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Companies with unionized workforces, across multiple sectors of the supply chain, face aggressive labor negotiations at a time when shipping volumes have dropped and rates have fallen precipitously. The dual pressures of rising labor costs and falling rates are challenging carriers and creating risks for shippers. What’s the actual situation and how should shippers prepare?
Less-than-Truckload
Three top-ten LTL carriers - Yellow, ABF and TForce (formerly UPS) – face aggressive Teamsters contract negotiations.
ABF reached tentative agreement for a 5-year deal providing $6.50 per hour in salary increases plus enhanced measures to protect employee rights and job security. For example, the tentative agreement prohibits the use of invasive technology such as driver-facing cameras, and the use of autonomous vehicles.
T Force’s contract expires on July 31st. If an agreement is not reached by then, union members have already authorized a strike.
Yellow’s situation is different – its union contract is valid until next year. The company is heavily in debt and the CEO has stated that if labor does to agree to modify the current contract the business may close. Yellow’s demand includes immediate work rule concessions and an increased allowance for purchased transportation. The work rule changes would require about 15% of drivers to work freight on the dock and convert a similar percentage of workers from per mile pay to a lower per hour pay rate. Yellow has proposed a modest hourly wage increase, but also notes that it does not have the means to pay for those increases. The union is standing firm against the demands. Yellow seems to be running out of options and is now suing the union.
These hard negotiations are taking place in an environment where low shipment volumes are reducing carrier profits. For example, Fedex reported that its shipment volume dropped 18% from prior year.
Small-Parcel Delivery
UPS’s current contract covering roughly 330,000 employees expires on July 31st. The Teamsters have vowed to strike if a new contract isn't in place by August 1st. The Teamsters walked away from the negotiating table on Wednesday, demanding that UPS deliver its last, best, and final offer by Friday. The main sticking point in the contract negotiations is pay. UPS has stated that compensation and benefits are industry leading. The Teamsters General President was quoted saying UPS executives hoarded pandemic profits instead of sharing them with workers.
After two years of negotiations FedEx finally reached a tentative agreement with its pilots’ union on May 30. The agreement was reached only after the union overwhelmingly authorized a strike, and after 500 pilots picketed FedEx in Memphis
Ocean Transportation and Port Handling
Dock workers are looking back to the pandemic years when front line workers made sacrifices while the ocean carriers pulled in historic profits. They are flexing their muscles and have held out for strong agreements.
The International Longshore and Warehouse Union (ILWU) finally reached agreement with the Pacific Maritime Association after almost a year of negotiating. This 6-year labor deal covers all the dock workers on the U.S. west coast. Once ratified, the agreement will eliminate the threat of a strike or work slowdown and provide workers with a 32% salary increase over the 6-year period, and $70M in hero pay for work during the pandemic.
The ILWU in Canada has been without a contract or agreement since March. The union has authorized a 72-hour strike in the Canadian ports of Vancouver and Prince Rupert. The strike will start July 1st and effect many U.S. importers bringing Asian goods into the Midwest.
While these negotiations have been in play, spot market ocean rates from Shanghai to the West Coast have plummeted and are less than half what they were only a year ago.
Dueling Pressures and the Impact on Manufacturers
Having a key carrier in trouble can severely impact a manufacturer’s supply chain. Low rates often produce degraded service levels, as staffing is reduced or service offerings eliminated. FedEx Freight is closing terminals and furloughing employees. The ocean carriers have removed almost 25% of the capacity from the Asia/U.S. trade lane.
A strike or work stoppage produces delivery delays for everyone, not just those who ship with the carrier in question. If, for example, UPS were to go on strike, USPS and FedEx could not absorb UPS’s business volume of 20 million packages per day. One large carrier out of commission means many shippers will scramble for capacity.
Bankruptcy usually happens on short or no notice. It delays every customer’s freight indefinitely and disrupts the transportation market. When Consolidated Freightways declared bankruptcy in 2002, all its active shipments were kept in limbo until the bankruptcy court authorized release to other carriers.
To minimize risk, it’s first critical to assess your company’s exposure. Is your business dependent on any of the carriers or sectors under pressure? Evaluate inbound flows of raw materials as well as outbound flows of finished goods. Focus on the hottest concerns: LTL, particularly with Yellow, and small parcel, particularly shipped with UPS.
If your supply chain is exposed, don’t delay in making changes. Reintroduce your company to your secondary or alternate carriers. Make sure relationships are rekindled and rates are in place and divert some freight away to these providers now. Consider whether some cargo could be shifted to a different transportation mode. For example, could LTL shipments be held and consolidated into full-truckload (FTL) freight? Could some small-package shipments be consolidated and trucked to a hub for sortation with a regional small package carrier handling the final mile? For inbound flows, can orders be placed early to work around a strike deadline, or order sizes be adjusted to change the shipping mode?
Once your immediate strategy is in place, make sure the procurement process takes a holistic view when evaluating future providers. Assess the financial strength of vendors as part of your tendering process. Profitability and financial strength should be a key consideration when awarding new business. Or, at the very least, the risk of selecting the lowest-cost provider, and the cost of a mitigation plan, should be part of the decision-making. Post-COVID, a company’s reputation for good labor relations may be important to consider as well. Lastly, plan your supply chain for multiple scenarios as these situations are very fluid and can change rapidly.
Lauren Pittelli is the founder and principal of Baker Logistics Consulting Services, a consulting firm focused on addressing the international trade and transportation needs of industry. Her consulting services focus on 3PL selection and management, international air and sea transportation and customs and trade compliance. Prior to starting Baker, Lauren spent 30 years at leading international freight-forwarding companies managing their transportation, customs and contract logistics business in the Midwest. She is a graduate of Harvard College and a licensed U.S. Customs House broker.
