UPS May Face Labor Strike – Could Disrupt eCommerce

UPS
Source: UPS

On Tuesday the Teamsters union (International Brotherhood of Teamsters or IBT), which represents about 260,000 employees at United Parcel Service (UPS), announced that over 90 percent of its UPS employed members voted to go on strike, if necessary.

In a statement, UPS said “The Teamsters leadership has announced its members have overwhelmingly voted for UPS strike authorization. This was a routine and expected part of the negotiation process.”

The logistics carrier further stated, “Regardless of the authorization to strike, the reality is that a strike authorization vote does not give the IBT the ability to call a strike while the current national master agreements are in effect through July 31, 2018.”

The two parties are involved in the routine negotiation process of their labor agreement which will run out on July 31.

According to UPS, the company believes they will reach an agreement in time that will benefit both, employees and the business. UPS also claims they have reached tentative agreements with the union on a wide variety of non-economic issues.

Sunday Delivery to Blame?

But multiple media reports suggest one proposal on the table by the company seems to have created a significant hurdle between the two parties and also within the Teamsters union.

Apparently, UPS is preparing to offer Sunday delivery services at some point in the future. To manage expanded weekend delivery options, UPS wants to take part-time employees, which earn less than full-time employees, and offer them full-time status but at part-time hourly rates.

In basic terms, UPS is seeking a two-tier wage system that allows it to hire drivers at a much lower hourly rate than its current full-time staff that typically works Monday – Friday.

This “second-tier” driver group would work some weekdays, but most would be utilized to handle weekend deliveries.

READ MORE: UPS Eyeing Sunday Delivery Service?

“Most people understand in the world of Amazon and eCommerce, UPS isn’t going to be Monday to Friday or even Monday to Saturday anymore, it’s going to be a seven-day operation. But they made record profits. They don’t need concessions to do that.”

David Levin, Spokesman for UPS Teamsters United (Source: CNN)

Just last year, UPS phased in regular Saturday delivery service in most major metro areas of the U.S.

The company had offered Saturday delivery on air-services for an extra fee for many years, but this new Saturday service added ground delivery at no additional fee.

Last year, UPS called it the largest time-in-transit change in its 109 years of operations.

READ MORE: UPS Adding Saturday Ground Operations in April

With its labor contract ending this year, it now seems UPS is almost certain to expand to 7-day delivery services within the next five years, the length of the next contract they are negotiating with the Teamsters union.

Impact of UPS Strike

The last time UPS faced a strike from its Teamsters employees was in 1997 when over 185,000 union workers effectively shut down all operations for 15 days.

At its core, the 1997 strike was about a similar problem as the company had hired a large number of part-time workers at lower hourly rates to fill jobs the union believed should be handled by full-time staff.

In the short term, the union won as UPS agreed to many of its terms, including converting many part-time positions into full-time jobs.

But long-term, the first strike in UPS’ history contributed to a significant change in the parcel delivery business in the U.S.

In 1997, UPS owned over 80 percent of the small package delivery market and many shippers put their faith in what had been one of the most admired and reliable companies in the country.

During the strike, some businesses that used FedEx, Airborne Express, or USPS had options to move some shipments to these other carriers.

The private couriers such as FedEx and Airborne Express often placed limitations on the extra volume they could accept during the UPS strike. They didn’t have the logistics network or ability to absorb 80 percent of the small package volume that UPS handled.

FedEx didn’t even offer ground service in 1997 and USPS mostly offered non-traceable parcel shipments, which also were notoriously slow. Fully traceable USPS Priority Mail as we know it today didn’t really exist for packages in 1997.

Another option, RPS (Roadway Package System), the only real alternative ground parcel service at the time, had only been in existence for 12 years and just the year before the strike managed to cover 100 percent of the U.S.

The Reduction of UPS’ Market Share

Ironically, it was the UPS strike that prompted FedEx founder and CEO Fred Smith to contact RPS to acquire the company and eventually rebrand it as FedEx Ground.

One could easily argue that Smith saw an opportunity to purchase a “start-up” that did not use union labor to sell corporate American and many small business owners who became disillusioned by a labor action that significantly interrupted their businesses.

While FedEx and UPS are similar in size in terms of revenue, UPS still enjoys a significant advantage in the U.S.

On average, UPS handles 16.9 million packages per day while FedEx moves 10.6 million. When removing express shipments from those totals, UPS transports 14.1 million ground packages versus FedEx 7.9 million.

USPS in a recent financial report claims it moved 1.718 billion (averages to 18.8 million per day) packages in its first quarter of 2018.

USPS service offering is very different from UPS and FedEx which mostly match each other in delivery times, weight and size restrictions, and pricing.

The postal service has special mail classes such as media mail, first-class packages, and does not offer a delivery service guarantee except on Priority Mail Express (Mostly Next Day) service.

Including regional parcel carriers, UPS no longer is anywhere near the 80 plus percent market share it held in 1997 during the first and only strike by the Teamsters against the company.

It is also not fair to blame the 97 strike as the only reason for the loss in market share in the U.S. domestic parcel market by UPS.

In 1997, U.S. eCommerce estimated total revenues from B2B and B2C was $26 billion. For comparison, retail online sales (B2C only) in 2017 reached over $450 billion.

Between a rapidly expanding domestic parcel business and some uneasiness by businesses to only rely on a single carrier as many did in 1997, UPS lost market share.

What If a Strike?

Both sides in this labor dispute have a lot to lose.

  1. This is not 1997, customers and shippers expect delivery time commitments and a strike would certainly impact those delivery time commitments.
  2. Social Media will drown out spin by either side. A labor action that has a significant impact on the general public is going to get negative social media exposure. There is no amount of PR spin that can prevent that.
  3. Small businesses, which today represent an even larger customer base of UPS, are typically not pro-union. Again, as small businesses would have to make changes to their shipping operations, those changes may become permanent.
  4. Amazon is already trying to reduce its reliance on UPS and other carriers. A strike that impacts the company would certainly result in accelerating the rollout of SWA (Shipping with Amazon).
  5. Amazon SWA, DHL Metro, Uber, Deliv, Dolly, and a host of other technology-driven companies that rely on an on-demand workforce are ready to pounce on any opportunity to take over market share from existing carriers.

It does sound like that both UPS and the Teamsters realize that consumers are driving their business now and they must meet consumer expectations. Getting into a public and ugly labor contract fight would serve neither side.

Let’s hope cooler heads will prevail before July 31 and UPS and the Teamsters union find an amicable solution to agree on a new five-year labor contract.

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