Canada Post Strike: a Lose - Lose Proposition for CUPW

For over a week, the Canadian Union of Postal Workers (CUPW)have struck Canada Post in a series of rotating strikes that affects Canadian cities on nearly a random basis.    The impact of the strike is clear and it is not good for either CUPW members or Canada Post customers. 

According to Canada Post, daily mail volume is down 50%.   In response Canada Post has cut delivery to three days per week in urban areas. CUPW employees not on strike find their work hours curtailed to match the lower mail volume and reduced delivery schedule.

In authorizing a strike, CUPW members clearly believed that Canada Post's offer was a losing proposition for them.   Like postal workers in many countries, they saw that long standing benefits and regular pay increases were threatened with new approaches to benefits and less certain pay increases.  They also saw major changes in their work environment and Canada Post introduces sortation to carrier route sequence as well as other changes designed to reduce costs, with cost reductions not going to wages and benefits but going to earnings and lower or stable rates for customers.  

Unfortunately for CUPW employees, the result of authorizing the strike is also a lose proposition.   Following the strike, CUPW members will likely work for a greatly weakened Canada Post.  Mail volume that switched to electronic alternatives will not likely return to a printed form that CUPW members sort and deliver.    Parcels shipments that were handled by CUPW members that switched to Canpar, DHL/Loomis, FedEx, Purolator, or UPS will be tough to get back as shippers in the important B-2-C market find that other carriers can do the job as well as Canada Post.  

Without a return to pre-strike volume levels, Canada Post will likely accelerate its modernization efforts, and combined with its regular efforts to optimize staffing levels and delivery routes, will likely employ fewer employees than it planned if a strike had not occurred.

Right now it is unclear, how the current impasse can end.   The longer it goes on, the weaker Canada Post becomes, but it is unclear whether a weaker Canada Post will be more willing to agree to union demands.   In fact, an argument could be made that a weaker Canada Post could become even more reluctant to change its position and may even request even greater changes in wages, benefits, and working conditions than was in its original offer.

One idea that is not on the table that could help resolve the impasse, would be some form or employee ownership of Canada Post in return for the changes that Canada Post management wants.   This ownership, whether in the form of voting or non-voting shares would give employees a share of the benefits of the contract changes as owners that Canada would be highly reluctant to grant them as employees.   This would be a major change in Canada Post's governance but one that the CUPW and Canada Post should think about if they want to ensure a vibrant Canada Post in 2020 and beyond.

Historical Analogy:   In 1997, the Teamsters went on strike against UPS for 15 days.   At the end of the strike, UPS acceded to many of the Teamsters demands as the long-term impact of business was clear.   (A PBS interviews with representatives from the Teamsters and UPS provides a perspective on each side's position following the strike's end.)

The strike showed UPS customers, which at that time represented nearly 90% of all parcel shippers, that a quality alternative existed, RPS (now FedEx Ground).   Customers who during the strike were able to switch, stayed with RPS.  Nearly every quarter since the strike,  RPS/FedEx Ground has taken market share away.  

In subsequent agreements, the Teamsters did agree with most of the changes UPS wanted including withdrawal from the Central States multiemployer pension plan, and lower wages for new part-time workers. 

The Teamsters now face the challenge of negotiating with UPS that is no longer a near monopolist in the parcel market.  These negotiations require that contract terms recognize implicitly the impact of competition from a non-union FedEx, the Postal Service, and numerous non-union smaller regional parcel carriers.

Note for American Readers:  One wonders how the agreements between the Postal Service and APWU and other unions would differ under labor law similar to what Canada Post operates under.   (This is law somewhat similar to the Railway Labor Act.)   Also given that single-piece mail is declining at around 10% year-to-year, how would a strike increase that decline especially since a large percentage of single-piece mail is bill payments?

The APWU Contract and How the Process Compares

One of the problems the Postal Service will have in selling the contract with the American Postal Workers Union is the number of new members of Congress with limited understanding regarding the impact of differences in labor law between the law covering the Postal Service and either the National Labor Relations Act or the Railway Labor Act.   In addition many members of Congress will find it difficult to understand why the Postal Service did not take the approach that Wisconsin Governor Walker took with public employees, or President Reagan took with air traffic controllers.


The Postal Service did not have the option to decertify the union as President Regan did as members of the APWU never stopped working after the contract expired. Nor could the Postal Service unilaterally force cuts in compensation as it is not in a legal position that would allow it to break existing contracts and impose contract terms that it would prefer.  A good summary of the negotiation process has been provided by the Postal Service.

Better comparisons are recent negotiations between the Teamsters and both United Parcel Service and Yellow Roadway working under the Labor Relations Act and Conrail that had to renegotiate under the Railway Labor Act.   The following is a brief review of what happened in each of these three examples.

Over the past two decades, United Parcel Service has faced increased competition from FedEx with underfunded multiemployer pension plans sitting over its head. It took a strike in 1997 over the pension issue but eventually had to concede its demand for pension and other contract changes.  Its concessions came once UPS management recognized that the strike gave FedEx an opportunity to prove that FedEx Ground was a credible competitor to UPS Ground service and that the changed perspective would make maintaining marketshare more difficult than before the strike began.   UPS changed its approach to working with its union over the next decade which resulted in a contract in 2007 that allowed UPS to withdraw from the largest underfunded multiemployer plan and make important changes in work-rules and wages that made its operating costs competitive with that offered by FedEx even though FedEx provided service through non-union employees and contractors.
Yellow-Roadway has faced a combination of expanded competition of non-union competitors and a major decline in the nationwide transportation in less-than-truckload market that forced it to combine the operations of its two largest LTL subsidiaries and shutter others. It had also been near bankruptcy for most of the last five years. During this period it had to renegotiate terms of loans multiple times and its stock value plummited to near zero. Yellow Roadway renegotiated its Teamsters contract in 2008 under pressure from creditors However, the problem worsened for Yellow-Roadway when the recession hit and its continuing operations required a second round of compensation reductions with the alternative being liquidation of the business. A new round of cuts were negotiated and agreed upon in 2010 in an effort to save the company. During this period the company cut the number of Teamster employees from 40,000 to 25,000. Even these cuts may not be sufficient to prevent bankruptcy as on March 14, Yellow Roadway stated that it failed to meet a creditor milestone that would allow its creditors to demand full repayment of all loans due.

Conrail faced a different problem in its negotiations as the Railway Labor Act created an environment that forced it to maintain existing contract provisions until a new agreement could be signed. It could have declared bankruptcy which would have allowed it to impose new contracts as has occurred among passenger airlines, but at that time its creditors would have demanded liquidation and would not have supported continuing rail operations under any labor agreement. In addition, political opposition to liquidation was significant as liquidation would have had a significant impact on economic activity from St. Louis to Boston disrupting the ability of the automotive, electric utility and other industries that depended on rail freight service to conduct their business as well as the economies of cities in the from Boston to Washington DC that depended on Conrail operated commuter rail to transport employees to work. Conrail was then forced into a period of extended negotiation with its unions primarily over the elimination of workrules and positions that no longer made sense in a world of diesel locomotive engines. It took almost 8 years to get the changes needed to make Conrail profitable which eventually allowed it to be sold to the public in a public offering.

In all three cases, getting the changes neccessary for a company to survive only occurred once employees were convinced that they had no other options but concede.   For both UPS and Conrail, it took nearly a decade for the changes to be implemented once they were identified.   For Yellow-Roadway, it took less time but the final concession occurred only after multiple reductions in Yellow-Roadway's Teamster employees and the threat of liquidation and loss of all jobs hung over union members' heads.

The Postal Service is in a financial position similar to Yellow-Roadway and a competitive posistion that is closer to what faced both United Parcel Service and Conrail.   Finally, in terms of labor-management relationships, the agreement process has significant similarities to how the Teamsters worked together with UPS, and Yellow Roadway to convince members to accept and implement contract changes.

While its financial position puts it on the brink of default on its obligations to its creditors, creditors have not threatened liquidation like Yellow-Roadway creditors did. 

By eliminating liquidation as an option, the Postal Service is in a position similar to Conrail and must negotiate a contract without the ultimate threat over negotiators from its unions.   The Postal Service is in a better position than Conrail as the threat of binding arbitration, even under current rules forces a time limit to negotiations and existing contract terms.

The Postal Service's position is similar to United Parcel Service as the Postal Service would be hurt by any shut downs, or even slowdowns due to a work-to-rule environment just like United Parcel Service's competitive position was hurt by taking a hard line accepting a strike in 2007.  

The Postal Service's decision to come to negotiate an agreement rather than having one imposed by an arbitrator makes selling changes that would have been included in an imposed agreement easier as the APWU will act a willing partner in implementation, a position that it would not have taken as willingly if similar contract provisions were imposed.  As a partner in implementation, APWU is acting in a manner similar to the Teamster which worked closely with members to explain why changes were required and why changes were best in the long-term interest of employees at UPS and Yellow-Roadway as well as working with UPS and Yellow Roadway to design and implement changes.

Pension Legislation Could Help United Parcel Service

Senator Bob Casey (D-PA) plans to introduce legislation that would change some of the rules controlling multiemployer pension plans, or union-operated retirement pools to which United Parcel Service as well as companies in trucking, retail grocery and a number of other industries participate.

The press conference announcing the bill was attended by representatives of the Teamsters and two large less-than-truckload companies, ABF Freight Systems, and YRC Transportation.  ABF Freight Systems, and YRC Transportation are the last remaining large nationwide less-than-truckload trucking firms that existed when the Motor Carrier Act was passed in the 1980's. 

The legislation would make the following changes in existing law:

• Mergers and Alliances – The language in the bill would enable multi-employer funds to combine resources for purposes of reducing administrative costs. 
• Partition (ERISA Section 4233) – If a plan satisfies certain requirements, the plan will transfer to a separate account all benefit liabilities attributed to orphans (participants of employers who withdrew from the plan without paying withdrawal liability) and assets equal to a maximum of 5-years of projected benefit payments.  The PBGC will handle the initial application, drafting of partition agreement and monitor financial assistance to the plans.  PBGC does not provide notices, calculate benefits or in any other form administer the plan.  The orphans benefit will be fully guaranteed as if the orphan was still receiving benefits from the multi-employer plan.
• Order the Department of Labor and Department of Treasury to prepare a report on whether the qualified partition program has strengthened the financial condition of the original plans and improved the ability of the contributing employers to these plans to remain in business.

Teamster multi-employer pensions are in trouble as competition from non-union firms and rail intermodal services as well as changing market conditions resulted in the bankruptcy and/or liquidation of most of the firms that contributed to the pensions over the past 30 years.   Today, these pensions are paying benefits to more retirees from firms that are no longer in business than they pay to employees of firms that are still in business.  The first two of these three provisions would relieve companies still contributing to these pension plans from the burden of paying for all of the benefits of employees of defunct firms. 


United Parcel Service is one of the largest if not the largest firm still making contributions for active employees to nearly all of the underfunded Teamster plans in which it participates.    United Parcel Service successfully extricated itself from the largest underfunded plan, the Central States Pension plan and set up a single-employer pension plan for the Teamsters that worked in the territory covered by the plan.  To do so, United Parcel Service paid $6.1 billion to cover the withdrawal liability required to exit the underfunded plan.  United Parcel Service would face similar withdrawal liabilities in order to withdraw from the more than a dozen other plans that it contributes to for it employees. 

Consolidating the smallest of these plans would reduce the administrative costs UPS pays to administer its employee retirement benefits.   The segregation and eventual Pension Benefit Guarantee Corporation handover of the liabilities for pensions of employees of defunct companies would reduce the liability that United Parcel Service now holds (but is not on its books) for covering future payments for employees of these companies.  

The companies that attended the press conference and support this proposed legislation differ from United Parcel Service in that they do not have the financial where-with-all to pay the withdrawal liabilities from multiemployer plans.  While United Parcel Service would benefit from the legislation, its absence from the press conference suggests that it has a somewhat different legislative strategy in regards to multiemployer pensions than other less financially strong participants.   The lack of consensus among multi-employer stakeholders will slow if not derail any change in current law relating to multi-emeployer pensions

Teamsters Bowing to Reality in the LTL market

In a bulletin to its members on Friday, the Teamsters Union announced that it is starting the process of reopening the contract with ABF Freight System.  ABF is the only nationwide carrier still operating under the National Master Freight Agreement, an agreement that for well over 40 years was negotiated between the Teamsters and less-than-truckload carriers as a group.  In the bulletin, the union stated:

While we have heard ABF’s requests to fully understand its position, we have not entered or begun discussions. However, based on our current understanding of the industry, the company’s financial position, and from concerns raised by many of you, we now believe it is in our best long-term interest to fully engage ABF through formal discussions to determine if and what type of contractual relief may be necessary.


This language reflects the significant challenge that the Teamsters Union has in preparing its members for the changes to come.   The Teamsters have had some experience in this regard, having had to prepare its members for changes in the United Parcel Service contract in regard to the pensions offered UPS employees working in most states east of the great plains not including states on the East Coast from Virginia to Maine, and major changes in wages and benefits needed to keep Yellow Roadway Corporation in business.

Labor Problems at FedEx Ground

FedEx Ground has now received a new challenge to its practice of using contractors to delivery parcels at FedEx Ground. The challenge comes from a threat by the the attorney generals of New York, New Jersey and Montana to sue FedEx Ground for violation of state employment laws by classifying its delivery drivers as contractors and not employees. FedEx Ground has until October 27th to respond and explain why no suit should be filed. A similar letter was sent to FedEx Ground by eight attorney generals in June including New Jersey and Montana which are part of this effort. (New York's attorney general was not a signatory to the earlier letter.)

The attorney generals contend that "the level of control FedEx Ground exercises over its drivers merits, under New York, Montana and New Jersey state law, employee status and the protections inherent in that status. FedEx Ground strictly controls all aspects of the work of drivers doing pick-up and delivery. Hours are prescribed by FedEx Ground with drivers having almost no discretion as to the hours they work. Workers’ performance of their tasks - from the loading of their trucks to their hand-off to customers - is directed and supervised by FedEx Ground. Drivers’ uniforms are mandated by FedEx Ground, even down to the colors of drivers’ socks, and drivers’ opportunities to engage in non-FedEx Ground related work are also almost entirely constrained by FedEx Ground rules. Drivers are only allowed to use their own trucks for non-FedEx Ground purposes if the trucks are used outside of FedEx Ground working hours. Additionally, the work of FedEx Ground drivers is at the very core of FedEx Ground’s business activities; drivers are completely integrated into the overall business functions of the company."

The above quote comes from the letter that the appropriate state offices for enforcing labor law violations sent to FedEx Ground.

Not surprising, the Teamsters applauded the actions of the three state law enforcement officials. The Teamsters have long been active in efforts to force FedEx Ground to end its use of contractors for delivery. They have a website promoting changes in the legal framework within which FedEx works at its Express and Ground divisions with a goal of making it easier to organize everyone that works for FedEx or its contractors.

The actions of the the attorney generals are likely to be opposed by the Express Carrier Association and the Messenger Courier Association of America. Both of these organizations represent local and regional parcel firms that heavily use the contractor model in their delivery services. Members of these associations could become collateral damage in the conflict between the attorney generals, the Teamsters and FedEx Ground.

FedEx Ground has had mixed success in defending its contractor model. It settled a suit in California that required it to switch from single-driver contractors to multiple driver contractors. It has received a number of unfavorable employment law rulings at the state level. NLRB has issued unfavorable rulings that were overturned in court. FedEx Ground successfully defended IRS suits.

Given the politics of the issue, FedEx Ground will likely face some legal action in New York, New Jersey, and Montana even with a vigorous defense in the next week. Given the pace at which these and similar cases proceed, industry stakeholders can expect that the issue will continue to garner headlines for many years to come.

The labor issues will not affect FedEx Ground service as the delivery personnel themselves are rarely parties to the disputes between labor law officials and FedEx Ground. Shippers will want to stay informed about the process of the latest challenge to FedEx Ground's contracting model as it could affect long run competitive structure of the parcel delivery industry.

Pensions and Structured Debt

The funding of pensions is an important issue for both United Parcel Service and DHL in the United States Market. Both carriers participate in Teamster multiemployer plans. While UPS will be withdrawing from Central States plan before the end of the year, it still a contributor to twenty other multiemployer plans and offers a single employer pension plan to its part-time employees and some non-union employees.

Pension plans have been some of the largest investors in the alphabet soup of structured debt investments and are now facing the potential of one trillion dollars in losses. These investments were offered by the largest investment banks and the investment quality was often rated highly by debt rating agencies such as Moody's and Standard and Poors. Most importantly, many of the multiemployer plans, to which UPS and DHL contribute, may be forced to sell their structured debt at a substantial loss. If required, this will occur soon after the investment grades of the debt are reset to reflect the current perception of risk which many believe will be below investment guidelines set by federal regulation and/or plan trustees.

Now that the true risk associated with these investments are becoming known, questions are being raised about whether any of the parties that were involved in decisions to invest in structured debt failed in their responsibilities and should be held financially accountable for losses that pension funds have incurred. These parties include the plan trustees, investment managers, and the rating agencies that determined that the structured debt met the investment quality standards of the pension plan's investment charter. The board of Trustees of the Teamsters Local 282 pension fund has filed a class action lawsuit against Moody's for giving excessively high ratings to bonds backed by subprime mortgages. While this suit focuses on the impact that Moody's action had on the valuation of Moody's stock, other suits against Countrywide Financial, Citigroup's 401(k) plan, State Street Corp. , Bear Stearns, and AIG illustrate that the issuers of debt and the trustees of pension and 401(k) plans face the risk of legal action. Contributors to multiemployer plans including UPS and DHL need to monitor these law suits in order to monitor their future financial risks.