Monday, November 20, 2006

Teamster Nibble at FedEx. The New Reality?

FedEx Corp. (FDX) drivers at two distribution centers in Wilmington, Massachusetts, voted by a margin of 3 to 1 to seek representation by the Teamsters. Management immediately announced that they will be challenging the vote.

The Teamsters represent drivers in UPS and the US Postal System has their own union. FedEx has maintained that many of these drivers are independent contractors. Recent court decisions have ruled against management assertions.

The certification appears to be small for the time being. Only about 32 drivers operate from these two locations. FedEx has approximately 15,000 truckers. Can FedEx ship around them and/or fire them somehow? Probably and maybe. Will this fuel further militancy if management gets rough? Certainly. Casual conversations with FedEx drivers indicate there is substantial sympathy for signing on with the union. Management has been throwing the drivers little bones along the way such as lifting the prohibition on facial hair. The little moves have only whet the drivers appetite as they start to feel power and entitlement.

FedEx and the teamsters know they need to organize FedEx. Then they will be able to negotiate with the industry much the same way as the United Auto Worker’s negotiated when they were more important then they are now. The teamsters now represent approximately 1.4 men and women, including workers at UPS, UPS Freight and DHL.

The teamsters are looking at FedEx's profits of $1.8 Billion for last fiscal year and $475 during Q1. FedEx stock is trading at close to its upper 52-week range.

Here is the arithmetic. Assuming all 15,000 workers are full time equivalent and draw 40 hours per week for 52 weeks a year. Assume the new contract costs an extra $5 per hour in salary and benefits, the bottom line takes a hit of approximately a $156 million dollar, which is less than 10% of last years earnings. Not good news but not strategically disastrous if the competition is faced with the same circumstances.

The union may take around two years to organize the entire FedEx system. Watch for labor disruptions. If FedEx were smart they may enter into a profit sharing arrangement to keep the cost variable.