United Parcel Service Inc. reached a tentative agreement to renew a five-year labor contract with the Teamsters union, staving off a possible strike as soon as next week that could have paralyzed shipments throughout the US and beyond.
The provisional deal, which needs to be ratified by the Teamster’s 340,000-strong membership in a vote next month, could be a good omen for negotiations between labor and management across several key industries. The UPS negotiations are a key test of unionized workers’ leverage at a time when wage growth is outpacing inflation.
Both sides praised the deal. Teamsters President Sean O’Brien called the pact the best-ever wrung from the courier. UPS Chief Executive Officer Carol Tomé said it provided her company with “the flexibility we need to stay competitive.”
The resolution of the tense talks would be a needed win for both leaders if it passes muster with the union’s rank-and-file. Tomé had insisted that a deal would get done to head off a strike as soon as Aug. 1. O’Brien sought to prove his negotiating smarts ahead of talks with other corporate titans, including Amazon.com Inc.
UPS didn’t confirm the union’s estimate that the contract includes $30 billion of new money over the five-year span of the contract. But calculations of labor agreements monetary impact often differ due to varying assumptions.
“UPS is best positioned to understand the cost of this agreement and will update guidance during our Q2 earnings call,” a UPS spokesman said in an email.
Earlier this month the company said it would hold off on reporting second-quarter earnings until Aug. 8 — the latest date it has ever posted midyear earnings since going public in 1999 — to allow more time for the labor talks.
UPS shares initially jumped on the news of a deal before swinging lower. The stock traded down 1% to $186.49 as of 2:40 p.m. in New York.
The higher cost of its labor force will likely force UPS to look for ways to boost efficiency at a time when package demand is declining and customers are looking to claw back pandemic-era surcharges and price increases. That overall market weakness compelled FedEx Corp. to undertake an effort to slash $4 billion of costs by fiscal 2025 and reap another $2 billion of savings by fiscal 2027 from the restructuring of its networks.
O’Brien had ratcheted up the pressure on UPS by starting the talks later than usual and insisting on doing first the regional agreements that were traditionally completed after the nationwide contract was ratified. The Teamsters won several concessions important to its members, including eliminating a class of drivers who earned less, air conditioning in new vehicles and an additional paid holiday.
Bigger Paychecks
The unionized workers also got pay gains. Existing full- and part-time UPS union workers will get $2.75 an hour more in 2023 and $7.50 per hour over the five-year contract, according to the union. Part-time workers will get a raise to no less than $21 an hour compared with the starting part-time wage of $15.50 for 2023 in the existing contract. Delivery drivers will have an average top rate of $49 an hour, the Teamsters said.
An agreement to increase starting part-times wages to $21 an hour is less than what some investors worried was a likely outcome, Stephanie Moore, an analyst at Jefferies who has a buy rating on UPS, wrote in a research note.
“Historically there are almost never any changes or adjustments made after a tentative deal is reached,” she said.
UPS union members will vote to ratify the new agreement from Aug. 3 to Aug. 22.
Shippers and investors were getting more nervous when the Teamsters broke off talks on July 5 after rejecting the company’s offer for part-time wage increases. UPS reached out to the Teamsters last week to renew talks. The agreement was finalized Tuesday in the first meeting of the renewed talks.
(Updates with UPS comment in sixth paragraph; Adds details throughout.)
