UPS and its union workers avoided a nationwide shipping crisis after agreeing to a work contract Tuesday, July 25. Had a deal not been reached by July 31, roughly 340,000 workers would have gone on strike in the largest single-employer strike in U.S. history.
“We averted a catastrophe,” Patrick Penfield, a professor of supply chain practice at Syracuse University, said. “If it did happen, it would have been a nightmare as far as the supply chain goes in the United States.”
A 10-day strike would have cost the U.S. economy $7 billion, according to an estimate by Anderson Economic Group. The threat of a strike has highlighted how dependent the U.S. is on just a few players in the parcel industry, which is growing leaps and bounds as e-commerce explodes.
The big four
The U.S. shipping industry is dominated by four major players, USPS, UPS, FedEx and Amazon, which control 98% of the market share.
“That’s the dilemma that we have in a lot of industries within the United States,” Penfield said. “We’ve got these oligopolies, we’ve got these sectors where we have four, five, six big players. And then if something happens to one, it impacts everyone.”
The 24 million packages UPS ships on average each day amounts to 24% of the total market share. The remaining three giants would have struggled to pick up the slack had UPS workers gone on strike in August, affecting delivery times and shipping prices.
But it is logistically difficult for other players to enter the concentrated market, mostly due to upstart costs, Penfield explained.
“You’ve got to have the infrastructure, you’ve got to have the distribution, you’ve got to have the workers,” he said. “That’s why it’s really hard to set up a shop to be able to compete against those four.”
One that has tried is DHL, a global shipping leader based in Germany.
“They’re still here in the states, but they had a difficult time trying to set up their operation,” he continued. “Just that experience alone tells you that it’s really hard to penetrate that market space.”
Shipping demand explodes
The COVID-19 pandemic created a boon in U.S. parcel shipping, growing 33% from 2019 to 2020. But shipping in post-pandemic life continues to surge.
U.S. parcel volume is set to grow from 22 billion per year in 2023 to 28 billion per year by 2028, a 27% increase in five years, according to Pitney Bowes.
“Everybody is trying to get things done faster and get things quicker to customers,” Penfield said. “And we think automation may be the key to getting that done in the future.”
But automation, in the form of drones, robotics and autonomous vehicles, will take a toll on the workforce. Penfield predicts a decline of roughly 25% of the shipping workforce in the next 10 years.
