UPS Healthcare Forum Opening Remarks 2011

Overview

UPS sees a modest economic recovery and predicts growth in the U.S. of 2.0–2.5%. Uncertainty over the debt ceiling and the deficit are major issues in need of long-term solutions; solutions require tough decisions and compromise. Unemployment will remain an issue, with no immediate solutions in sight. Global trade and exports represent important ways to boost the economy and create jobs, but Congress needs a nudge to approve trade agreements and decrease the barriers to trade. As UPS contemplates its future, the healthcare industry is a strategic priority and UPS's strengths fit well with the needs of the industry. UPS is making significant investments to capitalize on this opportunity.

Key Takeaways

A slow economic recovery is likely.

UPS felt better about the economy at the start of 2011 than in 2010 based on the view that the U.S. economy would grow a bit more in 2011. This remains UPS's view, with a belief that the U.S. economy will grow 2.0–2.5% in 2011. However, there is much uncertainty as the positives have been offset by negatives.

• Positives. Credit is more available, interest rates remain low, and demand in emerging markets remains strong.
  
  
• Negatives. Energy prices continue to rise, the disaster in Japan has had an effect, QE2 (monetary policy) will soon end, and the U.S. is not in a position for further stimulus. Also, uncertainty around the U.S. debt ceiling and Europe's continuing debt remain. (A rule of thumb is that every $10 increase in the price of crude oil decreases GDP by 0.2% in year one and 0.5% in year two. Rising oil prices are a big drag on the economy.)

Growing exports can boost the U.S. economy and create jobs.

Unemployment remains a huge problem. Based on projected growth, it will remain a problem for some time. Economic growth of 3.0–3.5% is required just to hold unemployment flat; faster growth is required to bring unemployment down.

Exports are a key as exports and trade create jobs. Currently, 11% of U.S. GDP comes from exports, compared to 50% in Germany. Today, 95% of the world's consumers live outside of the United States, yet only 1% of small and medium-sized U.S. companies export.¹

President Obama understands the importance of exports and has set a goal of doubling exports in the next five years. Barriers include complex customs and export controls, which need simplification. Also, free trade agreements with South Korea, Colombia, and Panama have been negotiated but not ratified by Congress. Many in Congress see trade negatively and are holding up these agreements. Congress must be educated to understand the benefits of trade, something Mr. Davis is heavily engaged in as a member of the President's Export Council and as Chairman of the Trade Promotion and Advocacy Committee.

Lack of political progress on the debt ceiling and deficit reduction is disappointing.

Political leaders of both parties are talking about "leverage points" in their negotiations about the debt ceiling. They seem more focused on negotiating than doing what is beneficial for the country, which is disappointing. Politicians are likely to remain firm in their positions until the stock market crashes, leading to quicker action and more financial suffering. However, quick action will result in a temporary solution that hurts the bond markets.

Also disappointing is the lack of focus on deficit reduction. The Simpson-Bowles Commission laid out good ideas to reduce the deficit. But people aren't paying much attention to these ideas. Needed is a long-term solution that cuts spending and deals with revenues. Such a solution requires tough decisions and compromise, which are lacking. Continued lack of progress will hurt U.S. competitiveness and force companies to look internationally even more.

Healthcare is a strategic priority for UPS.

Healthcare is one of UPS's top priorities, reflected in the attention shown by UPS's board and management, as well as the company's investments. The changes going on-including regulatory changes, globalization, and cost pressures-and the needs of the industry fit well with UPS's strengths. No other company has UPS's technology, global network, or broad portfolio of solutions.

Healthcare reform legislation hasn't diminished uncertainty.

The Affordable Care Act improved access to healthcare, which is important, but didn't do enough to address cost and quality. The hope was that this legislation would provide greater certainty, but there is as much uncertainty in healthcare as ever.

Other Important Points

• Sustainability. Making the company's services fuel- and carbonefficient is a priority for UPS. This can mean moving a shipment from an airplane to a truck (as trucks are eight times more carbon efficient), from a truck to rail (as rail is four times more carbon efficient), or to an ocean vessel, which is even more carbon efficient. UPS also has appointed a Chief Sustainability Officer, another sign of how important UPS views social responsibility.
  
  
• Relationships with unions. UPS has a better relationship and is working in greater partnership with its unions than ever before.

¹ "Report to the President on the National Export Initiative," Sept. 2010