Union Face-Offs Ahead
A Tale of Two Negotiations; Teamsters should focus on one and forget the other
UPS kicks off negotiations with the Teamsters April 17th for its labor contract that expires July 31st and covers ~340,000 workers. Meanwhile, Yellow and the Teamsters are already making headlines well in advance of their March 31, 2024 labor contract expiration, which covers ~22,000 workers. Having watched every negotiation in the space since 2000, below are my thoughts. Plus, some outside help weighs in for fun.
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A Tale of Two Cities.
Yellow negotiations…just a sad country song in Nashville.
“We've been swingin' and missin'
It ain't broke yet, but damn, it needs fixin'… between a rock and a hard place.” - Bailey Zimmerman“I got nobody to blame but me.” - Chris Stapleton
UPS negotiations….more like a hip-hop party in Atlanta.
“Cash rules everything around me
C.R.E.A.M. get the money
Dollar, dollar bill, ya'll.” - Wu-Tang Clan“If you had one shot, or one opportunity
To seize everything you ever wanted
One moment
Would you capture it or just let it slip?” - Eminem
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Yellow & the Teamsters - lots of kicking and screaming in vain.
The union has been losing here for years - ever since they took significant concessions in 2008 (when the company had nearly twice as many union employees). They can’t “win” without sinking the ship. Ignore the noise. They fight at their own peril.
The IBT (International Brotherhood of Teamsters) should instead do something new and focus on eliminating all the restrictive work rules in the contract, still pay the workers fairly (with what’s available) for the work they do, and move Yellow’s operations more in-line with competitors. Currently, they’re at an operational disadvantage. For example, Yellow should be free to outsource PT (purchased transportation) when and where it makes sense without a cap. The goal should be a healthy company, which is the only shot at stopping the bleeding and making Yellow a viable long-term employer.
That’s why recent news articles like this, that, and the other are just funny to me.
The Teamsters have NO leverage here.
Teamsters can have demands, but they have to deal with stubborn facts. Yellow is burning cash, and its business continues to shrink. Service is poor. Management’s sole task every year seems to be, “just make it through this year.” Well, that works until it doesn’t. And when it doesn’t, oh boy.
If we took the above graph back to 2008, we’d see nearly a 50% drop in terminal count and well over a 50% decline in tonnage.
And we see in the graph below why the company has rushed to shrink itself to match the falling volumes - it’s only generated cash in five of the last 10 years, while cumulatively burning $362mm during that period. There is no money here to give to labor in any way, shape, or form.
The company needs to stop the bleeding, and it has to worry about $1.3bn of debt maturities in 2024. It certainly can’t pay, but can it refinance? Would the rates/terms even be feasible?
But sure - if the Teamsters insist on raising Yellow’s cost structure by eliminating PT and denying the change of operations, we doubt the company is still operating when the debt comes due.
In 1979, 55 of the top 60 LTL carriers in the U.S. were unionized. Almost all have gone bust (or merged with another and then gone bust), while the non-union carriers have flourished (and, as a result, taken better care of their workers). Only ABF and Yellow remain of those 55, and we’re unsure how much longer Yellow can hang on. (ABF is not at risk.)
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UPS & the Teamsters - get out the popcorn. This should be good.
This is where the union should spend its energy right now. Not on Yellow. UPS is the largest employer of Teamsters in the world (~28% of total membership). They used to have a near monopoly in the ground parcel market in the U.S., but the union strike in 1997 allowed a small competitor, RPS (now FedEx Ground), to gain a foothold. Over the last 25 years, Big Brown’s domestic ground parcel market share has declined an average of ~1% per year from >90% to <65%, all because that strike opened the door and drove business elsewhere. Today, FedEx is a major competitor, as is Amazon (while also still a significant customer, accounting for 11.3% of 2022 UPS revenue). The marketplace is more competitive, but rational and disciplined pricing among the players has allowed UPS to remain highly profitable.
On the financial side, UPS generated $9.3bn in free cash flow in 2022, ended 2022 with $7.6bn in cash (& short-term investments), and the health of the business is quite strong. The company also repurchased $3.5bn worth of stock in 2022 - otherwise, it would have >$11bn on the balance sheet presently. Quite a nice target for the union to aim at in the context of a financially robust company like UPS.
This will be an interesting negotiation to watch from an outsider’s perspective, because it is hard to argue the UPS workers are underpaid or treated poorly. In fact, many consider it to be a desirable job with great benefits. On the other hand, it’s hard for the company to say it can’t pay or give any more, as it’s performing quite well. So, it will just depend on whether this is a negotiation based on a shared vision of the future and what a good working relationship would look like, or if it devolves into a more transactional “us vs them” contest to see who “wins”. The Teamsters seem to be gearing up for the latter, while UPS management commentary has tried to steer the conversation towards the former.
From the latest UPS 10-K…strategy section
“People Led” - specifically focuses on how likely an employee is to recommend UPS employment to a friend or family member. We know successful outcomes are built from a strong culture, so we are striving to make UPS a great place to work. We believe that when we take care of our people, they take care of our customers.
But how do the Teamsters feel?
UPS Teamsters General President Sean M. O’Brien and General Secretary-Treasurer Fred Zuckerman rallied at Teamsters Local 25 in Boston on April 2. As seen in quotes from that rally below, IBT leadership is clearly more feisty.
“We have 15 days before we go sit across the table from this white collar crime syndicate known as United Parcel Service.”
“We are not going to take and accept what UPS gives us. We’re going to demand, take and punish if they don’t give us what we want moving forward.”
“We will set the tone for organized labor and the entire country with this contract. There is no better organization to set that bar high than the International Brotherhood of Teamsters. We are not going to accept and take what UPS gives us. UPS Teamsters have fire in their eyes and the intestinal fortitude to take on this company.”
“We are going into negotiations, and we told UPS very clearly we want a strong contract for our members and we want it done on time. On August 1, if we don’t have the contract you deserve, there will be no UPS Teamsters working.”
Ouch.
Note what was repeated above - “we are not going to take and accept what UPS gives us.” And if there is no contract by the deadline, no UPS Teamsters will show up to work the next day.
Posturing? Yes - some. For sure. But with O’Brien at the helm of the Teamsters for just over a year now, he wants to make his mark. UPS is where he wants to make his mark.
From TDU - re: contract demands
“When UPS sits down with our national negotiating committee on April 17, management need to know that UPS Teamsters are united for a contract that will:
Deliver higher wages
Improve our pensions and protect our healthcare
Stop excessive overtime, strengthen 9.5 rights, and end forced 6th & 7th punch
End two-tier 22.4 and make all package drivers RPCDs
Win much higher part-time starting pay and catch-up raises for current part-timers
Make UPS create more full-time 22.3 jobs
End subcontracting – from feeder work to PVDs
Eliminate driver-facing cameras
Stop harassment and unfair discipline
Improving the grievance procedure
Make MLK Day and Juneteenth paid holidays”
While the exact financial impact of the above, even if all agreed to, is uncertain, the bottom line is that UPS will see pressure on its “Compensation and benefits” expense line. The last few contracts have called for annual wage & benefit increases in the 3.2%-3.6% range. If I had to put numbers around this one, a win for the Teamsters would be >4% over the life of the next contract, and a win for management would be <4%.
Here is another interesting site run by union members and goes to why a strike is a serious possibility, if not likely - ultimate leverage. There is a sense the best deal can only be attained by walking out. And UPS can’t function without their Teamsters. With >20mm packages to deliver every day in the U.S., a work stoppage would have to be resolved ASAP. Can’t be two weeks like 1997. If more than 48 hours, it would be disastrous. And the rank and file understand this.
“There is so much more volume today than there was back then because of e-commerce. If there is a strike, the company will be crippled. That means a strike will probably be short and we will win!” - Nick Orabona, a strike veteran and Local 251 Teamster
And because the workers think a strike would be short-lived, they’ll be more likely to vote for one.
My view is that UPS will have to pay handsomely, or risk a strike (and then still pay handsomely). And by handsomely, this means cutting margins and eating into earnings more than analysts are currently anticipating. They can afford it, but it will lower the company’s long-term valuation.
Of course, the Teamsters are not going to just “forget” LTL and only concentrate on small package, as they have separate teams for each industry. Plus, they still have to deal with ABF and TForce Freight. But UPS is the big one, with >6x as many union employees as the entire LTL industry. That’s where the focus should be, and that’s where we may see the real fireworks.
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Now, let’s get a bit weird :)
To get a different insight on these two sets of negotiations, I went to the Animal Spirits card, asking specifically, “which card best symbolizes the Yellow/Teamsters negotiation ahead?” and “which card best symbolizes the UPS/Teamsters negotiation ahead?”
Yellow/Teamsters
For this, we got the Panther card. Pretty much in-line with my thinking.
“Annihilation of the unnecessary, purging.”
When in balance: brave, productive.
When out of balance: self-destructive.
To bring into balance: get rid of the unnecessary.
We could interpret this card in a few ways. First, maybe the union will have to let go of work rules and other restrictions. This would be “getting rid of the unnecessary” - as their competition operates more efficiently without them - to bring the relationship back into harmony. The union would have to make the conscious decision to do whatever it takes to position the company for the best chance of long-term success. And this means eliminating any restrictions that create inefficiencies and competitive disadvantages. Current rhetoric, though, is not going this route.
Second, it means that an “out-of-balance” (or contentious) negotiation will be self-destructive for both Yellow and its workers. Push too hard, fight too much, and the company may not exist in 2025. Currently, I view the situation as “out of balance.”
The company is still playing with a weak hand and needs all the help it can get - especially from its front-line workers. They are the company’s biggest cost and have the greatest impact on service.
So, with a theme of “annhilation of the unnecessary, purging” - we see from this card either the union contract granting Yellow further concessions, or the company will be annihilated.
UPS/Teamsters
Interestingly, the Sea Serpent card appeared. This is more optimistic than expected.
“Healing emotional wounds; expressing desires.”
The sea serpent represents the energy of expression.
When the essence of this card is in balance…we know what we desire most. Our hearts are at ease and our relationships are meaningful and enduring.
Well, we certainly see the Teamsters expressing their desires. As for healing emotional wounds…not sure. It’s been a tough few years with the pandemic and drivers having to work overtime, while most of the U.S. was unlawfully confined to their homes and in many cases prohibited from earning a living for a period of time. The drivers want recognition for this sacrifice and for their service.
UPS CEO Carol Tomé said she is committed to reaching an agreement before July 31. Sounds great. But to do so, she’d have to give the unions a deal where they can declare as a serious “W” for their members. A deal so good that they’d willingly give up their best bargaining chip - the potential strike. What would that look like? What would be in a contract so good they can brag about it and use it to try to organize others?
My view is that this will be more contentious than management believes and that a strike is more probable than some think. The Sea Serpent card indicates I may be wrong and that we could see peace and an early resolution after all. Let’s see. Maybe the peace and healing comes after the fight?
Best case is that it won’t be all about maximum money squeeze/pay raises - and UPS will cave on all the other concessions to please the union and have a financial impact still agreeable to the financial community.
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Wrap-up
Does either negotiation really have to be a fight? Contentious? No. But it’s likely they’ll both be tough and adversarial. For the simple reason that you have someone in between the two parties who is only looking out for the best interest of one. And really just for themselves, the union.
Union membership has been falling for decades, and union companies almost never survive contact with non-union competition. Unions once had a place ~100 years ago, helping to fight terrible working conditions, but their need/presence should have only been temporary - just a band-aid until the division healed, imbalances corrected, and communication improved.
In general, unions today create friction, limit connection, distort communication, and interfere with the unification of company culture. In a healthy organization, it should never be “management vs labor” - the best companies view everyone as important parts of the whole culture. Those that have a “management vs labor” mentality, or “C-suite snobbery,” are companies that have a more difficult time attracting talent, and they do not succeed long term in a competitive market.
It’s likely that unions continue on the decline, as the world becomes more connected. But for now, division seems popular, labor is in high demand, and unions will roll with the times to “get what’s theirs” rather than help craft a mutually beneficial shared vision of the future for its members and the company.
Finally, enjoy some good humor - here’s a classic bit from The Simpsons re: Teamsters.
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Past Posts
Beyond Logistics post #1 re: Trucking 101 —> here
Beyond Logistics post #2 re: Life —> here
Beyond Logistics post #3 re: Pricing —> here
Beyond Logistics post #4 re: Communication —> here
Beyond Logistics post #5 re: Technology —> here
Beyond Logistics post #6 re: 3PL trends —> here
Beyond Logistics post #7 re: Lessons from Comics —> here
Beyond Logistics post #8 re: Cleaning Up Inside —> here
Beyond Logistics post #9 re: All Bad Things Must End —> here
Beyond Logistics post #10 re: Better Questions —> here
Beyond Logistics post #11 re: 2023 outlook —> here
Beyond Logistics post #12 re: Anti-Fragile —> here
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About the author: Dave Ross currently serves as Chief Strategy Officer at Ascent and EVP at Roadrunner. Prior to his current roles, he was Managing Director and Group Head of Stifel’s Transportation & Logistics Equity Research practice, where he was a top-ranked Wall St. analyst and spent >20 years researching and writing on the freight transportation & logistics industry. Based in Miami, FL, he’s a connector, advisor, artist, investor, dog dad, and serves on a few select non-profit boards (CTAOP, Humane Society, and Fountainhead).
** All opinions in this piece are solely those of the author and not intended to represent those of Ascent Global Logistics or Roadrunner or other affiliated entities.
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