5 Early Takeaways from the Tentative UPS-Teamsters Agreement

5 Early Takeaways from the Tentative UPS-Teamsters Agreement

5 Early Takeaways from the Tentative UPS-Teamsters Agreement

There is a lot more information to come out from the tentative UPS-Teamsters agreement announced yesterday. Here's my first shot at the implications of this deal. I would love to hear your feedback (and all feedback is good).

1)?????There is a clear winner, and it’s not UPS or the Teamsters, it’s the U.S. Economy

a.??????Anderson Economic Group estimated the impact of a 10-day strike at $7B

b.??????The first and only strike at UPS in 1997 lasted 15 days.?The cost to the economy would be exponential the longer it lasted.

c.??????UPS will try to pass as much of this contract increase on to shippers and consumers, which will be inflationary, but not nearly as inflationary as a strike (e.g., demand would again outstrip capacity in the parcel market).

2)?????For the Teamsters leadership team, it was “mission accomplished,” but…

a.??????The Teamsters clearly checked all their boxes and came away with a strong contract they can now leverage to organize Amazon warehouse workers.?The likelihood of contract ratification by the rank and file is high.

b.??????Current UPS Teamsters will benefit from this agreement, but few new Teamster jobs will be added.?Nonetheless, this agreement will add momentum to the U.S. unionization popularity which already has the highest approval rating since 1965.

c.??????Sean O’Brien said UPS put in “$30B in new money.”?I’m estimating about $20B in new operating expenses on the high side over the 5-year contract, which is not insignificant.?That’s a 35% increase over five years or about 6% per year.?The remaining $10B could be in the AC units in trucks and part of the 50+ items UPS and the Teamsters negotiated early on.

3)?????UPS is signaling an acceleration of its “better not bigger” strategy with this agreement.

a.??????The most telling part of the agreement was UPS’s commitment to only add 30k Teamster jobs (fill 22.5k open positions and add 7,500 new jobs) over the next 5 years. ?That is an increase of less than 2 %/year. ?In the previous 5 years, UPS added nearly 100k Teamster jobs or about 7%/yr.

b.??????Look for UPS to lean into B2B and away from B2C.?If UPS wanted to be a leader in eCommerce shipping, they would have fought harder to increase their use of contractors and gig workers which were limited under this agreement.

c.??????As wages rise, the relative cost of technology decreases.?Look for UPS to aggressively add automation and robotics to increase efficiency.

4)?????FedEx, the USPS, and regional carriers will also benefit from this contract.

a.??????If UPS tries to raise rates in line with their cost increase, competitors can match the increase which will bolster their profits.

b.??????Alternatively, they can leverage their lower cost networks to come in with a smaller rate increase and take share.

c.??????There are risks to FedEx.?The pay disparity between UPS and FedEx, who largely provide similar services, will create another push challenging the independent contractor status of their drivers and put into question, again, why FedEx and UPS are governed under different labor laws (FedEx is under the RLA and UPS is under the NLRB, which is easier to unionize).

5)?????The big three eCommerce retailers will get bigger.

a.??????Amazon Logistics already delivers more packages per year in the U.S. than FedEx and will pass UPS over the next year as UPS continues to shed low-value eCommerce volume.

b.??????Ship-from-store and BOPIS (Buy Online Pick Up in Store) will become even more attractive, and Walmart and Target are set up to capitalize on this trend.

c.??????Small to Mid-Size shippers and rural businesses and consumers will see the largest increase in shipping costs and should consider opportunities to bundle shipments with others in your geographies to lower overall costs.

Stay tuned as more details come out of this historic agreement.

David Sodee

Service Technician at Amerigas Propane

1 年

Unions are growing as blue-collar workers are and have been mistreated for twenty-some years. Companies take away benefits, add more responsibilities, often work for no wage increase or little, and want people to live to work. Taxes have risen, inflation has grown, and corporations are making record profits and not rewarding those who work to produce but reward managers who simply watch metrics all day, yet earn high wages and bonuses from the workers. The times are changing and they have to for working Americans.

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Mike Briggs

Region Mgr/ Operations VP at UPS - Retired

1 年

Concentrate on # 3 and consider the consequences of what that means long term. If the Teamsters Leadership understands this they should be very concerned for the future!

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Rick Freeman

Experienced Transportation Professional Retired

1 年

For the past 30 years, rising costs, labor agreements, competitive response, have played in UPS business model. It’s more complex now than ever, however UPS always delivers the profit the market expects. Consumers continue to pay up for better service, information, quality.

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Duane Thomas Murphy, MA

Director of US Sales & Operations

1 年

The loser is the consumer as usual. Keep in mind the Amazon will start targeting packages from outside their consumer business. They will start picking off UPS B2B packages. UPS revenue is at risk. This threat from Amazon is real and UPS will struggle to invest to defend themselves against this due to the costs of this contract. My Amazon driver is already taking non Amazon packages from UPS.

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