UPS Inc. (NYSE:UPS) said today it will temporarily suspend the operations of its less-than-truckload unit, UPS Freight, at least until Teamsters union members vote for a second time on a collective bargaining agreement, and it has advised customers in the meantime to seek alternate sources of capacity.
Atlanta-based UPS said in a statement that it took the action to avoid stranding customer volumes in its system should the Teamsters call a strike of 12,000 UPS employees at the unit. UPS said it plans to empty its pipeline of freight by Nov. 9.
The rank-and-file will cast votes between Nov. 9 and 11 on the second iteration of a five-year collective-bargaining agreement that members rejected once before. The votes are set to be counted on Nov. 11. The union has said it can call a strike any time after 12:01 AM ET Nov. 12 if the second version is rejected. Barring ratification, a 30-day contract extension that was agreed to last month would expire on that date, meaning that the current contract would lapse. Should the latest version be ratified, operations would resume the next day or shortly thereafter, according to Glenn Zaccara, a UPS spokesman.
In the statement, UPS said the tentative pact “rewards our employees with wages and benefits at the top of the industry and compensates them for their contributions to the success of the company.” It expressed disappointment that Teamster freight leaders have “chosen to announce the potential” for a strike if the latest proffer is turned down.
More than 60 percent of UPS Freight voters rejected the initial proposal in October, saying it proposed substandard wage increases and did virtually nothing to address the contentious issue of line-haul driver subcontracting. The second version, which was put before members after negotiators met on Oct. 25, was a modest improvement over the original, according to the UPS Freight negotiating committee. Still, it wasn’t good enough for the committee to recommend ratification, it said. Should the members reject the latest version, the committee said it would have no choice but to call a strike once the 30-day extension period expires.
UPS had characterized its second proposal as a last, best and final offer. The Teamsters said in a statement today that UPS has no one else to blame for the current situation. “This company made the decision to give a last, best and final offer and to stop taking freight,” the union said. “This could all have been resolved by the company addressing the key issues at the negotiating table.”
According to a letter sent to an unidentified UPS Freight customer and obtained by Freightwaves, effective today no UPS Freight volume will be picked up if its delivery date is past November 8. As a result, today will be the deadline for pick-ups that have five-day shipping commitments, while tomorrow will be the last day for shipments with four-day delivery deadlines, according to the letter. Next Wednesday will be the last day for pick-ups under the emergency schedule, and that would only be for shipments scheduled for next-day deliveries.
UPS has pledged that customers with bundled contracts and those with financial incentives dependent on UPS Freight will be made financially whole. UPS Freight is the nation’s fifth-largest LTL carrier with 2017 annual revenue of about $2.6 billion. It employs about 12,000 Teamster members. It moved 2.8 billion pounds in the third quarter, according to company data.
Unlike the larger and fragmented truckload sector, the lion’s share of LTL freight is hauled on the trucks of about 8 to 10 carriers. LTL capacity is already tight even with UPS Freight in service. “Today’s announcement will leave many retailers scrambling to find alternative carriers” as the holiday shipping season approaches, according to Rob Martinez, president and CEO of Shipware, LLC, a transport consultancy. UPS Freight customers will need to contact other carriers directly, or work with brokers and 3PLs to procure capacity, he said.
According to a source closely involved with LTL, the top 10 carriers will end up with about 95 percent of any diverted business. Overall on-time performance will fall by 5 to 10 percent, and there will be more incidents of damaged freight. All users will be hit with price increases, with small to mid-size businesses being hit with 10 to 20 percent hikes until at least the first quarter, the source predicted.
For some of the more militant Teamster factions, a strike against UPS Freight is the ultimate leverage given that the company and mainstream Teamster leadership—which negotiated the original agreement—clearly don’t want a strike. Some in the union are steaming over the leadership’s decision to ratify the much-larger small-package contract even though 54 percent of those voting had rejected it. The leadership invoked the so-called two-thirds provision in the Teamster constitution that requires a contract to be ratified if less than 50 percent of eligible voters cast ballots, unless two-thirds or more who voted rejected it. About 42 percent of 209,000 eligible voters cast ballots.
The same scenario could be replayed at UPS Freight. However, it would seem doubtful that voting interest among the rank-and-file would have waned since early October.
The company is taking on some risk as well, especially if diverted business never returns. That was one of the outcomes of the famous 15-day nationwide Teamster strike in 1997 that shut down UPS’ system and sent mountains of parcels elsewhere. Some of that business never went back to UPS. The company did not have a dedicated LTL operation back then.
Zaccara, the UPS spokesman, declined to speculate on what would happen if the Teamsters rejected the latest version but its leadership waited beyond Nov. 12 to call a strike.