UPS CEO Carol Tome introduces U.S. President Donald Trump before an event at a UPS facility at Hartsfield-Jackson Atlanta International Airport in Atlanta, Georgia, U.S., July 15, 2020.
Jonathan Ernst | Reuters
UPS CEO Carol Tome said the company’s costs for the new Teamsters contract are less than the “$30 billion in new money” touted by the union as the company looks to sell investors on the deal.
“It’s not a $30 billion deal,” Tome told CNBC’s Frank Holland in an exclusive interview on Monday. But Tome declined to reveal the internal projection when the company released its first presentation to investors, outlining labor costs after the call Monday.
UPS said 46% of the compensation in the deal would occur in the first year. Tome called the agreement cost-effective and fair.
“It’s a barbell structure where it’s heavier in the beginning of the contract.” said Tome. “We’re going into the contract halfway through and it’s going to be reversed. This 46% of cost increase is in the first year, so imagine what the last four years of the contract are like!”
The increases “are really good for us and deliver a compound annual growth rate of 3.3%,” she added. “That’s a deal we accept every day, but it wasn’t just about the money. We have a work-life balance for people, while maintaining the ability to perform on weekends, which is very important for our customers. “
Averting a crisis
The labor agreement reached in July prevented a potentially widespread and disruptive work stoppage. A Teamsters strike would have been the “costliest in a century,” dealing a $7 billion hit to the U.S. economy in the first 10 days, according to a widely reported estimate from the Anderson Economic Group.
It was also another milestone in a summer marked by the push for big new contracts – and even strikes – in industries ranging from airlines and carmakers to television and film. At UPS, full-time drivers earn up to $170,000 in pay and benefits in the final year of the contract, while part-time employees will see their starting salary increase from $16.20 to $21 per hour..
Official negotiations between UPS and the Teamsters began in April, when union leaders urged members to mobilize and create a “show of force necessary to take on the company.” In June, Teamsters members authorized a UPS strike during negotiations. Weeks later, both sides accused each other of walking away from contract talks.
In late July, UPS and the Teamsters announced they had reached a tentative contract agreement. The union ratified the UPS contract on August 25 with a record 58% turnout of voting members and a record 86% approving the deal.
A ‘win-win-win’
After the tentative deal for the Teamsters contract was reached, Tome called it a “win-win-win” for the union, customers and the company.
However, shares of UPS have fallen more than 14% since the July 25 announcement. Tome also estimated that UPS was losing more than 1 million packages per day in volume in the weeks leading up to the final deal.
“We can grow now that we have certainty,” Tome said. ‘Because we know what our labor costs will be over the next five years, we can put plans in place to limit those costs, plans to increase productivity within our company through automation, which, by the way, we still retain the ability to do. doing. .”
Tome said the win for customers like approaching the peak of holiday shipping is the most important part of the deal. E-commerce sales are expected to increase during the US holiday season to increase 1% year over year to $273 billion, according to a recent forecast from Salesforce.
UPS shifts to a modernization strategy
Tome said the Teamsters negotiations were another test of her leadership, who took on the challenge of becoming CEO of UPS in June 2020, at the height of the Covid-19 pandemic and the start of an unprecedented wave of e-commerce .
“We started thinking about these contract negotiations the day I came on board. Where the industry was going, what we needed to survive. We started looking at this as a strategic imperative,” Tome said.
Now that the Teamsters contract is complete, Tome said she is focusing on her “Better and Bolder” strategy, the next phase of her original “Better not Bigger” philosophy that focused on modernizing and maximizing profits at the more than 115 years old shipping and logistics giant. The “better” part aims to drive higher margin volume and increase employee and facility productivity, while the “braver” initiative involves using automation, artificial intelligence and other innovation to capture more revenue.
“In terms of generative AI, we can really use this technology to improve the customer experience,” Tome said. “We have more than 12,000 people in our customer service centers around the world, all trying to communicate with a customer who may have a problem. Imagine what it will be like if there is a ‘bot’ involved that learns from that experience and it shares that learning across the world. It will not only increase productivity, but it will also deliver a better customer experience.”