Every five years, UPS Inc. and the Teamsters Union step into the ring to negotiate the nation's biggest collective bargaining agreement. Riding on the outcome are the livelihoods of about a quarter of a million workers and the fate of nearly 16 million parcels and letters tendered or received by 8.8 million global customers.
The opening bell has sounded.
Atlanta-based UPS and the union that it has been married to—for better or worse—for about 75 years met in Washington Sept. 27 so the Teamsters could formally present UPS with its initial proposals for two contracts. The big contract covers between 240,000 and 250,000 employees in the company's small-package operations. The other proffer governs an additional 12,000 to 13,000 workers in its UPS Freight less-than-truckload (LTL) unit.
The start date is unusual in that it comes almost 10 months before the July 31, 2013, expiration of both five-year contracts. The two sides agreed on the early start.
In an early June statement, the Teamsters said the decision to "push UPS to the bargaining table" was triggered by the company's "recent strong financial performance" and its record profits.
"The struggling economy and the company's recent announcements about record quarterly profits make this good timing to open negotiations," Ken Hall, general secretary-treasurer and former director of the union's package division, said at the time. Hall is leading the Teamsters' negotiating team.
Hall said in the statement that the union first wants to address "operational issues" such as subcontracting, workload, and safety and health so it can focus next year on the contract's financial components, such as wages, health care, and pensions.
UPS declined to comment. Generally, companies favor an early launch date for contract talks in order to get the matter quickly behind them, and to provide their customers with enough lead time to establish contingencies if negotiations don't go as planned.
Hall spent Sept. 21 in Chicago briefing a cluster of local union officials representing UPS and UPS Freight on key contract issues. In a Sept. 24 post on its website, the Teamsters said the "UPS and UPS Freight proposals were unanimously approved" by the local unions. The Teamsters would not comment on specifics of its proposals.
In a document posted on its website, Teamsters for a Democrat Union (TDU), a dissident group that frequently clashes with the union establishment led by longtime General President James P. Hoffa, said that Hall told the locals he would keep union demands modest at UPS Freight because the unit has not been profitable. According to the TDU document, Hall said the priorities in talks with UPS Freight would be pensions, health care, and wages, in that order.
Most of the attention, however, will be focused on the small-package bargaining. According to TDU, the union's proposals include increases in pension payments, including hikes for the 48,000 full-time UPS workers that in 2007 were transferred from the Teamsters' Central States multiemployer pension plan to one that is jointly administered by UPS and the union.
Under the multiemployer scheme, companies fund pensions not just of their own workers and retirees but also of workers at other firms participating in the plan. In the trucking industry, that program worked well as long as there were numerous unionized truckers to equitably distribute the costs. As bankruptcies and consolidations decimated the ranks of union carriers, survivors like UPS became liable for a larger share of the cost.
UPS paid $6.1 billion to withdraw from the original plan, one of the Teamsters' largest, because it was fed up with funding the pensions of retirees from other, long-gone companies. It is expected that the change will save UPS a significant amount of money over time.
According to TDU, the Teamsters proposal also calls for wage increases, especially in starting pay for part-timers. All part-time workers, other than sorters and pre-loaders, start at $8.50 an hour, a rate TDU said has been frozen since 1987.
Another small-package contract objective, according to TDU, is to force UPS to honor its commitment to convert thousands of part-time Teamsters jobs to more generous full-time positions. A provision of the 2007 contract requires UPS to offer part-timers the chance to fill at least 20,000 full-time operational jobs during the life of the contract. Six of every seven available full-time jobs would have to be staffed by former part-timers, according to the contract.
Similar language was included in contracts negotiated in 1997 and 2002. The issue became a rallying cry for the union in 1997 when it called a strike that shut down UPS for 15 days.
However, Ken Paff, TDU's veteran chief organizer and one of Hoffa's fiercest critics, said the company has not lived up to its end of the contract bargain over the past five years, and the union leadership hasn't held UPS' feet to the fire.
According to Paff, Hoffa agreed not to aggressively pursue the issue in return for management allowing the Teamsters to organize workers at UPS Freight, which was known as Overnite Transportation Co. before being acquired by UPS in 2005 for $1.2 billion. Overnite was nonunion throughout its long history, and endured a prolonged and sometimes violent battle with the Teamsters to stay that way.
Paff said that Hoffa acquiesced in order to show some gains in the union's once-powerful freight division that has been badly depleted over the years by unionized carrier bankruptcies and a widespread shift to nonunion trucking operations.
SUREPOST, FEDEX COULD BE FACTORS
TDU indicated that Hall wants UPS to propose language that would protect Teamsters jobs threatened by the growth of the company's delivery relationship with the U.S. Postal Service, in return for the "union's continued cooperation" with the program, known as "UPS SurePost."
Under the program, UPS tenders parcels to the USPS, which then takes the shipments the so-called "last mile," from the local post office to destination. The program, designed for e-commerce shipments from online merchants to residences, is inexpensive for shippers. In many cases, it gives e-merchants the latitude to offer free shipping to its customers, a feature that often cements an online sale.
The delivery model has gained enormous traction in recent years, mirroring the rise of e-commerce itself. While it is a relatively low-margin business for UPS, it remains a big growth segment for the company. This is in marked contrast to its traditional business-to-business service, which has dramatically slowed as companies become more cautious about the U.S. and international economic environment.
Since the program took off, the Teamsters have grumbled that it reduces the need for more drivers. Paff, for his part, said it could violate the existing small-package agreement that prohibits subcontracting a service that would otherwise be performed by a driver.
However, a well-placed industry source said UPS does not divert packages to nonunion subcontractors. Instead, the source said, the company gives shippers the option of either using UPS to deliver a package directly to the residence or using it to deliver to the local post office, where the package is turned over to the letter carrier for the last leg.
Still, the source agrees that the program, on balance, lessens the need for UPS drivers and cuts back on their potential overtime.
The union may need to tread lightly on this issue during negotiations. FedEx Corp., UPS' chief rival and a nonunion ground carrier, offers a similar service with USPS known as "SmartPost." Given FedEx's labor-cost advantages and the fact that the product is already price-sensitive, businesses could easily migrate to FedEx should the Teamsters play hardball with UPS, whose drivers are paid close to $30 an hour and are considered to have generous benefits.
In fact, the specter of FedEx could loom large over all of the talks. FedEx Ground, which competes directly with UPS' core ground-parcel business, has made major strides over the past 15 years, winning new business and taking market share from its rival. The Teamsters are not oblivious to the fact, confirmed in FedEx's most recent quarterly results, that all of FedEx's growth is coming from its ground parcel and LTL units, while its core air business stagnates.
On Oct. 9 and 10, FedEx will unveil a long-awaited plan to revamp its FedEx Express air and international unit, which has been plagued by high costs and weaker demand for airfreight services in the United States and abroad. Analysts and observers expect the company to announce significant cost reductions at the two-day meeting.
While the savings would mostly affect FedEx's Express unit, they could bleed into other parts of its operations as well. The net effect could widen FedEx's cost advantage over UPS, resulting in even more shipment migration.
The initial salvo has just been fired, and no one expects the first round to be the last word. Still, with a slowing U.S. economy, uncertainty over the November election and fiscal policy in Washington, a monetary crisis in Europe, still-elevated unemployment, and the threat posed by UPS' very formidable rival, it is thought that the Teamsters will be anxious to strike a deal, and to do it quickly.