The five-year contract between the Teamsters and UPS Inc., the Teamsters’ largest employer with 310,000 members, doesn’t expire until July 31, 2023. Talks aren’t likely to start until late 2022. In reality, however, the contract cycle starts around Thanksgiving 2021.
Barring unforeseen circumstances, the Teamsters will by then have elected a new slate of officers, including a general president and general secretary-treasurer, to run the 1.4 million- member union for the next five years. At stake is the election of a new president to succeed James P. Hoffa, who at 80 is stepping down after 23 years at the helm. Ballots are expected to be counted during the first half of November, with a winner expected to be announced soon after.
There had been three presidential candidates. Steve Vairma, secretary-treasurer of Local 455 in Denver, Kevin P. Moore, president of Local 299 in Detroit, and Sean M. O’Brien, president of Local 25 in Boston. Vairma is favored by Hoffa and other top executives at the international level because he is perceived to represent continuity and stability in a post-Hoffa world. Moore, a close Hoffa ally, did not get Hoffa’s first nod as his successor and dropped out of the race in June.
Then there’s O’Brien, who Atlanta-based UPS (NYSE:UPS) hopes and prays doesn’t win.
At 46 the youngest of the two candidates, O’Brien has a reputation as a firebrand. Some of that flame has, over the years, been directed at UPS. “He is feared inside UPS for being a no-compromise hardliner,” said one industry executive familiar with the situation. “In any situation involving his local, [UPS] felt it had no good way to control him.”
In September 2017, Hoffa abruptly fired O’Brien as head of the Teamsters’ small-package division around the time the union was gearing up for contract talks with UPS. The union said it acted in the best interests of the members at UPS. However, Hoffa’s critics said that O’Brien was forced out because he took an ultra-aggressive negotiating posture toward UPS. This ran counter to Hoffa’s more collegial approach that some endorsed as rational but others saw as being too conciliatory at the expense of member interests.
Hoffa was further angered by O’Brien’s public demand that Fred Zuckerman, head of Local 89 in Louisville, Kentucky, home of UPS’ Worldport global air hub, serve on the UPS national contract negotiating committee. Zuckerman, who nearly beat Hoffa in the 2016 general election in part because he got the majority of votes from UPS Teamsters, happens to be O’Brien’s running mate this year. Both are cut from the same militant cloth, which, should their slate prevail, is likely to give UPS negotiators heartburn as bargaining time draws near.
Quick look at the candidates
- Joined the Teamsters in 1990
- President of Local 25 and Secretary-Treasurer of Joint Council 10, both in Boston
- Fourth-generation Teamster
- Joined the Teamsters in 1978
- Secretary-Treasurer of Local 455 in Denver since 1996 and President of Joint Council 3, which represents members in eight states
- Director of the Teamsters Warehouse Division and Trustee of the Western Conference of Teamsters Pension Trust Fund
O’Brien was instrumental in the union earlier this year amending its constitution to eliminate what is known as the “two-thirds rule,”’ which effectively ratified a contract even if it had been rejected by the majority who voted. The 2023 UPS contract will be decided under a “majority-rule” formula, a far cry from 2018 when Teamsters leadership imposed the contract even though it was rejected by 54% of the Teamsters who voted. The move angered many in the union who saw it as overriding the will of the members and unwarranted interference in their affairs. It also gave O’Brien fodder to push his core campaign message of returning the union to its members.
A hard-nosed attitude combined with members’ desire for greater involvement and less accommodation with management gives the O’Brien slate the edge, said Patricia Campos-Medina, director of the Worker Institute at Cornell University’s School of Industrial and Labor Relations. “The strength of the union was that it always respected the membership’s voice,” Campos-Medina said.
The explosive growth of e-commerce during the pandemic has put severe strains on delivery and warehouse workers at UPS and other companies. Many workers feel overworked, underpaid and put at undue health risk from the virus, Campos-Medina said. “Union members are angry,” she declared.
O’Brien and Vairma did not respond to requests for comment. The Teamsters declined comment, citing a law requiring strict neutrality in the election process. UPS also declined comment. However, CEO Carol B. Tomé and CFO Brian Newman told a group of retirees last week that UPS is committed to maintaining peace on the labor front, according to a person who heard the exchange.
Irresistible force meets immovable object
In Tomé, the Teamsters will face a CEO who has faced down UPS’ largest customers that have historically used high volumes as a weapon to negotiate lower rates. She has transformed one of America’s most deeply rooted corporate cultures and has made clear there will be few, if any, sacred cows on her march toward margin expansion through cost cuts and a more profitable mix of business.
Ironically, the current contract is a bargain of sorts for UPS in that it shields the company from the impact of surging labor cost-inflation. Branden Burt, director of operations at consultancy Transportation Impact LLC, estimates that UPS budgeted 2.5% annualized labor cost increases over the life of the contract. By contrast, arch-rival FedEx Corp. (NYSE:FDX), which runs a nonunion shop save for its pilots, is facing the full brunt of escalating labor costs, Burt said.
Still, UPS is well aware that its labor tab, which according to data from consultancy SJ Consulting accounts for 56% of its total operating expense, may not be sustainable in a world where the promise of “free” shipping has forced businesses to cut their labor costs in order to remain profitable and competitive. “It’s a race to the bottom” for UPS and FedEx to lower their expenses, said Dean Maciuba, managing partner, North America, for consultancy Last Mile Experts.
The flashpoint in the upcoming talks could be Tomé’s interest in creating a same-day delivery service using a network of micro-fulfillment centers that would support on-demand deliveries. During UPS’ investor day in June, Tomè said the company was piloting a same-day model that could operate outside its current network. “As soon as she said that, you could hear howls of anger coming from the Teamsters,” said the industry executive.
The micro-fulfillment center model, which calls for the forward stocking of inventories in smaller fulfillment centers in residential areas, is being seen as a way to reduce transportation costs while bringing e-commerce deliveries closer to the end customer. However, it would be nearly impossible to run such an operation within the existing UPS infrastructure. The Teamsters would not look kindly on that business not touching union hands, especially as it becomes a larger slice of the delivery pie.
UPS’ labor costs are now “so disproportionate compared to everyone else” that it can’t afford to emerge from the next contract talks without substantial cost savings, Maciuba said. It made some headway in the 2018 contract when the Teamsters agreed to a new class of junior drivers who would work nontraditional hours and get paid less than their counterparts with seniority. UPS also realized labor cost savings with the sale earlier this year of UPS Freight, its unionized LTL unit carrier, to Canadian carrier TFI International (NYSE:TFII).
However, Maciuba said UPS will need to extract even more savings this time around, especially with FedEx systematically integrating its Express and Ground units, a program that could make the company more efficient and competitive with UPS, and with Amazon.com Inc. (NASDAQ:AMZN) and its fast-growing, nonunion operations possibly forging a low-cost rival for UPS’ traffic.
Whoever takes the Teamsters reins in November could take a hard line against any cost-saving proposals from the company. They could cite UPS’ spiking revenue and 12% or so operating margins as justification that it should pay its workers more. However, such stellar results may be difficult to replicate should delivery growth level off and the competition becomes more intense.
Campos-Medina of Cornell said that O’Brien, if he wins, would need to be realistic about the current and, perhaps more important from a contractual standpoint, future business environment for the company and its workers. “O’Brien would have to agree to some concessions,” she said.
Maciuba said UPS could counter the Teamsters’ argument by arguing that the company’s current performance represents a peak and that the future won’t be as extraordinarily profitable. “They could argue that 12% operating margins are as good as it gets, and they would probably be right,” he said.