By Satish Jindel
Editor’s note: The views expressed here are solely those of the author and do not necessarily represent the views of FreightWaves or its affiliates.
Many thanks to the more than 100 people who commented on my first letter. The one that prompted this second letter asked: “What skin do you have in this? Why does your opinion matter to the UPS union employees trying to make life better for their families?”
I am not taking sides. I am just sharing my industry knowledge to avoid a repeat of 1997 when the International Brotherhood of Teamsters struck UPS Inc. for 15 days. The stoppage caused a major disruption to not only the parcel industry but even the LTL industry, which has Teamsters workers. If forewarned is forewarned, it is best if both parties achieve their goals at the negotiating table and not at the picket line.
Based on the numerous comments from tenured UPS drivers, it’s clear that the nonunion drivers working at many of the company’s competitors are paid significantly less in wages and receive fewer benefits. That results in higher cost per parcel delivery for UPS.
A higher labor cost for UPS does not help win customers at a higher price as they do not care that UPS has to pay more to its workers. Instead, it results in UPS expecting its drivers to be more productive so that the cost per package can be competitive with those paying less in wages and benefits.
Unless the Teamsters leadership can create a level playing field whereby all competitors in the parcel industry are union members or are paying their nonunion workers similar wages and benefits, UPS management has few options but to expect greater productivity from higher paid workers.
Once the negotiations move to the picket line, it leads to the unpleasant details of negotiations being exposed to your customers and competitors. However, it is the competitors that benefit from it. If higher wages and benefits for UPS workers result in higher parcel rates for shippers, they will flock to alternatives using nonunion carriers with a lower cost structure.
Amazon has already siphoned off 13 million parcels per day from the industry via its private fleet of DSP drivers. A delay in contract execution will push other large shippers like Walmart and Target to expand their private fleets more aggressively, which will mean more union jobs diverted to nonunion workers.
UPS’ results for the first quarter of 2023 show that the diversion of parcel volume has started. Amazon, its largest shipper, has already reduced its exposure as reflected by a decline of 24.5% in deferred-delivery services volumes tendered to UPS.
Such volume diversion, while some may be temporary, will result in either a need for fewer Teamsters workers or a push for higher productivity from the workers to reduce the labor cost per package, which as per many comments is not to union members’ liking.
A strike at one of the carriers in the industry only works in favor of organized labor when competitors also have unionized workers and they honor the strike. In that case, a strike does not result in diversion of business. However, that is not the case with the parcel industry.
One can also see the devastating results of a strike in the LTL industry. Prior to motor carrier deregulation in 1980, there were more than 100 Teamsters-represented carriers that controlled over 90% of the LTL market revenue. Since then, the numbers have dwindled.
While many unionized LTL carriers went bankrupt due to management’s failure to adapt to deregulation, by 1993 unionized LTL carriers still had a 60% share of the market. Then came the Teamsters strike of 1994 against 22 carriers, which diverted more business to nonunion carriers. By 2010, there were just six LTL carriers with Teamsters workers and their market share had dropped to 35%.
The damage continued so that in 2023, we have only three Teamsters-represented LTL carriers and their combined market share is only 22%. It is noteworthy that from 1993 to 2022, Teamsters membership also dropped from 1.7 million to 1.2 million.
A strike at UPS could accelerate a similar outcome in the parcel industry with revenue diversion to parcel carriers with nonunion workers.
To compete against carriers with lower-cost nonunion workers, UPS has to seek higher productivity from its workers. Alternatively, maybe the union could convince parcel shippers to pay higher prices to UPS for supporting unionized workers with higher wages and benefits.
Now, that will be a win-win for all.
(Note: I stand corrected about the number of strikes by the Teamsters against UPS. There was a one-day strike in February 1994 when UPS raised its parcel weight limit to 150 pounds from 70 pounds. However, local and one-day strikes do not divert volume to competitors.)
Satish Jindel is president of consultancy ShipMatrix.