UPS Labor Test Looms as 250,000 Teamsters Vote on Contract (1)

By Thomas Black

United Parcel Service Inc., one of the biggest employers in the U.S., is bracing for results from this week’s vote on a major labor contract that could tip the company toward a strike if it’s not approved.

The International Brotherhood of Teamsters will tally results late Oct. 5 on a five-year agreement that would raise wages, create a new class of drivers and open the door to Sunday deliveries. A rejection would send UPS and the union back to the bargaining table—and raise the risk of a work stoppage that would cripple U.S. package deliveries.

The courier is trying to keep its costs competitive with non-union rivals including FedEx Corp. and Amazon.com Inc. Approval of the deal would enable UPS to avoid a repeat of a 15-day strike in 1997 that erased about $800 million of sales. And the stakes are even higher now, given the critical role that parcel-delivery companies play in booming e-commerce.

The outcome is difficult to predict.

“Workers are feeling restless,’’ said Harley Shaiken, a labor expert at the University of California at Berkeley, referring to the U.S. workforce in general. “They are well aware that wages have stagnated or declined at a point where stocks seem to know no bounds. So, you’ve got a volatile labor market.’’

UPS fell less than 1 percent to $116.73 at 1:09 p.m. on Oct. 5 in New York. The shares dropped 1.5 percent this year through Oct. 4, somewhat better than FedEx’s 4.2 percent decline. But both couriers trailed the 4.6 percent advance of a Standard & Poor’s index of industrial companies.

Union-Free

FedEx has been taking market share since it started ground deliveries in the late 1990s with a business model that uses small contractors to deliver its packages. Those non-union drivers earn less and have fewer, if any, benefits. Amazon began its own parcel-delivery network this year and is copying FedEx’s lower-cost strategy.

If the UPS contract is approved, it will be the largest union labor agreement in the U.S. If it’s rejected, the union is already green-lighted to set a strike date after UPS’s workers granted leaders strike powers in June.

Helane Becker, an analyst with Cowen & Co., sees a strike as unlikely, or, at worst, months away. The first task for union leaders after a rejection would be polling members to understand why the agreement failed, and to then resume bargaining with the company. The two sides could agree to continue operations while a revised contract is hammered out, Becker said.

Strike Pain

A serious labor conflict would be crippling for UPS and the entire industry. A strike could shave off half a percentage point from economic growth if it becomes widespread and prolonged, Becker said. FedEx, the U.S. Postal Service and other carriers would be hard-pressed to pick up the slack. Customers probably would have to fetch their own packages from central pickup points.

UPS commands 44 percent of the U.S. parcel-package market by revenue, ahead of the post office with 29 percent and FedEx with 27 percent, according to research by Berenberg market analysts. Sales for the industry are forecast to jump 40 percent from 2017 to 2022, UPS has said.

Along with the 250,000 UPS parcel workers, votes will be counted on a separate freight unit contract that covers about 11,000 union workers.

Union leaders, headed by Jim Hoffa, have urged its members to approve the contract, highlighting protections against excessive overtime and wage increases that mean parcel drivers would make more than $40 an hour by 2022. The contract also creates a new class of driver that will work weekends and can also load trucks with packages.

“They’re adding to our pension and we’re getting a wage increase,’’ said Anthony Lewis, 57, a 20-year driver for UPS in Minneapolis. “I think it’s a win-win all around to me.’’

Hybrid Drivers

Critics object to the new class of weekend drivers because they’ll be paid less, creating a potential split in the union. The top wage for the hybrid loader/drivers will max out at about $37 by 2022.

“The cornerstone of the agreement is this hybrid position. That in and of itself is enough to vote it down,’’ said Nick Perry, a UPS parcel driver in Ohio. “This hybrid position is just a raw deal any way you slice it.’’

Opponents also want a bigger increase in starting part-time wages, which under the contract will rise to $13 an hour from about $10. Many members wanted the part-timers to start at $15 an hour. Amazon upped the ante this week when it announced that all its workers, including part timers, would make a minimum of $15 an hour. UPS counters that its part-timers also get pension and health-care benefits, which are worth more per hour than their wages.

Separately, UPS had a setback earlier this week when its aircraft mechanics rejected an agreement that Teamsters leaders and the company reached in August. The 1,300 mechanics have been working under a contract that expired in 2013. Operations are normal despite the no vote, UPS said.

Worker Angst

As for the drivers, dueling social media campaigns are amplifying the tug-of-war, making it difficult to assess where the vote is headed.

The same working-class dissatisfaction that threw U.S. presidential politics into a tizzy could play havoc with the vote, UC Berkeley’s Shaiken said. UPS expects to earn free cash flow—cash left over after making investments and paying bills—of $5 billion in 2018. Workers want a larger chunk of that.

Adding to the uncertainty: Hoffa barely beat back a challenge from Fred Zuckerman for union president in a 2016 general election, and Zuckerman is opposed to the contract. Chrysler workers overwhelmingly voted against a labor agreement in October 2015 and only approved it three weeks later after the carmaker gave in on a two-tier pay scale, among other things.

“This debate is taking place in a more volatile climate than we have seen in a number of years,’’ Shaiken said.

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