The raises won by United Parcel Service Inc. package handlers are going to put FedEx Corp. in a bind.

While the salaries that unionized UPS drivers will make under the tentative five-year agreement have grabbed headlines — ones with a few years experience could earn nearly $50 an hour — the bigger problem for FedEx might be that workers in sorting centers are getting even bigger pay hikes, with some increases hitting 55%.

These employees, who are often part-time, have already been difficult for FedEx to recruit. During the pandemic, the company had to run facilities at partial capacity, which drove up costs and hurt its on-time delivery performance. Meanwhile, better pay and benefits helped UPS maintain its labor force.

FedEx’s Ground unit, which doesn’t have unionized workers, has been attempting to lower the turnover rate of package handlers through a combination of higher wages, more flexible work schedules and benefits such as paying college tuition. But the UPS contract will make that more challenging, a FedEx executive told contractors during a meeting in Orlando last week that Bloomberg News obtained a recording from.

“We’re going to have to sharpen our pencil a little bit and understand what’s going on in specific markets specifically for package handlers,” Marc Williams, senior vice president of western operations for FedEx Ground, told the contractors.

The Ground unit can’t raise wages for package handlers too much or it risks luring away delivery drivers that are employed by contractors, Williams said. Nearly 4,500 small businesses in the US help FedEx deliver packages.

“If we get too aggressive, then it starts to compete with what you’ve got going on with your drivers,” Williams told the contractors at the meeting. “So, we have to be cognizant of that.”

In response to a request for comment on the remarks by Williams, FedEx said in a statement that it offers workers competitive wages, flexible scheduling and a wide range of benefits after staying with the company for a certain amount of time.

$36 an Hour

The UPS contract will bump up the starting wage for package handlers to $21 an hour from about $16. By the end of the deal, a part-time handler with more than 15 years on the job will make nearly $36 an hour, according to the International Brotherhood of Teamsters.

Delivery drivers hired by FedEx Ground contractors typically make anywhere from $15 to $25 an hour, according to Bright Flag Recruiting. That’s much lower than the $49 an hour plus full pension and health-care benefits that UPS drivers with more than four years of experience will make at the end of the new contract. Contractors offer their drivers scant benefits, if at all.

The UPS tentative labor agreement, which was reached on July 25, still needs to be ratified by the 340,000 Teamsters it covers. The results of that vote are schedule to be released on Aug. 22.