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End-of-July strike might permanently rob UPS of volume, analyst says

July 14, 2023
More freight-industry stakeholders—most notably 3PL AFS Logistics and TD Cowen in their analysis of their new Q3 freight index—prognosticate about a possible walkout by Teamsters at the giant parcel carrier and the impact of bankruptcy at LTL Yellow.

It could be the largest single-employer strike in U.S. history—and more trucking industry reaction is pouring in just in case some 330,000 U.S. employees of UPS go on strike Aug. 1 after negotiations with Teamsters broke down last week on a new pay-and-benefits agreement.

Trucking stakeholders checked in this week with FleetOwner about the possible ripples in trucking volumes, capacity shifts, switching cost increases, and the impact on the floundering spot market in the event of a walkout. More still consider the likelihood of a strike low and the possibility of a deal before July 31 high (the last work stoppage in 1997 lasted 15 days and cost UPS a lot—around $850 million and customers lost to rivals such as FedEx and DHL). But they also consider the implications different this time and possibly more severe should UPS workers hit picket lines in two weeks.

With the release of the third-quarter results from their freight index, third-party logistics provider AFL Logistics and investment bank TD Cowen offered some analysis about a strike at UPS (which is No. 2 behind only parcel-shipping rival FedEx on the FleetOwner 500: Top For-Hire Fleets of 2023) and the shockwaves it would cause.

See also: Yellow sues Teamsters over contract, analyst sees company in 'precarious' position

"In the event a strike does happen, practically speaking, the market simply cannot soak up the 20 million parcels UPS handles each day, and a significant backlog of packages would accumulate," AFS President of Parcel Micheal McDonagh said in a release with the results of their Q3 index. "Shippers desperate to avoid clogging their own warehouse space and the needs of certain high-value categories like health care and pharmaceuticals would fuel intense competition for any additional capacity to move priority volumes."

In 1997, UPS retained most of its package volume following the 15-day shutdown, but that volume might be lost for good this time around, according to the AFS/TD Cowen release: "In today's parcel market characterized by greater overall capacity and more carriers, a strike presents a greater risk that UPS could permanently lose volume—a long-term threat to Teamsters workers, too. In the near term, though, shippers face high costs and limited options to shift volumes away from UPS in the event of a strike, as deadlines set by FedEx and regional carriers for shippers to secure capacity have long since passed."

So far, 3PL AFS has not seen significant volume shifts away from UPS lanes, though Ken Adamo, chief of analytics for DAT Freight & Analytics, told FleetOwner earlier this week those ripples might start to be seen as soon as today.

McDonagh added: "In some cases, reallocating volumes to another carrier at this stage could move shippers to lower discount tiers and add significant additional cost. Carriers are not incentivized to activate additional capacity as a temporary, stop-gap measure to accommodate temporary shocks. Scaling up networks with additional capacity requires long-term commitments from shippers."

Where issues between UPS and the union stand

Amid continued dissatisfaction with the economic package that UPS was offering, including pay for part-time union employees, Teamsters representatives abandoned negotiations after the July 4 holiday. However, both sides blamed each other for walking away from the bargaining table.

"Refusing to negotiate, especially when the finish line is in sight, creates significant unease among employees and customers and threatens to disrupt the U.S. economy," according to an update posted July 7 by the parcel-shipping company, which by one UPS account represents 6% of all gross domestic product for the U.S. alone. "We have encouraged the Teamsters to return to the table to continue building on the significant progress we have made, including the recent completion of all local supplements."

See also: Bogus brokering met with aggressive counterattack

UPS has met some demands of the union, which represents more than half the company's workforce. The parcel giant ended a two-tier pay system in which part-time workers were paid $5 less per hour than full-timers. UPS also included Martin Luther King Jr. Day as a work holiday and agreed to end mandatory overtime on drivers' days off. And just last month, the company decided to equip more trucks with air conditioning equipment starting Jan. 1. Existing vehicles will receive other additions like fans and air vents. The issue has been a sticking point for the union since last summer when reports surfaced in the news of UPS workers hospitalized for heat exhaustion. This remains an issue with the record-breaking heat this summer.

If the stakes could be any higher, Michigan-based think tank Anderson Economic Group told Reuters that it estimates potential losses of a 10-day strike at UPS could top $7 billion, including losses by customers of the parcel carrier totaling $4 billion. Both numbers dwarf the losses through the 1997 work stoppage. The group also estimated to Reuters that the forfeiture of direct wages could exceed $1 billion.

Worries about Yellow and more from the AFS/TD Cowen analysis

UPS occupies a significant place in the AFS/TD Cowen analysis, but so does less-than-truckload carrier Yellow (No. 6 on the FleetOwner 500: Top For-Hire Fleets of 2023), which has its own ongoing dispute with the Teamsters—a pending lawsuit that accuses the union of breaching its contract with the giant LTL, sabotaging its business planknown as its One Yellow restructuring, its third reorganization in 15 yearsand putting Yellow at risk of needing to liquidate in bankruptcy. Like UPS in the parcel market, the situation at Yellow threatens to disrupt the LTL segment, according to the AFS Logistics/TD Cowen analysis.

 "Sluggish demand pushes carriers to drop rates, but the move by FedEx to close 29 locations is indicative of the broader trend of LTL carriers removing excess capacity and cost to mitigate the extent of the decline," AFS President of LTL Kevin Day said. "A major threat to the current favorable trend for shippers is a potential Yellow bankruptcy. That's a wild card that could present an extraordinary opportunity for LTL carriers to push up rates in a way that's inconsistent with current data."

Overall, the AFS/TD Cowen Index, a snapshot of predictive pricing for the truckload, LTL, and parcel transportation sectors, projects the first quarter-over-quarter increase for truckload rates since Q1 of 2022 "while competition among carriers for falling freight volumes is expected to drive continued declines in LTL and parcel rates in the third quarter."

AFS CEO Tom Nightingale added: "The COVID era made unanticipated shocks a near constant for logistics operations, and further risks lie ahead. The parcel market is reckoning with just how costly and chaotic a [UPS] strike could be, while the potential bankruptcy of the nation's third-largest LTL carrier [Yellow] could throw a supply-side shock in an otherwise soft market. But as the risk of turmoil generates headlines, market conditions still favor shippers, even with truckload finally sending signals of price resilience."

ACT: U.S. freight market 'bouncing along the cycle bottom'

According to the July 13 release of its Freight Forecast: U.S. Rate and Volume Outlook, ACT Research touches on the troubled spot market for freight (which a UPS strike, if it takes place, is expected by DAT's Adamo to severely disrupt), suggesting record declines in rates "should be pushing out more jobs, generating the kind of creative destruction needed to set up the next cycle, while tremors in the LTL market could press the industry rebalancing forward."

"While there may be capacity reduction in LTL soon, fleets are focused on retention despite record rate reductions, resulting in a gradual rebalancing," added Tim Denoyer, ACT's VP and senior analyst.

"The preliminary [U.S. Bureau of Labor Statistics] data set, which we think gets closest to drivers, added 2,300 jobs in May, defying gravity for now. Some of this probably came from the owner-operator community, where net revocations of DOT operating authorities continue apace. We estimate another 12,400 total revocations of operating authority and 2,950 net revocations in May, bringing the total contraction in the industry since last October to over 15,000 fleets."

About the Author

Scott Achelpohl | Managing Editor

I'm back to the trucking and transportation track of my career after some time away freelancing and working to cover the branches of the U.S. military, specifically the U.S. Navy, U.S. Marine Corps, and the U.S. Coast Guard. I'm a graduate of the University of Kansas and the William Allen White School of Journalism there with several years of experience inside and outside business-to-business journalism. I'm a wordsmith by nature, and I edit FleetOwner magazine and our website as well as report and write all kinds of news that affects trucking and transportation.

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