UPS will have trouble passing on any Teamsters wage hikes to shippers

UPS will have trouble passing on any Teamsters wage hikes.jpg

This audio is auto-generated. Please let us know if you have feedback.

UPS will have trouble passing off higher labor costs resulting from a new contract with the International Brotherhood of Teamsters, experts interviewed by Supply Chain Dive say.

The wider variety of alternative carriers today versus 1997 — the last time UPS Teamsters went on strike — and softer delivery demand are key reasons why. As a result, shippers have less of an appetite to accept aggressive rate hikes from UPS and others than in years past, when they were fighting for limited carrier capacity.

Right now, UPS has no rate increase to announce, a spokesperson said. The carrier periodically evaluates its prices “to ensure it reflects the value we provide,” he added.

UPS, FedEx and other carriers typically announce annual rate increases in the second half of the calendar year. Last year’s 6.9% increase from UPS cited the need to support ongoing expansion and enhance its capabilities as reasons for its implementation.

“The one thing we do know is the rates will go up at some point, but by how much of it due to what they end up giving the Teamsters is anyone’s guess,” said Michael Foy, director of business development at Inmar Intelligence. “They have to remain competitive.”

The company and the Teamsters have yet to reach a tentative agreement on their next national contract, and the union has vowed to strike if a deal isn’t reached before the current agreement expires July 31.

It remains to be seen how much wages will increase in the next contract, as the two sides recently hit a roadblock over part-time pay. Still, UPS employees are poised to see higher wages. The Teamsters union is pushing for significant pay raises, while the company said in a statement last week it has offered “historic proposals that build on our industry-leading pay” during negotiations.

At the same time, UPS will want to minimize the impact a new deal will have on its bottom line, particularly in a softer demand environment.

“They’ve got to be sharp, they can’t just pass everything off to the customer base,” Foy said.

FedEx, others would capitalize on higher rates

One factor limiting how much UPS can raise rates is its chief competitor, FedEx. The two delivery giants consistently stay in lockstep with each other when it comes to annual rate increases.

Similar rate increases have even occurred in years UPS and the Teamsters have reached a new contract agreement. In 2018, for example, both companies announced a 4.9% rate hike. Experts have said a difference in rate increases would result in loss of business for one carrier, while the other would struggle to maintain service levels amid a surge in new business.

FedEx isn’t the company’s only concern.

Alternative parcel carriers like OnTrac and LSO have grown since the last time a UPS Teamsters ratified a national contract, further complicating any efforts by UPS to pass on contract-related costs to customers. Many emerging delivery players such as Veho and Walmart GoLocal also use crowdsourced gig drivers, giving them the ability to easily scale their capacity up and down when demand levels shift.

This labor model means UPS’ business-to-consumer shippers could see a “potentially significant impact” if a new contract limits the use of deliveries from personal vehicle drivers, said Alan Amling, distinguished fellow at the University of Tennessee’s Global Supply Chain Institute. Limited labor flexibility could constrain UPS’ ability to compete for new e-commerce volume versus these emerging players, raising the cost of existing packages flowing through its facilities, he added.

“In order for UPS to remain competitive with all the new B2C players, they’re going to have to have more flexibility in labor, and that includes expanded use of personal drivers,” said Amling, who previously served as VP of corporate strategy for UPS.

Recent Posts

Have Any Question?

Feel free to contact us via the following: