UPS State of the Business & the Global Economy

OVERVIEW

While in the short term the U.S. and global economies face challenges, in the long term UPS remains optimistic. The key is global trade. Policymakers need to deal with deficits, invest in infrastructure, and enact policies that foster trade.

Across UPS's entire business, the company continues to expand globally and invest in technology. Nowhere is this more apparent than in healthcare. UPS's commitment to this sector can be seen through investments in new facilities, technologies, products, and capabilities—all to better serve healthcare customers and their customers. These investments leverage information to improve efficiency and lower costs.

CONTEXT

David Abney set the context for the 2012 UPS Healthcare Forum by responding to questions from Mike McCurry and the audience about the global economy, UPS's priorities, and the company's commitment to the healthcare sector.

KEY TAKEAWAYS

While there are short-term concerns about the global economy, UPS is optimistic about the long term.

Because UPS handles 2% of global GDP and 6% of U.S. GDP, the company has a valuable perspective on the global economy. Relatively slow global economic growth of 3.5% is expected, following 4% growth in 2011. Emerging markets are forecast to grow almost 6% in 2012, while developed markets are projected to grow much more slowly. UPS's outlook on different parts of the world includes:

• United States. The U.S. remains in a recovery, which is proceeding more slowly than anyone would like. Most experts expect this slow-growth recovery to continue through at least the end of 2012, as unemployment remains high and few new jobs are being created. Bright spots include 34 consecutive months of growth in the manufacturing sector and the continued growth of e-tailers.
• Europe. The collective economies of Europe are expected to be flat or slightly down in 2012, as Europe wrestles with short-term challenges. Still, Europe continues to engage in trade. Over the past 10 years exports out of Europe handled by UPS have grown by 10% per year on average and over the next four years European exports are expected to grow by 5% per year.
• Asia. The emerging markets of Asia continue to grow faster than the developed markets, but growth in Asia began to slow in the fourth quarter of 2011.
• Latin America. This region has continued to grow, driven largely by the trading of minerals.

The greatest economic risks are related to government deficits and policies. But trade provides cause for optimism.

The two greatest risks to the global economy are debt in the Eurozone and the U.S. federal budget deficit.

• Eurozone debt. The worry is the spreading of debt problems from Greece to Portugal, Spain, Italy, and possibly beyond.
• U.S. deficit. The deficits of the U.S. federal government are very large, growing fast, and unsustainable. They have to be addressed.

In addition to dealing with the deficit, to spur the U.S. and global economies, Mr. Abney's advice to U.S. policymakers would be to: 

• Reduce the corporate tax rate. The U.S. corporate tax rate is the highest in the world. Reducing it would encourage investment and create jobs.
• Create a national energy policy. This needs to be done quickly and should focus on increasing energy production in the U.S. and developing alternative fuel sources.
• Invest in infrastructure. America's infrastructure short-comings impose a $100 billion penalty on the country due to congestion at highways, airports, seaports, and bridges. This hurts U.S. productivity and competitiveness.
• Encourage global trade. Trade is good for America. It helps American companies and workers. For example, the recently enacted free trade agreement with Korea is projected to create 70,000 jobs in the United States. Every 20 packages shipped by UPS outside the U.S. create a new UPS job.

UPS continues to view healthcare as a strategic priority and continues to invest in capabilities and technology.

In the U.S. and across the globe, healthcare is a dynamic business. It remains a top strategic priority for UPS, and UPS's capabilities and strengths fit the industry well.

Examples of UPS's commitment to the industry include:

• Expansion of facilities. In the past year UPS opened five new facilities dedicated to healthcare, including new facilities in North and South America, Asia, and Europe; five more facilities are planned for 2012. Worldwide that will result in 30 UPS facilities with five million square feet of space devoted to healthcare.
• New technologies and products. Technology allows UPS to tailor products for the specific needs of the healthcare industry. For example, UPS My Choice^SM gives consumers greater control. They can modify a delivery and redirect it as necessary.

Another example is how UPS uses bar codes that provide package-level detail information. This information is used    in sorting package, planning the routes and dispatches, following packages, and automating aspects of operations. The information obtained through bar codes improves efficiency and productivity, and lowers costs.

Other examples of technology-driven products for the healthcare industry include UPS Proactive Response, which provides monitoring for temperature-sensitive shipments; UPS Temperature True, which safeguards these shipments; and UPS PharmaPort 360, which keeps products hot or cold, as necessary.

UPS's technologies and capabilities enable the company to work with many companies who want to outsource non-core capabilities. UPS is well positioned as an outsourcing partner to use facilities and technologies to decrease costs.

Beyond healthcare, UPS is focused on global expansion, B2C, and leveraging technology.

Beyond the company's focus on the healthcare industry, other key UPS strategies include:

• Global expansion. The TNT expansion shows the commit-ment to continuing to grow globally, as does the company investment of $900 million in China over the past decade. Even with the short-term challenges in Europe, UPS con-tinues to invest and expand there in anticipation of future growth.
• B2C. Consumer purchases via the Internet continue to grow rapidly. As consumers purchase differently, their service expectations are changing, as are retailers' supply chains.
• Leveraging technology. Since 1999, UPS has invested more than $1 billion per year in technology. These investments distinguish UPS and allow the company to create tremen-dous value for customers through a continuous stream of new technology-driven products.

OTHER IMPORTANT POINTS

• UPS's evolution. In his 38 years at UPS, most enjoyable for David Abney has been to participate in the company's growth and evolution—from a domestic company to a global one; from a ground company to one with air and multiple modes of trans-portation; and from a small package company to one with expertise in freight, logistics, and technology. He is excited to see how UPS progresses in the next 38 years, from now to 2050.
• TNT acquisition. A key part of UPS's evolution in the next few years will be based on the integration of the TNT acquisition. TNT increases UPS's presence in Europe, especially with European ground freight; strengthens UPS in China; and helps in South America, particularly Brazil. This acquisition is still awaiting approval from the European Commission. Once that takes place, UPS's focus will be on quick integration. Also, particularly in Europe, TNT has a strong focus on healthcare.