Last month, United Parcel Service, Inc. (UPS) and the Teamsters union, representing 340,000 full-and part-time UPS employees, reached a tentative deal to equip more trucks with air conditioning systems. Under the agreement, UPS said it would add air conditioning to all larger delivery vehicles, smaller sprinter vans, and brown package vehicles purchased after January 1, 2024.
Existing vehicles wouldn’t get that upgrade, but they will have other additions like two fans and air intake vents.
However, negotiations broke down last week between UPS and its Teamster-represented workers, just weeks before their contract is set to expire on July 31.
Negotiations Collapse Between UPS and Teamsters
Talks between the shipping giant UPS and the union fell apart Wednesday last week, increasing the possibility of what would be one of the largest strikes in U.S. history. Representatives from UPS and the Teamsters failed to reach a deal on a new contract, blaming each side for walking away.
“Following marathon negotiations, UPS refused to give the Teamsters a last, best, and final offer, telling the union the company had nothing more to give,” the Teamsters said in a statement.
The union claimed that UPS “walked away from the bargaining table after presenting an unacceptable offer,” which the UPS Teamsters National Negotiating Committee “unanimously rejected.”
UPS, meanwhile, said in a statement, “The Teamsters have stopped negotiating despite historic proposals that build on our industry-leading pay. We have nearly a month left to negotiate. We have not walked away, and the union has a responsibility to remain at the table.”
“Refusing to negotiate, especially when the finish line is in sight, creates significant unease among employees and customers and threatens to disrupt the U.S. economy. Only our non-union competitors benefit from the Teamsters’ action,” UPS added while calling on the Teamsters to “return to the table to finalize this deal.”
No additional negotiations are scheduled, according to the Teamsters.
Last month, rank-and-file UPS Teamsters authorized a strike, and the union stated that UPS members would not work beyond the expiration of the current contract.
Union’s Demands
The Teamsters are fighting to win an agreement at UPS that “guarantees better pay for all workers, eliminates a two-tier wage system, increases full-time jobs, resolves safety and health concerns, and provides stronger protections against managerial harassment.”
UPS and the Teamsters have made some progress since negotiations commenced earlier this year. The two sides agreed on heat safety that UPS said would equip all newly purchased U.S. delivery vehicles with AC beginning January 1 next year.
Furthermore, both sides agreed to end a two-tier wage system for drivers, establish Martin Luther King Jr. Day as a full holiday, and end forced overtime on drivers’ day offs.
The union is still pushing to raise wages for part-time workers at UPS, with leaders pointing to the company’s increase in profits during the pandemic.
“It’s an extremely tough job. And when you talk about the part-timers, their part-time wage rate right now is about $16 per hour,” Teamsters General President Sean M. O’Brien said. “We want to establish a livable starting wage for part-timers, but also make sure we reward those part-timers who work through the pandemic.”
A Potential Strike by UPS Workers
Members of the Teamsters voted nearly 97% in favor of authorizing a strike to start on August 1 if there is no agreement in contract talks between the shipping company and the union.
Sean M. O’Brien said, “This vote shows that hundreds of thousands of Teamsters are united and determined to get the best contract in our history at UPS. If this multibillion-dollar corporation fails to deliver on the contract that our hardworking members deserve, UPS will be striking itself. The strongest leverage our members have is their labor and they are prepared to withhold it to ensure UPS acts accordingly.”
Regarding this, UPS said it remains confident that there won’t be a strike this time.
“The results do not mean that a strike is imminent and do not impact our current business operations in any way,” the company said. “We continue to make progress on key issues and remain confident that we will reach an agreement that provides wins for our employees, the Teamsters, our company and our customers.”
If a strike does happen, it would be the largest against a single employer in America’s history, as the package delivery company is the biggest unionized employer in the sector and is extremely crucial to the country’s economy.
The last time UPS workers went on strike was in 1997, which significantly damaged the company and the economy. A UPS strike by 185,000 workers brought the shipping giant’s operations to a standstill, costing it $850 million and sending some customers to its rivals.
The strike that lasted for 15 days slashed package deliveries, overwhelmed the United States Postal Service and FedEx Corporation (FDX), and majorly hurt businesses nationwide.
Will The Company and The Economy Take a Hit If a Deal Isn’t Made This Time?
UPS is one of the largest shipping companies in the United States, with a 2022 revenue of $100.30 billion. According to the global shipping firm Pitney Bowes, UPS shipped 5.2 billion U.S. parcels in 2022, representing approximately a quarter of all packages (21.2 billion) delivered nationwide.
Moreover, the shipping giant’s annual profits in the past two years are close to three times what they were pre-pandemic. UPS returned about $8.6 billion to shareholders in the form of dividends and stock buybacks in 2022 and forecasts another $8.4 billion for shareholders this year.
UPS claims it delivers nearly 6% of the country’s gross domestic product (GDP). The company plays a vital role in the smooth movement of goods the economy depends upon. That means if the UPS Teamsters go on a strike, there would be far-reaching implications for the economy, particularly the supply chain, which is still recovering from pandemic-related disruptions.
Moreover, these years since the pandemic have been a stark lesson to what happens to the economy when the supply chains are disrupted or don’t work as smoothly as expected and when a shortage of truck drivers and shipping containers causes massive delays and higher prices for various goods.
So, a strike now will likely cause a logistical mess for suppliers and businesses that rely on UPS, as it did in 1997. In decades since then, the volume of parcels shipped has considerably grown due to the surge in e-commerce, while other players, including Walmart Inc. (WMT), , have entered the industry.
As per Pitney Bowes, UPS delivers about 37% of America’s total parcel volume, which is an average of more than 21 million packages a day. The remaining parcel market comprises FedEx with 33%, the U.S. Postal Service with 16%, and Amazon Logistics with 12%.
In the last strike by UPS workers almost 25 years ago, rivals to the company benefited primarily. The U.S. Postal Service witnessed a $450 million increase in revenue in 1997, and FedEx received an additional 15% of the shipping volume. Even three months following the 15-day strike, UPS volume was down 2% from industry forecasts for the crucial holiday season.
Once the strike was over in 1997, the backlog of 90 million packages met employees. Also, thousands of employees opted not to return at all, even when UPS struck a deal with the Teamsters.
This time around, although there are more shipping alternatives than there were 25 years ago, still the smooth functioning of the U.S. economy is expected to get disrupted.
FedEx issued an advisory last Thursday that there will be limits to how many shipments will get accepted from businesses if a strike commences at UPS.
“In the event of an industry disruption, FedEx’s priority is protecting capacity and service for existing customers,” said FedEx in a memo sent to its sales force. “Over the last six months, we have been actively communicating with current and potential customers and urging them to transition business while capacity is available. Time is now running out.”
Most importantly, this strike would be a massive blow for UPS as it may struggle to recover the volume of packages it would lose to its competitors.
How Should Investors Approach This News?
Shares of logistics giant UPS are under immense pressure lately as clouds of a workers’ strike continue to brew. Investors are taking the threat of a possible strike seriously.
Several UPS insiders ditched their stock over the past year. The biggest single sale by an insider was made when the Executive VP and President of International, Kathleen Gutmann, sold $10 million worth of shares at $190 per share. UPS insiders didn’t buy any shares over the last 12 months.
Insiders own nearly 0.07% of the shipping company, currently worth about $114 million based on the recent share price.
In addition, Hendershot Investments Inc. lowered its stake in shares of UPS by 3.6% during the first quarter, according to the company’s most recent Form 13F filing with the Securities and Exchange Commission (SEC). After selling 2,626 shares of UPS, the investment fund owned 70,434 shares of the logistics company’s stock.
Investors are advised to approach UPS stock with caution as the potential strike of its workers might lead to a significant fall in the transportation company’s revenue and a sharp decline in its market share as it would lose its volume of packages to its rivals.
Bottom Line
With both sides having made some progress since negotiations started earlier this year, including reaching an agreement on heat safety and ending a two-tier wage system for drivers, the union is still pushing to raise wages for part-time workers at the company.
If, at worst, the agreement isn’t made, a massive strike by UPS workers could devastate the overall U.S. economy’s smooth functioning. Also, the logistics company would be at high risk of losing its market share to its competitors and witnessing a significant decline in revenue and earnings.
