By Lisa Baertlein and Priyamvada C

The U.S. economy will face a key test on Tuesday when the Teamsters union is expected to release the results of a contract ratification vote at United Parcel Service, which, if rejected, could open the door to a damaging strike, threaten Christmas deliveries and send shipping costs soaring.

Atlanta-based UPS, the world's largest package delivery company, handles about a quarter of U.S. parcel deliveries and serves virtually every city and town in the nation.

Rejection of the tentative five-year deal hammered out by the International Brotherhood of Teamsters and UPS in July could trigger a strike that costs the U.S. economy billions of dollars, overwhelms rival shippers with unexpected demand and sends delivery costs sharply higher.

It also could throw a wrench into the upcoming holiday shopping season that is a make-or-break period for retailers, including Amazon.com, the largest UPS customer.

If approved, the deal would raise pay for 340,000 UPS workers and eliminate a two-tier wage system for drivers. It also would provide another paid holiday, end forced overtime and add air conditioning to new models of the company's ubiquitous brown trucks starting next year.

Ending seniority-based wage tiers that pay new hires less than veteran workers is also a central issue for the UAW-Detroit Three labor talks. UPS is the nation's largest private-sector employer of unionized workers and ending the labor cost-saving scheme there could be a big win for unions and a possible blow to companies.

Unions representing "essential" transportation workers including pilots, port workers and delivery drivers are enjoying enhanced bargaining power due to the tight labor market and stronger public support for unions.

The ratification voting closes on Tuesday. Results will be released some time after 3 p.m. EDT.

Pilots at UPS rival FedEx rejected their tentative contract in July.

UPS cut its full-year revenue and profitability targets earlier this month, citing higher-than-expected labor costs and business lost during the tumultuous contract talks with the Teamsters.

Under the contract deal, current full- and part-time workers will get $2.75 more per hour in 2023, and $7.50 more per hour over the length of the contract, according to the Teamsters.

General wage increases for part-time workers will be double the amount obtained in the previous UPS Teamsters contract - and existing part-time workers will receive a 48% average total wage bump, addressing a key sticking point in talks, the union said.

(Reporting by Lisa Baertlein in Los Angeles and Priyamvada C in Bengaluru; Editing by Paul Simao)