May 3, 2010
transportation report | Regional Motor Freight

FedEx, UPS labor showdown nears

For years, the two have wrangled over the labor status of FedEx's air operations. Now, the fight is coming to a head on Capitol Hill.

By Mark B. Solomon

In a mid-March interview with Bloomberg News, FedEx Corp. Chairman Frederick W. Smith revealed that in 2001, he had arranged a meeting with Jim Kelly, then chairman of rival UPS Inc., to discuss ways ground workers at FedEx's air express unit and at UPS could both be covered under the Railway Labor Act (RLA), a federal labor law that applies only to airlines and railroads. (While FedEx workers are governed by the RLA, UPS is covered by a separate law.)

The meeting was set for Sept. 13, 2001, Smith told Bloomberg. But it was canceled after the Sept. 11 terrorist attacks and never rescheduled, he said.

UPS has a different version of events. No meeting between the companies was ever on the calendar, according to Malcolm Berkley, a Washington-based UPS spokesman.

The anecdote demonstrates that in business, like war, often the first casualty is the truth. And few would dispute that the history of FedEx and UPS has been anything other than warlike. For well over 30 years, the companies have fought over market share, shipper hearts and minds, and just about anything concerned with one-upping the other.

But for pure spin, perhaps nothing matches the ongoing fight over which labor law should govern the operations of the FedEx air unit, known as FedEx Express. As Congress debates whether the unit should be reclassified under a different labor statute—one that would make it easier for unions to organize the unit—both sides have staked out strong advocacy positions and have public relations resources at the ready.

FedEx has made no bones about its opposition to the reclassification. A change in the unit's labor status would give unions the power to call job actions within a city or a region, creating a negative ripple effect across the entire network, the company has said. Such a change could also trigger a $5 billion "hidden package tax" on shippers and consumers by forcing FedEx to implement costly contingency plans to deal with local work stoppages that could jeopardize the reliability of delivery operations systemwide, the company said.

Last June, FedEx launched a website called "Brown Bailout," on which it claims that UPS, which supports the change, is seeking what amounts to a government bailout to mask its inability to compete with FedEx in the marketplace.

UPS argues that it's a question of fairness. It contends that FedEx Express employees—such as drivers, sorters, and loaders—have nothing to do with aircraft operations. Those workers, UPS said, should be governed by the same labor law that covers trucking labor, not airline workers. Berkley, the UPS spokesman, said UPS has kept a low PR profile, noting it devotes only one page on its website to the issue. Yet in recent weeks, a Washington-based group called the Same3 Coalition has emerged to lobby on behalf of UPS's position and against FedEx. Kevin Kearns, the group's executive director, did not respond to an e-mail request for comment. Berkley said he was unaware of the organization.

A deep-rooted dispute
At the heart of the debate is how the two companies are classified. Since its founding in the early 1970s as Federal Express Corp., FedEx has been considered an airline and its operations have been governed by the RLA, a 1926 law that allows for government intervention to end strikes and that requires a company to be organized as one national bargaining unit instead of being organized terminal by terminal. Congress enacted the RLA to prevent local walkouts from disrupting a nationwide rail network, at the time the near-exclusive means of intercity freight transportation.

By contrast, UPS has historically been considered a trucking company and since 1947, has been covered by the National Labor Relations Act (NLRA), a law enacted 12 years prior and which still covers workers in all other industries, including trucking. Unlike the RLA, the NLRA permits workers to locally organize and does not compel the federal government to intervene to stop a job action.

UPS has long chafed under what it sees as an unlevel playing field. In 1993, UPS asked the National Labor Relations Board, the agency that administers the NLRA, to reclassify its operations under the RLA. The NLRB refused to do so, and a federal appeals court upheld its decision in August 1996.

Fourteen years later, the fight is coming to a head on Capitol Hill. In 2009, the House passed a Federal Aviation Administration funding bill with language that would place all FedEx Express workers, except for pilots and aircraft maintenance employees, under the NLRA. The language was added by Rep. James L. Oberstar (D-Minn.), chairman of the House Transportation and Infrastructure Committee. UPS has long lobbied for the provision.

The Senate subsequently passed a version of the FAA funding measure that did not include the controversial language. Two of its most vocal opponents were Republican Senators Lamar Alexander and Bob Corker, both from FedEx's home state of Tennessee.

The FAA measure has been surviving on a series of funding extensions, the most current of which is set to expire July 3. In the interim, both chambers are scheduled to meet to reconcile their respective bills.

Jim Berard, chief spokesman for the House Committee, said he expects Oberstar to continue to push for his language to be included in the reconciled version. "He's been supporting this since 1996, and I don't see him backing away, at least not without a fight," Berard said.

FedEx's Smith won't go gently, either. Any adverse change in the law, he warned, will trigger the cancellation of a multibillion dollar, 15-plane order of Boeing 777 freighters as well as a third optional set of 15 more. "Mr. Smith was on the record [with his warning] and meant everything he said," said FedEx spokesman Maury Lane.

Looking for the union label?
UPS may be seeking a legislative remedy because it has so far made little headway on the administrative and judicial fronts. In its 1996 decision affirming the NLRB's refusal to reclassify UPS's operations under the RLA, the appellate court ruled that FedEx's air service and the trucking operations that support it are essentially a single airline unit, with the trucking operations totally dependent on its air business. The court said UPS failed to show the same level of interdependence between its air and ground businesses.

The ruling affirms FedEx's position, Lane said. FedEx Express drivers are "an extension of the airline system, shuttling packages between the planes and the customers, which is a radically different approach to how UPS structured its business," he said.

UPS, for its part, is sticking to its stance that employees who do the same work should be covered under the same labor law, regardless of their employer. UPS maintains that FedEx is the only U.S. transportation company governed by a different set of labor rules.

Berkley of UPS scoffs at the notion that a change in classification at FedEx Express would affect the way it operates, noting that FedEx remains staunchly anti-union nearly 40 years since its founding. For example, of the air unit's 125,000 employees, only 4,500 pilots are union members. In addition, more than 100,000 FedEx employees in other divisions like less-than-truckload carrier FedEx Freight and expedited operator FedEx Custom Critical have always been eligible to be organized under the NLRA, yet no one has done so, Berkley said.

Still, that hasn't stopped the Teamsters union, which has long coveted a foothold inside FedEx, from vowing to organize the Express unit should Congress change the law. Teamster General President James P. Hoffa said publicly in mid-February that the union will organize "100,000 workers at FedEx" if that happens.

To some, the real threat to Fred Smith's air empire is not UPS but the Teamsters. Jerry Hempstead, who for decades had a ringside seat at the FedEx-UPS brawls as a top U.S. sales executive at rival Airborne Express and then DHL Express, said UPS—which employs 240,000 Teamster members—could be seen as simply aiding and abetting the union in its drive to organize FedEx.

"UPS jumped in when they saw the opportunity, but the big win here would not be for UPS. The big win is for the Teamsters," Hempstead said.

About the Author

Mark B. Solomon
Senior Editor
Mark Solomon has spent 25 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. Mr. Solomon graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.

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