Summary
Overnite Profitability before UPS freight merger was marginal as non-union entity. UPS published indifference to Teamster Organization will devestate earnings in that component.
Teamster Contract talks with UPS , and consequently, the framework of the upcoming National Master Freight Agreement
will be materially affected by organization efforts (success or failure).
Analysis
Leo Suggs, the longtime CEO of Overnite Transportation recently stepped down from the newly merged UPS/Overnite merger.
One must wonder how the staid Union-Free advocate must view, (at least) the public indifference that UPS espouses with respect to Union organization efforts of the Overnite unit. After a decade plus of anti-organization efforts and millions of dollars in fees to rebuff a voracious yet ultimately unsuccessful Unionization effort.... This was the "nom-de-Guerre' of the management effort. Even though margins stayed modest at best(mid to low 90's on their Operations Ratio(O/R)) during this battle, the rationale was clear: Maybe profitability is not a goal but anti union efforts have saved the comany untold millions. And so it did.
I had a personal conversation with an Overnite Officer over two years ago and the pride of their efforts was 90% of the conversation. Following that logic: would Overnite have been a profitable (Low 80's Operating Ratio) if they had NOT been forced into a fierce and expensive organizational battle? My position is that they would have NOT fared much better.
Throughout the eighties and nineties, Overnite earned a reputation as a low cost, high discount -long range Regional carrier. Their primary lanes were South to Midwest and then up to the East. They out priced the long haul carriers in those lanes and garnered large market shares. However, their infrastructure was set more like a long haul carrier(ABF , Yellow, etc). This guaranteed poor service at best (4 and 5 day service in 3 day lanes). They maintained a less than stellar service reputation until the Organization effort. Even while maintaining a long haul structure in a regional lane, they were not able to gain adequate revenues. They were overstaffed relative to their peers(Con Way, Saia) and their cheap rates negated most serious profitability campaigns.
If UPS were to allow the Organization of this overstaffed model, the cost increases would be as dramatic as the reduction in Sales from a jittery shipping public(precontract). Union work rules would prevail even if only a 30-40% participation rate were accomplished. The cost of a union-nonunion skirmish and its consequences would force a Union environment faitaccompli'. Union positions would hold that increased productivity from a far better paid rank and file will negate the payroll increases. But where would they come from? Extra UPS package drivers(admirably some of the hardest workers holding a Union card) who do not possess CDL licenses? There is a HUGE unmistakable national driver shortage. The Union has no capacity to fill every current non-union driver slot with a Union driver. Henceforth, you end up increasing your payroll by 30% on a driver that produced mediocre to poor. And now he will be protected by a bevy of productivity-stifling union rules. You will get the same productivity at a much higher cost. UPS freight will raise rates without the consequent ability to improve service to hold the customer base and sales will plummet. Much higher costs along with significantly reduced revenues will force a rethinking of the UPS strategy to copy the FEDEX-Fedex Freight model.
I see the next twelve months as a significant evaluator with respect to the ultimate success of union efforts. If even a portion of Overnite is organized, this company's earnings will be in jeopardy.
