With an Historic UPS Strike on the Horizon, Merchants Should Prepare for Major Supply Chain & Fulfillment Disruptions
Wednesday, July 5 saw a breakdown in talks between representatives of global shipping and logistics giant UPS and the International Brotherhood of Teamsters, the labor union representing UPS workers.
Negotiations have been ongoing for months. However, a statement from the union asserted that UPS “refused to give the Teamsters a last, best, and final offer, telling the union the company had nothing more to give.” This makes it likely that the union will call for a historic strike, which will result in some 330,000 teamsters walking off the job.
Obviously, a situation like this could seriously impact merchants. We will see significant supply chain disruptions, as well as delays in shipping goods to customers and other order fulfillment operations. This will naturally lead to more customer complaints and, potentially, a surge in chargebacks.
So, what is actually going on right now? What can merchants do to mitigate potential losses and decrease their exposure to chargebacks?
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Let’s start by getting a clear picture of the current situation.
The ongoing conflict between the International Brotherhood of Teamsters and UPS is intensifying as the two parties strive to broker a provisional labor agreement. July 31, 2023 marks the end of a five-year national contract agreed to by the parties back in 2018.
Both agreed to scrap the two-tier wage system for drivers who work weekends and earn less money, and to equip more trucks with air conditioning. However, salary and benefits both continue to be stumbling blocks in the negotiations.
The Teamsters plan to initiate a strike on August 1st if no agreement has been reached by then. And, unless something significant happens last minute, a strike seems likely.
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The timing of labor contract discussions is critical. And, in this particular negotiation round, the circumstances favor the Teamsters.
During the pandemic, UPS saw a boost in profits due to increased demand and fixed contract wages, while competitors struggled with rising labor costs. This observation was made by Alan Amling, a distinguished fellow at the University of Tennessee's Global Supply Chain Institute and former VP of corporate strategy for UPS. He noted that the profit increment was not shared with frontline workers. “That’s the Teamsters’ position, and it’s hard to argue against that. I mean, it’s a fact,” he says.
Potential Fallout for the Economy
If UPS workers strike, it would be the most extensive single-employer strike in US history, and it could happen less than a month from now.
These UPS employees include hundreds of thousands of delivery drivers and handlers crucial to the daily delivery of millions of packages. As UPS themselves state, as much as 6% of total US gross domestic product is transported via their trucks. Thus, a strike like this could have a profound impact on the company, and the US economy as a whole.
Other shipping and logistics companies exist, including FedEx and DHL, as well as the US Postal Service, of course. However, UPS delivers 17 million domestic packages per day. The company’s footprint is simply too large for their competitors to fully absorb this volume.
UPS customers that stand the greatest risk are those without fallback plans involving alternative carriers for package redirection. The predicament becomes even more difficult if these customers lack the required volume or financial clout to convince other carriers to accommodate extra load in their networks at the eleventh hour.
Additional Consequences for Merchants
UPS can impact any commerce that relies on shipping. Thus, eCommerce companies will be highly vulnerable to this disruption.
Taking 330,000 UPS drivers off the road will inevitably lead to supply chain disruptions and delays in shipping goods to customers. Merchants may remember from the early days of the pandemic how these delays can impact business. In 2020, covid-19 disrupted the supply chains of nearly 75% of all US companies.
The timing of a potential strike coincides with retailers' preparations for the back-to-school shopping season and the upcoming end-of-year holidays. And, with no clear indication of how long the strike will last, it may have a big impact on getting necessary inventory for those crucial holiday sales.
Plus, even if you still manage to get orders out on time, that doesn’t mean they’ll arrive in the same manner. This is a big problem; most people will forgive a one- or two-day delay. If delivery interruptions stretch beyond that timeframe, however, customers could start to lose patience.
Consequences of Delays Resulting From Strike
In a word: chargebacks.
Buyers will get frustrated by extended shipping delays. Customers are 4.5 times more likely to make a purchase if they see consistency in their shopping experience. At the same time, 70% of shoppers are unlikely to make another purchase from a brand following a poor delivery experience.
Not only will shoppers be turned off from future purchases, they may also turn to the bank to get their money back. This is what’s called a chargeback; it can occur when a buyer believes that a merchant failed to ship their goods in a timely manner, then calls the bank to demand a payment reversal.
By now, most merchants are well aware of the impact which excessive disputes and chargebacks can have on their businesses. Each chargeback means getting hit with a chargeback fee. Over time, they can cause long-term reputational damage, resulting in a restricted or canceled merchant account due to a high chargeback rate.
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What Merchants Can Do
With this strike looming on the horizon, it’s in every merchant’s best interest to get ahead of the situation as quickly and succinctly as possible. The broader point being that, regardless of how this situation unfolds, being ready for such eventualities is always wise.
Onemight consider reducing risk by diversifying carriers, for instance. This is a smart move in general; not only is the merchant insulated against the ripple effects of strikes, they also have options in the event of a natural disaster or other similar disruption.
In the end, employing this and a few other best practices for efficient fulfillment could substantially lower a business’s vulnerability to disputes and chargebacks. Here are just a few of our recommendations:
The outcome of the UPS strike is (obviously) yet to be determined. That said, merchants are advised to take proactive steps to reduce their exposure to customer disputes before a strike occurs. Planning ahead is often the best protection.