(Updated July 19, 2023 9:25 am ET)
The union representing UPS pilots says it will not picket lines if Teamsters drivers and package sorters quit their jobs when the current contract expires on Aug. 1, prompting the express logistics company’s global flight operations to be halted immediately would.
UPS (NYSE: UPS) has 3,300 pilots represented by the Independent Pilots Association (IPA), a separate union from the Teamsters.
“If the Teamsters go on strike, we will respect that strike and not fly,” IPA spokesman Brian Gaudet told FreightWaves.
The contract allows UPS pilots to stand at primary pickets, and they did so for 16 days during the 1997 Teamsters strike.
In 1997, 100% of our pilot group respected your picket line by not “spinning a plane wheel” on behalf of the company, IPA President Robert Travis said in a July 3 letter to Teamsters President Sean O’Brien, who spoke at the IPAs was published website on Tuesday. The IPA will “honour every potential IBT [International Brotherhood of Teamsters] Strike and act in sympathy with our colleagues at UPS by not working. No one wants a walkout, but should a legal IBT strike occur, you and the IBT can count on the support of the IPA.
Even with cargo planes operating, a strike by 340,000 package drivers, truck drivers, and warehouse workers would effectively bring most UPS Airlines operations to a halt, with little, if any, staff loading and unloading planes carrying the Parcel processing and delivery would be available at airport facilities. UPS says it trains non-union employees to handle packages in the event of work stoppages. Package consulting firm ShipMatrix estimates management could move about 22% of the 18.6 million daily packages in its system through contingency plans.
The Teamsters union has a $300 million to $350 million fund to support workers with strike pay, but UPS pilots who don’t report for work have to shoulder the burden themselves.
“We don’t have a strike fund,” Gaudet said.
UPS pilots agreed to a two-year contract extension last August.
Bascome Majors, a senior transportation equity analyst at Susquehanna International Group, estimated in a research note that the Teamsters fund could last at least two weeks. Part-time workers would end up making about $210 less than their normal weekly wages, while full-time workers would make about $1,450 less, which “could dampen enthusiasm for a prolonged strike and hurt Teamster solidarity.”
Without pilot solidarity action, UPS would likely deploy an emergency fleet to protect some international flights and night flights to its Worldport hub in Louisville, Kentucky, Derek Lossing, founder of Cirrus Global Advisors, said in an interview.
FedEx Express (NYSE: FDX) is the only airline that can realistically absorb overnight and next-day UPS package volumes, he said. FedEx will try to take over as much of this business as possible because it is lucrative. Shippers who have a close relationship with UPS and only transfer small quantities to FedEx are likely to pay $6 to $8 more per package. FedEx can realistically handle 5% of UPS overnight volume, Lossing added.
UPS management and the Teamsters union are at an impasse over wages and other economic issues after previously agreeing to other terms.
Rich labor agreement comes with risks
Analysts say UPS is in a bind because the company is already experiencing some diversion of its shipments to competitor FedEx and could alienate more customers if the company raises rates significantly to cover the cost of an overly generous Teamster offering.
A new Teamsters deal could push the cost per package about 2% above current expectations and hurt UPS’s earnings per share by a dollar next year, Majors said. Package consultants predict that shippers can expect rate increases of 6% to 10% in 2024 before a Teamsters contract is signed.
Majors predicts the Teamsters deal will increase wages by 18% for part-time workers and 7% for full-time workers, with costs rising another 3% to 4% due to inflation and other factors.
Many companies that have been struggling with UPS over the past three years, when demand has skyrocketed and the carrier has not commented on drastic rate increases, may be willing to look to alternative carriers.
“If UPS gives away too much in labor costs, it will be forced to raise rates to shippers and lose a significant chunk of their wallet because the 12- to 18-month outlook doesn’t justify rate increases,” wrote Lossing, a former Logistics manager at Amazon who helped the online retailer build its private cargo airline and international last-mile delivery network, on LinkedIn.
According to modeling conducted by Cirrus Global Advisors, for every 10 percent increase in labor costs over the next two years, UPS will lose 4 percent of its average daily volume. As UPS tries to maintain its margins by passing the cost on to customers, some of its package business will shift to FedEx, the U.S. Postal Service, logistics companies specializing in downstream package infeed into the postal system, regional package carriers, and Amazon’s own delivery network . FedEx would collect about 180,000 land parcels daily, followed by Amazon (175,000), regional carriers (70,000), while the US Postal Service and postal consolidators would handle the rest. If the Teamsters union pushes through a 20 percent increase in compensation, UPS could lose 140,000 daily packages to regional competitors.
Labor is UPS’s largest expense, accounting for nearly half of its global revenue. According to UPS, delivery drivers make an average of $95,000 per year and part-time drivers make $20 an hour, plus medical and pension benefits. Because FedEx and Amazon use an independent contracting model with non-union workers for last-mile delivery, UPS must control labor costs or risk a “slow spiral” that renders the company uncompetitive, Lossing said.
Online shoppers would face slower deliveries in the event of a UPS strike, and e-commerce companies would be forced to scrap free shipping and increase shipping rates, he predicted.
According to logistics experts, companies that do not have other transport companies integrated into their transport planning systems besides UPS could expect significant operational and financial consequences from a possible strike.
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