The UPS Inc. of 2023 may be a very different company from the one that exists today. By then, brown drones may fill the skies. Package cars may operate with the driver in the passenger seat. Sunday deliveries may become routine. Local deliveries might be handled by citizen drivers using their personal vehicles instead of by professionals in the ubiquitous UPS vans. UPS robots could be walking parcels from one urban location to another. Deliveries may be made in 30 to 45 minutes after an order is received. Amazon.com Inc. may no longer be a big UPS customer, but rather a full-fledged competitor.
If all that sounds far-fetched, consider that in 2013, "A.I." was known as a Steven Spielberg film. Robots and drones were lab experiments. Sunday was a day of rest, not delivery routes. All vehicles had people driving them. Lockers were designed to hold clothes or books, not parcels. The "last mile" was a phrase associated more with death row than with packages. Amazon was a force in selling stuff, not shipping it.
The parcel industry has undergone profound changes in the past five years, and the next five are likely to be just as transformative. It is against this backdrop that UPS and the Teamsters union will hammer out collective bargaining agreements for the carrier's small-package and less-than-truckload (LTL) operations to replace the five-year pacts that expire July 31. At stake are the livelihoods of 268,000 employees, relationships with 1.5million regular customers, and the direction of the $100 billion U.S. parcel market, and, by extension, the nation's commerce.
As of mid-May, when this story was written, tentative agreements had been reached on the fringe non-economic issues that typically get dispensed with early on during negotiations. Ahead lies the bargaining over bread-and-butter stuff like wages and benefits, as well as the operational flexibility that UPS needs from the union in order to implement new services or expand existing ones. Neither UPS nor the Teamsters would comment on the status of negotiations.
With the talks heating up, one huge question looms: How far will UPS push the envelope to compete in a new world of parcel delivery, and how far will the Teamsters be willing to bend? In decades past, UPS has been able to convince the Teamsters that new services would mean more packages and more union jobs. That might be a harder sell this time around. UPS views autonomous vehicles, drones, and robotics as the necessary tools of 21st century logistics. The Teamsters, on the other hand, perceive such changes as threats to their jobs.
The union sees a crowded field of newcomers—many with different ideas about logistics than those who've come before them—vying to take packages from UPS and, by extension, food off Teamster tables. It has seen the growth of e-commerce—expected to reach 17 to 20 percent of U.S. retail sales by 2022 from about 12 percent today—further shift UPS's business mix from the higher-margin business-to-business traffic that the company has long dominated to the business-to-consumer segment that is more competitive and not nearly so profitable. The Teamsters have watched as more final-mile deliveries have been siphoned to the U.S. Postal Service (USPS), whose universal service network is used by UPS to deliver parcels to remote locales where it would be cost-prohibitive for the company to send its trucks and drivers.
The Teamsters have tried unsuccessfully to negotiate the demise of the service, known at UPS as "SurePost," and it will likely continue to push for its closure. UPS, for its part, has developed a low-cost pricing matrix for ultra-short-haul deliveries designed to divert parcels from the Postal Service to its own network. But it is believed the company is not moving fast enough to implement the initiative.
SLEEPLESS ABOUT SEATTLE
Then there is Amazon. A relative non-factor in logistics in 2013, the Seattle-based e-tailer has since spent billions of dollars on planes, tractor-trailers, hubs, and fulfillment and distribution centers. From starting out just shipping orders placed on its website, Amazon has expanded into third-party fulfillment, which today accounts for about 45 percent of the company's total revenue. Through its new "Shipping with Amazon" service, it is now trying to lure non-customer merchants into its fulfillment network by offering low-cost deliveries.
Amazon remains a heavy UPS user because it can't manage its burgeoning volumes on its own. However, every merchant that signs up for Amazon's fulfillment services means one less business that directly uses UPS. It will be that much easier for Amazon to convert companies already using its fulfillment operations to its shipping services as it relentlessly builds scale.
Amazon also offers Sunday deliveries in conjunction with the Postal Service, something that didn't exist five years ago. Its significance, even if it is nothing more than the proverbial "another arrow in the quiver," is not lost on UPS or the Teamsters. UPS delivers on Saturdays through its air and ground operations, the latter starting in early 2017 in response to the changes in ordering and delivery demands wrought by e-commerce. However, it has never delivered on Sundays.
In what some might consider a bend on the union's part, Denis Taylor, who heads the Teamsters' package division (which negotiates the UPS contracts), floated a proposal in early May to create a classification of "hybrid" small-package drivers who would work Sundays through Thursdays, or Tuesdays through Saturdays. The proposal calls for these employees to perform any "recognized part-time work" such as package loading and washing cars, but not to deliver packages full-time. It would also establish a two-tier wage scale, where the hybrids would be paid less because they would not be on a Monday-through-Friday schedule.
Teamster dissident group Teamsters for a Democratic Union (TDU) said that while the hybrids would get 40 hours of work, thus fulfilling a 2013 contractual pledge to combine 40,000 part-time jobs into 20,000 full-time positions, they would not be paid overtime wages normally called for to drive on the weekends. The proposal would create a "caste system" within the package division, TDU said. The group, which loathes mainstream Teamster leadership, called Taylor's offer "the worst giveback" in the history of the union's relationship with UPS, which dates back more than a century.
Taylor also drew the wrath of some members in February when first he demanded that UPS be barred from using autonomous vehicles and drones, and then withdrew the demand. Some said it was highly unusual for the union to reverse course so early in the negotiating cycle.
There is concern that the Teamsters will adopt such a rigid negotiating strategy that they will lose sight of UPS's need to adjust to the parcel industry's new realities. Even those who care little for the company acknowledge that it needs to explore new delivery avenues to stay ahead of current and future trends. "The company thinks ahead of itself," said Ken Paff, TDU's national organizer. "The Teamsters have to think ahead as well."
A HOUSE DIVIDED
With so much at stake, it behooves the Teamsters to present a united front when going up against UPS, which prepares for contract talks much like an athlete training for the Olympics. However, the Teamster leadership is as splintered today as at any time in recent memory. James P. Hoffa, who has been general-president since 1998, came within a whisker of losing the union's November 2016 elections to Fred Zuckerman, the firebrand leader of Louisville's Local 89, which represents more UPS workers than any other local because it's located in the home of its global air hub.
Zuckerman outpolled Hoffa in the U.S. but lost the election because he was soundly beaten in Canada. Perhaps more significant as it relates to the UPS talks, Zuckerman captured the majority of votes cast by the company's workers, a sign of little or waning confidence among many UPSers in the mainstream leadership.
Discontent with Hoffa and the-then package division chief, Ken Hall, had been building as far back as the last contract cycle. Three Teamster locals, including Local 89, repeatedly rejected their local addendums known as "supplements," thus preventing the national contract, which had already been ratified, from being implemented. The dispute dragged on for about nine months until the Washington leadership in April 2014 took the extraordinary step of imposing the national contract on all UPS members. The decision left a bitter taste in many members' mouths, and their angst was reflected 31 months later at the ballot box.
Last September, Hoffa sacked Package Division Chief Sean M. O'Brien just seven months into his tenure and replaced him with Taylor. In explaining the move, Hoffa said the union needed to head in a different leadership direction. In an unusually public display of pique, O'Brien said he wanted to include local representatives who disagreed with Hoffa's strategy in the contract talks but was blocked from doing so because it was "considered treasonous" by the leadership. Hoffa's critics said that O'Brien was removed because he wanted to give Zuckerman a more active role in the negotiations.
In March, Taylor removed Mike Rankin, a member of Local 89, from the negotiating committee at UPS Freight, whose contract covers 12,000 of the 268,000 UPS employees, for purportedly publicly disclosing some of his concerns with the direction of the talks. Then in May, he removed three more members of the negotiating committee, including two from Local 89, for opposing the hybrid employee proposal.
DON'T WORRY, BE BROWN!
UPS customers appear to be reacting to these issues with a collective shrug. They believe negotiations are progressing as smoothly as could be expected and are not looking to shift business to rivals out of fear of labor-related service disruptions. Rob Martinez, president and CEO of Shipware LLC, a parcel consultancy, said none of his UPS customers have diverted traffic to FedEx Corp., UPS's chief competitor, even though some are "crossing their fingers" in the hope that a labor agreement is quickly reached.
A large medical distributor, which Martinez didn't identify, was told by FedEx that if it didn't convert at least 40 percent of its business in the next few weeks, the carrier would not support the company in the event of disruptions at UPS, he said. FedEx has used that tack with other high-volume shippers, invoking memories of the 15-day Teamster strike in 1997 that blindsided many UPS customers and left them scrambling for alternatives, Martinez said.
UPS has assured the medical distributor that talks are going well and are on track for settlement, Martinez said. Besides, the shipper thinks that FedEx's promises to come to the rescue ring hollow and that it couldn't provide remedies if, as Martinez put it, "the shit hit the fan."