So the big news this week in the transportation world was UPS’ reported miss on earnings and revenue for the 1st Quarter of 2023, along with lowered outlook for full year revenue and margins. For the quarter ended March 31, net income fell to $1.9 billion, or $2.19 per share, from $2.66 billion or $3.03 per share, a year earlier. Revenue fell 6% from the same quarter last year.
In opening statements made by UPS CEO Carol Tome on the UPS earning call held on 04/25/23, she suggested that the volume misses were being driven by the downturn in the US economy. She said that “In the U.S., relative to our base plan, volume was higher than we expected in January, close to our plan in February, and then moved significantly lower than our plan in March, as retail sales contracted and we saw a shift in consumer spending.” She noted that a “change in consumer shopping behavior” has led to increased spending on services and categories such as food and dining, rather than the kinds of goods that might be delivered by UPS.
We found it interesting that initially, Tome and UPS CFO, Brian Newman did not attribute any of the volume declines to the impact that the UPS Teamster negotiations could be having on customer behavior. We know for sure that FedEx and other carriers have been using scare tactics in their recent sales efforts. Customers have been told by UPS competitors that “if you don’t move volume to us now, we will not be able to help you if there is a UPS work stoppage.” This has been coupled with aggressive pricing offers that have made it attractive for customers to move volume away from UPS.
In her opening comments, Tome remained consistent in her message regarding the Teamster negotiations. She continued to express her confidence that a new agreement will be reached before the end of July. She stated that “Negotiations on a new contract with the Teamsters are underway and good progress has been made on many of our local supplemental agreements.”
Apparently, we were not the only ones thinking that the Teamster negotiations are impacting UPS volume. During the Q&A portion of the UPS earnings call, one of the analysts covering the call, Amit Mehrotra of Deutsche Bank, asked the difficult question related to the negotiations. Amit stated “Carol, it’s great that you think a win-win-win is still achievable, but the rhetoric is getting like really bellicose. And so, I’m wondering if you’d give some color on that dynamic because it seems like it’s costing you guys some volume right now.”
The responses that Tome and Newman had for this question seemed to suggest that only a small part of the volume decline is being driven by customer concern related to the UPS Teamster negotiations. Tome stated “If we look at the year-over-year decline in the U.S. a little over 1 million packages today, we would attribute over 60%, nearly 62% of the decline due to macro and a plan decline with our largest customers. We’re declining with them in a mutually agreed way. So it’s really a macro story here and we’re delighted to see that the volume has stabilized.”
However, as Tome continued to respond to the analyst’s question, she did acknowledge that some declines could be driven by customers diverting to protect themselves from a UPS work stoppage. In discussing UPS plans for growing volume, she said, “The third leg of our strategy is to win back for any volume that has diverted. And we did have some it would be unreasonable to expect that we wouldn’t have any for volume that has diverted. We are going to win it back because they’ve told us they’re coming back.”
Based on what ICC Logistics is seeing in the marketplace, we feel that it will be interesting to see if this is actually the case.
There continues to be a major difference in how the Teamsters and UPS are viewing the progress of the negotiations. At this point, the National Negotiations have not started. They were supposed to begin on April 17th. However, the Teamsters have refused to start them until all of their Supplement Agreements have been settled.
According to Tome, “There was some noise about supplemental agreements. We have over 40 supplemental agreements with the Teamsters. We have been negotiating in good faith with the Teamsters on those supplemental agreements and have made very good progress.”
This is a far cry from how the Teamsters are perceiving the progress being made. Following the UPS earnings release and analyst call, the Teamsters communicated the following message to their members; “During a virtual meeting this evening of the UPS Teamsters’ national committee, leaders and members reported the many ways UPS keeps dithering on major supplemental proposals. The company’s actions are a far cry from the collaborative presentation of itself shared during an earnings call with investors this morning. It went on to say that “After another full day of bargaining, including in New York, Northern California, Connecticut, and Atlanta, several of the Teamsters’ supplemental negotiating committees said that they still are not seeing enough movement by UPS.”
All and all there appears to be an ongoing disconnect between the Teamsters and UPS. It is disturbing to see both sides minimize the impact that these contentious negotiations are having on UPS volumes, which in turn impacts the Teamsters jobs. As described above, UPS Leadership is communicating that the contract negotiation concerns are only having a limited impact on volumes. Teamster leadership has stated in internal communication to their members that “They sit across the table from us and whine about the competition.” ‘
Meanwhile the reality is that packages are moving away UPS. UPS leadership SHOULD be whining about it. Teamster leadership should be whining about it too! After all – Less UPS packages = Less Teamster jobs.
As we reported in our first article on this topic back on January 3, 2023, the competitive landscape has changed immensely since the last UPS strike in 1997. Following that strike, the packages did come back to UPS. UPS has historically lost packages to competitors due to customer anxiety tied to Teamster negotiations. Yes, those packages often returned to UPS after negotiations were settled. But with the many new carrier options that exist today, along with improving quality of service that other Non-union/ lower cost carriers are providing, one has to wonder how much volume will come back this time??
Either way, it is apparent that UPS and the Teamsters need to come together in the short term to avoid further, potential long term damage to the company as well as the union.
- Can/Will UPS give in to all of the demands that the Teamsters are making?
- Will the Teamsters back off of their claim that they will not provide any concessions in these negotiations?
- Will we get the sense of better collaboration from both side in the coming weeks?
These are all things that we will be monitoring and reporting as these talks progress. So, please be sure to keep your eye out for future communications on this topic.
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