Former DHL VP Tells The World - This Agreement Is Among The Very Best Ever Negotiated for UPS!!!

David Vernon
Vice President and Senior Analyst at Sanford C. Bernstein
Greater New York City Area
Experience
Vice President and Senior Analyst
Sanford C. Bernstein

April 2010 – Present (8 years 4 months)

Senior Vice President
DHL Express

October 2005
Bernstein's David Vernon checks in with logistics giant...(UPS) writing that there's reason to keep the faith

First, UPS: The company announced an agreement late last month with its Teamsters union, and while we have scant details on that ongoing negotiation, Vernon writes that we are getting more information about hybrid drivers, one of the bones of contention between the two parties. He believes that these new drivers will lower costs–not because they are cheaper, but because they are more flexible within UPS's cost structure.

UPS and the Teamsters agreed to protect existing full-time package jobs and limit growth of hybrid drivers to 25% of the total number of full-time carriers, which Vernon writes is better than he hoped, and that Sunday delivery options are in the works for the future. He writes that the "added flexibility in the UPS cost structure from hybrid drivers should increase the flexibility with which UPS is able to accommodate future growth from e-commerce and lower the effective rate of wage growth at the margin."

He also thinks that reductions in overtime and the cost of weekend operations are good signs as well, and while unknowns about the contract remains, it "would be a mistake to overlook the news of hybrid drivers as more of the same." He reiterated an Outperform rating and $137 price target on the shares.

UPS, FedEx Shares Carry Upside

United Parcel Service (UPS) Q2 2018 Results - Earnings Call Transcript
Jul. 25, 2018 12:45 PM ET
About: United Parcel Service, Inc. (UPS)
Q2: 07-19-18 Earnings Summary
We have a question from the line of David Vernon, Bernstein. Please go ahead.

J. David Scott Vernon - Sanford C. Bernstein & Co. LLC
Hey, good morning. I know you guys are kind of in the process of finalizing the labor agreements and outside of kind of specific numbers, can you give us a sense for how the addition of some of the part-time driving rules is going to effect the business, like, what impact it could have on things like overtime rates, driver productivity, and how we should expect cost to grow going forward once, assuming that the contract has been released out there is ratified?

James Jay Barber - United Parcel Service, Inc.
David, I'll start, anyway. This is Jim. Look, I think this isn't really the forum to be doing forward forecasting, given the contract is not ratified yet. I think what I'd rather just update you on is where we are and when the time is right, we'll walk you through all of that, obviously. But we absolutely feel like we're in a pretty good place right now, because, at this point, really, we have tentative agreements on the National Masters in freight and package and we are just a handful away of the locals and the supplements, and we really believe that kind of the timeline, which I think we all do is important is in early August, we believe the Teamsters will get the communication and begin the process to a ratification and the voting process. So after that all concludes, I think would be the more representative time to talk about the final details of the contract and how that might play into any financials going forward.

David P. Abney - United Parcel Service, Inc.

Yeah, until that point, just want to emphasize that we're fully aware that our people, and especially our drivers, since they're the ones that see our customers face-to-face, they are our ambassadors to our customers, and one of our goals in this contract is to reward our people. We absolutely feel that's important. We also believe that we have to have the flexibility to respond to our customers' needs and that if we take care of that, that we can not only ensure that our existing employees are enjoying those rewards but we can set the foundation for the future so that the generations of UPSers can continue to enjoy those benefits. So, we've got multiple goals that we wanted to get accomplished, and we are pleased with the progress. But this contract has got to be ratified. So let's get that ratified, and then we will go from there. But thank you for the question.
United Parcel Service (UPS) Q2 2018 Results - Earnings Call Transcript | Seeking Alpha