Shipper customers of United Parcel Service (UPS) can breathe a bit easier now that the Atlanta-based parcel and logistics company has reached a tentative labor pact with its union. UPS workers this month are slated to vote on whether to accept a new six-year contract that was hammered out between UPS management and the International Brotherhood of Teamsters. The two sides struck a deal just 16 days before a July 31 strike deadline, avoiding any disruption in service.

The new contract calls for an average pay increase of 22 percent over six years. Annual wages and benefits will increase by $1.46 per hour per year, union officials say. That compares to the current labor pact, signed after a two-week strike in 1997, which included a 98-cent hourly increase. At present, a union delivery-truck driver at UPS earns an average of $23 an hour plus benefits.

The Teamsters also achieved another of their objectives, boosting the pay of part-time workers. The tentative pact offers a $5-per-hour wage increase over the life of the contract for full-time members; part-timers will receive a $6-per-hour increase during the same period. In addition, the contract contains a cost-of-living formula designed to protect union members in times of high inflation.

The union also had made it a priority to place more UPS employees under its umbrella. It clearly got its wish: UPS will create 10,000 new full-time jobs and convert another 10,000 part-time jobs to regular full-time status. The Teamsters currently represent 230,000 of the carrier's 370,000 workers.

In addition, union negotiators succeeded in their attempts to protect or improve benefits, preserving the current arrangement on health-care benefits, obtaining improved long-term disability protections and adding more restrictions on mandatory overtime. "The new labor agreement provides Teamsters employees with a benefits increase equivalent to $3.75 per hour over the life of the contract," says Greg Burns, vice president of research at J.P. Morgan Chase in New York City. "Health-care benefits will hold pace with the rising cost of health care, with the added bonus of no co-payments, and the implementation of a long-term disability plan."

By cutting a deal when it did, UPS avoided another crippling strike such as the one the company suffered in 1997. That walkout lasted for 15 days and cost the carrier about $750 million in lost revenue. UPS had already expressed concerns about possible shipper defections in anticipation of another shutdown when it disclosed its weak second-quarter earnings last month.

What will the new agreement mean for shippers? Express shipping consultant Satish Jindel, who heads up SJ Consulting in Pittsburgh, predicts that the wage hikes negotiated in the pact will raise UPS's labor costs by about 3 percent a year. He notes that over the life of the last contract, UPS's annual rate increases for ground commercial parcels averaged in excess of 3 percent, largely to meet rising labor costs. This time around, he says, rate hikes could run a bit higher, ranging anywhere from 3.9 to 4.5 percent, although he notes that "larger customers who have contracts might [be able to limit] these increases."

Jindel, for one, believes that the UPS deal will spur the Teamsters to go after similar concessions from less-than-truckload (LTL) carriers when their union contracts expire next spring. He notes that UPS can afford to be more conciliatory in seeking labor peace than its LTL brethren can because the carrier controls about 80 percent of the domestic parcel market. The LTL carriers also face intense competition from non-union carriers, which further restricts their ability to make concessions. "This deal is likely to put more pressure on the LTL guys," says Jindel. "But it will be harder for LTL guys who don't have the same ability to pass through increases to customers."

The UPS pact still must receive rank-and-file ratification. A vote is expected in the middle of this month, but analysts don't foresee any problems. "We believe the contract will be easily ratified," says Burns. "It gives the union enough to make the leadership look good in front of its members, while keeping UPS highly competitive."