UPS Sets Record Straight: ‘It’s Not a $30 Billion Deal’
UPS leadership cleared the air on the new contract that covers more than 340,000 union workers represented by the Teamsters.
Contrary to the union’s claims, the contract with America’s biggest package carrier amounted to less than $30 billion in new money, CEO Carol Tomé and chief financial officer Brian Newman told media this week.
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“It’s not a $30 billion deal,” Tomé told CNBC, while Newman told Reuters “our math was certainly lower” than the widely reported figure. Neither confirmed the contract’s dollar value, which averted a strike that could have cost the U.S. economy $7 billion in just 10 days of stoppage.
In a presentation Monday, Newman told investors that the labor deal will boost the cost of wages and benefits by an average 3.3 percent compound annual growth rate (CAGR) over five years, with 46 percent of the total cost increase coming in the first year.
“Year one costs more than we had originally forecasted. In fact, it cost about $500 million more in the back half of 2023 than we had originally planned,” Newman said. “The total—the 3.3 percent CAGR—is right in line with our expectations. We’re happy with the outcome, particularly given the current inflation levels compared to historical trends and the present labor environment.”
The 3.3 percent number goes beyond wage increases, and includes all contract provisions that impact operating costs, such as the benefit increases, job creation, air conditioning installation in UPS vehicles, new holiday pay, the conversion of the two-tier “22.4” wage workers, hiring of seasonal support drivers and the supplemental agreements.
The wage increase does not account for any productivity improvements over the next five years, or potential technologies introduced to improve operational efficiency.
Full-time unionized UPS drivers will average up to $170,000 in combined pay and benefits in the last year of the contract, confirming the numbers the Teamsters originally reported. Top rate average wages amount to $49 per hour.
New part-time workers will see their starting hourly pay rise from $16.20 to $21 in the deal’s first year, before jumping to $23 in year five. Current part-time employees will make $25.75 by year five, and receive full healthcare and pension benefits.
The part-time wage boosts were a significant win for the Teamsters.
“Our part-timers make up approximately 55 percent of union employees while full-timers make up about 45 percent of our union workforce,” Newman said. “Full-timers represent more than 70 percent of wages and benefits paid.”
The labor negotiations affected UPS’ financials. The company attributed $200 million in lost sales to the stalemate, and handled approximately 1 million fewer packages as concerned customers gave their business to other carriers.
UPS revenue declined 10.9 percent to $22.1 billion in the second quarter. Consolidated operating profit declined 21.4 percent to $2.8 billion. The Atlanta-based company cut its full-year revenue and profitability targets for full-year 2023.
Some analysts expected the company to offset the wage increases and overall margin pressure with a higher general rate increase (GRI), but UPS ended up matching FedEx with a 5.9 percent hike for 2024. It’s lower than the 6.9 percent GRI increase to start 2023, the company’s highest ever.
Newman, in the presentation, indicated that UPS can pull multiple levers to expand margins. The company is “pricing for the value we provide” and using automation to enhance productivity.
The company expects to complete phase one of the rollout of its Smart Package, Smart Facility RFID initiative in October. As of the end of the second quarter, 50 percent of U.S. facilities operated with the technology.
In the August earnings call, Tomé said that half of the RFID-fitted buildings have seen improper loading incidents improve from one in 400 to one in 1,000.
“There’s additional automation like robotic induction and automated bagging that’s ongoing,” Newman said.
He teased an initiative called “Network of the Future” as the company thinks about “redesigning the footprint of UPS across North America.” He said “delivery density” initiatives remain front and center, aiming to deliver more packages in fewer stops to improve route efficiency.