After the UPS-Teamster Contract Agreement, What’s Next for Supply Chains?

Just as supply chains began to normalize after years of upheaval from the COVID-19 pandemic, there were fears of a strike from the Teamsters union negotiating a new contract with supply chain giant UPS. Had the historic strike occurred, the disruption to shipping would have caused significant delays in deliveries and cost the economy billions of dollars. With the tentative July 25 contract, that crisis appears to have been averted. What happens now?

In a recent Q&A with the University of Tennessee, Knoxville’s Haslam College of Business, Alan Amling, assistant professor of practice with the college’s Department of Supply Chain Management, employs his 27 years of experience with UPS to explain what this development means.

Assuming the contract is approved, what are some takeaways for supply chains and consumers?

Amling: We’re going to see higher prices because of the wages increase. UPS will push as much of that rate increase as they can on shippers. Likewise, shippers will raise prices on consumers.

For UPS competitors, this agreement also has some implications. The Teamsters wanted a very strong contract, which I would say is “mission accomplished” with UPS. They will leverage that momentum to unionize new workforces. Number one on the list is Amazon, then FedEx and others who have been targets of the Teamsters for many, many years.

For the labor movement in general, this contract was a testament to American sentiment about unionization. It is at an approval level today that hasn’t been reached since 1965 — 71 percent approval, according to a recent Gallup Poll. There is a lot of momentum in labor.

What is behind this momentum?

Amling: One of the key reasons is the continuing disparity in wealth and prosperity. UPS had record profits during the pandemic. Part of that was because demand had outstripped capacity, and all of us were buying online.

That caused a huge spike. Carriers were able to raise rates, and wages also went up in 2021 in the transportation and logistics industry, an average of 17.1 percent. But a UPS Teamster employee is not likely to leave for another one or two dollars an hour because they don’t want to leave their seniority. So, UPS had a pretty stable workforce during this time and didn’t need to raise rates or wages as much as their competition. The record profits were reflected in increased payouts to investors and executives. The Teamsters wanted some love spread to them, and they did get some of that in the new contract.

This sounds like a win for workers in general. Does this contract spell trouble for anyone?

Amling: The bigger message to supply chain professionals and businesses in general is this strength of labor is not going to dissipate. There are some fundamental underpinnings behind it based on population. Worldwide, you have aging populations. You have fewer new workers. We’re not growing our workforce as fast as the economy wants to grow, and that’s the bottom line. So, you’re going to continue to have a shortage of workers, which creates an imbalance and gives more power to workers.

From a business standpoint, as the cost of labor goes up, the relative cost of technology goes down. You’re going to see more automation, you’re going to see more robotics, you’re going to see more AI and predictive analytics, where companies try to do more with fewer workers because there just are not going to be enough workers.

Do you see any upcoming threats to supply chains regarding climate change and geopolitical concerns?

Amling: It’s a big list, but the number one area that everyone needs to be concerned about is the instability in East-West relations. I just finished a yearlong study with Tom Goldsby, who is a co-director of our Global Supply Chain Institute [GSCI] and a fantastic research partner, for the institute’s Advanced Supply Chain Collaborative, focused on what we call “sovereign supply chains.”

We call it sovereign supply chains because countries are looking to decrease supply chain dependence on other countries, especially nonpolitically aligned countries. At the same time, they are trying to increase other countries’ dependence on them. We’re seeing this in things like the U.S. infrastructure bill and the Chips Act, and China has responded similarly. It’s tit-for-tat between the U.S. and China.

For 30+ years, supply chain has been about globalization. That’s now beginning to change. Governments are getting involved, and it’s challenging supply chains because government and business motivations are different. Governments want to protect critical supply chains, especially things that impact military, healthcare technology industries and areas like that, but businesses still have to answer to the consumer.

In our research, Tom and I go into different sovereign supply chain strategies businesses are using, from near-shoring to reshoring to something called siloing, which is creating different supply chains for China and the rest of the world. East-West relations, that’s where the next shoe could drop.

Before that shoe drops, what can small businesses do to prepare?

Amling: You have to create options. To do that, you have to spend some time looking at future scenarios. Scenario planning is extremely important. We’re doing this at the institute in partnership with S&P Global, mapping out scenarios of different levels of conflict escalation. It’s important that you understand likely scenarios that might happen, what options you have for them and what you need to do as an individual business.

Also, take advantage of the available information. For example, at UT, we offer the EPIC Supply Chain Framework, a global risk assessment and readiness resource, free of charge. You can find it on the GSCI site with other white papers.

Look for opportunities to partner with companies and service providers that can give you options if you’re a small-to-midsize business. Look at how you can combine some of your shipments, some of your supply chains, with other companies, where you can lower overall cost and create more options should a disruption occur.

Know where most of your profits come from, specifically from what products and what geographies. This is because we’re talking about risk mitigation, and the number one problem I see when I’m talking with companies is not that they don’t have a risk mitigation plan. They usually do, but it’s for everything they do. Typically, most of your profits come from a minority of your products, and you need to protect those first.

Finally, you need to know how each of your products and each of your service offerings improve consumers’ ability to deal with inadequate wealth, access, skill or time. How do you save them money? How are you making your product easy to buy? How do you save people time? If you can answer those things, whether it’s a good economy or bad, whether there’s a disruption or not, your business is going to be in a good situation.

Note: Voting on the Teamsters’ UPS contract continues through August 22.

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CONTACT:

Scott McNutt, business writer/publicist, rmcnutt4@utk.edu

Contact

Scott McNutt

Business Writer/Publicist

rmcnutt4@utk.edu

Haslam College of Business - After the UPS-Teamster Contract Agreement, What’s Next for Supply Chains?