(Updated 9:25 a.m. ET, July 19, 2023)
The union representing UPS pilots says they will not cross picket lines if Teamsters drivers and package sorters walk off the job when the current contract expires Aug. 1, resulting in the immediate shutdown of the express logistics company’s global air operations.
UPS (NYSE: UPS) has 3,300 pilots who are represented by the Independent Pilots Association (IPA), a separate union from the Teamsters.
“If the Teamsters are on strike, we will honor that strike and we will not fly,” IPA spokesman Brian Gaudet told FreightWaves.
UPS pilots are allowed under their collective bargaining agreement to honor primary picket lines and did that for 16 days during the Teamsters’ strike in 1997.
In 1997, 100% of our pilot group respected your picket lines by not ‘turning an aircraft wheel’ on behalf of the company, IPA President Robert Travis said in a July 3 letter to Teamsters President Sean O’Brien that was posted on the IPA’s website on Tuesday. The IPA will “honor any potential IBT [International Brotherhood of Teamsters] strike and act in sympathy with our fellow workers at UPS by not working. No one wants a work stoppage, but should a legal IBT strike be initiated, you and the IBT can count on the IPA for support.
Even with freighters in service, a strike by 340,000 package car drivers, truck drivers and warehouse workers would effectively ground most UPS Airlines operations because there would be few, if any, personnel to load and unload aircraft, process packages and deliver them to and from airport facilities. UPS says it is training nonunion employees to handle packages in the event there is a labor disruption. Parcel consulting firm ShipMatrix estimates management could move about 22% of the 18.6 million daily parcels in its system through contingency plans.
The Teamsters union has a $300 million to $350 million fund to support workers with strike pay, but UPS pilots who don’t report to work will bear the burden on their own.
“We don’t have a strike fund,” said Gaudet.
UPS pilots ratified a two-year contract extension last August.
Bascome Majors, a senior transportation equity analyst at Susquehanna International Group, estimated in a research note that the Teamsters’ fund could last at least two weeks. Part-time workers would end up making about $210 less than their normal weekly pay, while full-timers would make about $1,450 less, which “could splinter enthusiasm for an extended strike and hurt Teamster solidarity.”
Barring a solidarity action by pilots, UPS likely would use a skeleton fleet to protect some international and overnight flights to its Worldport hub in Louisville, Kentucky, said Derek Lossing, founder of Cirrus Global Advisors, in an interview.
FedEx Express (NYSE: FDX) is the only air carrier that can realistically absorb UPS overnight, next-day package volumes, he explained. FedEx will try to take on as much of that business as it can because it is lucrative. Shippers that have a big relationship with UPS and only tender small volumes to FedEx are likely paying $6 to $8 more per parcel. FedEx can realistically handle 5% of UPS overnight volumes, Lossing added.
UPS management and the Teamsters union are at an impasse over wages and other economic issues after previously agreeing on other terms.
Rich labor deal poses risks
Analysts say UPS is in a bind because it already is experiencing some shipment diversion to rival FedEx and could drive away more customers if it sharply raises rates to help cover the cost of an overly generous Teamster deal.
A new Teamsters contract could drive the cost per parcel about 2% higher than current expectations and cut a dollar from UPS’ earnings per share next year, said Majors. Parcel consultants are forecasting that shippers can expect rate hikes of 6% to 10% in 2024, before a Teamsters contract is finalized.
Majors predicts the Teamsters’ contract will boost wages by 18% for part-time workers and 7% for full-timers, with another 3% to 4% increase in costs for inflation and other factors.
Many businesses that felt burned by UPS during the last three years, when demand soared and the carrier didn’t bend on applying steep rate hikes, could be willing to look for alternative carriers.
“If UPS gives away too much in labor costs, it’s going to be forced to raise rates to shippers and significantly lose a share of their wallet because the 12- to-18 month outlook doesn’t justify price increases,” wrote Lossing, a former logistics manager at Amazon who helped the online retailer build out its private cargo airline and international last-mile delivery network, on LinkedIn.
For every 10% increase in labor costs UPS negotiates, it will lose 4% of its average daily volume over the next two years, according to modeling conducted by Cirrus Global Advisors. If UPS tries to maintain margins by passing on costs to customers, a portion of its parcel business will spill to FedEx, the U.S. Postal Service, logistics companies that specialize in downstream parcel injection into the postal system, regional parcel carriers and Amazon’s own delivery network. FedEx would pick up about 180,000 daily ground packages, followed by Amazon (175,000), regional carriers (70,000), with the U.S. Postal Service and postal consolidators taking the remainder. If the Teamsters union wins a 20% increase in compensation, UPS could lose 140,000 daily packages to regional competitors.
Labor is UPS’ largest expense item, consuming nearly half of global revenue. According to UPS, delivery drivers on average earn $95,000 per year and part-timers earn $20 an hour, plus health and pension benefits. With FedEx and Amazon using an independent contractor model with nonunion workers for final-mile delivery, UPS has to control labor costs or risk “a slow spiral” that makes it uncompetitive, Lossing said.
Online shoppers will experience slower deliveries if there is a UPS strike and e-commerce companies will be forced to cancel free shipping and increase shipping charges, he predicted.
Companies that haven’t integrated other carriers besides UPS into their transportation planning systems could face significant operational and financial impact from a potential strike, logistics experts say.
Click here for more FreightWaves stories by Eric Kulisch.
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Brian
Those drivers *are* UPS. Those drivers are why I always pick UPS if given the choice; why I will rave about how great UPS is any time the topic of shipping comes up; why I won’t make major purchases like a laptop anywhere that doesn’t ship UPS and why I have stopped doing business with some companies that only ship FedEx. They surely have the money to pay these guys what they’re worth; and even if it it causes an increase in prices I’ll have no problem paying it knowing it’s worth every cent. The only thing that might make me reconsider is if management gets cheap and the drivers get screwed and that causes service quality to dip. Then I’ll be doing a lot more USPS.
The other thing I always say about shipping companies when the topic comes up? If a package falls off the back of the truck while they’re driving through the next neighborhood over, FedEx calls that a ‘successful delivery.’ We don’t need another carrier that’s constantly leaving damaged packages at the wrong address four days after the day they said it was “out for delivery” because their drivers aren’t paid enough to care.
Doe
anyone siding with ups instead of the people that do. yknow. the things that make ups and its stockholders money? the ceo doesnt know who you are. those stockholders aint gonna chomp your chode. i swear to god ive seen that comment by that rehmer guy down below somewhere else. where? who knows. who cares. doesnt matter. the creators of spambots go to hell
Kyle
UPS has made billions in profit over the last 5 year contract. The CEO makes over $19 million a year. Maybe I’m missing something here but how would a raise for the workers require price hikes? Where have all the billions gone? The profit is still there. Upser’s wages have not kept up with inflation even as well as the fast food industries’. It is sad that they don’t seem to care about the people who make the money for them.
R Hammer
I work for USPS as a parcel driver and have good relations with the UPS drivers in my area. I hope they get a fair contract and AC in their trucks. Some of you like to say we at USPS are terrible at delivering packages but are rated higher on ontime delivery than the other shipping companies. We also deliver for all of them too.
Matt Lechner
Part of the problem is the Teamsters look at USPS, and the look at workers for General Motors under UAW, and they see numbers like $20/hour for younger people at UPS, and their pension plan seems always to be in trouble, there’s big inflation all over and they want some more money and it’s not unreasonable. UAW people at GM on average probably make 2-3x what a Teamster makes at UPS, and there is not a clear justification for that gap. UPS management can not air condition the great outdoors, but they can boost compensation by a chunk, and loosen up some on the bunker mentality. The company needs good labor relations, and they can afford to pay something toward that, plus a little more in the “good faith” department – something within reason but still on the generous side. This should be resolve-able without getting into World War III. For better or worse, the Teamsters are part of UPS, and UPS is a big part of the Teamsters. Something can come together without World War III, hopefully.
John Doe
Maybe dish out less than $8 billion in stock dividends and give some of that to the workers that got you there?!?
Richard M. Rehmer
It is straightforward, the teamsters union is out to break all trucking companies they can with outrageous wage demands and benefits that the trucking companies are forced to put on their customer’s backs, and anybody that thinks UPS and Yellow will absorb those increases doesn’t understand business. So Like Yellow, who is on the verge of bankruptcy, what happens if they close the doors? All those workers all of a sudden have no jobs anymore. The only ones that win in a strike are the upper management of the union. I have been on both sides of a teamsters strike, one as a member and one as a business owner, sorry I have no love for unions at all. Maybe when John L. Lewis created the first union, it was a good deal, but they are totally and completely out of hand and out of touch with the realities of the economy now.
Matt Lechner
In the sense of making a possible “want” list both sides could look at, that is reasonable – perhaps: 1) across the board a chunk increase in pay, and some special provisions for higher pay at holidays; 2) instead of air conditioning the back of the vans, how about installing a hefty fan in the vans that are used where it gets hot; 3) in some way, make some hay for the company from the excellent truck maintenance the company has achieved together with its labor force, which is a real achievement, a real thing for both sides to take pride in; 4) some mechanism for both sides to give input regarding growth opportunities for the company using union labor, UPS could and should grow and should build on its basically very good relationship with the Teamsters; 5) allow UPS Store franchisee’s to join the Teamsters if they want to, because they are poorly treated by UPS management and maybe the Teamsters could help them, and vice versa.