United Parcel Service (UPS) management and unionized workers represented by the Teamsters are conducting intense negotiations to replace a five-year contract that expires July 31. Last night, the Teamsters ratcheted up the pressure by voting overwhelmingly to authorize a strike in case the talks fail. More than 90% of the 260,000 Teamsters voted to authorize the strike. Any walkout would not take place before August, but the union said the strength of rank-and-file support gives their negotiators more leverage.
Before the tally was released, UPS spokesman Glenn Zaccara said, “UPS is confident in our ability to reach an agreement that meets the needs of our employees and the business.”
“This vote by our UPS and UPS Freight members gives the negotiating committees bargaining leverage this week and during subsequent negotiations for the national contract and the supplements. It is very helpful to have the members’ backing as we work toward negotiating strong contracts at UPS and UPS Freight,” said Denis Taylor, Director of the Teamsters Package Division, after the results were announced.
“Strike authorization votes do not mean a strike is imminent,” wrote Matthew O’Connor, Senior Manager of Public Relations at UPS, in an email to FreightWaves. “The reality is that UPS and the Teamsters have already reached tentative agreements, subject to ratification, on a wide variety of non-economic issues.”
UPS Teamsters last struck in 1997, for two weeks. That walkout had two major effects: the unionized workers secured pay increases of greater than 15%, and the very next year, in 1998, FedEx acquired the assets that would become its Ground division, entering into direct competition with UPS’s Package service.
The current round of contract talks appear to be more contentious than previous iterations: the Wall Street Journal pointed out that the Teamsters did not authorize a strike for either of the two previous contract negotiations, in 2013 and 2007. Donald Broughton of Broughton Capital thinks there are macroeconomic similarities between 2018 and 1997, namely strong demand and low unemployment, that have returned bargaining power to the Teamsters.
UPS’s financial results for Q1 2018, reported on April 26, said that the parcel carrier took $1.3B in net income. UPS’ 10-Q, filed with the SEC for that quarter, said that of $15.5B in operating expenses, the largest line item by far was $9B in compensation and benefits. If the Teamsters secure the same result they achieved in 1997, a 15% increase in compensation, that would translate to $1.35B, and UPS’s net income for the quarter would effectively be erased.
“The bottom line is that UPS has to pay up in order to reach a new contract. In order to defend its margins, it will have to raise prices significantly. FedEx will also raise price, but won’t see as much cost pressure on its wage expense line. For FedEx shareholders it amounts to a ‘heads you win, tails you win’ proposition, and the longer UPS keeps flipping the coin, the more FedEx wins,” wrote Broughton in an email to FreightWaves.
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