What Can Brown Do For You??

From 2002 to 2010, United Parcel Service ( UPS ) used a slogan ” What can Brown do for you?”. It was a way to get businesses and individuals to consider using UPS for shipping, logistics, LTL, print and copy, and pretty much every service they offered. It was the most aggressive ad campaign in the company’s history. Of course every one knows who UPS is, and more importantly what UPS does, so why bring it up?

Unless you have lived off the grid for the last month, you know very well that UPS almost had a strike. This would have disrupted millions of packages a day, and almost shut down logistics around the world. Luckily for us, the strike was averted by some last minute negotiations. Or was it lucky for us? Let’s take a look.

UPS operates a worldwide logistics behemoth that delivers 11.1 million packages to over 220 countries a day. They operate this logistical empire with 495,000 employees around the globe, utilizing 500 aircraft, and over 119,000 delivery vehicles. Needless to say – they are ingrained into our daily lives. From an e-commerce delivery to a Fortune 500 company delivery – we all need, use, and depend on UPS running daily.

Avoiding a strike for UPS was only possible because UPS gave massive concessions to their workers. We have all probably heard that a UPS driver can now make upwards of $170,000.00 a year in the US factoring in wages, OT, pension, benefits and health insurance. Where will UPS get the money to pay these increase? You guessed it – from its customers. I own several business outside of my mortgage business, and they all depend on Brown to keep me going. I have already seen some increased shipping costs – which means I have to increase my prices to compensate. This is called inflation.

Inflation gets going with 2 things: A ) higher prices for a product, but B ) based on higher prices, people demanding higher wages to pay the increase from A. As soon as B comes into effect, people have more money to spend on the higher priced items in A, and supply and demand increases the prices again, meaning an increase to B is required again. Round and round we go in a self re-inforcing feedback loop of ever higher prices. This is called the wage-price spiral. For what it is worth, wage-price deflation works the exact same – only in reverse.

Normally I would not be mentioning some random wage increase, but the UPS contract is HUGE. Everyone is talking about it, and a lot of people are aware of it. The UAW ( United Auto Workers ) is using the template with UPS to extract raises from the auto makers this fall in their round of negotiations. The UAW is looking for increases of anywhere from 40% to 50% over the term of the contract. Whatever the UAW does, the CAW ( canadian Auto Workers ) will try in Canada. If the Big 3 cave, and increase wages, imagine how much a finished vehicle would have to go up in price to compensate for a 40% increase in wages? Autos is a large part of the CPI. Put 2 and 2 together here.

I say all this to tell you inflation may not be going down, but rather may just be getting started. In order for it to really take hold, we need employers to start giving out large percentage increases to wages. Tiff Macklem referred to this in a speech in November 2022, where he urged employers not to give raises for fear of further fueling inflation. For what it’s worth – he got clobbered in the press for that one. Although his timing and his ability to read a room was off by a country mile – the message was actually correct. The worst thing you can do in an inflationary environment is give out wage increases. Without the increased wages you stop the wage-price spiral dead in its tracks.

Since the BOC only watches inflation as their primary criteria for interest rate hikes ( or so we are led to believe, and so their official mandate says ) , and wage inflation could either increase headline inflation, or at least hold it where it is, and not allow it to fall back below the magical, mystical 2% threshold that is more sacrosanct than Toronto Maple Leafs believing their team will win the Stanley Cup, then this could be a problem for the people thinking rates are coming down any day now. I am not here to say they will or won’t, but if you start to see wages increasing, then inflation will truck higher, and could deliver interest rate increases.

So, to answer my original question ” What can Brown do for you?”…..Brown could deliver a large dose of inflation and higher interest rates instead of your latest find off of Amazon. While everyone thought it would be a nightmare to have a global logistics company on strike, it may have ended up better for all of us had UPS not settled.