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The contract negotiating process between UPS Inc. and the Teamsters union was expected to get loud and emotional. Judging from comments made at the first Teamster meeting to discuss bargaining strategy, the union didn’t disappoint.

On Monday in Washington, Teamsters General President Sean O’Brien and General Secretary-Treasurer Fred Zuckerman convened a meeting of what is known as the UPS National Screening Committee. The gathering brought together representatives from dozens of UPS (NYSE: UPS) locals to review proposals that the Teamsters may, or may not, take into upcoming talks with the nation’s largest transportation company. 

The contract, which covers approximately 350,000 UPS employees, is the largest of its kind in North America. It typically runs for five years. The contract covers drivers, loaders, unloaders and other personnel.

At the meeting, O’Brien reiterated his “clear message to UPS” that a contract must be agreed to no later Aug. 1, the day after the current pact expires. If not, the union will strike, according to O’Brien. 

Read More: If the Teamsters union strikes, will UPS close its doors?

O’Brien said the company will take a hard line on UPS expanding its use of non-union personal vehicle drivers who deliver packages using their own vehicles and get reimbursed by the company on a per-mile basis. Another key issue is the status of so-called “22.4 drivers,” full-time drivers who are paid less than full-time drivers and who typically work Tuesday-through-Saturday instead of Monday-through-Friday shifts. The Teamsters want to bring those drivers up to the senior pay scales. Subcontracting and part-time wages are other issues that will be on the bargaining table, O’Brien said.

But the toughest language came from Zuckerman, who has battled UPS for years as head of Louisville, Kentucky’s Local 89, the largest Teamster local in the company’s system. Louisville is home to UPS’ primary air hub known as Worldport. 

“Sean is going to pick a fight with this company, and that fight is to get the very best contract we can get for our members,” Zuckerman said.

This contract will be unlike prior ones where UPS said it wanted what Zuckerman called a “cost-neutral” outcome. “It’s not going to be a cost-neutral contract,” Zuckerman said of the 2023 agreement. “We’re going to take from them what our members deserve.” 

UPS executives have said publicly they expect negotiations to start relatively late and get heated along the way. CEO Carol B. Tomé, who will be sitting in on her first contract, has said she expects the agreement to yield mutual benefits.

The timing of the contract cycle virtually ensures the rank and file will receive a significant wage bump. The current contract, negotiated in 2018 but not ratified until the following year, has allowed UPS to skirt the significant labor cost inflation that has hit FedEx Corp.’s (NYSE: FDX) ground-delivery unit. UPS Teamsters have been receiving annual adjustments of about 3% since 2018.

UPS would be willing to agree to significant wage increases in return for muted concessions in so-called back-end areas like work rules, according to sources familiar with the company’s thinking. The Teamsters, which have created a separate division dedicated to organizing Inc.’s (NASDAQ: AMZN) warehouse workers, have said the UPS agreement will serve as a template to demonstrate to Amazon workers the value of joining the union.

In a somewhat surprising twist, UPS, which counts Amazon as its largest individual customer, is mulling a strategy where it would turn a blind eye to Teamsters’ efforts to use its wage success at UPS as leverage against Amazon, according to the sources. 

As of early 2022, Amazon accounted for about 11% of UPS’ annual revenue. However, that percentage has dipped into the single digits, per sources. UPS is happy to let go of lower-margin Amazon business as it aggressively courts, especially from rival FedEx, more profitable small and midsize business (SMB) revenue, the people said.

The two-day Teamsters meeting ended Tuesday. Its small-package division, which will be responsible for negotiating the UPS contract, has so far received more than 11,000 proposals from local leaders and the rank and file suggesting how to structure what will be a complex agreement.

Besides the master agreement, UPS and the Teamsters will negotiate a multitude of local agreements known as “supplementals.” About 14 of the supplementals cover densely populated and strategically important regions. There are also additional supplementals smaller in scope.

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