UPS Union Strike, Here’s What Investors Need To Know About The Stock

Key Takeaways

• UPS is a behemoth in the logistics space.
• Ahead of the contract expiration, workers are expected to negotiate for higher pay and better working conditions.
• Depending on the outcome of the negotiations, UPS employees could strike.

The United Parcel Service, more commonly referred to as UPS, is the biggest courier service in the U.S. If you’ve ordered a package lately, there’s a good chance that an iconic brown delivery truck handled the drop.

As of September 2022, the company’s stock is around $200 per share. Let’s explore the business model behind this major player and the threats on the horizon.

UPS Union Strike Overview

UPS drivers are threatening to strike. Although nothing has been finalized, the brewing storm could come to a head sometime in the summer of 2023.

The impetus for the strike stems from the expiring contract between the major company and the Teamsters Union. As the contract period expires, it sets the stage for negotiations to open between the Teamsters Union and UPS. Unsurprisingly, the Teamsters Union will push for higher wages and better working conditions, while UPS tries to keep costs down.

According to CBS News, negotiations for a new contract will start in the spring of 2023. Depending on the situation, UPS workers could strike to put pressure on the negotiations.

If there’s a strike, it likely won’t happen until the summer of 2023. But only time will tell how the negotiations shake out. Due to the massive size of this behemoth of a company, a strike of UPS workers would impact almost every household in the United States.

How Does UPS Make Money

You’ve seen the brown trucks, and a big portion of UPS’s business is delivering packages to customers through ground-based operations. For example, let’s say you receive a UPS package at your doorstep. Either you or the seller paid a shipping cost for the delivery.

In addition to deliveries within the U.S., UPS also makes international package deliveries. Although this portion of the business isn’t quite as large as domestic deliveries, it’s still an important part of the company’s revenue.

Finally, supply chain and freight services represent the smallest portion of the company’s revenue.

Big Three US Shipping Giants

When you want to mail a package within the United States, you’ll find three major players in the space. The first is UPS. But it faces some stiff competition from both the United States Postal Service (USPS) and FedEx.

In general, USPS is known to offer the most affordable shipping options. USPS is a public service operated by the federal government. Its mission is to “bind our nation together by maintaining and operating our unique, vital, and resilient infrastructure.” In fact, according to USPS, it maintains the largest logistical and physical infrastructure of any non-military government institution.

But customers that prefer to prioritize speed and reliability over cost often opt for either UPS or FedEx. Both of these private businesses charge more for the service of delivering a package but offer faster delivery times than USPS.

Main UPS Lines of Business

In the second quarter of 2022, UPS announced consolidated revenues of $24.8 billion. The eye-popping figure represented a 5.7% increase compared to the second quarter of 2021.

But when you break down the numbers into the domestic and international segments, you’ll quickly see that the domestic numbers account for more of the revenue.

In the second quarter of 2022, the domestic segment of the company saw revenue of $15,459 million. Plus, an operating profit of $1,829 million. The international segment saw a revenue of $5,073 million and an operating profit of $1,193 million. Additionally, the supply chain solutions portion of UPS’s business brought in $4,234 million and garnered an operating profit of $513 million.

Although the company operates in a major way both in the domestic and international space, it’s clear that the domestic line of business makes up the bulk of UPS’s income.

UPS Risks and Costs

As the e-commerce industry continues to grow in popularity, the demand for package delivery will likely remain strong. But a strong demand won’t necessarily pave a straight path to long-term success for UPS.

The company will likely face challenges in the coming years. In a recent press release, they outline possible risks and uncertainties in a forward-looking statement, including:

• Uncertainties related to COVID-19: The pandemic threw everyone for a loop, and UPS was not immune to these changing times. As the demand for package deliveries changes again post-COVID, UPS will need to stay nimble to adapt.
• Changing economic times: It’s no secret that the economy is extremely turbulent at the moment. Many companies, including UPS, are apprehensive about what the changing economic times may mean for their line of business.
• Strikes and worker shortages: The company specifically mentions concerns about “strikes, work stoppages, or slowdowns by our employees.” And also includes a word of uncertainty about how the “results of negotiations and ratifications of labor contracts” could impact the business.
• Changing energy costs: The cost of fuel is on the rise. Since the company relies on energy to transport packages, this could have a big impact on its bottom line.

Other issues at play include global climate change and increased tax liabilities. Each of these factors can impact the company, and ultimately, its stock price.

Adding Logistics to Your Portfolio right now

Want to bring logistics exposure into your portfolio? It’s clear that UPS will have the staying power to deliver packages for the foreseeable future but will they be able to meet and exceed analyst expectations for their stock to grow? Will competition and other risk factors pressure the revenue and growth of UPS in difficult economic times?

If you’re buying individual stocks yourself right now, you’ll have to keep a close eye on the changing marketplace to ensure you are making the right buy and sell decision.

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