Address at the World Trade Center of New Orleans

on the topic of

I'm delighted to represent UPS during World Trade Week to discuss the global outlook on air cargo.

But I have to confess … I was partly motivated to speak here because it gave me a good reason to come back to New Orleans. This is a great city and I love the food.

How appropriate that I was invited to speak during lunch?

[Short Pause]

Air Cargo and economic development are subjects UPS spends a lot of time on.

And despite a global economic slowdown, we are optimistic about the market for air cargo services.

We see three trends …

• globalization…
• e-commerce…
• and the supply chain revolution…

driving growth – and stimulating the entire air cargo business.

To be major players today, we have to be able to serve the world at large, and we must be connected electronically with our customers and partners.

The third trend -- the supply chain revolution -- bears more discussion.

At its heart is innovation, as companies like yours and mine learn how to apply the technology of electronic commerce in creative new ways to reach the market.

It’s very much like a true story of innovation that took place back at the turn of the last century.

It’s a little known story … but it had big implications and served as a catalyst for change in business.

The year is 1906, and the setting is the great farm belt that stretches across the middle of North America.

A farmer named Ward King had a big problem and he was determined to find a solution.

The summer of 1906 had been extremely wet in the Central Plains, turning miles of dirt farm roads into impassable rivers of mud.

Mr. King and thousands of other family farmers couldn't get their crops to market.

But Ward King was an innovator.

He developed a simple device that became known as the King Road Drag.

It consisted of two wooden rails laid side by side three feet apart, attached by a series of wooden braces.

When the King Drag was pulled along a muddy road, it smoothed out the ruts and molded the dirt into a slight crown.

So the next time it rained, the water drained off to the sides.

Just two weeks following the word of Ward King's invention, thousands of Road Drags were produced and put to work.

The farm roads became passable again. Fields were harvested. Crops got to market. The U.S. economy surged.

The flood crisis, and the success of Mr. King’s solution, prompted the federal government to allocate more money for modern road-paving programs.

Those paved roads enabled the U.S. Post Office to begin Rural Free Delivery of the mail. Soon after came parcel post.

Goods and information -- in the form of parcels and letters -- started to flow at a rate never before seen in this country.

Over time, Ward King's Road Drag served its purpose and passed into history.

But the legacy of that burst of innovation lives on.

Today, new King Drags, in the form of digital technologies and supply chain solutions, are opening the virtual highways of the world…

… speeding harvested knowledge to hungry markets

… linking buyers and sellers around the corner and around the world

… boosting productivity, reducing costs and increasing the availability of goods everywhere.

Growth in every sense of the word.

I think of information and communications technology as this decade's equivalent of the King Road Drag.

And the supply chain is like the muddy road that's being reshaped, ready for new services that can be delivered to the farthest reaches of the economy.

Today, our companies are caught up in a supply chain revolution.

And we’re at the beginning stages of this revolution.

The biggest benefits are yet to come … as supply chains respond to the unstoppable forces of globalization and e-commerce.

The signs are clearly visible.

At UPS, I can tell you we’re seeing a major shift toward smaller and lighter parcel shipments …that are more time-sensitive … and scheduled more frequently.

And shipments are increasingly earmarked for international delivery.

These emerging patterns are driven by the larger trends toward e-commerce and globalization.

The movement of goods … information … and funds are all being channeled into a single flow of commerce worldwide.

Whole new industries and commercial opportunities are being created as we learn to exploit the business potential of this converged flow of commerce.

Alan Greenspan has attributed this past decade's economic expansion to e-commerce-driven global supply chains. And with a slowing economy, integrated global supply chains become more important to squeeze out ineffeciencies and unnecessary costs.

The air cargo industry has played an essential role in the global supply chain.

Over the past decade, air cargo volume has nearly tripled.

Last year alone, a full 40 percent of the world’s manufactured exports, by value, was transported by air.

In the coming decade, international air transport is expected to grow by 5 percent a year -- twice the growth rate of the overall global economy.

There is no question that the continued development of world commerce is impossible without a robust air cargo industry to support a seamless global supply chain.

So what steps can we take to keep our industry growing vigorously?

Today I want to share with you UPS's perspective on where we see opportunity ahead, and what we must all do to make the most of it.

Back in the 1930s, a man named Willie Sutton went around robbing banks.

When he was finally caught, he was asked why he chose banks as his targets.

His famous reply was, "Because that's where the money is."

At UPS, we are convinced that for a long time into the future the money is going to be in the international e-commerce supply chain.

That's where we are focusing our strategy and investments.

Specifically, we are concentrating on business-to-business e-commerce.

Our methods are rather different from Willie Sutton's, but our motivation is the same -- it's where the money is.

It is estimated that companies will each spend between $5.4 million to $22.9 million to integrate into online markets over the next five years.

Forrester Research predicts that global e-commerce will hit $6.8 trillion in 2004.

More than 85 percent of package information comes to UPS electronically, and we expect that figure to reach 98 percent in the near future.

According to Deloitte Consulting, more than 90 percent of U.S. businesses will do their purchasing on the Internet by the end of this year – up from about 30 percent in 2000.

And while most e-commerce activity is currently concentrated in the U.S., it’s expected that Western Europe, Asia and Latin America will soon follow with even more explosive growth.

What makes the tools of electronic commerce so pivotal?

The incredible value of information.

The information acquired through every online b-to-b transaction can be used to connect buyers and sellers … warehouses and accounting departments … retail stores and factories ... customers and partners.

That creates deep, rich levels of information on inventory, receivables, customer-purchasing trends, financing …

… information that vendors, suppliers and logistics managers can use to talk to each other and coordinate the movement of goods and capital with great precision.

Investments in information technology support the critical need of companies like yours and mine to add value across the whole supply chain – from sourcing and product development to the final fulfillment of goods.

None of us here today can afford to be relegated to a commodity player -- not at a time when online exchange services are sprouting up in virtually every industry.

For instance, the three major U.S.-based automotive manufacturers have joined together to form a supplier exchange called Covisint.

Covisint's stated objective is to become the world’s largest B2B exchange -- connecting more than 50,000 prospective suppliers to Daimler Chrysler, Ford and General Motors.

The motivation is transaction costs that the automakers think can be slashed by 90 percent.

In the aviation industry, we’re seeing companies like Boeing, Lockheed Martin, Raytheon and BAE Systems coming together to plan similar parts exchanges.

That's just the tip of the iceberg.

AMR Research reports that only 1 percent of the $166 billion dollars in aerospace transactions are conducted on the World Wide Web today.

By 2004, AMR estimates aviation sales activity will reach $209 billion dollars -- and 35 percent of it will be Web-based.

One of the big concerns about being a supplier on an exchange is becoming a price-shopped commodity.

That’s a legitimate concern.

But I don’t think it necessarily has to be the case … not on an exchange, and not in the belly of a plane.

A recent sector summary on air freight and small parcel from Morgan Stanley Dean Witter described as "overdone" the fears of freight forwarders that online exchanges will disintermediate them.

But the summary did warn forwarders that e-marketplaces will force them to climb higher on the value chain.

The perception of value, especially in the form of customer service -- is a key asset for companies.

About a year ago, Ford Motor Company came to UPS looking for help in tracking vehicles across its supply chain ... from factory floor to dealership.

UPS set up a customized solution for Ford, which uses our online tracking visibility to reduce costs and improve customer service.

Our technology capabilities also support Ford’s goal to provide information directly to dealers and consumers.

The results have been extraordinary. Ford recently announced that after 12 months of working with UPS, it has trimmed vehicle transport time by 26 percent, or 4 days.

Perhaps even more important, Ford already has realized a one billion dollar reduction in vehicle inventory … and more than $125 million dollars in annualized inventory carrying cost reductions.

This Ford example illustrates the supply chain's ability to help companies compete on speed, cost and customer service advantages.

[PAUSE]

So, what should we be doing today, individually and collectively, to strengthen the global supply chain?

First, there is the obvious need to continue to invest in both technology and infrastructure. Even when companies are cutting back on expenses, technology shouldn't be a victim. Investing smarter in the right technologies will prove to be the winning solution during an economic slowdown.

Continuing public-sector investments in airport expansion, roadways and telecommunications are likewise essential as we struggle to overcome the congestion caused by increased air traffic.

We need to support aviation authorities vigorously when they go to make the case to the public for expanding or upgrading infrastructure.

The second thing we can do to keep growing is to cooperate more effectively on appropriate issues and initiatives.

You're probably aware that UPS has joined in the aviation industry's first B2B exchange, Cordiem.

Cordiem, Inc. provides the $500 billion aviation industry with an end-to-end e-business solution comprising supply chain management,
e-procurement and engineering services.

We’re working with American, Delta, British Airways, Air France and other airlines that collectively represent more than $45 billion dollars in annual purchasing power for aviation parts… and also with equipment manufacturers such as BFGoodrich, Honeywell International and United Technologies that represent more than $13 billion in aftermarket parts and services.

Partnerships are nothing new in this industry -- they're a very effective way to enter new markets with minimal capital investments.

But the key to successful collaboration in any form is to be selective about it at the start.

The headlines in the parcel delivery and logistics business today are filled with global mergers, alliances, acquisitions and consolidations.

Everyone is trying to optimize and harmonize their transportation and distribution activities to meet the demands of this new era of globally networked commerce.

Some of these arrangements make sense long-term, but frankly, some of them don't. It’s hard to be a seamless network when you appear to be a patchwork quilt to your customers.

It's also no secret that UPS is a strong opponent of government postal agencies using their monopoly positions for competitive gain against free enterprise.

We don’t think it’s right … nor do we think it’s in the best interest of the customer who is looking for the best value, service and reliability.

What it also points out, in my opinion, is a certain level of desperation among some of these players who are frantically trying to build a "just-add-water-and-stir" integrated, global delivery network.

UPS created an integrated global network by building our own operations where it made sense … through acquisitions when we found like-minded companies … and through selective strategic partnerships when we needed expertise that extended beyond our core competencies.

The investment, challenge and patience that went into that process is now paying big dividends.

In fact, it’s our single most powerful competitive advantage … an efficient and synergistic ground and air network of drivers, facilities, technologies, operational strategies, product portfolios and logistics solutions.

This integrated delivery network not only allows us to be much more efficient than our nearest competitors … but more importantly it gives us the foundation to provide greater levels of value and service to our customers … and greater returns for our shareholders.

The third element to promote industry growth is one we can all act on -- and that is to support fairness and openness in every market.

The health of the seamless global supply chains we are building depends upon healthy local economies.

Yet in many parts of the world, unnecessary barriers to trade still block the pathways to prosperity.

As an industry, we need to keep pressing forward on issues like inefficient customs clearance … restrictive air rights … and trade policies that are designed to shield inefficient local operations from competition.

And we need to be on the side of inclusion. We should strive for equal treatment for all by governments and oppose unfair advantages granted to one competitor over another.

Over the past several years, UPS has worked closely with world leaders in our support of China’s entry into the WTO.

That step is needed in order for the world’s largest single market to materialize.

Over the past 20 years, China has quadrupled its output and, as a result, stands today as the world’s second largest GDP.

It’s hard to describe China’s potential. UPS's six weekly flights in and out of China, which began in early April, will carry more goods in one year than were ever carried during the entire history of the Silk Road.

With globalization and e-commerce moving the speed of business exponentially, that rising economic trend should skyrocket in the coming years -- not just in China but around the developing world.

That’s why we all need to work with governments to dismantle antiquated customs procedures, sky-high tariffs and limitations on foreign investment.

Around the world, we also need to address a broad range of issues specific to e-commerce growth.

Opening global competition in key sectors such as telecommunications, transportation and financial services is essential.

It's important for all of us to discuss these issues with every government where these barriers still stand... and to work with our partners around the world to push for reform where needed.

When those obstacles to integrated global supply chains are removed, everyone will benefit.

We all need to participate in the global supply chain revolution and help lead it forward.

That's how we can continue growing as an industry and serving as a catalyst for economic expansion throughout the world.

I know sometimes I sound repetitive, but the pace of change remains too slow. And maybe I'm preaching to the choir. You folks in New Orleans definitely have a tradition of being pioneers in international trade, having the oldest World Trade Center in the country.

The time for change is now and the need for change has never been more urgent.