5 things to know with the UPS-Teamsters clock ticking

Time is running short for a handshake agreement to avert a nationwide Teamsters union strike against UPS Inc. threatened for Aug. 1. Talks broke off July 5 and will resume next week. Shippers that haven’t made contingencies could be up against the wall. Some will simply brace for service disruptions and undelivered packages, which could take weeks to sort out even if a strike is relatively short.

“For shippers who have done little or no planning, it’s too late,” said Nate Skiver, founder of LPF Spend Management, a consultancy.

Here are five things to consider as the clock winds down:

How did we get here? 

We got here like we get here every five years, the typical duration of a UPS-Teamsters contract. But this has been a different cycle. For the first time in 25 years, there is new blood at the top of the Teamsters food chain — a combative, aggressive, longtime Teamster named Sean O’Brien. O’Brien succeeded James P. Hoffa, a leadership fixture who many in the UPS rank and file thought had grown too cozy with the company and less with its workers. O’Brien isn’t that type, as he has made clear leading up to and throughout the negotiations.

Another difference is the timing. The current contract, agreed to in 2018, took effect long before the pandemic turned the delivery business upside down with surges in e-commerce demand. It also allowed UPS (NYSE: UPS) to bypass the big labor cost hits that other companies, notably FedEx Ground, the ground delivery unit of FedEx Corp., (NYSE: FDX) had absorbed immediately after the pandemic. Payback at UPS is expected this time around.

Today, there is twice the daily delivery volume as in 1997, when the Teamsters struck UPS for 15 days. Of course, today there is the wildly popular home delivery via e-commerce that didn’t exist back then.

Postal consolidators

In 1997, only the U.S. Postal Service, Roadway Package System, and to a small degree FedEx Express, the air unit of FedEx Corp., were there to pick up the slack. This time is different. FedEx Ground, which didn’t exist then, is a major force. The Postal Service, which by law must pick up and deliver all parcels, has said it is ready and able to take on business, and it has millions of parcels worth of available capacity to do it. “The Postal Service is licking its chops, secretly waiting for its chance to grab market share,” said Gordon Glazer, head of the postal practice at Shipware, a consultancy.

Then there is a growing list of final-mile carriers, postal consolidators and regional parcel carriers, capable of, in the words of one regional carrier executive who asked not to be identified, “picking up the pieces” for shippers left in the dust.

Mike Erickson, founder and CEO of consultancy AFMS LLC, said, “USPS is the best option” because of its universal service mandate. “But shippers should talk with their other transportation partners, regional carriers, LTL carriers and last-mile delivery companies,” some of whom have loose capacity. “Shippers need to be creative, sort your volume based on geography and use a full truckload carrier to drop-ship into important geographies where you can use the various last-mile delivery companies’ hubs and networks.”

Glazer said postal consolidators, which aggregate large volumes of parcels to induct into the postal delivery network, are shippers’ best bet to avoid the congestion that will likely occur at postal processing facilities.

Consider FedEx

The perception is there is no more room at the FedEx inn, and that what is available may cost more. However, Satish Jindel, CEO of ShipMatrix, a consultancy, said that FedEx is offering some UPS shippers attractive rates to switch now. But these are not short-term deals. In addition, those looking to ship extra volume for the short term are being held to their current volumes so they would increase it sooner and not after the strike if one should occur, according to Jindel.

FedEx is seeking a three-year commitment for new business, as it has no plans to accept UPS volumes and potentially disrupt its network only to have the volume returned to UPS if a strike is averted or after a work stoppage ends. It will also levy stiff — though what one source says are not obscene — penalties for breaking the commitment.

It pays to have a plan

Those who developed contingency plans can mitigate some of the impact even if they haven’t executed it, said Skiver of LPF.

“This may seem obvious, but the shippers who have the best chance of making these changes are not single-sourced with UPS, have a multicarrier shipping solution in place, and have a distribution network which enables the use of regionals and final-mile carriers,” he said.

Ideally, alternative carriers need to already be in place to begin transitioning volume, Skiver said. But shippers could hold the volumes until the carriers are in place. “It’s not the best customer experience, but if a strike happens, UPS packages wouldn’t be moving anyway,” he said.

Grin and bear it

UPS moves about 24 million packages worldwide each day. About 18 to 20 million is in the U.S. alone, depending on the source of the information. The company’s pilots have said they will honor any Teamster picket line in the U.S., and they have contractual language allowing them to engage in a sympathy work stoppage, both domestically and internationally. No alternate carrier is as efficient as UPS in handling such mass volumes on a daily basis, so there will be, to say the least, hiccups.

UPS shippers who’ve yet to sign third-party contracts should be adding buffer stock of critical items immediately, said Alan Amling, assistant professor of practice at the University of Tennessee’s Global Supply Chain Institute. “The more stock they can get close to consumers, the more last-mile options they have,” Amling said. “That said, most shippers have agreements with other carriers and have begun to execute those contracts after the recent breakdown in negotiations.”

Amling said he had long been optimistic there would be no work stoppage. “At this point, my question is not if there will be a work stoppage, it’s how long it will be.”

The fallout will be minimal if a strike lasts less than two weeks, Amling said. Over a month and a strike will impact B2B supply chains and holiday shipments, he said. “We’ve seen this movie before,” he said, referring to the supply chain disruptions related to the pandemic, “and it’s not good.”

The post 5 things to know with the UPS-Teamsters clock ticking appeared first on FreightWaves.

Source: freightwaves - 5 things to know with the UPS-Teamsters clock ticking
Editor: Mark Solomon