Why are UPS drivers about to strike?

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Without a deal, more than 300,000 staff members will be out of work on August 1. It will mark the delivery service’s first strike since 1997.

The conversation asked Jason Miller, a supply chain researcher at Michigan State University, to explain how likely this is to happen and what to expect if it does.

What are the reasons for this imminent strike?

Before the talks collapsed, the two sides had been negotiating extensively over a new five-year agreement that would cover about 340,000 unionized UPS workers.

The delivery company agreed to some of the Teamsters’ demands, pledging to:

  1. ending a two-tier pay system in which part-time workers earn an average of about $5 an hour less than full-time workers;
  2. Make Martin Luther King Jr. Day, the third Monday in January, a paid holiday;
  3. stop requiring UPS employees to work overtime on their days off;
  4. Adding fans and installing air conditioning in many trucks to improve cooling.

Remaining primary attention to sticking points part time workers. The Teamsters dispute UPS’ claim that part-time workers earn an average of $20 an hour. Instead, Teamsters president Sean O’Brien said they get paid “poverty wages. “

The Teamsters also want part-time workers to have early access to health insurance coverage, pension plans, and a clearer path to full-time employment. The union also seeks to resolve safety and health issues and “better pay for all workers,” as well as “stronger protection against administrative harassment.”

The impasse comes after two years in which UPS posted record profits. The company liquidated $12.9 billion and $11.5 billion, respectively, in 2021 and 2022. The company has nearly tripled its net income from the levels recorded in 2018 and 2019 of $4.8 billion and $4.4 billion.

The Teamsters argue that these record profits mean that UPS is able to pay higher wages.

What should consumers expect?

If unionized UPS workers went on strike, many American consumers would certainly fear delays in delivery of their online purchases. In my view, that’s a reasonable concern, given that UPS handles roughly 25% of all US package shipments.

The 1997 strike, which lasted 16 days, occurred when e-commerce was in its infancy. The Census Bureau only began tracking that segment of the economy in 1999, when online shopping accounted for about 0.6% of all retail sales. Today, consumers spend about 15% of their shopping dollars on e-commerce purchases.

If a strike occurs, UPS competitors including FexEx Ground and the United States Postal Service will likely be able to handle about 20% of UPS deliveries because the industry currently has some excess capacity.

This is because delivery workers are working fewer hours per week today compared to the height of the COVID-19 pandemic. Demand for package delivery peaked in 2021, when millions of Americans were still social distancing.

If a prolonged strike occurs, UPS could lose up to 30% of its business, experts warn, as customers turn to competing services.

The risk of losing market share leads many industry experts to believe that if a strike does occur, it will not last long.

What about business?

Approximately 57.3% of packages delivered by UPS are shipped directly to consumers. The rest goes to retailers and other businesses.

Based on my years of researching transportation and supply chain disruptions, I think Americans should recognize that the impact of the UPS strike will extend far beyond delayed delivery of everything from pet food to tennis racquets they buy online.

A UPS strike could disrupt the wholesale availability of auto parts and medical supplies, to name a few. Consumers will also find it difficult to get clothes and shoes in stores, as retail locations are usually refurbished by package carriers.

The supply chain for manufacturing computer and electronics products is likely to be disrupted, too, according to my analysis of data from the Census Bureau and the Bureau of Transportation Statistics that track how different industries move products to their customers. Farmers and construction companies trying to source parts for heavy equipment will see delays in these shipments, potentially leading to work stoppages costing tens if not hundreds of thousands of dollars.

Thus, the strike will cause many companies to scramble to meet customer orders, which could force them to spend more money on higher-priced air freight.

Even a 10-day strike could cost the US economy an estimated $7.1 billion, according to Anderson Economics Group — a research firm — making it the costliest strike in US history. These costs stem from the 340,000 striking workers losing an estimated $1.1 billion in wages and UPS losing $816 million in profits. The balance of this estimate may result from disruptions to UPS customers.

What do you think will happen?

Unlike the threatened rail strikes in 2022, there is no system in place for the federal government to prevent a UPS strike. On that occasion, Congress had the option to intervene, but an agreement was reached before the government could intervene.

However, it seems likely that there will be calls for the White House to bring the two parties back to the negotiating table.

Given that both Teamsters and UPS have an incentive not to see the company lose customers to competing shipping operations, I think they may strike a deal soon enough to avoid a costly and devastating blow. In line with this, UPS announced on July 19, 2023, that it and the Teamsters would return to the negotiating table before the July 31 deadline.

Jason Miller is Associate Professor of Supply Chain Management, Michigan State University.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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