Small package shippers facing higher ’08 rates

John D. Schulz, Contributing Editor -- Logistics Management, 12/4/2007

WASHINGTON—Parcel shippers paying more for small packages this New Year can partly see where their higher rates are going. UPS and the Teamsters Union have tentatively agreed on a contract that provides 240,000 UPS workers wage increases of $4 an hour over the term of the five-year deal.
 
The deal was tentatively approved by 65 percent of the 90,000 Teamsters who voted. Five supplemental agreements still have to be modified but sources on both sides indicated that was not a major problem.

The deal is expected to raise UPS’s labor costs an additional 3 to 4 percent. That does not include the $6.1 billion lump-sum payment UPS was scheduled to make to the Teamsters Central States Pension Plan under a withdrawal scheme previously approved. In exchange, UPS gets to pull out of that chronically underfunded plan and avoid any future pension withdrawal liability.

So that helps explain why $48 billion-a-year UPS and $36 billion-a-year FedEx have greeted shippers with hefty New Year’s rate increases. Those general rate increases, previously announced, work out to an effective 4.9 percent across-the-board hike. In addition, both parcel giants continued the trend of jacking up accessorial charges for everything from inside delivery to rural delivery to wrong address corrections.

Oddly, the Teamsters sought to negotiate with UPS first rather than the YRC Worldwide and Arkansas Best on the freight contract, even though the old UPS deal does not expire until July 31. The freight contract covering about 60,000 workers at YRC units and Arkansas Best’s ABF Freight unit expires earlier, on March 31.

Tyson Johnson, Director of the Teamsters National Freight Division and Jim Roberts, president of TMI, which represents three units of YRC Worldwide, said there was “steady progress on the non-economic issues” on the freight negotiations. But there was no deal imminent.

Arkansas Best, which is negotiating separately with the Teamsters, has indicated it would like to withdraw from the Central States plan as UPS did. Its withdrawal payment is estimated to be approximately $800 million, and it’s unclear whether it is willing to make such a payment. YRC Worldwide’s withdrawal payment would be much higher and it’s doubtful it is in a strong enough financial position to make such a deal.

YRC’s profits were sliced by 56 percent in the third quarter, to a scant $40.7 million on $2.46 billion in sales. Unless it does something drastic, those margins could even fall further. After all, they were for the third quarter -- traditionally, the most profitable period for most U.S. trucking companies. YRC’s stock lost more than half its value in 2007 as the freight recession took a particularly hard toll on its long-haul unionized units, Yellow Transportation and Roadway.

In a joint statement issued by Teamsters and TMI, it said “both sides are serious about addressing the issues, and we are committed to bargaining in good faith. Our goal is to negotiate a contract that will address the needs of the Teamster-represented employees and address the needs of TMI-represented companies.”

Besides wage and pension increases, Teamsters in the freight sector are concerned about job security and are asking for broader work opportunities for laid-off workers in freight. Other issues include: improving workplace safety; protecting against subcontracting to non-union carriers; and the use of non-CDL (Commercial Driver’s License) “casuals” to replace qualified CDL-holding drivers.

Despite the overall soft freight environment elsewhere, parcel rate increases appear to be holding firm. That caused Morgan Stanley transportation analyst William Greene to predict a “solid year for yields” at both UPS and FedEx.

UPS, which ships an average of 15 million packages a day, enjoyed a mere 1.2 percent overall revenue increase per piece in the third quarter, compared with the same period of last year. UPS also is suffering from lower fuel surcharge revenue compared with the comparable quarter.
 
Despite the 65 percent approval vote by the rank and file, not all Teamsters were happy with the deal. Former Teamsters union President Ron Carey blasted his successor, James P. Hoffa, on the contract which he labeled “a total sellout.” Carey’s old Local 804 in Garden City, N.Y., is one of the locals which rejected a supplemental agreement.