Added on July 24, 2023  Sara Swanson

Michigan businesses urged to prepare for UPS strike by Teamsters

by Bill Shea (Bridge Michigan)

Michigan’s business community — from mom-and-pop operations to sprawling multinational corporations — should be preparing now for a potential logistics-snarling national strike by UPS’ 340,000 unionized workers.

That’s the warning from some of the state’s business groups that are monitoring the labor impasse between the International Brotherhood of Teamsters and Atlanta-based United Parcel Service Inc., which carries about a quarter of the nation’s packages on its trucks, vans, and cargo jets as the nation’s fragile supply chain continues its pandemic recovery.

A shutdown could occur as soon as Aug. 1. The union authorized the strike last month in what it said was a 97% approval vote by its members. The five-year UPS-Teamsters collective bargaining agreement that ends July 31 is the largest private-sector contract in the country.

A UPS strike would have an almost immediate impact on Michigan businesses and consumers, particularly in an era of heavy e-commerce and people enjoying two-day delivery via Amazon (which uses some UPS delivery capacity in addition to its own fleet).

The head of the Small Business Association of Michigan said it’s alerting its 31,000 members, who could be acutely affected by a UPS shutdown, of what may happen.

“They’re generally unaware that a major logistical supply chain disruption is looming, potentially, in the future,” said SBAM president and CEO Brian Calley.

It’s better to prepare now than to wait until a flurry of businesses are scrambling for another shipper because there is only limited capacity available, he added.

“As everyone seeks to find alternatives, everything from private carriers and smaller carriers to FedEx and the post office, they would likely be overloaded to the point where it would slow their services, as well,” Calley said. “The supply chain impact is multiplied over and over again. It’s significant. There isn’t some big slack in transportation capacity where it can move from one place to another. Our (national) economy is not sized for extra capacity.”

His advice to businesses of all sizes is to beef up supplies and inventory, and communicate with customers that a potential shipping disruption looms. SBAM has sent briefings on the matter to its members in the wake of UPS-Teamsters talks breaking down on July 5 over part-time wage increases.

“That raised it to a level where we felt the need to let people know,” Calley said.

Jim Holcomb, president and CEO of the Michigan Chamber of Commerce, echoed those concerns.

“Any disruption in UPS services would ripple through the economy,” he said.

Small and medium-sized companies are most vulnerable to supply chain interruptions, Holcomb said. “Those (business owners), in a lot of communities, are driving economic growth across Michigan. We just cannot afford another (disruption) right now.”

The disruption, of course, is the point. Like all unions, the Teamsters are threatening to halt work to force management to a new deal or face a near-total loss of services and revenue. The union, which represents more than 5,900 UPS workers in Michigan, seeks better working conditions, benefits and wages as UPS enjoys record revenue and profits. They’ve already agreed to better pay for weekend drivers that had been part of a two-tier wage system that will be eliminated, air-conditioning in future delivery trucks and better cooling in the current fleet.

How long before businesses and consumers could feel the financial effects of a strike?

“A very short time. A couple of days,” said John Taylor, an associate professor of supply chain management at Wayne State University. “It’s going to be a very, very quick impact.”

Which, again, is the point of a strike: to cause inconvenience that puts pressure on management to negotiate.

While the revitalized U.S. labor movement — which has historic metro Detroit roots — is flexing its muscle, a work stoppage would come while the nation’s supply chain system continues to recover from pandemic strains and a driver shortage endures.

“It doesn’t matter what the cause is, when you interrupt the supply chain, it’s going to be bad,” Holcomb said.

The loss of a major shipping service for even 10 days could cost as much as $7 billion nationally, per a study from East Lansing-based consultancy Anderson Economic Group (AEG). That’s based on an estimated loss of $1.1 billion in wages for striking workers while UPS itself would lose an estimated $816 million. Additionally, businesses and consumers would experience $4.6 billion in losses while other industries experience $2.4 billion in losses.

The study didn’t break down the estimated losses by state.

A UAW strike in 2019, which lasted six weeks, cost General Motors about $989 million, AEG principal and CEO Patrick Anderson said, causing a one-state, one-quarter recession in Michigan. With UPS, the economic ripple effects are bigger because it would be a national strike, and the $7 billion impact prediction may actually be too modest, Anderson said.

“That’s possibly an underestimate,” Anderson said.

He, too, expects little companies to be hit hardest: “You’re going to have some small business, they won’t be able to function,” Anderson said. And like the chambers of commerce, he’s warning companies to prepare their supply chain now before a strike occurs.

“These people are vulnerable, and they don’t have a logistics officer in their business. The CEO is often also the janitor. They need to start thinking about this right now,” Anderson said.

The ongoing supply chain issues will affect larger corporations, which often use multiple parcel and heavy machinery transportation services, in a less dire way than small companies could be affected, but anyone relying on UPS will feel something if a strike lasts very long.

“Because of all of the supply chain has gone through, it’s very fragile,” said Glenn Stevens, the executive director of MICHauto and vice president of automotive and mobility initiatives for the Detroit Regional Chamber that represents companies in 11 counties in Southeast Michigan.

“The financial situation of companies is probably a lot more fragile than people think it is,” he said. “One critical component can shut down an assembly plant. It doesn’t take much. Thousands of such components are in an automobile.…It can get real expensive really quick if there’s any type of disruption.

“That means higher costs. It’s going to cost more to switch (carriers). The market forces go to work. Costs will go up,” Stevens continued. “It’s not a system that can bear a lot of cost increases, let alone a disruption of this nature. The consumer is going to see it in the end.”

On the west side of the state, there are still worries about a potential UPS strike even if the area isn’t home to massive automotive corporations.

“Our concern is we’ve seen over recent years what the impact supply chain issues can have on the economy,” said Andy Johnston, senior vice president for advocacy and strategic engagement at the Grand Rapids Area Chamber of Commerce.

Such hiccups in the system can create months-long backlogs and interruptions in the movement of critical items, raising prices along the entire pipeline.

“The pandemic threw a stick in the bicycle spokes of the supply chain,” he said.

Business-to-business shipping would also suffer during a strike, WSU’s Taylor said.

“The impact is not only on consumer goods. It’s also on intermediate goods,” Taylor said. That’s stuff made for manufacturers by other manufacturers – the equipment and materials needed to make things.

The U.S. supply chain system, particularly for the automotive manufacturing sector, for decades has been built around just-in-time movement of parts and supplies, which allows businesses to  be more efficient by not having warehouses full of inventory. That system has been strained by the pandemic’s harsh effects on the global supply chain and an ongoing truck driver shortage nationally.

“(A strike) endangers, piece by piece, the system we built in the ‘80s, ‘90s, and 2000s,” Taylor said. An increase in shipping prices by even a few percentage points eventually drifts downstream to consumers in the form of more costly goods, he added.

He said companies of varying sizes, and entities such as hospitals, have been quietly preparing for the possibility of a UPS strike by building up inventory and making deals with other shippers.

“They’re going to try to be proactive and order more inventory,” Taylor said. “It’s already happening today. These small, medium, and large manufacturers are making contingency plans today.”

Messages were left for Michigan Medicine and for Michigan State University, both major logistical users. Earlier this month, University of Michigan Procurement Services instructed its units to plan ahead and expect delays in anticipation of a strike, as the university explored “FedEx shipping alternatives.”

So just how big is UPS to cause such concerns? It transports about 6% of the nation’s gross domestic product.

When it comes to total revenue from the nation’s domestic shipping, the U.S. Postal Service had the largest share at 32% in 2022 followed by UPS at 24%, Amazon Logistics at 23%, and FedEx with 19%, per the Pitney Bowes Parcel Shipping Index.

UPS averaged 24.3 million parcels a day last year and 6.2 billion for 2022, which generated a company record $100.3 billion in revenue, and record profits of $11.3 billion.

Over the past decade, the company’s revenue has grown more than 80%, boosted in recent years by the pandemic. But there are signs that surge may be waning. Revenue fell 3 percent in the fourth quarter last year. The company’s most recent prediction for the full year 2023 revenue is $97 billion, with plans to spend $3 billion to repurchase stock shares.

Workers argue they are entitled to a greater share of earnings. UPS workers last struck in 1997 when a 15-day walkout by 185,000 workers cost the company an estimated $850 million — all before Amazon, eBay and innumerable other companies helped usher in the era of online shopping and increased parcel delivery needs.

While both the Teamsters and UPS have said much of a new labor deal has been agreed upon, including better working conditions and better wages for full-time workers, the sticking point that halted talks on July 5 is reportedly over raises for part-time workers, who account for more than half of UPS’ Teamster-repped employees.

Teamsters General President Sean O’Brien told the trade publication Supply Train Drive the two sides are about $6 or $7 an hour apart on starting rates for part-time workers. The union is also pushing for more full-time employment opportunities. The company said part-time workers currently make an average of $20 an hour after 30 days.

UPS said it has been training managers and other non-union staff to pick up some sorting and delivery work if a strike occurs, but experts have said that would cover only a fraction of the parcels the company delivers daily.

Rival delivery companies don’t have the capacity to pick up all of UPS’ business, but they’re preparing to assume some of it – which is expected to be more costly for companies forced to find a new parcel service.

“Those other organizations like DHL and FedEx probably have limited capability to take that on,” said Taylor, the WSU supply chain professor. “It’s very hard to find spare capacity.”

FedEx, which is non-union, is the logical choice for many businesses to turn to, along with the U.S. Postal Service and smaller companies such as DHL.

“In the event of an industry disruption, FedEx Corporation’s (NYSE: FDX) priority is protecting capacity and service for existing customers. Therefore, shippers who are considering shifting volume to FedEx, or are currently in discussions with the company to open a new account, are encouraged to begin shipping with FedEx now,” FedEx said in a statement.

Turning to other companies like FedEx and DHL can be costly, Taylor said, because many regular shippers have preferred pricing deals in place with UPS.

“They don’t have that great deal with the competitor,” Taylor said, adding that a 3 percent to 5 percent increase in shipping costs is possible, something felt downstream by consumers.

“Shipping can be 20% of the finished goods price,” he added. “But that’s all stuff on the margin. It’s not going to look like that big of an increase.”

In the meantime, bargaining between UPS and the Teamsters is set to resume next week.

“We are pleased to be back at the negotiating table next week to resolve the few remaining open issues. We are prepared to increase our industry-leading pay and benefits, but need to work quickly to finalize a fair deal that provides certainty for our customers, our employees and businesses across the country,” UPS said in a statement.

O’Brien, the Teamsters president, has asked the White House not to intervene as it did in December to force a new labor deal that headed off a potential national rail strike.

At a webinar Sunday for Teamsters workers, O’Brien was asked what UPS customers should do if there’s a strike.

“They should call UPS and tell them to do the right thing by our members who provide goods and services to them. This is not our members’ fault; this is not the international union’s fault. This is UPS and corporate greed at its best. You should encourage the customers to call UPS and tell them to do the right thing by their drivers, and part-timers, and loaders,” he said.