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Predictions of supply chain shock from UPS strike multiply

July 20, 2023
Package delays, held shipments, a spot-market surge, demand spikes but shrunken capacity—all predicted effects of a walkout at the package-delivery giant after the current contract expires July 31. A strike, one analyst said, could cost billions per day.

As the July 31 strike deadline draws closer for about 340,000 Teamsters at UPS Inc. and shippers start contingency planning in case the parcel giant is slammed by a work stoppage that might be the largest in U.S. history, predictions of growing severity are starting to proliferate about what the walkout would mean for a supply chain that has just gotten back on its feet post-pandemic.

“UPS is a significant service provider, operating in many verticals,” said John Luciani, COO of less-than-truckload solutions at Northeast U.S. trucking company and package transporter A. Duie Pyle, “and I believe any labor disruption will have significant impacts across a broad spectrum of service providers, including hospitals, pharmaceuticals, retailers, e-commerce, financial institutions, real estate companies, government agencies, along with many more industries not even considered during this response.”

See also: End-of-July strike might permanently rob UPS of volume, analyst says

Spencer Shute, principal consultant at Proxima, a supply chain consulting firm, added in an email: “Competitors FedEx, [the U.S. Postal Service], and regional and local providers simply do not have capacity to take on this volume. While some mitigation steps are in place with shippers diverting volume and UPS committing to prioritize certain customers by using non-union labor, the impacts will be felt by shippers and consumers across the country.”

Shute added: “Significant delays, held packages, and increased costs, all through spikes in demand with reduced capacity, would spark supply chain disruptions within the U.S. across all sectors. The financial impact on the U.S. economy is estimated to be in the billions per day and would grow if a prolonged strike is realized.”

Atlanta-based UPS is No. 2 behind only FedEx Corp. on the FleetOwner 500: Top For-Hire Fleets of 2023 and operates more than 157,000 total vehicles. A Forbes study claimed that UPS overtook FedEx last year as the world's top package handler. UPS itself has claimed to account for 6% of the entire gross domestic product in the U.S. alone, highlighting the implications of a potential work stoppage there. The last 15-day strike in 1997 cost the company around $850 million, but a Michigan think tank estimated last week that a 10-day walkout this time could top $7 billion.

Freight market ripples continue, even if a UPS strike is averted

Since the last talks toward a settlement broke down after the July 4 holiday, analysts still see the chances of a strike low but increasing and prospects for a settlement still high. But they have been trying to gauge the potential impact—and even measure the reverberations in the runup period until Aug. 1, when the UPS Teamsters have said they will walk out, and shippers have been needing to plan diversion of shipments.

The head of the Teamsters asked President Biden not to intervene in the dispute, apparently trying to ramp up pressure on the company, while UPS has responded by urging union members to return to the bargaining table and also activating “business continuity plans” to train its non-union employees to keep packages moving in case its unionized drivers do go on strike. Unionized UPS workers held two rallies on July 18 in Louisville, Kentucky. No new talks in the dispute are scheduled. Teamsters leadership obtained strike authorization in a membership vote last month, but spirits remain high among Teamsters members from UPS now that negotiations are frozen. A strike could effect 30% of all parcels shipped, according to estimates.

About the impacts, even if no strike occurs, Shute added in the email to FleetOwner: "The supply chain impacts with a negotiated deal before or after the deadline means increased costs for shippers. One of the primary sticking points in the negotiations has been around driver pay. An increase is guaranteed, but how much is yet to be known. These costs will ultimately be passed on to shippers in the form of annual general rate increases and accessorial adjustments. As competitors work to retain drivers, they too will likely increase driver pay as well, meaning shippers won’t just see rate increases with UPS but across the parcel industry."

See also: Freight-market ripples ahead of possible UPS strike

A. Duie Pyle’s Luciani added: “Customers are contingency planning in order to protect their businesses, their customers, and their supply chains. UPS shippers are looking to understand available capacity in LTL networks, minimum shipment sizes the LTL carriers will handle, on pallets or loose, along with the costs/pricing impacts of handling these smaller shipments. Interestingly enough, traditional LTL shippers are also concerned about the potential service impact to an LTL network if there is a significant increase in parcel-type shipments.”

“At Pyle, we are being disciplined to support customers that use both UPS and Pyle in our Northeast footprint and have set a minimum shipment size moving on a pallet,” he said. “We are not equipped to lose cartons or envelopes. We are, however, planning to support existing customers that communicate with us in advance so that we can understand, plan, and protect service and quality to our existing customers.”

David Madland, senior fellow at the Center for American Progress and a senior adviser for the American Worker Project, explained to Yahoo Finance how the UPS driver strike could hurt the economy, questioning whether workers feel they’re fairly compensated for “all they did for the economy” during the pandemic and achieving near-record profits for parcel-delivery giant UPS.

How to prepare for freight disruption in case of a UPS strike

Charles Haverfield, CEO of U.S. Packaging & Wrapping, emailed advice to trucking stakeholders intended for businesses needing to prepare for disruption from a possible strike by UPS drivers, noting that UPS rival FedEx is accepting additional parcel volume for a limited period ahead of a work stoppage at UPS.

Find alternative shipping providers: “Finding a substitute carrier may be easier said than done,” Haverfield advised. “It’s estimated only 10% to 20% of UPS shipments could be picked up by carriers in the event of a strike. Heightened pressure on competitor carriers means it’s likely the biggest companies won’t be able to fulfill all deliveries, leaving millions without their packages for days or weeks on end. The best approach is for businesses to cast their net wide. Alongside larger carriers, businesses should also forge relationships with smaller shipping companies."

Anticipate higher delivery costs: “With mounting pressure on alterative carriers to fulfill orders, increased shipping rates should be expected,” Haverfield continued. “This is particularly true if switching to smaller carriers, where consumers can’t benefit from economies of scale due to UPS’s unrivaled size and capacity, or no relationships have been built with carriers to secure discounted prices.”

Be prepared for additional fallout: “The U.S. narrowly escaped a recession in 2023, but severe supply chain disruptions and chaos to businesses could tip the economy,” he advised. “So, now is a good time to evaluate the resilience of supply chains and identify areas for improvement. However, it’s important to keep in mind the impact of a UPS strike on the U.S. economy would depend on the duration and severity of the strike, as well as the ability of alternative delivery services to absorb the increased demand. Establishing contingency plans now can help prevent disruptions for any likely future strikes.”

This article originally appeared on FleetOwner.com.

About the Author

Scott Achelpohl | Managing Editor | FleetOwner

I'm back to the trucking and transportation track of my career after some time away freelancing and working to cover the branches of the U.S. military, specifically the U.S. Navy, U.S. Marine Corps, and the U.S. Coast Guard. I'm a graduate of the University of Kansas and the William Allen White School of Journalism there with several years of experience inside and outside business-to-business journalism. I'm a wordsmith by nature, and I edit FleetOwner magazine and our website as well as report and write all kinds of news that affects trucking and transportation.

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