data from Adobe Analytics). Even small delays can be costly: when UPS announced on Dec. 5 that massive Cyber Monday volumes were causing delays in their delivery network, UPS stock price fell from its 2017 high of 123.72 to 118.05 by the closing bell on Dec. 11.
Now UPS drivers in New England are demonstrating and threatening to strike after being told they would have to work 70 hours over an 8 day period leading into Christmas. Last year, drivers were asked to work 60 hours over 7 days.
But the bigger and more likely threat comes from some 1,300 aircraft mechanics represented by Teamsters Local 2727. The mechanics took out ads in USA Today and other newspapers in UPS’ biggest markets to air their grievances: “What every American should know before they ship with UPS during the holidays: UPS wants to make deep cuts to its aircraft mechanics’ health care benefits. That’s why the 1,300 aircraft mechanics who keep UPS planes running during the holiday season are ready to strike,” the ad read.
UPS Airlines’ fleet of 237 planes is based at the company’s international all-points air hub, Worldport, at the Louisville International Airport, and UPS Airlines’ 1,3000 mechanics are spread throughout 90 airports around the country. Worldport, truly a marvel among modern supply chains, turns over 130 aircraft a day and has the capacity to process 416,000 packages an hour on 155 miles of conveyor belts. UPS said it expects to handle 750M packages this holiday season, while FedEx anticipates 400M parcels. But all of the painstakingly optimized efficiencies and workflows at UPS Airlines’ premier facility will grind to a halt if the aircraft mechanics refuse to work and ground the fleet.
A spokesman for UPS Airlines has denied the union’s claims of an imminent strike. Mike Mangeot cited US labor laws to point out that the contract negotiations are still being mediated by the National Mediation Board and that a strike is not forthcoming because, under the Railway Labor Act, the NMB controls the pace and timing of the talks. “The bottom line is, under US labor law, a strike isn’t possible,” said Mangeot, calling the Teamsters’ ads a “factually baseless” attempt to “mislead employees and needlessly raise customer concerns in a misguided effort to influence company negotiators.”
The good news for consumers is that most of the e-commerce orders that will ship by Christmas are already on shore, in distribution centers. The semiconductors and SIM cards that make up a large proportion of air freight—small, expensive electronics are naturally suited to air freight—that might be held up by an aircraft mechanic strike are out of cycle. In other words, they will be installed in computers and mobile phones after the Christmas season and holiday orders won’t be affected.
Yesterday Donald Broughton of Broughton Capital spoke about the weaknesses in UPS’ business as the carrier ramps up activity for the holiday retail season, claiming that UPS had been content to maximize their cash flow with existing revenue streams but had under-invested in new technology and infrastructure compared to its chief rival, FedEx. “UPS has been basically milking the cow, they’ve doing their best to take advantage of ongoing cash flows and not reinvesting as much in their system. That’s the first problem. The second problem is the differential in the labor. The bottom line is that UPS is a highly unionized workforce, and FedEx is not… [Fedex] is very entrepreneurial, especially the FedEx ground workers—they actually own their own routes,” Broughton said.
While the aircraft mechanics’ current talk of strikes may just amount to gamesmanship and an attempt to put public relations pressure on UPS, it is clear that the company’s Teamsters workforce remains organized, militant, and willing to disrupt UPS’ business during the peak season. E-commerce sales are only going to intensify in coming years, and it remains an open question as to how UPS will compete with its more nimble, tech-savvy challengers.
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