UPS strike ‘catastrophe’ avoided but threat spotlights issues with US shipping

Simone Del Rosario:

Crisis averted. 340,000 UPS workers will not be going on strike next week, what would have been the largest single employer strike in U.S. history. A 10-day strike would have cost the U.S. economy $7 billion, according to Anderson Economic Group. But the threat of a strike alone has highlighted how dependent we are on just a few players in the parcel industry, an industry that is growing leaps and bounds as we shop more online. How long can the status quo hold up? 

Patrick Penfield is with me to talk about the state of it all. He’s a professor of supply chain practice at Syracuse University. the U.S. market, was there any way that the other players were going to be able to step up to fill this void?

Dr. Patrick Penfield:

No. So we’ve averted a catastrophe. So, you know, thankfully, you know, the, uh, the strike was settled. Um, if it did happen, it would have been a nightmare as far as the supply chain goes in the United States.

Simone Del Rosario:

What are the biggest takeaways given that? Averting a catastrophe, it seems dangerous to be relying so much on one player.

Dr. Patrick Penfield:

Yeah, and that’s the dilemma that we have in a lot of industries within the United States. We’ve got these oligopolies. And so we’ve got these sectors where we have four, five, six big players. And then if something happens to one, it impacts everyone. And so that’s the dilemma that we have here in the United States.

Simone Del Rosario:

Ship Matrix said that USPS, the Postal Service, would have been able to absorb 30 million extra packages a day. Do you see that as at all possible?

Dr. Patrick Penfield:

I think they could have, but it would have been something over time, right? So that’s the thing. They just don’t have that extra capacity to be able to absorb it right away. So, you know, over a six month period, a year period, absolutely probably could have, but no, if this strike had happened, it would have caused a lot of delays and a lot of issues within the US supply chain.

Simone Del Rosario:

We haven’t really seen a new player come into the space. The nearest one would be Amazon, which basically was stepping up to solve a problem they created, which was us relying more on, you know, hyperfast shipping. Four players dominating 98% of the market share. Do you see room for new players here?

Dr. Patrick Penfield:

It’s hard, it’s really difficult to penetrate that market. And the reason being is, you know, just the upstart cost, right? So you’ve got to have the infrastructure, you’ve got to have the distribution, you’ve got to have, you know, the workers. And so that’s kind of the dilemma. That’s why it’s really hard, you know, to set up a shop to be able to compete against those four. You know, DHL was at one time and they’re still here in the states, but they had a difficult time trying to set up their operation. And so, you know, just that experience alone tells you that it’s really hard to kind of penetrate that market space. And so this is why it’s difficult for small players, you know, to be able to get the economies of scale to compete against those four.

Simone Del Rosario:

Shipping to me is a little bit like Jenga. All of these big players rely on each other to get that product across the finish line. USPS delivers the last mile for a lot of parts of the country. What sort of cracks does this bring up as the industry grows?

Dr. Patrick Penfield:

Well, it brings up a whole bunch of different types of issues and problems. And so the one being again, that last mile, everybody is trying to get things done faster and get things quicker to customers. And so everybody’s trying to figure out how to do that. And we think automation may be the key to getting that done in the future. 

Simone Del Rosario:

I was looking up some of the projections moving forward. The US parcel industry is looking to push out 22 billion packages in 2023. And they project that will go up to 28 billion by 2028. That is in five years time, a 27% increase. So do you see automation being helpful in the next five years or what needs to happen to be able to prop up that level of increase?

Dr. Patrick Penfield:

Yeah, absolutely. This is where, and we’re seeing it now, automation is here. It’s just a question of cost and being able to, you know, to lower the costs from an economy’s scale standpoint. So absolutely, that is going to be the whole key to being able to increase capacity quick and fast and be able to manage that amount of packages that are coming through the system.

Simone Del Rosario:

And how expensive is that last mile?

Dr. Patrick Penfield:

Last mile is really expensive. And so again, everybody is trying to figure out how to do that better. We think drones, automated guided vehicles, things of that nature will help. And the big costs with last mile’s labor, trying to make sure that you have enough labor to be able to get customers what they need. So if we can replace it with automation, it’ll make things go a lot faster. And then we’ll see even more of a surge with small packages.

Simone Del Rosario:

Do you see the workforce in this area declining because of that automation, or is the demand so great that they’ll balance out?

Dr. Patrick Penfield:

Yeah, unfortunately, I do believe it will decline. Next 10 years, you’ll probably see maybe 25% less workers. And then as we progress, more years pass, you’ll see even less workers. And so that’s the unfortunate thing with technology, it will displace workers. And so hopefully, we can find new roles and new opportunities for those folks.

Simone Del Rosario:

Patrick Penfield of Syracuse University. Thank you so much for your time today.

Dr. Patrick Penfield:

You’re very welcome, Simone. It’s great talking to you.