The union representing pilots at United Parcel Service (UPS) - Get United Parcel Service, Inc. Class B Report on Tuesday confirmed it is taking steps to prepare for a potential strike after five years of failed negotiations with the transport and logistics giant.
The Independent Pilots Association has opened a strike operation center at its Louisville headquarters ahead of the union and the company presenting closing positions for their final proposals on a new contract next week. Should those positions be far apart, as expected, the National Mediation Board could release the parties from mediation and start a 30-day cooling-off period before a strike would be authorized.
"After nearly five years of bargaining, which includes two years of concentrated federal mediation, it is now crunch time," UPS pilot Robert Travis, president of the IPA, said in a statement. "UPS is engaged in an unnecessary and reckless game of chicken with its pilots, shareholders, and customers. We are not playing games. While we prefer a negotiated agreement, our pilots are preparing for a strike at UPS."
The UPS talks took on additional urgency in November after archrival FedEx (FDX) - Get FedEx Corporation Report averted its own potential strike crisis by reaching a new five-year deal with its pilots.
The negotiations come at a tricky point in UPS's history, where either falling into an extended work stoppage or giving away too much to make a deal could have significant consequences for the shipping giant. The talks -- in addition to typical wage and benefit discussions -- have focused on flexibility, with the union seeking a lighter schedule with more breaks similar to what commercial pilots fly.
The issue of breaks and rest took on added weight after a UPS plane crash in 2013 in which a lack of sleep for the pilots was ruled a contributing factor.
UPS, meanwhile, needs to remain as flexible as possible as it deals with a host of new challenges on the horizon. E-commerce to date has been a massive positive for the company and other shippers, but Amazon.com's (AMZN) - Get Amazon.com, Inc. Report decision earlier this year to invest in an air cargo operation shows that the retailer is moving to take more control of its supply chain, a potential threat to future growth at UPS.
Amazon in March said it had a deal with Air Transport Services Group (ATSG) - Get Air Transport Services Group, Inc. Report of Wilmington, Ohio, to lease 20 widebody aircraft and take a minority stake in the charter operator.
During investor meetings in late March, UPS management called Amazon "a good customer" and argued that the retailer is attempting to supplement existing cargo services instead of replace them. But UPS also faces broader potential disruption in its business as traditional retailers move to a more multi-channel approach, putting new demands on logistics and causing UPS to crave as much flexibility as possible in its labor deals.
Morgan Stanley analyst Ravi Shanker estimated that upward of 20% of UPS revenue could be at risk from the twin threats of companies like Amazon moving some of their logistics in-house, and from startups that are attempting to undercut incumbents on last-mile delivery. If anything, that figure could prove conservative over time should business-to-business logistics operations eventually adopt some of the processes that Amazon are now experimenting with.
"Though this may be limited in scope to begin with, removing the most dense volumes could significantly erode the per-unit economics for the remaining B2C business at the parcels," Shanker said.