By Micheal McDonagh
The views expressed here are solely those of the author and do not necessarily represent the views of FreightWaves or its affiliates.
Labor issues are a long-standing fixture of logistics discourse. But instead of the seemingly constant truck driver shortage, logistics managers find themselves staring down a possible labor strike for the second time in less than a year.
In 2022, the threat of a rail strike grabbed plenty of headlines and sent shippers scrambling to ramp up contingency plans before the government stepped in to force a labor agreement. Now, the focus shifts from rail to parcel with UPS and the Teamsters union beginning negotiations on a new contract this week in Washington.
The Teamsters say they are prepared to strike if an agreement is not reached by the current contract’s expiration date of July 31. For shippers looking for a return to normalcy following a topsy-turvy period that featured shortages of everything from toilet paper to transportation capacity, the threat of a major strike is a jarring reminder that just because the pandemic is behind us, the threat of supply chain disruption remains.
What should shippers anticipate as they track the possibility of a strike and ready potential contingency plans? With the board set, dice cast and negotiations underway, here are key considerations for shippers navigating a period of uncertainty.
The full financial impact of shifting parcel volumes
Do FedEx and other carriers want to take on the parcel volumes of a waylaid UPS? Should shippers move volume away from UPS? Neither answer is simple.
FedEx and regional carriers welcome growth, but they do not want to be a temporary stopgap measure for the possibility of a UPS strike. The market has limited existing capacity to soak up excess coming from UPS, and carriers are not interested in expanding without the support of longer-term agreements with shippers. Time is also a factor. The FedEx deadline of March 31 to prioritize UPS volumes in the event of a strike is already gone, and Lone Star Overnight set a deadline of May 31 for its offer of 30% additional incremental volume to customers.
There are also financial consequences for shippers that shift volume away from UPS. Shippers receive discounts from UPS based on revenue tiers that reward larger volumes with more generous discounts. By reducing the extent to which they ship with UPS, shippers can fall to a lower revenue tier, in turn reducing their discount. As shippers continue to grapple with record-high general rate increases, year-round peak surcharges and high fuel surcharges, voluntarily leaving behind a higher discount level is particularly unappealing.
The negotiating table
This will be the first UPS contract negotiation since new Teamsters President Sean O’Brien took charge in March 2022. Shippers following negotiations should note that O’Brien won election after criticizing previous leaders as too timid in UPS talks and that he commonly uses strong rhetoric that generates eye-catching headlines, such as “Teamsters president calls GOP senator a ‘greedy CEO’ in heated exchange” and “Teamsters president blasts UPS ahead of contract negotiations.” By contrast, UPS CEO Carol Tomé is more tight-lipped and conciliatory, with recent comments touting the company’s long history with the Teamsters and characterizing the two sides as being more aligned than not on key issues.
Depending on how negotiations proceed, another party could wield decisive influence at the negotiating table. Last year’s rail labor dispute was a reminder that the federal government is willing to exert power to avoid a strike, though in the case of UPS and the Teamsters, government intervention is subject to a different framework. While the Railway Labor Act allows Congress to implement a deal to protect interstate commerce, Teamsters negotiations are subject to the Taft-Hartley Act, which places responsibility on the president to intervene in strikes or potential strikes.
What history says about a possible strike
The UPS strike in 1997 lasted 15 days and saw 185,000 Teamsters strike. That collective action stopped delivery of 80% of UPS shipments, with 7 million packages remaining in backlog and a loss of $780 million. President Clinton encouraged both sides to settle, but he did not seek an injunction under Taft-Hartley to end the strike.
But a lot has changed since 1997. The Spice Girls no longer top the charts, the “Macarena” has given way to various TikTok dances and the parcel industry has evolved significantly. In 1997, e-commerce was new and niche enough that media coverage still included basic explanations to explain the concept and FedEx Ground did not even exist.
Fast-forward more than two decades and the Teamsters contract covers 340,000 UPS workers and the company now delivers more than 6.2 billion packages annually. During the COVID-19 pandemic, the U.S. government deemed FedEx, UPS and other carriers as essential services, a testament to the critical role of parcel delivery networks in supply chains and consumer markets that increasingly depend on home delivery.
What lies ahead
Will a strike happen? Given a widely held desire to avoid further disruption following the hectic COVID era and the recent history of government intervention to avoid a work stoppage in rail, a strike is unlikely.
However, the winds can always change. If a strike does happen, the supply-side shock would leave shippers and carriers scrambling to get packages moving as the market reacts to a sharp drop in capacity. But that all remains to be seen.
For now, the pieces are all on the board. Time to see how the game is played.
Micheal McDonagh is president of parcel at AFS Logistics.
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