UPS-FedEx Dispute Shows Labor's Control Over the White House
How does the Obama administration love organized labor? Let us count the ways it uses power to repay unions for helping to put it in power.
It has given the United Auto Workers majority ownership of Chrysler. It has sent $135 billion of supposed stimulus money to state governments to protect unionized public-sector employees from layoffs and other sacrifices that private-sector workers are making. It has sedated the Labor Department's Office of Labor-Management Standards, which protects workers against misbehavior by union leaders. Cap-and-trade legislation might please unions with protectionism -- tariffs on imports from countries not foolish enough to similarly burden their manufacturers. If Congress, seeking money for more socialized medicine, decides that some employer-paid health insurance should be taxed as employees' compensation -- which it obviously is -- generous union-negotiated benefits might be exempted.
Now it is the Teamsters' turn at the trough. Congress might change labor law to assist UPS, a Teamsters stronghold, by hindering its principal competitor, FedEx.
At 2 a.m. in Memphis, where FedEx is headquartered, the airport is humming as FedEx sorts and dispatches many of the 3.4 million packages -- 10 million pounds of freight -- it ships daily, mostly with its fleet of 654 aircraft. Eighty-five percent of FedEx packages go by air; 85 percent of UPS's go only by truck. This matters because:
The growth of railroads had put America's increasingly integrated economy at the mercy of local strikes. "Brakemen in Altoona, signalmen in Wichita," says Fred Smith, could cripple the transportation network. Smith, FedEx's founder and chief executive, says that in 1926, to protect the arteries of commerce, Congress passed the Railway Labor Act (RLA). It ensured that any bargaining unit for workers must be systemwide so that no local unit could hold the railroads hostage.
In 1935, the National Labor Relations Act (Wagner Act), which covered everyone except railway workers, allowed organizing and bargaining based on localities. The path to unionization is steeper under the RLA, which requires a nationwide vote by all workers.
In 1936, airlines were brought under the RLA. FedEx, which began as an air freight company and created the modern express business, is precisely the sort of integrated system for which the RLA was written. This matters: 53 percent of all U.S. exports by value travel by air, and virtually all priority and express U.S. mail is carried by FedEx.
In 1981, UPS began air services, and in the 1990s it tried, legislatively and judicially, to be put under the RLA. In 1993 UPS said all of its operations, "including ground operations," are properly subject to the RLA "because the ground operations are part of the air service." FedEx supported UPS's efforts, even though the vast majority of UPS parcels never go on an airplane, whereas FedEx's trucking operations exist to feed its air fleet and distribute what it carries.
FedEx characterizes itself as the "world's most effective airline" and UPS as "a 100-year-old trucking company." FedEx, Smith insists, is not anti-union; its pilots are unionized. He says that the pay and benefits for its drivers are, on average, higher than those of UPS drivers and that new FedEx drivers must wait only three months to be eligible for benefits whereas UPS drivers must wait a year. Nevertheless, today's Democratic majority in Congress, with UPS now aligned with the Teamsters, wants to put FedEx's ground pickup and delivery operations under the NLRA, thereby making FedEx's entire integrated system susceptible to disruption by local disputes.
"Bailout" is now both a noun and a verb, and FedEx characterizes what Congress might do for UPS as the "Brown Bailout." But properly used, "bailout" denotes a rescue of an economic entity from financial distress. Although UPS is suffering from the recession, so is FedEx. Furthermore, UPS, whose revenue is 36 percent larger than FedEx's, began advocating this injury to FedEx long before this recession.
What UPS is doing is called rent-seeking -- bending public power for private advantage by hindering a competitor. This practice, which expands exponentially as government expands arithmetically, is banal but can have entertaining ricochets:
If Congress makes FedEx's operations more precarious by changing the law to make it easier for local disputes to cripple its operations, Smith says a multibillion-dollar order for 15 Boeing 777s will be automatically canceled. One of the unions lobbying on behalf of UPS and the Teamsters is the International Association of Machinists and Aerospace Workers, whose members make 777s.