Rocky Mountain Trucking LLC

In August 1997, the Teamsters walked off the job at UPS Inc. in the first non-wildcat strike in the relationship’s long history.  With an all-Teamsters labor force and no plans to call in replacement workers to deliver goods, UPS shuttered its massive U.S. ground delivery network rather than risk permanently damaging its reputation with customers.

The strike lasted 15 days, sending an avalanche of parcel and letter volumes to rival carriers, burying their networks and, in many cases, causing significant service disruptions.

A quarter of a century later, deja vu is rearing its head. 

Under the leadership of General President Sean O’Brien and General Secretary-Treasurer Fred Zuckerman, two hardliners with histories of crossing swords with UPS (NYSE: UPS), the Teamsters have vowed to take 380,000 workers out on strike if a new contract isn’t agreed to by Aug. 1, the day after the current five-year pact expires. Given the militancy of both leaders and the perception that organized labor has more leverage in Congress, the White House and the court of public opinion than at any time in the past 40 years, no one takes the threat lightly.

In 1997, UPS didn’t have robust contingencies in place to manage such a vast and complex network without its drivers, loaders and other union personnel. It also underestimated the resolve of then-Teamster boss Ron Carey to pull his members off the job, even if it meant rejecting UPS’ best and final offer, much to the company’s shock.

Things are different this time around. UPS has informed its managers not to schedule any paid time off during July and August in case parcels are required to be moved, according to multiple sources familiar with the matter who spoke on condition of anonymity. UPS did not respond to a request for comment. 

The move sends a clear signal that UPS, under CEO Carol B. Tomé, plans to continue operating even if the union goes on strike. 

Tomé’s apparent determination to keep the company running is likely rooted in the realities of the 2023 marketplace and how much it differs from that of the late 1990s when UPS ruled the U.S. ground parcel business. Mainly, UPS needs to keep operating because, in a far more competitive environment, it can ill afford to deal with a strike and assume shippers will return when it ends.

In 1997, UPS controlled more than 80% of the U.S. ground parcel market, according to estimates from consultancy ShipMatrix. Its two main competitors in the business-to-business segment — how most parcel traffic moved — were Airborne Express, with limited services compared to UPS, and Roadway Package System Inc. (RPS), a small but fast-growing company. FedEx Corp. (NYSE: FDX) had no dedicated ground delivery network. The U.S. Postal Service focused on the business-to-consumer market, which was a fraction of what it is today because e-commerce didn’t exist.

At the time, UPS felt it could absorb a walkout — and the dislocations accompanying it — without much fallout. It reasoned customers would return because their alternatives were limited. Some post-strike business never returned to UPS – however, much of it did. 

Many shippers didn’t think a strike would occur and failed to develop contingency plans far enough in advance. Enterprise shippers quite dependent on UPS moved some volumes elsewhere, but many chose to wait it out. They eventually went back.

Today, UPS controls about 50% of the total market, still a healthy share but not what it once was. The reason is clear: more and better competition.

Not long after the strike ended in 1997, FedEx acquired RPS. FedEx has since become a major force in ground parcel delivery. Regional delivery companies have expanded their geographies and offer a better value proposition than ever before. Retailers are building out delivery networks to take more control of their own traffic. The U.S. parcel market is now skewed toward the B2C segment due to the explosive growth of e-commerce delivery. B2C has far more competition than the B2B space.

The U.S. Postal Service, under the guise of Postmaster General Louis DeJoy, is aggressively courting parcel traffic and building what it believes to be a strong alternative. Inc. (NASDAQ: AMZN), while not directly competing with UPS, continues to pursue fulfillment and delivery business it can take in-house. Some of those Amazon customers could have come from UPS.

Ironically, Amazon, UPS’ largest individual customer that accounts for about 11% of its $102 billion in annual revenue, stands to encounter the most severe stress if UPS’ network goes offline.

Keep it running

For millions of UPS shippers, maintaining operational continuity would be good news. But a scenario of UPS working through a Teamsters strike is so unprecedented, it would be considered unimaginable. 

At the same time, parcel consultants caution that shippers shouldn’t consider an agreement before July 31 — though considered likely because both sides have much to lose in a slowing economy with flattening delivery volumes — to be a slam dunk.

Parcel consultants are urging shippers to seriously engage other carriers soon after peak season and no later than the end of the first quarter. Each day in the U.S. alone, UPS delivers nearly 23 million packages, volumes that could easily swamp the country’s delivery infrastructure if its system is shut down. No carrier, other than the Postal Service because of its mandate to serve every U.S. address, is obligated to take any of it. 

Other carriers are unlikely to accept more than 10% over the normal daily volume from existing customers and will probably not take on any after a specific date, according to a source. 

For their part, regional carriers have no interest in serving as a safety valve for potentially displaced UPS customers. Two regional carriers plan to announce they will not accept volumes from customers that plan to return to UPS if a strike is averted, a source said. 

Regional carriers and parcel consolidators — companies that aggregate large volumes from multiple merchants and typically induct them into the Postal Service’s network for last-mile delivery — will “want to be long-term partners under a service contract, or they’ll decline participation in bids,” a source said. UPS has a similar parcel aggregation service with the Postal Service known as SurePost. Year to date, SurePost volumes account for more than 27% of UPS’ ground volumes, according to consultancy Shipware LLC.

One tailwind for shippers heading into the first half of 2023 is that delivery capacity is well supplied, so carriers will not only have space to accommodate diverted business but may be willing to cut some deals as well.

Nate Skiver, founder and president of LPF Spend Management LLC, said most UPS customers will not alter their current delivery programs regardless of the potential strike risk. Shippers that use multiple carriers but tender most of their volumes to UPS may choose to hedge their bets, Skiver said. “But I don’t see shippers fleeing UPS altogether,” he said.

One wild card is FedEx Ground, FedEx’s ground delivery unit. Since midyear, the unit has dealt with concerns raised by many of its 6,000 independent delivery contractors over the impact of surging cost inflation on their businesses. It has apparently managed through the crisis, however. The question now is how aggressive FedEx Ground will be in pursuing UPS shippers. 

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, Skiver said that FedEx should adopt the turnabout-is-fair-play philosophy and play up the labor risk at UPS.

“I haven’t seen that yet,” he said. “But that’s not really (FedEx Ground) style.”

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