Some of us are labor, some of us are managers, some of us are professionals and some of us are homeless, but all of us are consumers. Any time one segment of society gains a special advantage, all of us pay.
The consumer, in a consumer driven economy, is king. Smart managements understand this. Smart managements also understand that they have to compete, not only with others in their industry, but with everyone else, because the consumer only has so many dollars. If consumers spend more money on travel, for example, they have less to spend elsewhere.
On the other hand, labor leaders tend to be less concerned about consumers and, not surprisingly, focus on their members’ benefits and compensation. This focus can come back and bite you. For example, UPS has recently announced a plan to cut its Amazon business by 50%, even though Amazon is UPS’s largest customer and accounts for 12% of UPS’s business, but a much smaller percent of its earnings. As a result, some UPS drivers, soon after agreeing to an industry leading compensation package, are going to be laid off.
Investors are going to have to sort through this. Clearly, Amazon is trying to control its delivery costs while UPS is prepared to give up approximately 6% of its revenues in an effort to preserve margins.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA
