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Q2 2014 Earnings

July 29, 2014
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The Logistics Cloud


Abstract:

Dave Barnes, UPS Chief Information Officer, spoke about the power of technology to drive logistics at the ConnectShip Technology Conference in Tulsa, Oklahoma. He said: "In the UPS logistics cloud, customers don't have to waste precious resources on creating their own global network. They tap into ours."

UPS has a long history of innovation and commitment to technology. In fact, we invest about $1 billion a year in technology - that's more than $100,000 an hour, 24/7, 365.

Why? In our trucks and planes, UPS moves 5.5 percent of U.S. GDP and 2 percent of global GDP. And what powers all of this around-the-clock movement is - you guessed it - technology.

Logistics cloud

Please indulge me as I take the data cloud concept familiar to all of you and turn it into a "logistics cloud." This is a useful metaphor to describe our global capabilities and the trends reshaping logistics technology. Those trends are: mobility, visibility, scalability, and globalization.

The logistics cloud provides customers with a way to tap into - anywhere, anytime - the power needed to more efficiently run their businesses. The logistics cloud lets customers streamline their global supply chains. The cloud makes it much easier and faster to share information about shipments with suppliers, transportation providers, and end users.

Of course, costs are shared too, reducing the financial commitment of storing and accessing relevant data on demand.

Who benefits from the logistics cloud? Certainly, global companies can more easily export and manage supply chains that often extend thousands of miles across oceans and continents. But the logistics cloud also empowers smaller firms. They gain the power to collaborate with suppliers, make more accurate delivery forecasts, minimize excess inventory, and avoid last minute surprises.

In fact, one of the greatest advantages of the logistics cloud is that it serves as a business equalizer. It gives all companies access to the same powerful business resources and expertise.

In the UPS logistics cloud, customers don't have to waste precious resources on creating their own global network. They tap into ours.

Mobility

Increasingly, the technology that powers logistics is mobile. Being competitive means staying connected anytime, anywhere.

Mobile technology has created a virtual logistics landscape where people and products move without limits - around warehouses, facilities, networks and the world - transforming customer relationships and business operations.

For customers, UPS's mobile solutions provide anytime-access to information through almost any mobile device. These tools provide immediate insight into the status of a shipment, making operations run faster and smoother.

It's only natural that people associate mobile technology with UPS. Why? They've seen the ubiquitous handheld computers - what we call the DIADs or Delivery Information Acquisition Devices - our drivers carry. What began 20 years ago as a bulky brown box with a monochrome screen has grown into a Windows-based sleek, light-weight handheld device with a speaker, a microphone, an Intel processor and multiple wireless communications options. You could call it the forefather of the smartphone. Our DIADs are instrumental in making it possible for UPS to track more than 15 million deliveries a day in more than 220 countries.

With this one device, we eliminate 59 million sheets of paper a year.

UPS drivers aren't the only ones who need shipping power in the palm of their hands. That's why UPS offers an app for the iPhone and became the first company in our industry to offer an app for the Blackberry and Android. Now, customers can use a smartphone to create and print shipping labels, then find a local UPS location to drop off a package.

The free app has already been downloaded more than two million times straight from our web site. The UPS Mobile App for iPhone is also available through Apple's App Store and on iTunes. Right away, it became popular and consistently ranks among the top five free business apps in the App Store.

Anytime, anywhere isn't limited to the United States either. Customers can also use their smartphones to create shipping labels in Germany, the U.K., Italy, Canada, and France. We expect the international expansion to continue on all mobile devices. Our strategy is to give customers accessibility to vital applications in the real world - in real time.

Visibility

That strategy is made possible because of improvements in supply chain visibility. Today's complex global supply chains require a new level of visibility. Customers not only demand an extensive dashboard, giving them real time performance metrics on their logistics, but also they expect predictive power. They want to anticipate and respond in real-time to events or possible events in the real world.

We provide visibility to customers through products such as Quantum View. And we rely on other visibility tools to work with customers in response to unpredictable events, such as the terrible earthquake and tsunami earlier this year in Japan.

Visibility also provides predictive power. And companies that can predict potential problems are best positioned to prevent them, thereby providing lower costs and better customer service. Technology not only powers logistics, it makes logistics more powerful...through analytics.

UPS visibility enables companies to use analytics to uncover root causes of supply chain problems so that they can learn more from the information and adjust their supply chain to improve future operations.

For example, at UPS, our main air hub is Worldport in Louisville, Kentucky. This facility can sort up to 416,000 packages an hour. The place is bustling with activity every night with about 125 aircraft going to or from destinations around the world.

Given the scope of this operation, you can imagine how a single weather event can have a major impact on logistics. So we have a team of weather professionals to examine conditions in the atmosphere, and we use analytics and technology to optimize routes for our air, sea, and ground fleet.

Another example is hurricane season, which started earlier this month. We track these storms as they brew in the Atlantic and act to head them off before impact and potential logistics problems occur. This predictive analysis often means the difference between profit and loss. Having access to information and being able to visually track, reroute, and reschedule deliveries is critical to remaining competitive.

Scalability

Now, it would be easy to sit there thinking that all these technologies I've talked about are great, but not relevant to companies outside the Fortune 500. But in fact scalability is at the very foundation of the best logistics technology.

The UPS global logistics network adjusts to support businesses regardless of size, supply chain complexity, industry, volume, or season. Any business can plug into the network and use as much or as little of it as needed. The technology makes it possible, and the cloud makes it easy.

For example, ConnectShip is a scalable platform that grows with customers over time. Its patented architecture makes it possible for developers to create solutions that meet a company's short-term needs, while paving the way for long-term innovation.

At UPS, we embed our culture with a notion we call constructive dissatisfaction. It's another way of describing continual improvement, or always looking for a better way to do things. This approach has led to tremendous improvements in logistics technology. Today, we can track the location of any package in our network to the point where we can intercept delivery, then reroute the destination of the package. 

Another advancement is Telematics, which integrates with GPS and tells us exactly where each vehicle is in real time - or whether the driver is moving without a safety belt. Such technologies improve safety and fuel efficiency and lower our carbon footprint. My point is - this technology is good for our drivers, good for the environment, and good for our customers.

Scalability helps us stay competitive and increases ways we can help our customers grow. By providing immediate access to the right information we are able to service our customers' logistics needs - no matter their size or location. 

Globalization

With the evolution of technology, logistics has become a catalyst for global trade, which is booming. Trade is the engine of economic growth - but the center of gravity is moving away from the United States and toward emerging economies such as India and China. These nations have signed many new trade agreements in recent years while the United States sits on its hands. A proposed U.S.-South Korea trade agreement would create 70,000 jobs in this country. But this win-win deal has been stuck on the docket for more than five years. Does that make any sense?

Last year, our chairman and CEO, Scott Davis, joined the President's Export Council. This policy group has a goal to double U.S. exports over the next five years - a strategy that has worked for many other nations that have embraced trade as a fast and sure route to prosperity.

In today's economy, with strong global growth and the United States slowly recovering from recession, international markets are more important than ever. But, unfortunately, only 1 percent of U.S. companies' export. That compares with about half in Germany. That nation is focused on exports and doing well economically. The reluctance to go global in the United States is a shame given the power of new logistics - to reach new customers - anywhere in the world.

Technology enables this movement of global commerce through a variety of services that improve efficiency and make cross-border shipments much faster and less expensive and paper intensive. 

For example, UPS Paperless Invoice automates the Customs process so that a package can be cleared before it even arrives at its destination. Electronic forms are available right away, so Customs officials can start processing the shipment while it's still in transit. Customers then have a traceable, electronic record of everything, which can be archived.

Another product that lowers the cost of doing business globally is UPS Import Control. This technology enhancement puts control over inbound logistics and costs in the hands of the importer rather than the exporter.

Or, there is Progistics, a patented technology developed by ConnectShip to enable corporate-wide visibility into transportation management. The new Progistics Advanced Messaging Processor and Global Server component is being released at this conference. These products have the potential to be a game changer for globally-minded businesses.

Logistics technology and the future

By now, it should be clear that technology has been more than an enabler of global logistics - it has actually powered it. And I believe it will continue to do so.

We can see the contours of the future already. All we have to do is look to the sky. It's in the cloud.

Looking ahead, I believe the cloud concept will be even more central to the technology that powers logistics. But what about the trends that will power the technology? I believe we'll continue to have improved visibility, scalability, mobility, with more global scale and reach. In other words, what got us here is what will take us forward - into the logistics cloud.

For more information, contact:

404-828-7123

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