An open letter to the Teamsters: Think before you walk

For many current UPS/Teamsters union workers, the 15-day work stoppage in August 1997 occurred prior to their joining UPS. Many if not all current-day workers lack knowledge of the parcel industry dynamics crucial in evaluating whether a strike in 2023 would be in their interest or be extremely detrimental. 

The 1997 strike was the only one in the 100-year relationship between the Teamsters and UPS. It was bad for all stakeholders: shippers and their customers, Teamsters union workers, UPS shareholders and management, and others. 

While most competitors benefited, the biggest winners were FedEx Corp. (NYSE: FDX) and Roadway Package System. I have personal knowledge of how the Teamsters strike helped FedEx buy RPS in October 1997. While the two had initiated discussions in February 1997, the deal was called off in April as FedEx was unable to justify the price.

Then came the Teamsters strike in August, which diverted millions of express parcels to FedEx and ground parcels to RPS. It gave a huge boost to their respective stock prices, which allowed FedEx to justify the asking price for the deal to be announced in October. 

Teamsters members would not have gone on strike if they had had any idea that it would help two smaller competitors become a much bigger and stronger one, which helped FedEx Express and Ground generate $50 billion compared to UPS’s $64 billion in U.S. domestic revenue in 2022. 

With the express volume having shrunk over the past two decades, separately, FedEx and RPS would have been handling fewer express and ground parcels respectively today. The difference would have resulted in extra millions of parcels for UPS, which would have added thousands of unionized full-time drivers and package handler jobs.

To believe that today’s parcel market is the same as that of 1997 is analogous to people using AT&T coin-operated pay phones at a street corner in 2023 instead of cell phones.    

In 1997, the entire U.S. domestic market size was 16 million parcels per day with market share distributed as follows: UPS at 70%, FedEx at 12%, RPS at 8% and rest with the U.S. Postal Service and a few small regional carriers. Since UPS’ daily volume of 11 million was too much for all competitors to handle and keep, about 90% of that diverted volume came back after the strike was over.

However, in the past 25 years, the parcel market has experienced massive growth partly driven by free shipping of online orders (led by Amazon) and then the COVID-19-related retailer store closures and the federal government handout of a few trillion dollars, such that the industry delivered over 75 million parcels per day in 2022.

Such rapid growth has supported a lot of investment in capacity expansion at FedEx and the Postal Service, as well as the startup of private fleets by Amazon.com Inc. (NASDAQ: AMZN), Walmart Inc. (NYSE: WMT), Target Corp. (NYSE: TGT) and others. Then there are consolidators like DHL and regional carriers like OnTrac that are hoping for a strike to permanently take market share from UPS.

According to the U.S. Census Bureau, e-commerce growth that expanded from 11.9% of all U.S. retail sales in early 2020 to 16.4% in the latter part of 2020 has now receded to 14.7% as consumers are returning to stores.

So, in 2023, the industry is faced with much more capacity than demand. The figures for the largest two direct alternatives to UPS are as follows: FedEx has capacity for 17.5 million parcels per day while handling 12.5 million; the Postal Service has capacity for 60 million parcels per day while it is handling just 28 million. Thus, between the two of them, there is excess capacity of 37 million parcels per day.

So, if UPS is currently delivering 21 million per day in the U.S., just FedEx and the Postal Service have capacity to absorb the entire UPS volume that gets diverted from a strike. In addition, Amazon delivered 13 million parcels per day in 2022 using its DSP drivers. And as it looks to cut costs for its private fleet for its middle- and last-mile services, it will be ready to handle UPS’ volume just as it tested such door-to-door service prior to the pandemic. 

A strike at UPS will be timely for Amazon to enter door-to-door service for non-Amazon online orders. In addition to UPS permanently losing most of the Amazon volume that currently represents 11% of UPS revenue, Amazon will have found a way to bring most of that in-house and become a permanent parcel carrier competitor to UPS.

Walmart and Target have their own private fleets using employees and part-time gig drivers using their privately owned vehicles. A strike at UPS would give reasons for both shippers to expand their private fleets for last-mile deliveries.

If the 340,000 Teamsters union members stop working at UPS this summer, the future of Teamsters membership at UPS will look a lot different than it did in 1997. Instead of regaining 90% of parcel volume as it did after the 1997 strike, it may regain only 70% of the current volume. This time, the competitors may only accept UPS parcels if the customers commit to long-term contracts or agree to pay penalties for going back to UPS. A potential loss of 30% of daily volume would mean several thousand fewer drivers and package handler jobs at UPS.

So, while a Teamsters strike at UPS would be very costly and disruptive for shippers and their customers, and financially damaging for shareholders, it would be many times more painful for UPS drivers and package handlers who get paid the highest wages and benefits in the parcel industry. In addition, since the 2018 contract, signed without work disruption, UPS has added over 70,000 new Teamsters-represented jobs. 

Even if there is no strike but the contract execution is delayed, shippers will start to divert UPS parcels in June and July. And the volume that doesn’t return will result in parcel volume declines for UPS and the loss of hundreds of drivers and package handler jobs.

So, dear Teamsters union members, I hope you do not bite the hand that feeds you. 

Satish Jindel is CEO of ShipMatrix, a consultancy.