Most shippers understand the potential disruption an August 1 Teamsters strike at UPS would cause to their business, the economy, and UPS as a company. But have you considered the position your local UPS sales rep is in? Although drivers typically come to mind when you think of front-line workers, UPS reps are also considered front-line, customer-facing employees and are usually a shipper’s first call for anything related to pricing or service disruptions.
The threat of a strike puts carrier reps in an unfavorable position
Reps are a shipper’s main connection to the ivory tower that is UPS pricing. Having insight into your rep’s compensation metrics will help you determine whether or not your account is a priority to them. Priority accounts get taken care of from a financial and service perspective, while non-priority accounts tend to be pushed to the wayside. During times of uncertainty (like the threat of a Teamsters strike at UPS), carriers may change the way sales reps are paid, making it easier for them to lose certain accounts without negatively impacting their compensation. Although your rep would likely say, “All of my accounts are a priority,” the carriers create an environment where that is simply not the case. Like many things in business, the 80/20 rule tends to come into play. 80% of your rep’s commission comes from 20% of their book of business. Taking the time to understand where you fall on your rep’s scale is key to determining what leverage you have.
In 2023, the realistic threat of a Teamsters strike has put all UPS reps in the unfavorable position of trying to ease fear amongst their clients without having their own fears addressed. (FedEx reps are in a much different position, having to prove to their employer that their wins will continue to produce revenue after the threat of a Teamsters strike is resolved.) UPS provides talking points that many reps assume are filtered and biased, but opposing opinions can be hard to find when living and working in their UPS echo chamber. Even among experts, opinions vary on the likelihood of a strike, but an honest conversation with your UPS rep would reveal that their livelihood could be harmed regardless of the outcome. And retaining your account may not be in their best interest.
How carrier reps are compensated affects your options as a shipper
Regardless of their employer, understanding how your carrier rep is compensated on their book of business is crucial to establishing a mutually and financially successful relationship. Representatives selling to small- and medium-sized businesses are typically assigned a geographic territory. Where territories overlap, accounts are assigned by overall carrier spend. The rep receives a performance plan, with measures of success often mirroring the KPIs discussed on FedEx’s or UPS’s quarterly earnings calls, most commonly: 1) average daily volume, 2) average daily net revenue, and 3) average net revenue per piece.
The specific measurements and the weights applied to them change yearly – or sometimes more frequently – giving reps a constantly moving target. This is not a coincidence. UPS and FedEx benefit from “complexity by design,” and they apply it both to the rates shippers pay and the way they compensate their account reps.
The plans, like so many things within huge corporations, are determined by people sitting in cubicles far removed from the front lines and using opaque data. The output tends to be complex and, if you ask most reps, very optimistic about the potential for growth. Plus, it’s a time-consuming process, where forecasts are based not just on an account’s individual historical performance, but also on territory-level performance, projected growth of segmented industries, and black-box algorithms. These elements produce growth goals on an account-by-account basis that may not be reasonable but are also extremely difficult to challenge and change. The growth figure for each account is totaled to create the rep’s territory plan. How your account is performing to this plan either negatively or positively impacts your rep’s overall effectiveness.
Anytime an announcement creates fear or uncertainty amongst shippers, the reps are expected to mitigate any potential fallout. The rep’s goal is to ensure their customers are comfortable with their current price, confident in the carrier’s service, and satisfied with the overall relationship. When an account diverts volume to a different carrier (or sometimes just moves to a different location outside the rep’s territory), the rep’s plan does not typically adjust. The forecasted production remains with the rep, becoming a deficit the rep is constantly trying to backfill.
Guaranteed commission periods and dropping accounts
During times of major market disruptions, carrier reps have reported the implementation of guaranteed commission structures. For example, when package volumes spiked during the Covid-19 pandemic, one former UPS sales rep reported that “[UPS] flat out said your sales plan has changed due to ‘market changes due to COVD’ and took $20-30k in commission right out of the pockets of their sales force.” Similarly, with the potential of an August 1 Teamsters strike still looming, UPS may lock a sales rep’s commission at a specific dollar amount unrelated to their current performance.
But it’s not all bad news for reps. In addition to locked commissions, carriers may make it possible to have specific accounts removed from a rep’s overall territory calculation, assuming the account would have a materially negative and unavoidable impact to the rep’s compensation. In these cases, if a shipper performing ABOVE the plan considers moving their business to FedEx due to the potential strike, it is still in the UPS rep’s best interest to work to retain the account. However, for an already struggling account, the unusual opportunity to offload the plan if they lose the account may mean that trying to save it may be more trouble than it’s worth. In fact, it might make more sense for a rep to fight to drop an account (and its associated plan) instead of actually trying to retain it, assuming the account meets strict qualifications.
In our experience, UPS continues to lose shippers as we approach the August 1 deadline. On a more granular scale, this means that each individual UPS rep is also losing customers that are currently affecting their overall KPIs and compensation, the consequences of which may be felt for a year or even longer. As shippers do their own due diligence, transportation analysis, and mitigate their own risk from a potential strike by pursuing other operational plans and carrier diversification, the reps are adjusting everything within their power to protect their compensation. Unfortunately, due to the rules the carriers impose, this isn’t always in the best interest of the shipper or the rep’s compensation.
Most carrier reps understand the business realities at play. The threat of a Teamsters strike may lead shippers to reach out to alternative carriers they were unwilling to consider in the past. Despite years spent building relationships of trust with their clients, it is inevitable that their compensation will be negatively impacted for reasons outside their control.
In normal times, reps would typically be upset over any loss of business but would have a clear path to recovery. Winning a new account away from a competitor, or even organic growth within their existing book of business, may be enough to replace the loss. With the potential of a strike, even with the potential for locked commissions and plan adjustments, that path becomes difficult to see. Even worse, most current reps have heard horror stories from colleagues about the previous strike and the time it took to recover.
Your rep takes the wheel, literally
There are many differences between the labor challenges in 1997 and 2023, however, 26 years after the first Teamsters strike, many shippers are still questioning how UPS will minimize any potential disruptions. Unfortunately for UPS sales reps, they are part of this answer. Beginning in the peak seasons of 2017 and 2018, UPS introduced Personal Vehicle Drivers, or PVDs. Operating out of their own vehicles, PVDs focus mostly on residential deliveries during the holidays, driving unmarked cars and wearing some sort of UPS badge, but not typically the full unform. A PVD driver could be a seasonal hire, or a UPS management employee with little-to-no training in an operation being pulled away to do something other than the work they were hired to do. Sales is considered management, so this may include your account rep.
UPS management employees are salaried, so this additional work is expected. This creates frustration amongst the sales force as they are thrown into the operation to assist, while also being held accountable for their sales performance. No one is handling your account while they are away. This is not ideal for anyone involved. If the Teamsters strike on August 1st, expect UPS to utilize PVD’s during the union stoppage time, both temporary outside hires and existing UPS management.
FedEx recently held their Q4 Fiscal Year ‘23 earnings call. They discussed whether or not FedEx Corp. planned to win more volume due to the uncertainty caused by the UPS and Teamsters contract. At the corporate level, they were not planning to benefit from this uncertainty, but they acknowledged that it had opened doors to some long-time, legacy UPS accounts. Many sales reps, however, might describe this differently. UPS sales reps continue to lose customers due to this uncertainty, and unless these shippers are moving to a regional carrier or postal consolidator, a FedEx rep is benefiting.
Each shipper has unique needs that factor into how they choose to address the current uncertainty, and they may have more control over their shipping outcomes than they currently understand. An informed relationship with the carrier rep is arguably one of the most influential factors a shipper can leverage to ensure satisfaction with their carrier. Having insight into the motivations of your carrier rep will help you avoid undesirable long-term consequences, regardless of the outcome of the Teamsters negotiation.
Matt Sumowski is Sr. Manager of Client Success at Shipware, where he consults and advises clients on transportation cost-reduction strategies. He joined Shipware in April 2022 after roughly 6 years working within the logistics arena and has expertise in everything from freight forwarding to parcel contracts.
Most recently, he was a UPS Senior Account Executive for the last 4 years, working with some of the largest shippers across the US to optimize their supply chain and negotiate contracts.