UPS Healthcare Forum Opening Remarks

Overview

UPS is optimistic about the global economy and the opportunities in the healthcare sector. While major risks exist that could negatively affect the rebound, the U.S. economy appears to be in a mild recovery and the Asian economy continues to be strong. The signs are positive.

Within the healthcare sector, there continues to be short-term regulatory uncertainty but the long-term trends are good. On a global basis, the industry is healthy and will continue to grow. A key factor driving this growth is the development of large middle classes in the emerging markets.

UPS's capabilities and expertise fit well in healthcare. This includes expertise in managing complex supply chains that are under increasing cost pressure; expertise dealing in complex regulatory environments; and expertise doing business on a global basis.

Summary of Key Learnings

The U.S. economy is in a mild economic recovery, though the future is not without significant risks.

Because UPS moves about 6% of U.S. GDP and 2% of global GDP, the company has a unique real-time view on the state of the economy. Most signs indicate that the economy is headed in the right direction. While the healthcare sector continued to fare well even during the recession, sectors across the board are now performing well. This includes the retail sector, which had a surprisingly good fourth quarter in 2009 and has continued to show good results in 2010.

Looking globally, Asia - particularly China - continues to show strong growth. (A recent report showed extremely strong Chinese exports.) Europe, where the economy is doing worse than expected, is a focus point. However, previous expectations for Europe were low, with projected growth of just about 1%. Revised projections are only slightly lower, with flat growth or perhaps a 1% decline.

There are several significant risks that could affect the global economic outlook. Tensions in Korea and the Middle East could affect the global economy. The Deepwater Horizon oil spill could have longlasting impact and could affect energy prices. And, most significant are the debt issues in the Eurozone. If Greece defaults, Europe will bail it out, but there will be a ripple effect with major implications for French banks and insurance companies. Italy, Spain, Portugal, and Ireland also have debt issues.

Still, despite the risks that exist, UPS does not see a double dip recession occurring. The company remains fairly optimistic about the economic future for the United States and the world.

"There are a lot of things that could cause problems for the economy going forward, but I am still fairly optimistic [about the global economy]." - Scott Davis

The United States needs to fix its long-term fiscal situation and its physical infrastructure.

The U.S. deficit is not sustainable and must be addressed. The solution to the country's fiscal problems will have to include a combination of revenue (tax) increases and spending cuts. But the current political climate will make it hard to get deficit-reduction legislation through Congress. While the ratio of the U.S. debt to GDP is not much different than that of Greece, the low spreads on Treasury bonds indicate that people believe the U.S. will fix its fiscal problems, which is essential.

Also necessary is to address the country's constrained physical infrastructure, which hurts future economic growth. In the recession of the past few years, the infrastructure has not been as much of a problem as it will be when the economy recovers. In a stronger economy, air traffic delays, rail congestion, crowded ports, and congested highways all create barriers to commerce. The administration understands the issues and the need for solutions.

Healthcare is one of UPS's most important long-term market sectors.

UPS has been focused on the healthcare sector for more than a decade and has made great progress during that time (with much more still to be done). UPS sees healthcare as a top strategic priority and will continue to make significant investments in this sector.

"UPS sees healthcare as a top strategic priority." - Scott Davis

UPS's perspective is that healthcare will continue to be a fast-growing sector and that UPS's capabilities fit well with the needs in this sector. Specifically: healthcare faces cost pressures; the healthcare supply chain is playing a more important and strategic role; the sector faces numerous regulatory issues; and, globalization is a major factor as 95% of patients live outside of the United States, with large middle classes developing in emerging markets such as China. These are all areas that fit well with UPS's strengths. UPS has extensive expertise navigating complex regulatory situations, helping industries under cost pressure where the supply chain plays a key role, and helping customers globalize, particularly in fast-growing emerging markets.

"Healthcare fits well with UPS's strengths . . . a lot of the needs of healthcare are things that UPS can address." - Scott Davis