UPS expects new “win-win-win” contract to be ratified by Teamsters in two weeks

United Parcel Service (UPS), celebrating a new tentative five-year labor contract covering 340,000 members at the Teamsters union, says it expects the new deal will be ratified by rank-and-file workers within two weeks.

“We believe this contract is a win-win-win,” UPS Chairman Carol Tome said during a second quarter earnings call with analysts. “We have the best people and the new contract rewards them with the best pay and best benefits in the industry.”

“This contract strengthens the industry-leading wages,” Tome added. She said a typical full-time UPS driver will earn about $170,000 in annual wages and benefits by the end of this new deal.

UPS full- and part-time employees will see larger general wage increases throughout the duration of the new five-year contract. From 2023 to 2028, increases will total $7.50 an hour for each employee who has reached seniority status as of Aug. 1.

Part-time worker wages were a major sticking point during negotiations. In the tentative agreement, part-time employees with seniority will see their pay jump to a minimum of $21 an hour if their pay was below that figure after the general wage increase.

Newly hired UPS part-timers will start at $21 an hour, a figure that will increase to $23 after Aug. 1, 2027. In the 2018-2023 contract, newly hired part-time employees started at $15.50 an hour after Aug. 1, 2022.

“I want to thank our customers who stayed with us,” Tome said. “For those customers who diverted, we look forward to bringing you back.”

Negotiations were “late and loud,” as Tome characterized it. Teamsters threatened to strike the world’s largest transportation company in the days before a formal agreement was announced at the end of July.

Tome said “it’s all hands on deck” to win back shippers who diverted freight during the final days of labor negotiations. UPS volume fell about 1.2 million packages a day that were diverted because of the threat of a strike. Tome said she expected “we will win it all back” by the end of the year.

“Where did that volume go?” Tome asked. Internal projections indicate a third went to FedEx, one-third went to the U.S. Postal Service (USPS) and one-third went elsewhere, Tome said.

Some package executives fear the small package market may have changed permanently as shippers find other options.

“Granted there most likely was package diversion during the quarter related to shipper fear regarding the labor talks. But I see these results combined with the previous few quarters and the similar trend we have seen in the numbers coming out of the USPS and FedEx regarding volume trend speaks to a far greater fundamental decline in the market place.”  - former freight executive Jerry Hempstead

UPS, which moves about 6% of the entire Gross National Product every day, is taking the financial effects from the new contract more or less in stride.

UPS second-quarter consolidated revenues were $22.1 billion, a 10.9% decrease from the second quarter of 2022. Consolidated operating profit was $2.8 billion, down 21.4% compared to the second quarter last year.

For the year, UPS said it expects total revenue to be about $93 billion for the year. It is projecting an 11.8% operating margin for the full year.

These projections come as volume diversions to non-Teamsters carriers were more than UPS had anticipated, Tome said. What UPS didn’t do was cut pricing during labor negotiations.

“We maintained our pricing discipline,” she said on a conference call with analysts.

Consolidated revenue fell just over 10% during the second quarter. But the company still achieved a $2.9 billion operating profit during that quarter.

During the second quarter, UPS executives maintained contact with shippers to reassure them during the threatened labor stoppage.

“We have already seen some volume return,” Tome said.

Brian Newman, UPS chief financial officer, said despite the 9.9% average daily decline in overall volume, the company demonstrated much “agility”  during the second quarter as volumes declined.

“We expected volumes to decline in the second quarter, and they did,” Newman said.   Operating profit was $2.9 billion in the quarter. Operating margin was 13.2%. The key was its ability to take out $889 million in costs during the second quarter as volumes declined. It is projecting about $11 billion profit for the full year.

“Our results are proof of our agility,” Newman said.

Operationally, more increased weekend deliveries will be possible under the new contract, Tome said.

UPS often relies on the U.S. Postal Service to complete deliveries for its SurePost service, which focuses on lightweight residential shipments. The company is slated to lean on the agency less under the new contract.

UPS will increase the percentage of SurePost packages that are redirected to its own drivers in each year of the contract, based on national average daily volume. On Aug. 1, 2024, that percentage should reach 44%. It will steadily increase each year until it reaches 50% by Aug. 1, 2028.

The tentative contract would also give part-timers “one-time longevity increases” to their wages based on their original hire date, ranging from $0.50 for five years of service to $1.50 for more than 15 years of service.

UPS will offer part-time employees the opportunity to fill at least 22,500 permanent, full-time job openings covered by the contract over its duration, versus a minimum of 20,000 in the old contract.

UPS updated full-year guidance as a result of the new labor deal.

Under the tentative agreement, UPS will also use technology to identify SurePost-bound packages heavier than 10 pounds or exceeding two cubic feet “so that they are redirected to bargaining unit drivers.”

The SurePost changes “will put millions of packages back onto our package cars,” Teamsters General President Sean O’Brien said in June.

The tentative agreement gives the Teamsters more say in the introduction of technology that could impact union jobs.

If UPS wants to implement drones, vehicle platooning or driverless pickup and delivery vehicles, the company must notify the Teamsters’ National Negotiating Committee six months in advance of the change. It also “shall be required to bargain the effects of any such change.”

If the two sides can’t come to an agreement on the use of the technology, the matter will be resolved under the national grievance procedure outlined in the contract.

“Prior to this, there was very loose language which didn’t give us the ability to sit down and negotiate and the company could just implement,” O’Brien said in June. “Now, we have a resolution process.”

Also, U.S. small package delivery vehicles purchased after Jan. 1, 2024, will be equipped with in-cab air conditioning systems. This is part of the agreement as UPS adds to its heat safety measures. Fans will also be installed in the cabs of existing package cars no later than 30 days after the contract is ratified.

The company will replace at least 28,000 package cars and vans over the lifetime of the agreement, which runs through July 31, 2028.

That’s a significant chunk of the roughly 125,000 package cars, vans, tractors and motorcycles in UPS’s global ground fleet, according to the company’s annual financial report for 2022. However, the agreement says UPS will notify the Teamsters if it can’t meet this replacement schedule due to “volume downturns.

“Customer-first is a winning strategy,” Tome said. “We are winning in the best part of the market. Our new contract establishes a backbone for the future.”