A potential strike at United Parcel Service (UPS.N) in the U.S. could be “the most expensive in at least a hundred years,” exceeding $7 billion for a 10-day work stoppage, according to a Thursday statement by the Anderson Economic Group (AEG), a think tank focused on labor action economic repercussions.
This projection from the Michigan-based AEG includes $4 billion in UPS customer losses and over $1 billion in foregone direct wages. A similar event, a 15-day UPS strike in 1997, disrupted goods supply, cost the global leader in parcel delivery $850 million, and drove some customers to competitors like FedEx (FDX.N).
Approximately 340,000 unionized UPS employees, handling about a quarter of U.S. parcel deliveries and serving nearly every U.S. city, could delay millions of daily deliveries. These include Amazon.com (AMZN.O) orders, electronic parts, and essential prescription medications, warn shipping experts. They also suggest this could rekindle supply chain issues that fuel inflation.
Negotiations between UPS and the International Brotherhood of Teamsters union are currently at an impasse.
The Teamsters have threatened to strike if an agreement is not reached before the current contract ends at midnight on July 31.
“Consumers will start feeling the impact within days,” stated AEG CEO Patrick Anderson, regarding a potential strike. He clarified that his assessment does not account for the human cost of disrupting critical and perishable medicine shipments, including treatments for cancer and other serious diseases.
A major issue in the negotiations is pay hikes for part-time workers, who make up about half of the UPS workforce. Experienced part-timers are particularly discontented because they earn only slightly more than new recruits, whose wages have increased due to a tight labor market.
According to Anderson, a UPS employee strike would pose a greater threat to the U.S. economy than a work stoppage by UAW workers at the “Detroit Three” automakers, who began contract negotiations on Thursday.
He pointed out that the auto manufacturer negotiations involve fewer workers and have a more localized impact. In fiscal 2019, a 40-day UAW strike that halted its profitable U.S. operations resulted in a $3.6 billion blow to GM’s (GM.N) fourth-quarter earnings.
Teamster negotiators are being encouraged by UPS to return to the negotiation table, but union officials argue that UPS needs to improve its offer for workers who risked their lives during the pandemic to help the company generate considerable profits.
Stifel analyst Bruce Chan recently noted that UPS is facing two unfavorable options: risk a strike and subsequent customer losses, or yield to Teamster demands, potentially exacerbating the company’s labor cost disadvantage against nonunion competitors in a time of inflation.
“Either scenario would be detrimental to UPS, so it might just be a matter of deciding when and how the company chooses to contend with the issue,” Chan added.