As freight transportation, logistics, and supply chain stakeholders (likely) breathed a collective sigh of relief yesterday, following the new five-year tentative agreement reached yesterday between Atlanta-based global freight transportation and logistics services provider UPS and the International Brotherhood of Teamsters, there has been no shortage of opinions and views on how this agreement, assuming it is ratified by UPS Teamsters members next month, will impact shippers, especually as it relates to pricing.
UPS officials said yesterday that the five-year agreement covers U.S. Teamsters-represented employees in small-package roles and is subject to voting and ratification by union members. And the Teamsters lauded this deal as the most historic tentative agreement for workers in the history of UPS, calling the contract overwhelmingly lucrative, raising wages for all UPS Teamsters workers, creating more full-time jobs, and including dozens of workplace protections and agreements.
So, with a new labor agreement seemingly in place, what happens now? For one thing, it seems more than likely that shippers should brace for rate hikes.
That was made clear by Tommy Storch, a transportation procurement expert at Insight Sourcing Group, whom stated that the current agreement is likely to have a significant impact on the market, observing that with the increase in workers' compensation, UPS is expected to transfer the cost to customers through higher rates.
“This move aligns with UPS's recent stance of focusing on being ‘better, not bigger,’ and rejecting contracts during the pandemic,” said Storch. “Last year, UPS implemented a general rate increase of 6.9%, which was a full percentage point above the typical 4.9% to 5.9% increases. Considering the additional compensation for workers, we should anticipate a rise of at least 8% following this new contract, when factoring in accessorial and fuel increases as well.”
Josh Taylor, Senior Director of Professional Services, for San Diego-based Shipwire, an audit and parcel consulting services company, explained that while UPS has surely been factoring the approximate cost of these concessions [roughly $30 billion, according to the Teamsters] into its projections.
“The publicity surrounding the negotiations should give them the cover they need to exact another large rate increase toward the end of the year,” said Taylor. “At the same time, UPS has fallen short of volume projections and has promised to pursue new volume more aggressively now that a tentative agreement has been reached.”
What’s more, Taylor observed that the tentative agreement is a very encouraging outcome for UPS shipper customers, in that they will not have to suffer through extended service interruptions. And he added that the concessions UPS made are significant and reportedly hit every goal set by the UPS Teamsters.
“Even part-time employees, who have been almost an afterthought in previous negotiations, will see a material pay increase once the contract is ratified and be given the first right of refusal for PVD jobs during Peak Season,” he said. “Much will be written about specific concessions – eliminating the 22.4 drivers (those lower tier drivers will immediately become regular, fulltime drivers with seniority), adding Martin Luther King Jr. Day as a holiday, adding fans and air conditioning to package cars, wage increases, eliminating forced overtime, etc.—but pushing the announcement of a tentative agreement into the final few days also creates a mythology that Sean O’Brien and Fred Zuckerman will return to as they work to unionize people delivering for other carriers.”
From the outside, Taylor said it is “easy” to view these negotiations as having been mostly contentious, but also noted that UPS and the Teamsters may be more aligned on this point than many people realize.
“By giving the Teamsters this storyline, the Teamsters are more likely to level the playing field for UPS, which has much higher employee costs than its competitors,” he said.
Shipwire Founder Rob Martinez was in accord with Taylor, saying the deal represented a sigh of relief, coupled with a nod of expectation.
“While perhaps the past few days might be the exception, the reality is, the vast majority of UPS shippers expected a tentative agreement would be reached ahead of the deadline and didn’t divert significant package volume to alternative carriers,” said Martinez. “By my calculations, only 3% of UPS freight was diverted, and most of those packages will eventually return back into the UPS network.”
While FedEx and a handful of regional carriers were forcing some shippers to tender diverted UPS freight well ahead of the July 31 expiration date of the UPS contract—and they demanded long term contractual commitments, stated Martinez.
But he said the bigger question is whether or not FedEx and others will hold shippers to those contractual agreements remains to be seen.
“I believe not for the most part,” he said. “When you’re the non-incumbent carrier wanting more of a presence within an account, invoicing prospects for contract breach damages isn’t quite the way to expand the relationship. With little leverage and in the hopes of continuing to win business away from UPS, they’ll cave.”
Going forward, Martinez said UPS is going to have to decide if it wants to disappoint shareholders with continuous declines in profit, or raise rates significantly to pay for the Union concessions, which he said, can have a downward impact on future volumes.
“It is a tough spot,” he said. “My expectation is that shippers will be the ones to bear the brunt of the Union concessions through significantly higher UPS pricing beginning in the fourth quarter of this year with new and higher ‘peak’ season surcharges, and significant rate hikes with the 2023 General Rate Increase. Make no mistake. The Teamsters won this negotiation. They got everything they wanted. Now, look to Sean O’Brien and the IBT to declare victory and quickly seek to unionize Amazon, FedEx and others.”
Looking ahead to ratifying the new contract, Martinez said that memories of the 2018 UPS-Teamsters deal, with union members feeling a bad deal was shoved down their throats, will result in the rank-and-file to scrutinize the tentative agreement’s language.
“While I expect a majority ratification, don’t be surprised if the rank-and-file don’t do so overwhelmingly; O’Brien and the Union leadership stoked real anger in the monthslong campaign,” he said.
While this result was a long time in the making, it delivered a result that was needed and is key for logistics throughput, especially in crowded delivery networks. There are clear indications this will result in increased costs for shippers and it remains to be seen how that will be addressed by shippers.