Breaking News: UPS Finalizes Its Labor Contract in a Historically Unprecedented and Aggressive Way

News breaks that UPS and the IBT have come to an agreement on the pending labor contract in an unprecedented fashion.

Apr 23, 2014 at 6:37PM

Ups Shuttle

This afternoon, news began trickling out that United Parcel Service (NYSE:UPS) and the International Brotherhood of Teamsters, or IBT, have finally implemented the master labor contract that was voted upon and approved last year. The contract had yet to go into effect as local unions were negotiating for better terms over the past year on their specific local contracts. While most unions had come to an agreement, Louisville Ky., Philadelphia, and western Pennsylvania had yet to agree.

This news is historically unprecedented for UPS, as it's generally required that each union has approved its local contract before the master contract can go into effect.

How did the contract go into effect, then?
What's essentially happened is that the IBT has forced the local unions to adopt a contract they didn't want in order to implement the master contract. They did this in a very creative way -- by not filing certain paperwork that would have allowed the local unions to have more power to negotiate and to strike. What's worrisome is that of the three locales that were holding out, Louisville and Philadelphia, are critical to UPS's air operations.

So what's this mean to investors?
From an investor's perspective, the contract completion means the risk of strike has essentially disappeared, but that assumption may be premature. Because of the aggressive way this contract was implemented, I think we'll need to monitor the situation at Louisville and Philadelphia to see how those two local unions are going to respond to having this contract forced upon them. Investors can follow Louisville's Local 89 union reaction here

After it's clear these two specific locales are going to accept the hand that has been dealt to them, I believe investors in UPS can breathe a sigh of relief -- until the next contract rolls around. As I've highlighted in the past, these negotiations have shown us how poor UPS's labor relations currently are. The contract was passed by the slimmest margin ever, and this is the first time I can find in my research that a contract has ever been forced upon local unions. As I value good labor relations for my personal investments, I still can't get behind investing in UPS, especially considering this news. 

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