UPS wins Postal Service Contract – Why That Matters

 

Musing Over UPS, Their USPS Contract Win, and Their Employees

 

 

On the UPS (United Parcel Service) first quarter 2024 earnings call, Investing.com noted that despite decreased volume,

“InvestingPro Data highlights include a Market Cap of $127.01 billion, indicating the company’s substantial size in the market. The P/E Ratio stands at 21.04, with an adjusted P/E Ratio for the last twelve months as of Q1 2024 at 16.79, suggesting a potentially more attractive valuation when considering the company’s earnings over the past year. Furthermore, UPS boasts a Dividend Yield as of February 2024 of 4.38%, showcasing its commitment to returning value to shareholders.

Among the InvestingPro Tips, it is noteworthy that UPS has raised its dividend for 14 consecutive years and has maintained dividend payments for 26 consecutive years, highlighting a strong track record of shareholder returns.”

And yet…

It was reported April 1st (NOT an April fool’s joke, I might add) that UPS won the USPS (United States Postal Service) contract.

So, what does this mean?

 

2023 – A Banner Year For Organized Labor

 

 

2023 seems to be a historical year for organized labor wins. Economic Policy Institute reported a 280% increase in strike activity. From airlines (American, Delta, United) to health care (Kaiser), the writer’s strike in Hollywood to the UAW historic wins, organized labor has been successful. And, with an approval rating around 67%, it’s expected to grow. 2024 is poised to see significant shake-ups in the labor market, too.

 

Related: Read Federal Trade Commission BANS Non-Compete Agreements

 

Critics and detractors took the opportunity to speak out about the raises UPS gave their employees in the bargaining process. While not the intent of this musing, you can look back at some of the articles on the whole process here, here, here, here, here, and here for more information about the deal.

Worker advocates, however, celebrated this as a win for not only UPS workers but also workers everywhere.

 

Critics would have you believe these deals, despite record profits – and in the case of this musing, the UPS agreement – are untenable.

It’s worth noting that Statista reported that in 2023, total revenue was close to 91 billion, with a net income for UPS of 6.7 billion.

Yes, you read that right.

And yet…

 

Winning the USPS Contract Shouldn’t Have Happened

 

 

Despite the agreement UPS and the Teamsters came to, despite the historic wins organized labor overall saw, despite the critics and, perhaps more importantly, despite their competition, Fed-Ex – being non-union – UPS won the contract from USPS (Fed-Ex had it before).

According to UPS:

“ATLANTA–(BUSINESS WIRE)– UPS (NYSE: UPS) today announced the company has been awarded a significant air cargo contract by the United States Postal Service (USPS). This award is effective immediately and greatly expands the existing relationship between the two organizations. Following a transition period, UPS will become the USPS’s primary air cargo provider and move the majority of USPS air cargo in the US.”

According to the “economic wisdom” of the day, this shouldn’t have happened. UPS shouldn’t have won. Wage and benefit increases should price them out of the competitive market. And yet, here they are, winning a bid that Fed-Ex stated they had for 20 years.

USA Today reported a USPS (United States Postal Service) statement:

“‘A core strategy of the Postal Service’s Delivering for America plan is to optimize and improve the efficiency of both national and local transportation,’ the statement reads.

‘Our objective in this area is to reduce our overall transportation cost by $3 billion over the next two years, including $1 billion in airfreight cost savings already achieved. Finalizing this agreement is a key step toward achieving our operational and financial sustainability goals'” – Emphasis mine.

 That 1 billion in airfreight costs? That came WITH the UPS contract.

And yet…

 

What Does It Mean?

 

 

It’s not the intent of this Musing to do a deep dive into the mechanics of why UPS won, Fed-Ex decided not to pursue (elsewhere, they said they had ‘barely broken even”), the infrastructure UPS has in place to more adequately meet the needs, etc. The intent is to highlight how conventional economic theory and wisdom can be wrong, are driven by specific narratives, and often are both.

Proponents of an economic system and model say they value workers, but their actions say otherwise, and they do not want a successful UPS. They don’t want a successful model where workers organize to combat excessive greed from a company and, indeed, an economic system that has created massive income inequality. Brookings has a good article discussing the enormous inequality that has grown in the past 4 decades.

The reason?

It’d prove they were wrong. It’d prove the model was more exploitive than they are willing to admit. It’d prove that the economic model of the past 4 decades has created the swelling populist movement we see growing worldwide.

Populism CAN be a force for change – and it CAN be good. But can also be hijacked.

Consider, for example, what Robert Kennedy Jr. and Glenn Beck discussed about populism earlier this week:

I agree with @glennbeck that the real war in America today isn’t between left and right; it’s a class war. The question is whether the rising populist revolution is going to be hijacked by dark, regressive forces – as it was in the 1930s – or whether it will be harnessed by more… pic.twitter.com/HprckIR9gt

— Robert F. Kennedy Jr (@RobertKennedyJr) April 29, 2024

 

And you know what’s interesting? Peter Drucker, often called The Father of Modern Management, said something similar back in 2002 in his book, Managing In The Next Society:

 

“For example, I have often advised managers that a 20-1 salary ratio is the limit beyond which they cannot go if they don’t want resentment and falling morale to hit their companies. I worried back in the 1930s that the great inequality generated by the Industrial Revolution would result in so much despair that something like fascism would take hold. Unfortunately, I was right.”

 

The same Brookings article referenced earlier stated that “Income and wealth inequality has risen in many countries in recent decades. Rising inequality and related disparities and anxieties have been stoking social discontent and are a major driver of the increased political polarization and populist nationalism that are so evident today. An increasingly unequal society can weaken trust in public institutions and undermine democratic governance. Mounting global disparities can imperil geopolitical stability. Rising inequality has emerged as an important topic of political debate and a major public policy concern.”

Seems fairly evident we have a massive problem in this and other developed countries.

And those persistent economic narratives that say companies like UPS shouldn’t have won the USPS contract?

Well, they’ve been wrong before, and they’re wrong now.

 

Featured Image by Joshua Earle on Unsplash