Washington, DC, July 11, 2023 --  

Teamsters' demands for more money from UPS is just an opening battle for the spoils of a declining business.

More than 25 years later, things have changed immensely. About 15 percent of retail sales are now made online², more than a third of that booked by Amazon. Today's Amazon is largely protected against a UPS strike, having recently built out its own in-house shipping service, created largely to reduce its reliance on the shipping giant.

In just a few years, Amazon Logistics has surpassed FedEx and nearly matched UPS in terms of U.S. market share. In 2022, Amazon Logistics handled 23 percent of America's shipping volume vs. 24 percent by UPS (both lag behind the U.S. Postal Service which handles 32 percent of volume.)³ The neck-and-neck struggle for second place shipper is bound to shift from UPS to Amazon's favor, as the e-commerce giant weans itself off of UPS. During a January earnings call, UPS Chief Financial Officer Brian Newman revealed that Amazon and UPS have a contract to reduce Amazon's UPS shipping through at least 2023.⁴

It's not hard to understand how Amazon can do better than UPS. Amazon's almost entirely non-union workforce has cost and flexibility advantages over unionized and Teamsters-dominated UPS. The real question is whether the Teamsters can see the writing on the wall. Today's UPS employees are likely near a high water mark for salary and benefits -- the average driver gets $95,000 per year plus health benefits, according to UPS.⁵

That's reminiscent of the good deal that United Auto Workers' had in its industry right before it fell off a cliff in the late 1970s. Back then, UAW was forced to pare back compensation as the industry declined. By the time Chrysler teetered on the edge of bankruptcy in 1979, it had about 300,000 union employees similar in size to UPS. The UAW's political allies in Washington helped secure a government bailout, which helped Chrysler soldier on for another 30 years, despite a steadily declining union workforce.

The biggest risk to UPS today is not that Amazon will cut back on shipments, but that Amazon is poised to become a competitor.

Consider that after Amazon built out its technology infrastructure during its early years, it began selling surplus computing as Amazon Web Services. That sector has grown to become its chief profit driver, despite the fact that it represents only 13 percent of sales.⁶ Today, Amazon Web Services dominates cloud computing market, putting the company well ahead of competitors Microsoft and Google.⁷ Now that Amazon has a strong presence in the American shipping market, it is more than reasonable to expect it to follow a similar path to dominance over UPS and FedEx and even the package business of the U.S. Postal Service.

The sad truth for UPS is that its business has likely peaked and is probably doomed to decline. Because management is aware of this risk, the odds of an actual strike are probably low. A strike would only accelerate flight to competitors and hasten the company's downfall. And in end that's all the union's negotiation is really about -- a battle for shares of an inevitably shrinking pie.

Notes:

1. CNN, What the Potential UPS Strike Could Mean for Your Packages, June 17, 2023

2. U.S. Census Bureau, QUARTERLY RETAIL E-COMMERCE SALES, May 18, 2023

3. Pitney Bowes Parcel Shipping Index, July 2023

4. Freight Waves, Amazon and UPS: Is the great split finally here? October 6, 2023

5. ABC News, What to know about the potential UPS Teamsters strike, July 8, 2023

6. Investopedia, How Amazon Makes Money, January 30, 2023

7. Tech Crunch, Even as cloud infrastructure market growth slows, Microsoft continues to gain on Amazon, February 6, 2023