After the UPS Strike, a New Competitive Landscape
Traffic World, October 20, 1997
by Satish Jindel

The recent Teamsters strike against UPS clearly will be remembered as the industry's most significant event of this decade. Furthermore, as the year 2000 rolls around this strike likely will be included in the industry history books - along with the startup of Federal Express and RPS - as one of the events of the century that have clearly changed the course of the parcel/freight industry.

During the work stoppage the short-term impact of this strike on the national economy and the shipping community was reported extensively by the media. However, the long-term implications on UPS, its direct competitors, alternatives to parcel carriers and the future growth of the core- carrier concept among shippers will be felt for a much longer period and forever change the competitive dynamics of the parcel industry. Watch for these future developments:

UPS will lose dominance in the standard parcel service. UPS is unlikely to regain the 80 percent market share of the 'brown box' standard parcel service it had before the strike. Its competitors have gained very valuable knowledge about the business previously handled by UPS and are better positioned to retain some of the volume. Shippers also have been exposed to other options and alternatives to UPS 'brown box' service and likely will continue doing some business with these carriers.

UPS drivers and other workers already were the highest-paid workers in the industry prior to the strike. Now the company will have to deal with both a higher pay structure with lower delivery and pickup density due to reduced volume, thereby creating a cost disadvantage when pricing major accounts.

While shippers felt the pain associated with such dominance by one carrier, current competitors realized the opportunities for greater penetration of existing accounts and potential competitors have renewed their interest in entering the market. No other segment of the transportation industry has one carrier with even close to 80 percent of the market. This strike has created a tremendous opportunity for other carriers to offer standard parcel and small shipment service.

Existing competition will grow faster: Regional carriers in the parcel industry have been in business for many years, yet they had been a nonentity to many major shippers with regional distribution patterns. This strike allowed the regional parcel carriers, like Eastern Connection, WPX and Spee Dee Delivery, to demonstrate their capabilities.

In return, shippers have realized the importance of helping these carriers stay in business and add capacity as alternatives to UPS. Shippers have been reminded of the benefit they received when they facilitated the start up and growth of RPS in the 1980s - the only other private, nationwide standard parcel carrier.

RPS, for its part, now can grow even faster. During the strike, RPS not only provided a high level of service to its existing customers, but handled the additional volume without service failures. This performance has reinforced the need for shippers to help RPS build its capacity so shippers can reduce their dependence on UPS.

The difference between express and standard service is now better understood: During the strike, the media frequently listed FedEx and Airborne as alternatives to UPS. The differences between the services of FedEx and Airborne and UPS's 'brown box' standard parcel service was not fully understood. With 80 percent of UPS's 12.6 million parcels per day representing the standard parcel service volume, FedEx and Airborne were not very cost-effective options.

In fact, the only true alternative was RPS, and to a limited extent the parcel post service of USPS. Even Priority Mail rates for a typical 'brown box' are considerably higher than the standard parcel rates of UPS.

This industry shortcoming - the lack of alternative carriers to handle the 10 million 'brown boxes' per day of UPS - became evident to both shippers and other transportation companies. Shippers quickly became aware of the differences in the rates and services of time-definite and standard parcel service. Shippers now are likely to value the benefits of time-definite services and could convert some standard parcels to faster but slightly more expensive three-day service.

USPS reemerged as a dependable parcel carrier: At one time, USPS parcel post had a major share of the parcel market. However, over the last several years, it has lost ground to UPS and RPS. Prior to the strike, parcel post was largely handling business-to-residence and residence-to-residence parcels, while Priority Mail was perceived an as alternative to express document delivery service. The strike has established Priority Mail as an acceptable alternative for business-to-business parcel service, while overall giving new life to the parcel services of USPS. In addition, arguments for discontinuation of parcel services from USPS will be less convincing until additional competition for UPS's standard parcel service emerges.

LTL carriers can regain small shipments: For the last few years, UPS has increased its yield on standard parcel service with a push toward handling the small shipments (weighing between 200 to 500 pounds) that previously were considered LTL shipments. The strike provided LTL carriers, particularly the regional ones like American Freightways and Saia, with an opportunity to gain their share of the small shipment volume.

The recent restructuring in the LTL industry has made the regional carriers more cost-competitive on smaller shipments, while offering faster transit times with next-day service up to 500 miles and two-day service up to 1000 miles. The strike has made it easier for these carriers to target the small shipments that have been the growth vehicle for UPS with its Hundredweight program.

New competition is likely to surface: The strike may create renewed interest for another transportation company to enter the parcel market. While RPS has continued to grow rapidly for twelve years since its startup in 1985, it still has just 10 to 12 percent of the standard parcel market. In fact, the lack of another private parcel carrier with standard parcel service has helped the Postal Service build its parcel volume. This strike offers a perfect time for a third entry in the standard parcel market to challenge UPS's dominance and to offer yet another alternative. Shippers will be more receptive to helping a third carrier enter the parcel market now than before the strike.

LTL carriers face greater uncertainty in their upcoming negotiations with the Teamsters: While the nation focused on the impact of the Teamsters strike on UPS and its competitors, the LTL industry was closely monitoring the events in connection with its Teamsters contract due to expire next March. The last contract was reached after a 24-day strike in April 1994 which caused major financial damage to these carriers and reduced jobs for Teamster workers.

Unlike UPS, the unionized LTL carriers have many large nonunion competitors. Hence, another Teamsters' strike against Yellow Freight System, Consolidated Freightways and Roadway Express to name a few will have more serious consequences for them than for UPS. The Teamsters strike and leadership's success with UPS has left the LTL carriers wondering what to expect from their talks with Mr. Ron Carey or his successor.

While UPS recovers from the Teamsters strike and media attention, it faces yet another threat of a work stoppage, this time from the pilots union. In the meantime, the improvement in the relationship between management and the union workers, and ultimately with shippers, will determine the speed at which UPS can rebuild itself and prevent permanent loss of parcel volume to existing and new competitors.

Finally, UPS and the parcel industry have received so much public exposure through this strike that both the company and the industry landscape will look very different entering the 21 st century.

Jindel is a principal in Pittsburgh-based SJ Consulting Group, Inc.