Tuesday's agreement, which must be ratified by union members, cinches another win for transportation labor groups. Railroad, airline and West Coast seaport workers have all seen their bargaining hand strengthened by labor shortages and public support for those who risked their lives early in the pandemic to keep the U.S. economy functioning.
The planned Aug. 1 strike by workers at UPS, which handles about 20 million packages a day across the United States, could have also driven customers into the arms of rivals like FedEx (FDX.N), which is still embroiled in talks with its pilots union.
"This contract sets a new standard in the labor movement and raises the bar for all workers," International Brotherhood of Teamsters General President Sean O'Brien said.
The Teamsters said the contract provides historic wage increases, one more paid holiday and air conditioning in the company's ubiquitous brown delivery trucks. It also eliminates a two-tier pay system and forced overtime for delivery drivers.
"We demanded the best contract in the history of UPS, and we got it," O'Brien said, adding that UPS put $30 billion in new money on the table without a single concession from the union. "We've changed the game."
UPS declined to comment directly on O'Brien's estimate. The company, which said it is best positioned to assess the financial impact of the agreement, plans to update guidance during its second-quarter earnings call on Aug. 8.
"This agreement continues to reward UPS's full- and part-time employees with industry-leading pay and benefits while retaining the flexibility we need to stay competitive," UPS CEO Carol Tomé said.
Shares in UPS closed down 1.9% to $184.69 on Tuesday after initially rallying 1.6% following the announcement.
Early details on the deal "suggest the union won greater first-year wage increases than we'd expected ... while UPS retained flexibility in return" on issues like personal vehicle drivers and a possible move to seven-day operations, Susquehanna analyst Bascome Majors said in a client note.
Despite the potential impact on the economy, the Teamsters expressly asked President Joe Biden, a Democrat who campaigned on labor support and is seeking reelection, not to intervene even as his administration has been involved in railroad and other sector labor talks.
Still, Biden praised the UPS pact, saying it "moves us closer to a better deal for workers that will also add to our economic momentum."
Investors, analysts and business groups like the U.S. Chamber of Commerce and the National Retail Federation had pushed for a deal and expressed relief after the announcement.
The agreement is "very heartening to investors and to everybody who cares about a more thriving and inclusive American economy," said New York City Comptroller Brad Lander, who serves as investment advisor for the city's pension fund, which held UPS shares valued at $191.1 million as of June 30.
AUGUST VOTE
A 10-day UPS strike could have cost the U.S. economy more than $7 billion, estimated Anderson Economic Group, a think tank specializing in the economic impact of labor actions.
Member voting to ratify the pact begins August 3 and concludes August 22, the Teamsters said.
Under the deal, current full- and part-time UPS workers will get $2.75 more per hour in 2023, and $7.50 more per hour over the length of the contract, the union said.
General wage increases for part-time workers will be double the amount obtained in the previous UPS Teamsters contract — and existing part-time workers will receive a 48% average total wage bump, addressing a key sticking point in talks.
Analysts said investors were focused on the new starting part-time wage, which was expected to reach as much as $25, Jefferies analysts said in a client note.
UPS part-timers currently make about $20 per hour. Under the agreement, that would move up to $21 and advance to $23 per hour over the next five years.
Meanwhile, FedEx and its pilots union are restarting talks, likely under federal supervision, after union members on Monday announced that they had rejected a tentative contract deal.
UPS also competes with nonunion delivery rivals like Amazon.com (AMZN.O) that pay workers significantly less.
Shares of FedEx and Amazon closed up less than 1%.
