UPS CFO Newman provides details on new deal with the Teamsters

Following the formal ratification of the new five-year contract between Atlanta-based global freight transportation and logistics services provider UPS and the International Brotherhood of Teamsters late last month, a high-level UPS executive provided an overview of the deal, from the company’s perspective, on an analyst call yesterday.

As previously reported by LM, the tentative agreement reached in late July between the parties was far from certain, as negotiations through July—and prior to that—saw the parties ostensibly refusing to budge on certain terms and conditions, with the possibility of a strike, for the United States-based UPS Teamsters members looking more and more like a possibility as July moved along.

When the tentative deal was reached, UPS officials said that the five-year agreement covers U.S. Teamsters-represented employees in small-package roles and is subject to voting and ratification by union members. The Teamsters, at the same time, lauded this deal as the most historic tentative agreement for workers in the history of UPS, calling the contract overwhelmingly lucrative, raising wages for all UPS Teamsters workers, creating more full-time jobs, and including dozens of workplace protections and agreements.

UPS Chief Financial Officer Brian Newman said on yesterday’s call that the company is very pleased with the new agreement, which covers more than 300,000 UPS employees, has been reached.

“We told you a year ago that we were confident in reaching a win-win-win agreement before the August 1 expiration of the prior contract. And that is exactly what we did,” he said.

Newman said that the contract is effective from August 1, 2023 to July 31, 2028, providing significant certainty around labor which is the company’s largest operating expense item in the US domestic segment.

“It continues to reward our employees with the best pay and benefits in our industry, which helps us attract and retain talent and provide industry leading service to our customers in total, including wage and benefit increases and all new or updated contract revisions,” he said. “Costs will increase at a 3.3% compounded annual growth rate, or CAGR, over the five-year life of the contract.”

One of the most important aspects of the new contract for UPS, observed Newman, is that the company retains flexibility to implement technology to further drive productivity inside its buildings while also increasing flexibility for seasonal support.

What’s more, Newman noted that by giving priority to its part-time union employees to become seasonal delivery drivers in their own vehicles, they can deliver packages before or after their regular shifts inside its operations.

“We gained the ability to schedule some of our regular full time package car drivers Tuesday through Saturday, in addition to Monday through Friday,” he said. “This was enabled through converting the approximately 13,500 weekend drivers, known previously as 22.4 drivers, to regular full time package car drivers. This allows us to continue to deliver for our customers on Saturday, which is increasingly important in today's environment. This change also enables us to end the force six-day punch overtime that impacted some of our employees, which will provide more work life balance for our people and reduce our overtime costs on Saturday. Speaking of weekend services, we protected our ability to support customers with a Sunday delivery option through SurePost. And we agreed to redirect more SurePost packages gradually over the life of the contract to UPS for delivery, which works in concert with our delivery density initiatives.”

In terms of employee compensation, Newman said that the ratification of this contract provides a reasonable wage and benefit rate increases while also protecting UPS’s ability to drive significant increases in productivity by deploying technology and enables UPS to attract and retain the most talented workforce in the industry.

Regarding changes in wages, he said that dollar amounts for full-time and part-time employee wage increases for existing employees who have completed progression will be the same and total $7.50 per hour over the life of the contract. And the average top rate for full time drivers will be $49 per hour in year five of the contract, which he said is the equivalent of total compensation of around $170,000 per year in pay and benefits. Part-time union employees that were already working at UPS by the end of this contract will make at least $25.75 per hour while receiving full health care and pension benefits.

“Looking at the part time starting wage rate, it moves from $16.20 per hour to $21 per hour and remains there until year five of the contract. All part time employees who are hired or reach seniority after August 1 2023 will receive an increase of 50 cents per hour each year of the contract,” he said. “Our part-timers make up approximately 55% of union employees while full-timers make up about 45% of our union workforce, and full timers represent more than 70% of wages and benefits paid. Lastly, these new wage rates should improve turnover and reduce the need for market rate adjustments. Over the life of the contract union payroll cost increases will average 3.5% CAGR. This includes 22.4 conversions, the Martin Luther King Jr. Holiday and converting 15,000 part time jobs into 7500 full time jobs over the life of the contract. Health, welfare and pension benefits will average a 2.7% CAGR over the life of the contract. Health and welfare contributions increased by $0.50 per hour each year, and there was no increase in contributions to multi-employer pension plans or MIP. This is the first contract in over 20 years that does not include an increase in the map contributions. Also, it's worth highlighting that 46% of the total annual contractual cost increase occurs in the first year of the contract. So,” while year one will be higher than normal years, two, three and four are at a much lower growth rate.”

Robert W. Baird and Co. analyst Garrett Holland wrote in a research note that the structure of the wage and benefits increase in the new contract, although front-loaded, allows time for UPS to invest in tech-driven productivity (important flexibility preserved in the deal), adding that it rewards employees and should further reduce turnover and provide workforce stability. 

Following the lead of its primary competitor FedEx, UPS last week announced its own 2024 rate increases this week, which are set to go into effect on December 26.

UPS said its pending rate increases include the following:

• the rates for UPS Ground, UPS Air and International services will increase an average net 5.9%;
• the list of ZIP Codes to which Area Surcharges apply will change; and
• the list of ZIP Codes aligned to certain zones will change

The 5.9% increase matches those previously announced by FedEx.

“Daily rates for our services will increase,” said UPS in a customer notice. “This helps to support ongoing expansion and capacity enhancements as we strive to maintain the high levels of service you expect from UPS.”

UPS will issue its third quarter earnings on October 26.