Avoid single-sourcing is the message as UPS-Teamsters talks stall

Shippers can only hope and pray that UPS Inc. (NYSE: UPS) and the Teamsters can move beyond their differences and get a deal done.

Talks collapsed during the wee hours of the morning Wednesday for reasons known only to those inside the heavily guarded bargaining room. What is clear is that time and opportunities are running short to hammer out a contract before the July 31 deadline, after which time the Teamsters said they will strike without a contract in hand. 

“It’s much too late for shippers to do anything to mitigate the effects of a strike at this point,” said Mark Magill, a top sales executive at regional parcel carrier OnTrac, in a LinkedIn post. “But with this drama going on only 27 days before the Teamsters’ contract is up, it should prompt any savvy shipper to start onboarding additional carriers by September because it clearly demonstrates the extreme risk of single sourcing.”

Jason Murray, co-founder and CEO of Shipium, a multicarrier platform, said the situation explodes the myth held by small and large businesses alike that they get better deals by single-sourcing. Small businesses tend to assume that their volumes are low enough that they wouldn’t get the same benefit from sourcing to multiple carriers rather than working with one, Murray said on a separate LinkedIn post. That may be the case at under 100,000 annual shipments, but above that level the theory doesn’t hold water, he added.

On the enterprise side, many shippers cling to the belief that their larger volumes allow them to negotiate the best universal price, Murray wrote. “The reality is that more volume means more variance, and more opportunity to reduce costs,” he wrote. The right mix of carriers technologically optimized for certain shipment profiles ensures that the right carrier is picked for the right shipment every time, he said.

“If larger volume means larger discounts, then why are Amazon, Walmart and Target all managing a diverse carrier network?” he asked.

Tommy Storch, senior manager at Insight Sourcing Group, a consultancy, said the situation with his customers is a “mixed bag.” Some shippers are in decent shape, while others who’ve cast their lot almost exclusively with UPS will be “stuck with not having their full capacity needs met.”

Satish Jindel, president of ShipMatrix, still does not expect a strike for Aug. 1, the day after the current contract expires. Instead, he expects a delay followed by a handshake deal by next week. “Some heavy UPS shippers who also use FedEx Corp. (NYSE: FDX) for a smaller share of their parcel volume are starting to divert parcels to FedEx, and the pace will accelerate in coming days,” he said.

Both UPS and the Teamsters will lose with each day that goes by without a handshake deal,” Jindel said. “The bottom line is that it is OK for both parties to be tough, but to do so by staying at the negotiating table. For either side to walk away is bad for both.”

“The news this morning certainly wasn’t helpful, but I’m not surprised by the developments. The answer is yes, we have reached a critical period,” said John Haber, chief strategy officer at Transportation Insight Holding Co. “There’s still time to get things solved between UPS and the Teamsters, but the clock is ticking and there appear to be significant differences on very important issues.”

Jindel surmised that one sticking point is that UPS workers may want significant extra money for working the pandemic-related spike in parcel volumes without any significant bump in pay while FedEx was struggling to attract package handlers even with a premium hourly rate. The last contract, in 2018, enabled UPS, for the most part, to avoid the wage blowback that hit its rival.

Alan Amling, assistant professor of practice at University of Tennessee’s Global Supply Chain Institute, said he thinks an agreement will be reached but that the latest developments are concerning given how wages are such a consequential issue. “UPS gave the Teamsters a lot of ammo in 2021 when they had record profits and increased their dividend by 49%,” Amling said.

The breakdown in talks came hours after both sides agreed to do away with contract language that had created two different tiers of pay, with so-called 22.4 workers receiving $5 to $6 an hour less than their senior counterparts. UPS agreed to end the two-tier driver pay system and convert all junior drivers into regular package car drivers. UPS also agreed to establish Martin Luther King Jr. Day as a paid holiday.

Josh Taylor, senior director, professional services at consultancy Shipware LLC, believes a deal will be struck once the two sides spend the next three weeks playing chicken. That said, this is also a political issue, according to Taylor. For Teamsters General President Sean O’Brien to sell the notion that he won, he needs the Teamsters at UPS and prospective Teamsters at companies like Amazon to view him as the “ultimate fighter” for the underdog, Taylor said.

“Signing the contract a month early might make people think they could have gotten more concessions if they’d only held out longer,” Taylor said. “They might be right, but it’s tough for shippers in the meantime who just want this to be put to bed and know that their customers won’t experience service interruptions.”

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