UPS-Teamsters pact to increase costs, expand delivery services

Shipping prices likely to go up, but deal locks in certainty, opens door to more weekend deliveries

Credit: TNS

Credit: TNS

Sandy Springs-based UPS spelled out on Monday some of the financial terms of its new labor deal with the Teamsters, with initial raises costing more than planned, but the deal opens the door for more automation and flexibility for weekend services for customers.

UPS said increased costs in the new Teamsters labor contract, including hefty initial pay raises, are about $500 million more than expected. The shipping giant is focused on offsetting the increase in labor expense — which will likely mean higher shipping costs.

“It means pricing for the value we provide,” said UPS Chief Financial Officer Brian Newman during an investor presentation posted Monday. UPS announced last week its rates for 2024 will increase by an average of 5.9%, on par with FedEx’s increase. The new UPS rates take effect Dec. 26.

UPS also plans to use more automation and robotics in its warehouses to reduce expenses.

Teamsters members ratified the UPS contract last month with 86.3% of votes cast in favor, and pay raises took effect Aug. 27. With the deal inked, UPS laid out for investors what the company’s wins were in the labor deal.

The 5-year UPS agreement with the International Brotherhood of Teamsters covers some 340,000 drivers, package handlers and other workers, making it the largest private collective bargaining agreement in North America.

The new contract means higher wages, more full-time jobs and protections for UPS workers, including immediately giving current part-time workers raises from wages starting at $16.20 to at least $21 per hour. Part-timers make up about 55% of union workers at UPS, according to the company.

Full-time delivery drivers will get wage increases to an average top rate of $49 per hour by the end of the contract.

Existing full-time and part-time workers will get $7.50 more per hour over the length of the contract

“It will reward our employees with the best pay and benefits in our industry, and ultimately lower turnover costs and creates stability across the workforce,” Newman said during his presentation.

He acknowledged that the first year of the contract costs about half a billion dollars more than forecast for the second half of 2023. But he said over the full five-year-term, the new contract will drive a 3.3% compound annual growth rate in operating expense, in line with the company’s expectations.

“So we’re happy with the outcome, particularly given the current inflation levels compared to historical trends and the present labor environment,” Newman said.

Newman said with the new contract, the company will also gain more flexibility to roll out technology to increase efficiency. It can also schedule drivers on a Tuesday-Saturday schedule in addition to Monday-Friday, while eliminating a two-tier pay system that Teamsters negotiators opposed and forced sixth day of overtime in a week for some employees.

“This allows us to continue to deliver for our customers on Saturday, which is increasingly important in today’s environment,” Newman said. Overall, the new contract “protects our ability to drive significant increases in productivity by deploying technology, and enables UPS to attract and retain the most talented workforce in the industry,” he said.

The contract also protects the ability of UPS to offer a Sunday delivery option through SurePost, its partnership with the U.S. Postal Service. The labor agreement also for the first time in more than 20 years did not include an increase in contributions to multi-employer pension plans, according to the company.

The disclosures come after UPS last month said sharp declines in revenues and profit triggered job cuts and reductions in labor hours in the second quarter, which will partially offset increased labor costs.

UPS began losing some business to competitors earlier this year when customers were worried about how they would move their goods if a strike had happened.

On Monday, Newman warned that lower volume is driving a $500 million impact to operating profit with the vast majority of that impact in the third quarter, along with costs to ramp up for the holiday season.