The world's largest express carrier and package delivery company, United Parcel Service Inc. (UPS) entered into a new labor agreement with International Brotherhood of Teamsters representing 1,200 aircraft maintenance technicians and employees.
These members are associated with Louisville, Kentucky-based airlines of United Parcel, which operates the air-cargo shipping business for the company.
The company reported that approximately 1,136 members of the union participated in ballot and 69% of them voted in favor. The contract remains valid till November 1, 2013.
United Parcel’s labor contract became amendable on November 1, 2006, and both parties had been negotiating revisions since then till January 2011. The labor contract generally addressed issues like compensation and health insurance benefits.
The company’s next major union contract renewal with the Teamsters is in July 2013. The union will then represent 260,000 out of the total 462,000 United Parcel employees. Approximately 60% of United Parcel Service employees are unionized. Its highly organized structure is akin to the labor force of its peer FedEx Corporation (FDX).
Continued unionization creates long-term risks of reduced labor flexibility and higher costs, which could result in lower margins and reduced free cash flow. Further, union disputes, employee strikes or slowdowns and other labor related disruptions could hurt the profitability of company going forward.
However, the company believes that the present labor deal will work in the interest of both parties and it is looking forward to rewarding its employees with higher benefits from growth and profitability in its businesses.
Currently, we maintain a long-term Neutral recommendation on United Parcel supported by a Zacks #3 Rank (Hold).
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