Labor Contract Discussions Start Early

May 16, 2007
UPS got an early start on negotiations with the International Brotherhood of Teamsters (IBT) when it announced in September 2006 it had begun talks with

UPS got an early start on negotiations with the International Brotherhood of Teamsters (IBT) when it announced in September 2006 it had begun talks with the Teamsters well ahead of the July 31, 2008 expiration of its current six-year agreement. Early talks typically focus on non-economic issues such as work rules and the rights of the union to organize.

For UPS, the issues facing it in its current negotiations have broadened since its acquisition of non-union Overnite Transportation (now UPS Freight). The nationwide less-than-truckload (LTL) operator was a target of an often bitter, three-year union effort to organize it which ended with the majority of Overnite operations remaining non-union. That was its status when UPS acquired the company, but shortly after that consolidation, the IBT split with the AFL-CIO and vowed to “organized the unorganized.” This goal explicitly named Overnite as a target.

To that end, the UPS Freight Negotiating Committee of the IBT says it is making progress towards a strong contract for UPS Freight workers in Indianapolis and it expects to start bargaining on economic issues with the management of UPS Freight. The Indianapolis contract talks cover 125 drivers and dockworkers, but the IBT is clearly negotiating a contract that it will use as a model for the remainder of UPS Freight as it goes forward with efforts to organize the national LTL unit.

Though the LTL contract and organizing efforts are separate from the negotiations with UPS, it seems clear the timing for UPS starting the larger contract talks early is not coincidental. Though some union members have voiced concerns that the early negotiations could undermine the union’s leverage at UPS, this is not the first time the company and the union have sat down at the bargaining table early. The six-year agreement currently in force at UPS got underway with non-economic issues in January 2002 and proceeded to an early conclusion, yielding an agreement two weeks before expiration of the old contract.

That contract was termed by IBT President James Hoffa one of the richest in UPS history. The two sides agreed to annual wage increases that would total $5 per hour for full-time workers over the life of the contract. It also provided a new cost of living formula and the equivalent of $3.75 per hour over the life of the contract for UPS contributions to health, welfare and pension. The current agreement also instituted a disability plan for the first time and offered a “catch-up” on the pay gap for part time workers. On the non-economic side, the contract included conversion of 10,000 part time jobs to full time and conversion of another 10,000 non-union (contractor) jobs to union jobs. Under the contract terms, UPS was also precluded from engaging in any alternative package delivery systems and was required to maintain neutrality on future union representation.

The IBT watched closely when UPS acquired Overnite to guard against a practice known as double breasting where freight is shifted from a unionized operation to a non-union division. It went so far as to pass out cards for UPS workers to fill out when they suspected freight may have been shifted to the LTL side.

At the time the UPS contract was negotiated, the LTL industry cast a concerned eye over the significant wage and benefit increases it contained. The LTL segment would not be able to match those terms in its own National Master Freight Agreement, it said.

The current National Master Freight Agreement (NMFA) governing unionized less-than-truckload (LTL) carriers expires on March 31, 2008, just ahead of the UPS agreement. With the IBT stepping up its organizing role and negotiating with UPS on both parcel and LTL matters, the UPS negotiations are bound to be watched closely for implications in the NMFA talks.

If past performance is any indication, freight diversions precede contract negotiations, and unionized carriers stand to suffer from the financial impact of shippers reallocating freight to protect their distribution channels. Before and during the 1998 NMFA contract negotiations, Yellow Transportation suffered an estimated 3.6% decline in volumes starting in late 1997 due to diversions. LTL carriers involved in those negotiations saw a revenue impact estimated at $325 million, according to Satish Jindel, president of SJ Consulting Group Inc. (Pittsburgh, Pa.

Jindel suggests the 2003 negotiations were less disruptive for carriers, in part because of the closure of Consolidated Freightways, one of the largest unionized national LTL carriers. There have been a number of changes at the other carriers who were party to that agreement. Since 1998, A-P-A Transport closed its LTL operations. Yellow Transportation, Roadway Express USF Holland and New Penn are now all under the YRC Worldwide banner. The remaining member of that negotiating group is ABF Freight System.

While the parties to the NMFA have contracted, FedEx expanded its capacity in the LTL market segment by acquiring Watkins and forming a long-haul LTL group. It’s timing may be impeccable if, as Jindel suggests, shippers show a preference for non-union long-haul LTL carriers in advance of the contract expiration. Though he says there are about 200 LTL carriers, most are small and regional, which places FedEx center stage as the alternative to union carriers.

As the parcel and LTL segments emerge from the effects of the current round of contract negotiations, the industry could undergo further fundamental changes. Jindel suggests the pressure of having an alternative LTL carrier in FedEx could work against the union. Could this open the door for YRC Worldwide, parent of both Roadway Express and Yellow Transportation to combine the two? Industry observers had suggested at the time of the Roadway acquisition that the two would eventually be combined, and the promise to operate two national LTL networks was actually meant to appease the Teamsters.

FedEx has not escaped the gaze of labor unions, and in a recent decision the National Labor Relations Board (NLRB) ruled a group of contractor drivers at a FedEx Home Delivery facility in Windsor, Conn. are, in fact, employees and eligible to vote in an upcoming union election. This is the fifth decision since November 2004 declaring drivers as employees.

The increasingly global nature of logistics has national labor unions looking for alliances to broaden their impact. The IBT, when it split with the AFL-CIO, had aligned itself with the Union Network International (UNI), a group made up of many of the world’s largest white collar service unions. This is not the only such global alliance. An international network of labor unions in 22 countries joined an effort it called the Maersk Union Network covering 32 trade unions at A.P. Moller-Maersk to present collective bargaining demands. The goal, according to one Danish union official, was to provide a counterweight to Maersk’s global clout and to elevate the dialogue to a global level.

Also on the maritime side, the International Longshore and Warehouse Union (IWLU) agreement with the Pacific Maritime Association expires July 1, 2008. In September 2002, a lockout virtually closed down U.S. West Coast ports for two weeks. Estimates of the economic damage caused by the shut-down run to $147 million per day.

While no one appears to be worried about a serious disruption, the timing of these major contracts (and the fact that a number of aviation industry contracts expire in 2008 and 2009) suggests shippers will be developing contingency plans and possibly diverting freight in an effort to avoid failures in their own supply chains.

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