UPS CEO Carol Tome has revealed that the costs associated with the new Teamsters contract are significantly lower than the union’s claim of “$30 billion in new money.” In an exclusive interview with CNBC, Tome emphasized that the deal is not a $30 billion agreement, although she didn’t disclose the company’s internal projection at the time of the interview.
The new contract stipulates that 46% of the compensation will be allocated in the first year, which Tome believes makes the agreement both cost-effective and fair. She described it as having a “barbell structure,” with higher costs in the early years that decrease over the course of the contract. According to Tome, the 3.3% compounded annual growth rate resulting from these increases is favorable to the company.
Moreover, the contract negotiations aimed to address not just financial aspects but also work/life balance for employees while maintaining the ability to deliver on weekends, a crucial factor for UPS customers.
This labor contract agreement, reached in July, averted a potential crisis that could have resulted in a disruptive work stoppage. Experts estimated that a Teamsters strike would have been the costliest in a century, causing a $7 billion hit to the U.S. economy in the first 10 days.
The negotiations between UPS and the Teamsters began in April, with union leaders urging members to mobilize for a strong stance against the company. In June, Teamsters members authorized a UPS strike during the negotiations, and there were moments when both sides accused each other of walking away from the talks.
However, in late July, UPS and the Teamsters announced they had reached a tentative contract agreement. The union ratified the contract in August, with a record turnout of 58% of members voting, and an impressive 86% approval rate for the deal.
Carol Tome dubbed the agreement a “win-win-win” for the union, customers, and UPS. Nevertheless, UPS shares experienced a 14% decline since the announcement, and the company estimated a loss of over 1 million packages per day in volume leading up to the eventual deal.
Despite these challenges, Tome believes that the contract’s certainty will enable UPS to grow. With knowledge of labor costs for the next five years, the company can plan strategies to mitigate costs and enhance productivity through automation.
As the holiday-shipping peak approaches, Tome highlighted the importance of the deal for customers, especially given the expected increase in U.S. holiday e-commerce sales.
Looking ahead, Carol Tome is shifting her focus to the “Better and Bolder” strategy, which builds upon her initial “Better not Bigger” philosophy. This new approach involves modernizing the company, maximizing profits, increasing worker and facility productivity, and leveraging automation, artificial intelligence, and innovation to capture more business.
In particular, Tome sees potential in using generative AI to improve the customer experience, envisioning a future where AI-powered bots learn from customer interactions and enhance service quality worldwide. This forward-thinking strategy aims to position UPS as a leader in the ever-evolving logistics and shipping industry.