Proposed UPS, Teamster contract puts restrictions on popular service with Post Office, sources say

The tentative five-year labor contract reached last week between UPS Inc. and leaders of the Teamsters union would place restrictions on the company's fast-growing "SurePost" delivery partnership with the U.S. Postal Service (USPS), sources say. However, due to the use of UPS' technology, the impact on either side might not be as onerous as might initially be thought.

Under the tentative contract, Atlanta-based UPS can only use "SurePost" to win new business or to prevent existing business from defecting to UPS' arch-rival FedEx Corp., according to two industry sources. Memphis-based FedEx operates a similar service in conjunction with the USPS called "SmartPost."

In addition, the contract would require all SurePost parcels weighing more than nine pounds to be delivered by UPS drivers, according to one of the sources. There was no mention of any dimensional limits on the parcels. During negotiations in late March, the Teamsters demanded that Teamster drivers handle all SurePost packages weighing more than 10 pounds or wider than three feet.

With SurePost, UPS transports packages—mostly merchandise ordered online—deep into the USPS physical network, and a letter carrier delivers the package the "last mile" to the final destination. The program has been priced at a relatively low cost to retailers and e-tailers and has allowed merchants the flexibility to offer, in many cases, free shipping to their customers. It has also been a successful traffic- and revenue-generator for UPS. The strength of January post-holiday e-commerce sales and returns fueled a 4.4-percent first-quarter increase in daily domestic package volume over the same period in 2012, UPS said last week. The company has said that business-to-consumer (B2C) transactions account for more than 35 percent of its global traffic.

The Teamsters, who have long complained that SurePost takes business away from UPS drivers, want to have a greater say in the service's operation but they contend they don't want it to end. The issue in general represents unplowed ground of sorts for labor and management because e-commerce was not a major factor in 2007, the year of the last contract.

However, UPS' processes and technology allow a substantial amount of packages moving under SurePost to be diverted into the UPS system and away from the Post Office. The program, known as "SurePost Redirect," gives UPS the visibility to identify routes with sufficient package density and re-routes SurePost parcels into its own network—and its own drivers. Usually, parcels get diverted to routes where UPS drivers are already making deliveries.

In March, Teamster leaders said the program has resulted in 20 percent of all parcels that were initially consigned under SurePost shipments to be moved by UPS drivers instead.

UPS spokeswoman Susan L. Rosenberg said the company doesn't disclose data relating to SurePost. However, she said parcels originally slated to be shipped via the USPS can now stay within the UPS network because the company can combine those parcels with other volume bound for that territory.

"If we're already going to that area with UPS Ground or premium air packages, we can shift that SurePost delivery to go through the UPS system and not be delivered to the destination post office," Rosenberg said in e-mailed comments. "It has always been the case that not all SurePost packages were delivered to USPS."

UPS may also be diverting parcels in response to higher rates USPS imposed earlier this year on shipments moving under the "Parcel Select" program that involves the private express carriers. Parcel Select rates rose 9 percent over 2012 levels, with rates on shipments of less than one pound rising 9.8 percent from year-earlier levels.