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Where trade crosses borders, armies do not
D. Scott Davis, UPS Chairman & Chief Executive Officer


UPS Chairman and CEO, Scott Davis, discussed the need for more global trade to grow jobs in the United States and improve conditions around the world. "Where trade crosses borders millions of people see a better future, and that makes all of us safer."

As I was preparing this talk, I couldn't help but reflect on the anniversary we recognized yesterday. What a terrible day.

Since those horrific attacks, the United States military has faced, and overcome, severe tests. To all of the men and women who served in the past decade and to all of those who defend us today, thank you for your dedication to our country.

Not long after the fall of the Twin Towers and the attack on the Pentagon, one of our previous CEOs, Jim Kelly, said this: "Those of us here in the United States and around the world, who have flourished under the benefits of a free market system, have a deep and moral obligation to keep global commerce moving forward."

At the time, many people thought the terrorists actually might take down our economy, with its countless global linkages. But that didn't happen. Despite many challenges, global commerce has moved forward. I view that as a great victory.

Taking stock

After thinking about the past ten years, it's worth taking stock of where we stand today. The world remains a dangerous place. New threats and crises emerge all the time. Our federal deficit is large, growing, and unsustainable.

U.S. military budgets are under significant pressure, and future defense cuts could become drastic. We need much stronger economic growth. Unemployment is stubbornly high - more than 9 percent in this country. Consumer confidence is down, and fear has returned to financial markets.

Around the world, while millions of people move into the middle class, millions of others remain in trouble spots of poverty. We know that terrorism often takes root in the parched soil of economic despair. What should we make of these challenges?

If we're going to remain secure and prosperous in the 21st Century, we need "something" for the long term:

  • something to improve our security without big federal budget outlays
  • something that can forge ties  between nations and peoples, and
  • something that can increase jobs and raise living standards here at home and around the world.

For me, there's no mystery about what that "something" is. The answer is simple. It's increased global trade.

How many of you know who Cordell Hull was? He was Secretary of State under Franklin Roosevelt for 11 years - longer than anyone else in history. After World War II, he started a project to prevent future devastation.

Today, we call it the United Nations. Hull said, "Where trade crosses borders, armies do not." And let me add to his thought. Where trade crosses borders, millions of people can see a better future, and that makes all of us safer. You may call me naïve, but I truly believe we must continue the long march to more trade and prosperity. And we have to pick up the pace. To do so we must overcome three obstacles: 1) better logistics, 2) energy security, and 3) protectionism.

Logistics

The first challenge is better logistics. The ancient Chinese military leader Sun Tzu once said, "The line between disorder and order lies in logistics." That's as true today as it was when he said it 2,500 years ago. In fact, with our global economy, logistics is more important than ever. Does anyone here want to learn about better logistics? I've got some advice.  Go to Scott Air Force Base and meet General Duncan McNabb and his team. I did that last week and all I can say is,  Wow! Now "That's Logistics." Gen. McNabb's team does an unbelievable job. They move thousands of people and supplies through some of the world's most dangerous terrain, under extreme conditions. Even Sun Tzu would be impressed if he were alive today.  

But US TRANSCOM and the rest of the military do have challenges. With federal debt pressures, you face leaner budgets - and mission creep. You have to do more with less. But how? One way is to ask hard questions about your supply chain. Should we try another design? Should we partner with others to manage our supply chain? Change often yields lower costs and better performance, while allowing an organization to focus on what it does best.

UPS is proud to partner with the U.S. military on a variety of logistics programs. The Civil Reserve Air Fleet program, and Theater Express are two examples. The list goes on. And I hope it will get longer because there are many more opportunities to stretch your budgets by tapping our global network. With today's relentless cost pressures, we must transform. That goes for UPS and the military. But we're not alone.

Just look at healthcare. For many years, drug makers had fat margins and strong profits. Now their revenues are declining and profit is shrinking. Why? Generics.  About 80 percent of all prescriptions are these lower cost medicines. Also, increasing regulations and global expansion complicate their business.

How are drug makers responding? They're focusing more attention on supply chains. And we've been there to help. This summer, Merck announced that they broadened their agreement with UPS to include their global supply chain. Why? To focus on their core competency of finding innovative ways to bring medicines and vaccines to patients. Merck had no hesitation about entrusting their supply chain to us so they could focus on what they do best.

Another example is the President's Emergency Plan for AIDS Relief. As the lead logistics partner, UPS ships generic AIDS medicine overseas, mostly to Africa. Since 2005, the program has treated about a million and a half people. By our redesigning and managing the supply chain for the government, our country has saved about $30 million dollars. How did UPS logistics save money? By shaking up the status quo and doing things differently. We tapped our integrated sea-air-and-land network to find the most cost effective method of transport. As a global logistics business, we help many partners extend supply chains across borders or export to new markets.

Export controls

This is an area where I believe our country—as a matter of policy—can and should do better. One way we can do better is by streamlining export controls. For example, the United States has rules to keep sensitive, military use technology out of enemy hands. I agree we should protect sensitive technology - but the rules are so broad they prevent U.S. exports that have little or no bearing on national security. As a result, firms in other countries win more business than U.S. companies and with it we lose jobs.

The Pentagon has proposed what I believe is a sensible solution to balance the needs for national security and economic growth. The idea is "higher fences around fewer products." Would this change make a difference? Absolutely. If we modernize U.S. export controls, over the next eight years our nation could enhance real GDP by more than $64 billion dollars. And we'd create 160,000 manufacturing jobs. That's low hanging fruit.

Sun Tzu had it right: logistics is the line between order and disorder or for today's businesses, the line between profit and loss, or for our military, between mission success and failure. But we can and we must do better. Let's clear away the barriers to exports, let global commerce shift into high gear, and create much needed jobs here at home.

Energy security

Our second challenge is energy security. Do you know what percent of the oil we consume is imported? About 60 percent. Know what it was in the 1970s? Half of today's number. That's right. About 30 percent. Why is that a problem? The more oil we import from outside North America, the greater the risk to global stability and trade.

The U.S. military dedicates vast resources to securing and protecting energy supplies. That's why the Pentagon has a new Operational Energy Strategy. Its goal: to use less oil and more alternative sources of energy. We've been working on a similar effort for years at UPS. We have a saying: In God we trust. Everything else we measure. So we go to great lengths to track our fuel use and its emissions. Then we report on the results. Why go to all that trouble and expense? Simple: Accountability and transparency are important principles for performance. And we're making progress.

Last year our package volume went up. But our fuel consumed per package went down by more than 3 percent. Move more, consume less fuel. How'd we do it? By deploying the right type of vehicle on the right routes. By improving teamwork and by using technology like smart routing and telematics. All told, technology enabled UPS to avoid driving more than 63 million miles last year. How far is that? It's about 252,000 trips to the International Space Station.

Another principle of sustainability is experimentation. In our fleet, we have a rolling laboratory of about 2,000 alternative fuel vehicles. We test and deploy many technologies - from propane to hydrogen fuel cells. And electric too. One technology that has great potential for commercial-and perhaps military-use is liquid natural gas or LNG. Replacing our diesel long-haul vehicles with LNG trucks reduces oil consumption by 95 percent and greenhouse gas emissions by 25 percent. Plus, operating costs go down. And natural gas is plentiful right here in the good old USA. A win-win-win for all of us.

Protectionism

The third and final challenge to a prosperous future is protectionism. Last year, I visited Asia, which is becoming the center of gravity for global trade. The leaders in a number of Asian countries asked me how they could get a closer trading relationship with the United States - their old friends and protectors across the Pacific.

Unfortunately, when it comes to trade, our country is AWOL. This absence of leadership is puzzling. No other country has invested more than the United States to secure and protect the lanes of global commerce. And when it comes to reducing tariffs and barriers to trade, our nation is a pioneer. The United States has 17 free trade agreements in all, but none in the past four years.  

What the world needs is a global trade framework. One was proposed 10 years ago in Doha but hasn't moved ahead. Instead, nations have paired off and formed bi-lateral deals to lower barriers. In many cases, old political rivals have signed new trade deals - for instance, China and Vietnam. It also happens that the countries doing these trade agreements have strong economic growth. Coincidence?  I don't think so.

The U.S. has a network of allies with growing economies. But we should convert more alliances into more robust trading partnerships. A case in point is South Korea. Back in 2006, the United States signed a trade deal with this ally - our 5th largest trading partner. A free trade deal with South Korea would create 70,000 jobs - but Washington won't approve it.

While the United States procrastinates, the European Union just closed a trade deal to give their businesses first crack at millions of customers in South Korea. Unfortunately, job creating trade agreements with South Korea, Colombia, and Panama are stuck in the mud of partisanship. So we wait and wait and the biggest losers are the American people. We pay a steep price in terms of lost economic growth, potential exports, new jobs, and ultimately security. 

Thanks to the professionalism and expertise of our armed forces, the United States is still a military superpower. But when it comes to trade, we are letting ourselves become weaklings. Our nation's march to economic growth and security must involve less protectionism and more global trade.

Now, here's the hard part: Too many people in this country consider trade a four letter word - especially in Congress. Antipathy toward trade may be our nation's greatest challenge, and weakness. Unlike Germany, where exports represent half of their GDP, exports are only 11 percent in our country. We need to grow that number to bring down the unemployment rate and get our economy back on track.

In closing, let me say that UPS is aware of the military's changing needs. We stand with you, ready and able to serve as your logistics partner-anywhere, anytime. As a nation, we must keep improving logistics and lowering barriers to global commerce. We must solve the persistent challenge of energy security. And we need more global trade.

Ten years after the September 11th attacks, our nation is strong. We have the means to compete with any country in the world and win. We can overcome our many challenges. But we must have the desire and courage to do so. This forum calls on each one of us to rise to the challenge. Together, I am absolutely sure that we can do it.



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