Yesterday the Teamsters ratified their five-year contract with UPS with 86% of its members voting in favor. This makes it official: There will not be any strike at UPS. That’s good news!
Now, to quote Paul Harvey, let’s take a look at “the rest of the story” and assess how this new contract will affect most, if not all shippers in North America – not just parcel shippers – for the next five years.
First, as we have mentioned in recent Two Minute Warnings, this new contract means that carrier costs – not just for UPS but for almost every carrier – will be going up over the next five years. And higher costs for carriers means higher rates for shippers.
As we learned during our discussions with several senior level executives for both LTL and truckload carriers, the UPS contract will serve as a bellwether on where driver compensation will be heading. So when the CEO of UPS, Carol Tome, announced during an earnings call earlier this month that their drivers will be making around $170k with benefits included at the end of the new 5-year contract, it creates a set of expectations for truck drivers and carriers alike: Carriers will be paying their drivers more. It may not be anywhere near what UPS will be paying, but it will definitely be more than what they are paying their drivers today.
Second, in their press release proclaiming their “historic victory” the Teamsters highlighted the $30 Billion – that is Billion with a Capital “B” – price tag of this contract. While much of this comes in the form of higher pay, UPS also agreed to other changes affecting driver conditions and work rules. Once again, expect the Teamsters and other carriers to look at these changes as the “Model” about what to expect in the future when looking at what drivers can and will be doing.
Third, with higher carrier costs and potentially higher rates on the way, now is the time to make sure you have a written LTL Sourcing Strategy that addresses how to work with your carriers to get the best results possible. A plan that includes the use of a Carrier Yield Test, and also looks at process changes that can lead to a shared cost savings model with your carriers.
If you don’t yet have that plan in writing, don’t worry. Instead just give us a call. We are experts at working with shippers to create effective strategies that can actually reduce your freight costs even when rates are going up.
In closing, in light of the UPS agreement, shippers have basically two choices in conducting their transportation sourcing events: Maintain a “business as usual” model and watch freight costs go up by around 8-12% per year, or take action.
If you’re looking for lower costs and help in conducting a sourcing event that is the best fit for your current freight operations, we encourage you to get in touch by giving us a call, sending us an email, or booking a time to meet.
BY MIKE REGAN, CO-FOUNDER OF TRANZACT
