UPS Reaches Tentative Labor Deal to Avoid Teamsters Strike (1)

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 Teamsters’ 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.

WATCH: UPS and the Teamsters have a tentative deal.

Source: Bloomberg

Teamsters President Sean O’Brien cheered the deal, calling it the best ever wrung from the courier. The pugnacious labor leader has sought to prove his negotiating smarts ahead of talks with other corporate titans, including Amazon.com Inc.

The union secured higher pay and a number of key concessions from UPS important to its members, including eliminating a class of drivers who earned less, air conditioning in new vehicles and an additional paid holiday. In total, the Teamsters estimate that the contract includes $30 billion of new money over the five-year span.

The tentative pact garnered support from US President Joe Biden, who said it “moves us closer to a better deal for workers that will also add to our economic momentum.”

UPS didn’t reveal details of the agreement or confirm the union’s financial estimates, and calculations of labor agreements’ monetary impact often differ due to varying assumptions. A spokesman said UPS would share information on the potential costs and update guidance with its second-quarter earnings report

Earlier this month the company said it would hold off on reporting second-quarter earnings until Aug. 8 — the latest date it’s 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. Shares on Tuesday closed down 1.9%.

Still, UPS gains a measure of stability by removing the threat of a strike, which has been expected as soon as Aug. 1, the day after the current labor contract expires. Chief Executive Officer Carol Tomé has insisted that a deal would get done in time, and on Tuesday she said the pact provided her company with “the flexibility we need to stay competitive.”

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.

Bigger Paychecks

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-time 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 had gotten 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 President Biden comment in ninth paragraph.)

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Thomas Black in Dallas at tblack@bloomberg.net

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Richard Clough, Graham Starr

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