After 12 months in a row of easing inflationary pressures, a new danger might be around the corner, threatening disruptions for the nation's supply chain.
United Parcel Service Inc. (NYSE: UPS), the world's largest publicly listed package courier, is in talks with the International Brotherhood of Teamsters for a renewal of its important private sector union contract, which affects around 340,000 workers.
A faction within the union, namely the Teamsters for a Democratic Union, is unhappy with the agreement that was set in 2018 and expires July 31, and is threatening to go on strike as early as Aug. 1, according to a Thursday Bloomberg report.
What's At Stake?
Wage hikes for part-time workers, who account for roughly half of UPS's unionized workforce in the U.S., are a primary focus of the discussions between UPS and the Teamsters. Presently, the starting UPS part-time wage stands at a minimum of $16.20.
The Teamsters previously rejected UPS's offer of salary hikes for part-time workers earlier this month, as the union deemed it unsatisfactory.
The Teamsters are pushing for part-time salaries starting at more than $20 per hour, while over 100,000 workers now earn less. The exact salary gap between the two sides is unknown, but it might be as much as $6-$7 per hour.
There was once high optimism that a deal would be reached before the contract ended, but that optimism has since waned.
Implications Of A UPS Strike
1. Logistics Industry
Depending on how long a strike lasts, a potential UPS walkout might have serious consequences for the logistics industry, Bloomberg reports.
On an average day, UPS handles approximately 28% of the 75 million packages delivered throughout the United States. A number of players are in the package delivery market, notably FedEx Corp. FDX and the U.S. Postal Service, but it will be difficult for them to absorb UPS' capacity. The top UPS client is still Amazon.com Inc. AMZN, which, despite, having its in-house package deliveries, still accounts for nearly $11 billion of UPS' total revenues of $100 billion last year.
"Retailers who use UPS have notified their customers of a likely disruption of deliveries. Even if there's a deal by late next week, it would take a few days to ratify, so a brief strike, at the least, is increasingly likely," Greg Valliere, chief U.S. policy strategist at AGF Investments, said.
2. Inflation
Realizing the Teamsters' compensation demands might contribute to inflationary pressures by setting a precedent that other unions would want to replicate. The 19 million parcels that UPS delivers every day in the United States would be delayed if a strike were to occur, which might cause other shipping companies to raise prices to adapt.
According to Nationwide Mutual Insurance Co.'s senior economist Kathy Bostjancic, this might "give other workers the incentive to bargain for higher wages" and cause a change in the relationship between employers and employees. Companies producing consumer goods may decide to increase their pricing in response to the rising cost of labor. According to Valliere, the strike might add up to 0.2 percentage points to the annual inflation rate.
3. The Stock Market And Interest Rates
For businesses, the resurgence of pay pressures means higher expenses and lower profit margins. Corporations with already thin profit margins or those that have trouble passing on price increases to customers may suffer the most.
Wage growth will have an additive impact on consumer prices, making it harder for the Federal Reserve to achieve its inflation objective of 2%.
Inflation as measured by the consumer price index has dropped for 12 months in a row, reaching a 15-month low of 3% last month.
The broader stock market and in particular rate-sensitive sectors like technology, real estate and consumer discretionary could be hit hard if inflation picks up again and the Fed continues to hike interest rates.