Growing Labor Woes Could Wreak Havoc on Package Deliveries

Growing Labor Woes Could Wreak Havoc on Package Deliveries July 7, 2023

Labor woes and what's at stake in a shipping strike?

While labor issues have been commonplace throughout the pandemic, the news of a possible UPS strike this summer prompted many in the industrial and retail sectors to prepare for yet another disruption to the Back-to-School and holiday shopping seasons. While a compromise can always take a strike off the table, this is a good time to examine the shipping industry’s critical role in ecommerce and how the industry has diversified and used technology to help manage these types of business risks.

Erik Foster

Head of Industrial Capital Markets
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Labor woes weigh on retail and industrial sectors

The proliferation of online shopping has dramatically changed consumer buying habits and created expectations for quick shopping and delivery. Those “always on” shopping habits could face significant headwinds with a potential labor strike by UPS or, in the future, another carrier.

The Teamsters union representing 340,000 UPS warehousing, transportation and delivery workers recently announced plans to strike if new contract terms are not met by July 31, when the current contract ends. A strike would set off what could be the largest U.S. labor strike in decades. Given that UPS fulfills about 25% of the parcel deliveries in the U.S. -- or approximately 20 million packages a day-- a work stoppage could have significant ramifications for the flow of goods across the country. While the strike may still be averted through ongoing negotiations, retailers are preparing as they face the critical back-to-school and holiday shopping seasons.

The pandemic’s impact on labor relations

The UPS labor dispute is the latest in a series of labor issues impacting the country, as many employee groups that were on the front lines during the pandemic ask for higher pay and improved working conditions. Many are tracking revenue gains by UPS and other logistics companies and asking for higher compensation. The UPS strike announcement comes on the heels of work stoppages by longshoremen and port workers at West Coast ports and a threatened strike last year by U.S. rail workers.

The 12-month trailing profits at UPS rose 30 percent between Q4 2020 and Q4 2022, according to financial date company Macrotrends. Since the last five-year contract achieved by the Teamsters and UPS in 2018, the company profits increased to $11.5 billion, due in large part to the surge in online shopping during the pandemic. UPS and other shippers are now seeing a modest decline in activity due to a softening in the market, but activity levels are still notably higher than before the pandemic.

UPS workers last went on strike in 1997 in a 15-day walkout that was devastating for the company. While some experts predict that a short strike would be less severe than the strike in 1997 due to the many shipping alternatives today, it might still disrupt the supply chain at a critical time for retailers. As millions of consumers rely on package delivery for clothing, food, electronics and other goods, a strike would bring a large portion of the economy to a standstill. It could also have implications for future labor issues, as unions are trying to organize Amazon workers and those at Starbucks and other companies.

The good news is that the logistics industry has better technology today to help businesses model and plan for strikes and other risks. Many retailers and distributors have already adopted multi-carrier shipping plans to diversify their risks. And, retailers such as Walmart and Target have built their own last-mile delivery operations with a focus on customers picking up items in the stores instead of shipping them. There also is less demand today than during the pandemic and retailers have less inventory to bring in for the key shopping seasons.

What’s ahead?

Many experts in the logistics sector believe a prolonged strike would be detrimental to UPS and the union, creating plenty of disruption and lost revenue. In essence, both sides have an incentive to work out a deal to avoid a strike or at least keep it from becoming a protracted event. Given that there are many more delivery options today, a strike would drive customers to seek out other shippers to fill the gap, potentially reducing UPS’ client base on a long-term basis. Having both sides come to agreement would bode well for UPS, the logistics industry and the many retailers that are counting on millions of Back-to-School and holiday deliveries.

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Sources: CBS News, CNN, Sacramento Bee, Total Retail