Twenty-six years ago, the U.S. Postal Service stepped into the breach when a strike by the Teamsters union shut down virtually all of UPS Inc.’s domestic delivery network. By the accounts of people who were around at the time, the Postal Service performed admirably under difficult circumstances.
More than a quarter-century later, the same scenario confronts the parcel-shipping world, and people are again looking to the Postal Service for relief. Can it come through?
The fact is that with 21 million parcels delivered, on average, each day, UPS (NYSE: UPS) handles so much business that a near-complete shutdown would severely disrupt the nation’s delivery network. Most carriers know this, as do shippers, who would accept some level of delivery disruption as long as stuff gets moved from A to B.
The 1997 strike occurred in a market dominated by linear business-to-business traffic. This year, nonlinear and logistically complex e-commerce traffic going to consumers would be very much at risk.
Many others would pitch in. But the Postal Service, with an astonishing capacity of 60 million daily parcels and with more excess space than the number of parcels UPS moves each day, is being viewed as the “white knight.” By federal law, the Postal Service must pick up and deliver from every address and P.O. Box. Just because a package from a UPS shipper must at some point delivered, there’s no guarantee as to when. The pressure would be squarely on the agency because most private carriers will have stopped accepting new business weeks before then.
The challenge for the Postal Service, which was unavailable to comment for this story, isn’t how much capacity it can handle but the profiles of the packages themselves. “The Postal Service is structured for lighter-weighted shipments weighing up to 10 pounds. But in many cases, they are price-competitive only up to 5 pounds,” said John Haber, chief strategy officer at Transportation Insight Inc., a consultancy.
By contrast, the quasi-governmental agency would struggle to handle the bigger and heavier UPS packages that would not cube out well in its box trucks and be ill-fitting for the parcel bags that letter carriers lug around on foot each day, said Satish Jindel, president of ShipMatrix, a consultancy.
The only way it would work, Jindel noted, is if other carriers with the ability to handle large parcels took those pieces, and the parcels weighing under 5 pounds and of adequate cubic dimensions were shifted to the Postal Service network.
Such a scenario playing out is one reason that Teamster union workers do not want a strike; many would lose their jobs in the event of a permanent parcel diversion, he said.
“The reality is that there aren’t any carriers prepared to handle an avalanche of volume,” said Haber. “USPS and FedEx (NYSE: FDX) are better prepared than anyone else to help in the event of a strike, but they would just be partial solutions.”
Another challenge facing all rivals, including the Postal Service, is the lack of available last-mile drivers, said Andrew Townsend, chairman and CEO of LSO, a regional carrier that will make incremental capacity available to UPS shippers should they move over business ahead of a possible Aug. 1 strike.
“USPS certainly has additional sorting capacity,” said Townsend. “But 50% of unused sort capacity does not translate to delivery capacity that they can turn on quickly.”
Paul F. Steidler, senior fellow of the Washington-based think tank the Lexington Institute, and who has covered the logistics industry for years, said there’s no way the Postal Service can pick up the slack from a work stoppage by the Teamsters.
“There will be so many packages around that neither USPS, or USPS combined with private delivery companies, will be able to deliver them on time,” he said.
“UPS also delivers a quite large number of international packages, and does so much quicker and more efficiently than USPS,” said Steidler. “USPS does not have the people or institutional skill set to handle a dramatic, short-term rise in those shipments.”
Gordon Glazer, who runs the postal practice for Shipware LLC, a consultancy, believes that the Postal Service has a major chance to rule the roost. “It won’t be like a nor’easter winter event that pops up unexpectedly; it is like the peak Q4 season in the middle of summer.” The Postal Service will have plenty of time to prepare and a lot of capacity to tap into, Glazer said.
Shippers that use UPS or the Postal Service will have the most exposure because the Postal Service will receive the bulk of the volume as other private carriers will limit what they will accept.
“I think the question is how the impact to the USPS will be if the strike goes on for more than a week. Then a potential backlog may begin to occur.” Again, the dates are known, and they should be able to prepare.”
A good example is the handling of election mail, which brought with it known processing challenges the agency was able to surmount, Glazer said.
An industry executive who was around during the last strike, but not at UPS, recalled how anyone who could walk, talk and drive at the time was making deliveries. The executive, who requested anonymity, said it is in the “enlightened self-interest of shippers” to have line-hauls set up to bring their shipments directly to the Postal Service.
UPS delivers the equivalent of about 6% of U.S. GDP each day. Despite the economic ramifications, Steidler doesn’t expect the White House to intervene even if the summer months pass without an agreement. UPS Teamsters are well paid, have generous benefits and have significant job security, he said. This, like many other disputes, needs to be resolved at the bargaining table, he added.
Labor relations between UPS and the Teamsters are covered under the Taft-Hartley Act, which has different sets of rules and much deeper government involvement, than the Railway Labor Act, which covers the railroads and the airlines.