UPS Inc. shippers should brace themselves for double-digit general rate increases (GRI) in 2024 as the transport and logistics behemoth looks to recoup the “astronomical” cost increases from its tentative five-year contract with the Teamsters union, a transport executive said.
Tom Nightingale, CEO of AFS Logistics Inc., a non-asset-based provider that negotiates, audits and pays about $4 billion in annual parcel spend, told FreightWaves that the “real” GRI, which is generally what shippers pay based on their shipment profiles and after add-on accessorial and fuel surcharges, will probably be in the 11% and 12% range. The headline GRI, which often doesn’t reflect what shippers actually pay, will likely be in the high single digits, which would be a second consecutive record. It should be announced by Thanksgiving.
Last year’s record UPS GRI of 6.9% (NYSE: UPS) turned into an actual GRI of close to 9% after all factors were incorporated into the calculations. Nightingale, whose company keeps close tabs on this data, said his customers were “gobsmacked” when they were told late last year what they would actually be paying in 2023. FedEx Corp., (NYSE: FDX) UPS’ chief rival, had already hit the market with the same record increase.
The GRIs, though technically increases on tariff rates, often dictate what shippers will pay in their contracts unless they can negotiate them down.
Even a company of UPS’ vaunted efficiency will be unable to offset the higher labor cost burdens without passing on a hefty bill to shippers and consumers, Nightingale said.
Compensation and benefits — a large chunk of that paid to 340,000 Teamsters — equal 47% of UPS’ $100 billion or so in annual revenue, according to Nightingale. That proportion is way too elevated for UPS to fully neutralize it with efficiency actions, Nightingale said. UPS already operates at near-peak efficiency given the cost burden its high labor tab has always placed on operations, he added.
The question will be whether FedEx and the cluster of regional carriers will look to cherry-pick existing accounts or feel confident in the stickiness of the increase to follow UPS’ lead in their own right, Nightingale said. FedEx, for its part, has its own significant costs to incur as it revamps its operations by integrating its FedEx Express air and FedEx Ground networks.
On Tuesday, UPS and the Teamsters agreed to a tentative five-year contract that the union boasted was the best UPS contract ever negotiated. Existing full- and part-time workers will get $2.75 more per hour in 2023 and $7.50 per more hour over the length of the contract, according to the union. Existing part-timers’ pay will be raised to $21 per hour immediately. New part-timers would start at $21 per hour and advance to $23 per hour. The starting wage for many part-timers has been as low as $16 an hour.
Based on analysts’ estimates, the full-time and part-time wage increases in the contract’s first year will come in at about 9%, with 4% to 5% per year through years two through five. Historically, increases in the parcel industry come in at 3% per year maximum, Nightingale said, adding that a 3x increase in the first year is a startling jump.
The tentative contract will be sent out Aug. 3 to the rank and file to vote on ratification. The deadline for voting is Aug. 22.
JEff
I’m just curious how this increase in retirement will be paid and out of which plan, mult- employee pension plan or the UPS single employee pension plan that was negotiated back a few contacts ago. I also would request that we retirees would get an increase. Look forward to a response to my email. Thank you
JF
What we are seeing is more pandemic affect hitting. The company made record profits in 2021 and 2022, as did many companies tied to ecommerce at the height of the pandemic recovery. All of these companies also had to make major capital improvements to support the increase in demand which isn’t all recognized on the 2021 and 2022 income statements as the depreciation from those investments will last into the next decade. It will be interesting to see if with the lower demand on the network, UPS will be allowed under this contract to shift demand to the higher performance facilities, which of course would reduce the workload at the underperforming ones leading to lost hours and pay for those associates. If not, the rate increase was only a matter of time.
Oliver
At the end of the day, what the U.S. really needs is another large domestic parcel carrier that can give UPS and FedEx a run for their money. The brown/purple Duopoly has made it more and more challenging for shippers to receive fair pricing. I am not a great fan of Amazon — but when it comes to domestic parcel service, I can’t wait for the day when they will offer their capacity to commercial shippers. The presence of DHL-Express in the international market has already proven that a third player can hold the other two in line with their pricing.
ka
oh neat so this site only allows one comment to be in moderation… ok ill rekey it.
This person who says UPS is already at peak efficiency is in error.
As volume declines the opportunity to relocate volume from higher cost facilities to lower cost facilities is opened up.
Also one need only listen to the earnings calls to hear that UPS’s misload frequency is 1/400 and the Smart Package / Smart Facility initiative/upgrades will double that or more.
For sure they wont be able to wash out these cost entirely but they will be at least partially mitigated with improvements to operations.
ka
Hey Mark, are you going to cover how the PT workers are grumpy they didnt get 25 an hour but also grumpy new hires will be making effectively the same amount under this contract?
Its definitely worth some light.
ka
LOL I promise UPS still has gains to be made.
For one, as volume contracts additional efficiencies become available by pulling volume from highest cost operations into lower cost ones which have experienced volume loss.
Second, even on the earnings calls Carol disclosed that the misload rate is 1 for every 400 packages — and the Smart Package/Smart Facility upgrades will double that frequency or better.
For sure the added costs cant be quickly wiped out, but to say UPS is already operating at peak efficiency is just not factual.
Midwest Teamster
I’ll just keep asking: if Teamsters labor is such a burden, how did UPS achieve record margins last year while others are failing?
The Peter Principle must be the answer here. If I was a shipper, I would be very concerned that all of these self-proclaimed experts cannot work a seventh grade level logic problem.
UPS Teamsters repair our vehicles. UPS Teamsters have far and away the best safety record in the industry. I could go on, but the bottom line is this: You get what you pay for in this life, friends. UPS customers expect results, and nobody else consistently provides them.
Stephen Webster
All other parcel delivery companies will see labour or sub contracts go up sharply as well
In Canada 🇨🇦 many sub contractors are ready to walk at FedEx. Amazon has many safety and labour issues and some violations in ont canada 🇨🇦