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UPS CEO Sees ‘Good Progress’ on Union Talks

On a day when UPS reported disappointing first-quarter earnings and issued a gloomy outlook on shipping volumes this year, the parcel giant shared an update on contract negotiations with the International Brotherhood of Teamsters.

In Tuesday’s earnings call, UPS CEO Carol Tomé said both parties have made “good progress” on many of the more than 40 local supplemental agreements central to the negotiations before the contract expires on July 31.

However, on the public stage, the Teamsters don’t appear to be on the same page even after talks officially began April 17.

“UPS can’t have it both ways. Giant corporations don’t get to haul in record profits, increase shareholder returns, and then say they don’t have enough money for workers,” the Teamsters Facebook page posted on Tuesday. “The sky is not falling, UPS. But you are failing to wrap up supplemental negotiations for hundreds of thousands of Teamsters. You’ve got the money. You’ve got the best workforce in the business. It’s time to #PayUp.”

A Teamsters image illustrating UPS financial results in recent years. Courtesy of Teamsters

The Teamsters labor union represents roughly 340,000 of the 440,000 UPS delivery drivers and warehouse logistics workers in the U.S. Earlier this week, 84 delivery drivers and dispatchers who’ve contracted for Amazon won recognition to be represented by the union, although the workers are directly employed by a third party.

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A new contract is expected to cover the UPS employees in a five-year deal through 2028.

“Together, we’ve set up five subcommittees at the national bargaining table to take on key areas of the contract, which enables us to move faster,” Tomé said during the call. “We are aligned on several key issues like solving the staffing needs for weekend delivery and ways to mitigate the summer heat in our package delivery vehicle. While we expect to hear a great deal of noise during the negotiation, I remain confident that a win-win-win contract is very achievable and that UPS and the Teamsters will reach [an] agreement by the end of July.”

Though Tomé believes a work stoppage is “unlikely,” she is confident that UPS has contingency plans to handle any disruptions.

The negotiation is the first both for Tomé, who took over as CEO in June 2020, as well as Teamsters president Sean O’Brien, who assumed the role in March last year.

O’Brien and the Teamsters haven’t shared the same optimism as Tomé, with the union indicating previously that it would not be working beyond the July 31 expiration date. On April 15, O’Brien and several local Teamsters leaders hosted a rally at the union’s Local 952 branch in Orange, Calif. in support of their new contract demands.

Teamsters president Sean O’Brien speaking at a rally at the union’s Local 952 branch in Orange, Calif.

The supplemental agreements were a major point of contention ahead of the negotiations, with each local contract containing provisions that aren’t covered under the national agreement, like paid time off, discipline language, seniority, overtime and working hours. Prior to the opening talks, the Teamsters said 30 of the 40 supplements remained unresolved.

“We have clearly stated our intentions to UPS from the beginning that there would be no national negotiations until these regional contracts are completed. This is not a game. But you wouldn’t know that based on UPS’s behavior,” O’Brien said in a statement earlier this month.

Across the board, the union’s demands include better pay for all workers, more full-time jobs, improved job security and stronger protections against heat-related illnesses and company harassment. The Teamsters also want to end excessive overtime and eliminate UPS’ unpopular two-tier wage 22.4 job classification.

The Teamsters argue that UPS uses this tiered system to get lower-paid workers to deliver packages on weekends and curb delivery costs. The union alleges that these drivers are doing the same amount of work as higher-paid drivers who work on the weekdays, and should therefore get the same pay and benefits.

When pressed on whether the negotiations will be impacted by the softer economic environment, Tomé kept the issues separate.

“We don’t look in the current moment,” Tomé said. “We look out for where we both want to go, as a growing and thriving UPS is in the best interest of Teamsters, UPS and our people. So the current economic environment, it is what it is. But our negotiations are all about the future.”

Higher union wage and benefit rates added $300 million in total expenses for UPS in the quarter, primarily from a 6.1 percent increase in average union wage rates, driven by the annual pay increase for Teamster employees that went into effect in August 2022.

Despite the seemingly contentious rhetoric from the Teamsters, Tomé insisted during the call that both parties were aligned.

“For example, we all agree that weekend delivery is table stakes because that’s what consumers are expecting. We all agree,” said Tomé. “It’s how we go about doing that from an operating model perspective that we need to work it out. Because of restrictions in our contract, in some instances, we have Teamsters working six days a week. Teamsters don’t like that. I don’t like that. If you want to work six days a week, that’s fine with me. But if you don’t, we shouldn’t force you. So we’ve got to work that out.”

UPS anticipates declining shipping volumes, first revenue dip since 2009

UPS saw its stock tank a shade under 10 percent on Tuesday in the wake of the earnings report, which revealed that the company’s revenue fell 6 percent year over year to $22.9 billion. Net income was $1.9 billion, down 29 percent from $2.7 billion in the year-ago quarter.

Domestic package revenues fell 1 percent to $15 billion, while international package revenues decined 7 percent to $4.5 billion. The company’s supply chain solutions division’s sales plummeted 22.5 percent to $3.4 billion.

The volume declines were steepest in the premium domestic U.S. express segments, with next-day air shipments falling 10.7 percent and deferred services dropping 24.5 percent from the first quarter of 2022.

In the U.S., UPS experienced a 5.4 percent decrease in average daily volume, while the shipping giant saw a 6.2 percent reduction in average daily volume internationally.

The company expects 2023 revenue to come in at roughly $97 billion, which is at the low end of earlier guidance and nearly 3 percent below 2022 revenue totals. This would mark the first year since 2009 where UPS anticipates an annual sales decline.

Full-year shipping volume is expected to decline amid slumping demand, with domestic volume to fall approximately 3 percent versus 2022. Internationally, volume is projected to fall 4 percent.

Like chief rivals FedEx and Amazon, UPS emphasized cost cutting as part of its go-forward plans to get the most bang for its buck per shipment—particularly by increasing productivity. In the quarter, UPS cut hours 5.6 percent in the U.S. and reduced headcount to meet shrinking volume.

“Now that our volume is trending at the downside of our range, we are executing our plan to take out semi-variable and fixed costs, including in the U.S. air network, where we are adjusting package flows to maximize utilization on our next-day flights, which enables us to reduce block hours in our two-day operation,” said Tomé on the earnings call. “On the ground, we are pulling more volume into our large regional hubs, further leveraging the automation in those buildings and enabling us to eliminate sorts in smaller buildings. Driving more consolidation on the ground could potentially allow us to reduce our overall building footprint in the U.S.”

Tomé also indicated that the company has reduced scheduled international flights to reflect lower market demand, while still adding flights where needed if volume returns more strongly than expected. The CEO also said UPS will manage headcount internationally depending on volume levels, and will seek opportunities to further reduce costs by leveraging technology.