United Parcel Service will pay more for labor after replacing a union contract that expires in July. The main question for CEO Carol Tomé is how much more — and if it’s enough to avoid a strike that would throw package delivery into chaos.
In what are likely to be the most contentious talks since UPS workers were on strike for 15 days in 1997, the Teamsters union, which represents 340,000 UPS employees, says it seeks to increase wages for part-time workers to more than $20 an hour and eliminate a controversial two-tiered wage system. On the table will also be demands for air conditioning in vehicles and for blocking inward-facing cameras.
Teamsters President Sean O’Brien is promising a hard fight.
He won election in late 2021 on a vow to get tougher with UPS and correct what he says was a flawed contract forced on workers in 2018. The union is also shortening the negotiation period with UPS. Talks on the nationwide contract will begin April 16, O’Brien said in an interview. The current contract ends on July 31.
“We’ve got some great arguments on why these folks should be paid,” O’Brien said. “We’ve got a great argument just on how much money the company’s been making.”
The stakes are high for Tomé and the U.S. UPS delivers about 20 million packages a day in the U.S., making it the second-largest ground courier behind the U.S. Postal Service. If UPS workers were to walk out, it would likely be impossible for the Postal Service and rival FedEx to cover the volume from UPS’ customers, which include Amazon. A strike now in the era of e-commerce would have a much bigger impact than in 1997, when most packages were sent by businesses and parcel networks that operated five days a week instead of nonstop.
“It’s pretty clear that it’s going to be spicy,” Ravi Shanker, a Morgan Stanley analyst with an underweight rating on the stock, said of the negotiations. He predicts UPS may increase compensation as much as 10% a year.
Wall Street has applauded Tomé, who became the company’s first woman chief executive and first-ever outsider selected for the top job in June 2020. She successfully steered UPS through the pandemic and met the challenge of keeping up with a surge in demand.
Although the boom in home delivery has faded, UPS’ profits remained elevated — thanks in part to higher shipping prices. Tomé has pursued a “better, not bigger” strategy of seeking to focus on the most profitable operations, even going so far as to turn down some lower-margin business from large customers.
The current five-year contract had also kept labor costs predictable, shielding UPS from wage spikes that hurt profit and service at nonunionized rival FedEx. That had given UPS a temporary advantage during the pandemic when home-delivery demand surged and FedEx rushed to hire workers amid a nationwide labor shortage.
Analysts will want to know how Tomé plans to keep customers from preemptively shifting business away from the Atlanta-based courier to avoid a logistics nightmare if unionized employees do walk off the job.
“We want a win-win-win contract for our employees, our company, and the union,” a UPS spokesperson said in an emailed statement. “We have more alignment on key issues with the Teamsters than not.“
UPS argues that it already pays its workers, especially drivers, much more than competitors. The average wage for a delivery driver with at least four years on the job is $42 an hour, not counting pension and health benefits, the company says. A typical wage for an experienced driver at rival FedEx Ground, depending on the region, is $20 an hour and usually comes with no benefits.
O’Brien said he’s determined to uphold his campaign promises on UPS, the nation’s largest private-employer labor contract, and lay the groundwork to grow Teamsters membership.
O’Brien wants to boost the starting wage for part-time workers to more than $20 an hour from $15.50 now. His argument is bolstered by UPS’ need to pay above $20 an hour to attract part-time workers during the pandemic in what are called “market rate adjustments.”
O’Brien has a broader goal of organizing more warehouse workers, including at Amazon, and intends to showcase the UPS contract as an example of organized labor’s newfound leverage over employers.
“We’re going to use the UPS agreement as a template to basically say, this is what you get when you work for a unionized carrier,” O’Brien said.