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6-Year UPS Deal Offers Predictability

Last week's tentative agreement between the International Brotherhood of Teamsters and United Parcel Service brings six years of labor peace, but could lead to rate increases higher than those that followed a Teamsters strike of UPS in 1997.

The six-year contract would be the longest ever between UPS and the Teamsters. Though the deal needs approval from the Teamsters' 230,000 UPS workers, that is expected to happen by mid-August.

“I believe our members will overwhelmingly ratify this contract,” Teamsters general president Jim Hoffa told reporters last week.

The six-year length provides stability that “enables UPS to remain strong in a very competitive industry,” said UPS chairman/CEO Mike Eskew.

Satish Jindel, a transportation consultant at SJ Consulting Group Inc., Pittsburgh, agreed.

“The contract will allow the UPS to continue offering the kind of service customers expect from the company,” he said.

But Jindel said the agreement likely will force UPS to raise delivery rates by larger percentages than it did after a 1997 Teamsters strike that cost the company $750 million.

“The rate increase wouldn't happen now, it would happen when UPS usually increases rates, at the beginning of the new year,” he said. “While the average commercial rate increase after the 1997 strike was about 3.2 percent per year, we suspect, based upon this new contract, that the average rate increase over the next six years will be higher than 3.2 percent, and closer to 3.5 [percent] to 4.0 percent.”

The previous five-year contract was valued at $4.2 billion while this one is valued at $9 billion.

Still, he doesn't think a rate increase will prompt business customers to switch to other carriers.

“[They] will find the same cost implications at other carriers such as FedEx, Airborne and the U.S. Postal Service,” he said.

The contract would give Teamsters a 25 percent increase in wages and benefits over six years. Full-time salaries would rise $5 an hour over six years over the current $22.10 hourly rate. Part-time workers would see a $6 per-hour increase over six years with the extra dollar over full-time employees designed to help close the pay gap with full-time employees. Part-time retirees will receive health insurance for the first time as part of the new deal. However, the contract limits mandatory overtime for union members.

The deal also includes 20,000 new Teamsters jobs. One group of 10,000 jobs would include shifting 2,500 jobs, starting in the third year of the pact, from part-time to full-time. The second 10,000 jobs involve changing the status of individuals who work for UPS or for temporary placement firms that are subcontracted by the UPS from non-union to union.

UPS said earlier this month it was losing 250,000 packages a day to FedEx and other rivals as customers fearing a strike shifted carriers. Because of those lost shipments, UPS cut thousands of jobs, many held by Teamsters. UPS is the country's largest employer of Teamsters. As for whether UPS will hire more people right now, “it all depends on package volume,” said Norman Black, a UPS spokesman. “If we increase the business and more packages come in, then we hire more people. But this is not part of the contract.”

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