The Teamsters went on strike at UPS Inc. in August 1997, the first non-wildcat strike in the relationship’s long history. UPS closed its massive U.S. ground delivery network rather than risk permanently damaging its reputation with customers, despite having an all-Teamsters labor force and no plans to call in replacement workers to deliver goods.
The 15-day strike sent an avalanche of the parcel and letter volumes to rival carriers, burying their networks and causing significant service disruptions in many cases.
Deja vu is rearing its head a quarter-century later.
The Teamsters, led by General President Sean O’Brien and General Secretary-Treasurer Fred Zuckerman, two hardliners with a history of clashes with UPS (NYSE: UPS), have threatened to go on strike if a new contract isn’t reached by Aug. 1, the day after the current five-year contract expires. No one takes the threat lightly, given the militancy of both leaders and the perception that organized labor has more clout in Congress, the White House, and the court of public opinion than at any time in the last 40 years.
UPS needed robust contingencies in place in 1997 to manage such a vast and complex network without its drivers, loaders, and other union personnel. It also underestimated then-Teamster boss Ron Carey’s determination to get his members off the job, even if it meant rejecting UPS’ best and final offer, much to the company’s surprise.
This time, things are different. According to multiple sources familiar with the situation who spoke on anonymity, UPS has instructed its managers not to schedule any paid time off during July and August in case parcels need to be moved. UPS did not respond to a comment request.
The move indicates that UPS, led by CEO Carol B. Tomé, intends to continue operations even if the union strikes.
Tomé’s apparent determination to keep the company running is likely rooted in the realities of the 2023 marketplace and how different it is from the late 1990s, when UPS ruled the ground parcel business in the United States. Specifically, UPS must continue operations because it cannot afford to deal with a strike in today’s far more competitive environment and then assume shippers will return when it ends.
According to ShipMatrix estimates, UPS controlled more than 80% of the US ground parcel market in 1997. Its two main competitors in the business-to-business segment — where the majority of parcel traffic moved — were Airborne Express, which provided fewer services than UPS, and Roadway Package System Inc. (RPS), a small but rapidly growing company. FedEx Corporation (NYSE: FDX) did not have a dedicated ground delivery network. Because e-commerce did not exist then, the US Postal Service concentrated on the business-to-consumer market.
At the time, UPS believed it could handle a walkout — and the disruptions that came with it — without much repercussions. Customers would return, it reasoned, because their options were limited. Some post-strike businesses never returned to UPS, but a large portion of them did.
Many shippers did not anticipate a strike and needed to develop contingency plans farther in advance. Enterprise shippers who rely heavily on UPS relocated some volumes, but many chose to wait it out. They eventually returned.
Today, UPS controls roughly half of the total market, which is still a sizable share but is smaller than it once was. The reason is simple: increased and improved competition.
FedEx purchased RPS not long after the strike ended in 1997. FedEx has since grown into a major player in ground parcel delivery. Regional delivery companies have expanded their geographic footprints and now provide a better value proposition than ever. Retailers are expanding their delivery networks to gain more control over their traffic. Because of the explosive growth of e-commerce delivery, the parcel market in the United States is now skewed toward the B2C segment. The B2C market is far more competitive than the B2B market.
Under the leadership of Postmaster General Louis DeJoy, the United States Postal Service is aggressively courting parcel traffic and constructing what it believes to be a strong alternative. While not directly competing with UPS, Amazon.com Inc. (NASDAQ: AMZN) continues to pursue fulfillment and delivery business that it can handle in-house. Some of those Amazon customers may have originated with UPS.
In an ironic twist, Amazon, UPS’s largest individual customer, accounting for roughly 11% of its $102 billion annual revenue, faces the most severe stress if UPS’ network goes down.
Keep it going.
Maintaining operational continuity would be good news for millions of UPS shippers. However, working through a Teamsters strike is so unusual that it would be considered unthinkable.
At the same time, parcel consultants warn that shippers should not expect an agreement before July 31 to be a slam dunk, even though both sides have a lot to lose in a slowing economy with flattening delivery volumes.
Shippers are being advised by parcel consultants to engage other carriers as soon as possible after peak season and by the end of the first quarter. UPS delivers nearly 23 million packages daily in the United States alone, which could easily overwhelm the country’s delivery infrastructure if its system is shut down. Except for the Postal Service, which is mandated to serve every address in the United States, no carrier is required to accept any of it.
According to a source, other carriers are unlikely to accept more than 10% of their normal daily volume from existing customers and will likely not accept any after a certain date.
Regional carriers, for their part, have no desire to act as a safety valve for potentially displaced UPS customers. According to a source, two regional carriers plan to announce that they will not accept volumes from customers who intend to return to UPS if the strike is avoided.
Regional carriers and parcel consolidators will “want to be long-term partners under a service contract, or they’ll decline participation in bids,” according to a source. SurePost is a parcel aggregation service offered by UPS and the Postal Service. According to Shipware LLC, SurePost volumes account for more than 27% of UPS’ ground volumes year to date.
One advantage for shippers heading into the first half of 2023 is that delivery capacity is plentiful, which means carriers will not only have room to accommodate diverted business but may also be willing to cut some deals.
According to Nate Skiver, founder, and president of LPF Spend Management LLC, most UPS customers will not change their current delivery programs despite the possibility of a strike. According to Skiver, shippers who use multiple carriers but send most of their volumes to UPS may want to hedge their bets. “But I don’t see shippers abandoning UPS entirely,” he said.
FedEx Ground, FedEx’s ground delivery unit, is a wild card. Since the middle of the year, the unit has addressed concerns raised by many of its 6,000 independent delivery contractors about the impact of rising cost inflation on their businesses. However, it appears to have survived the crisis. The question is now how aggressively FedEx Ground will pursue UPS shippers.
Skiver suggested that FedEx adopt the turnabout-is-fair-play philosophy and play up the labor risk at UPS, noting that UPS has been quite public in recent months in highlighting the difference between its unionized, employee-driven operations and those of nonunion FedEx Ground.
“I haven’t seen it yet,” he explained. “But that isn’t (FedEx Ground) style.”
