With less than five weeks to go before the expiration of a United Parcel Service Inc. labor contract, talks to renew the agreement have moved into a critical phase as negotiators begin hammering out pay raises for about 340,000 workers.

The discussions pit Sean O’Brien, the fiery union boss determined to get tough with UPS, against Chief Executive Officer Carol Tomé, who won over Wall Street after boosting profit margins during the pandemic. The Teamsters rejected an initial offer from the company last week. On Tuesday, O’Brien released a statement reiterating his union’s demands for a “powerful tentative agreement” in a week’s time and, by the August 1 deadline, “a historic” new contract that guarantees higher pay for his members. 

The two sides are racing to prevent what would be the first UPS strike in a quarter century at a time the American economy has become much more dependent on shipping goods. A failure to reach a speedy resolution could snarl supply chains. Competitors, including FedEx Corp. and the US Postal Service, wouldn’t have enough capacity to absorb the nearly 20 million US packages that UPS delivers every day.

Both leaders also have a lot at stake if the workers strike. For Tomé, UPS would lose about $170 million a day, based on last year’s third-quarter US revenue. For O’Brien, a walkout would mean dipping into the Teamsters’ $350-million strike fund, draining him of valuable resources for his expected campaign to organize Amazon.com.

Both leaders want to exit these negotiations on a stronger footing. But they also know the talks could devolve into conflict, weakening them in the process.

Addicted to Delivery

The prospect of a strike has weighed on UPS shares this quarter after they had outperformed the broader market for much of the past three years since Tomé took over as CEO in June 2020. Now, they’re down 1.4% this year through June 22, while the S&P 500 Index has gained 14% and rival FedEx has risen 34%.

Satish Jindel, a logistics consultant and founder of ShipMatrix, which provides parcel industry data, doesn’t think a strike is likely and predicts a tentative agreement may be reached early. Extended talks without a deal increase the odds of UPS customers turning to an alternative, he said. “The damage will be done even before a strike.”

There’s also some history to consider. The last time UPS workers went on strike back in 1997, it took only about two weeks for the company to accede to worker demands. (Soon after, a federal union overseer removed from office strike leader and Teamsters President Ron Carey after finding irregularities from his union election campaign.)

A quarter of a century later, the US economy is even more addicted to package delivery.

This time around, O’Brien, who won the Teamsters presidency two years ago on the promise to get tough with UPS, wants to increase the starting hourly wage for part-time workers from the current $15.50 to more than $20. 

The company already pays the highest wages in the industry: UPS delivery drivers with four years of experience make $42 an hour with full benefits. 

O’Brien also wants to eliminate a feature of the last UPS contract, a worker category called “combination drivers.” These employees drive on weekends or work inside loading packages, and earn less than regular drivers. In addition, he wants to limit the use of subcontractors and so-called personal-vehicle drivers, who use their own vehicles to make deliveries for UPS.

Analysts have said UPS can absorb the cost of a reasonable five-year agreement. Eliminating the flexible drivers and paying them the same as regular drivers would add costs of about $140 million, according to Deutsche Bank. 

High stakes, hardliners

For Tomé, a former chief financial officer at Home Depot Inc., the Atlanta-based retailer with an anti-union reputation, the challenge is to evade a strike while brokering a deal that doesn’t saddle UPS with excessive labor costs and work rules. 

Her relationship with the Teamsters is mixed. She won praise for easing UPS’s strict policy on tattoos and hair styles shortly after she became CEO in June 2020. But she alarmed union workers in 2021 when she pushed through the acquisition of Roadie, an app-based same-day delivery company that relies on gig drivers.

The current contract locked in labor costs, which helped Tomé navigate the pandemic. (FedEx, by contrast, struggled with soaring wages and high turnover.) The surge of package demand and higher prices drove UPS’s adjusted operating income to $27 billion for 2022 and 2021 combined, a 60% increase from the previous two years. 

A fourth-generation Teamster whose wicked-hard Boston accent accentuates his tough talk, O’Brien intends to secure a piece of those profits for his workers. 

He said he presented to UPS on June 21 his proposal for worker pay raises and pension increases, and added that the whole economic package will be the costliest in US labor history. His aim is to placate a vocal group of UPS workers that supported his dissident campaign for the Teamsters presidency and are itching to go on strike. 

But reaching a deal doesn’t guarantee labor peace. Union workers for Spirit AeroSystems Holdings, Inc. last week overwhelmingly voted to reject a labor deal supported by their leaders, disrupting production of key parts used in Boeing Co. aircraft. 

O’Brien also seeks to build his own legacy as Teamsters head honcho following the 23-year presidency of James P. Hoffa, who booted the new Teamsters chief from the UPS negotiating team during the 2018 contract talks. 

The Teamsters have taken their campaign into the digital realm, posting populism-infused tweets calling out Tomé for the wide gap in income disparity between her pay package and compensation for UPS drivers. 

O’Brien and Sen. Markwayne Mullin have also posted testy tweets attacking each other over unionization tactics — leading the Oklahoma Republican on Monday to challenge the Teamster boss to a cage fight in September.

O’Brien intends to use the UPS contract as an model for what he can do for Amazon-warehouse workers.

“We’re going to make certain that everybody gains significantly in this contract,” he said in an interview. “Whether we get a deal first or we have to strike, we are going to get what our members want and deserve.”

‘Increasingly optimistic’

So far, the talks appear to be running smoothly. Notably, discussions over regional supplemental contracts, which in the past were negotiated after ratification of the national contract, are almost complete. 

The Teamsters have won some concessions from UPS, including the purchase of new trucks with air conditioning beginning in 2024. The company has also agreed not to introduce drones, driverless vehicles or platooning for the duration of the new contract, and to allow warehouse workers to carry personal phones without first seeking permission from management.

The progress made so far in the talks points toward a deal getting done before the deadline, Ari Rosa, an analyst with Credit Suisse, wrote in a June 15 note. 

“We are increasingly optimistic about an outcome that will be minimally disruptive to UPS,” Rosa said.