00:02:17 · Carol Tomé, S1, Romaine Bostick, S0
[00:02:17] S2: Per piece increase in the quarter was fuel, both fuel as well as the cost of purchase transportation, which is also up. So we still believe that the gap between RPP and CPP, if you will, will range between 50 and 100 basis points. [00:02:32] S1: But if we do get a moderation in gas and diesel prices, obviously that would help on the cost side. But some of your revenue per piece was also the result of fuel surcharges. I believe the CFO said something like half of that increase was directly related to fuel surcharges. [00:02:47] S3: I assume those surcharges go away if prices go down. [00:02:49] S0: Well, they will go away. [00:02:51] S2: But half of that RPP was in our base rate and mix. And if I look at the cost per piece, 100% of the growth was in fuel and purchase transportation. So if that goes down, we still have RPP growth that would cover any cost. [00:03:04] S1: There's been a lot of talk about the transformation of this company. You've been at the helm now for six plus years. You came in with a very clear mandate and you have executed on that in a lot of ways. But that execution had a lot to do with making this company to a certain extent smaller, not necessarily financially smaller, but smaller in terms of the amount of packages it moves. And I am curious as to why being a little bit leaner in that sense, in your view, is better.
00:03:04 · S1, Carol Tomé, S0
[00:03:04] S1: There's been a lot of talk about the transformation of this company. You've been at the helm now for six plus years. You came in with a very clear mandate and you have executed on that in a lot of ways. But that execution had a lot to do with making this company to a certain extent smaller, not necessarily financially smaller, but smaller in terms of the amount of packages it moves. And I am curious as to why being a little bit leaner in that sense, in your view, is better. [00:03:30] S2: So we're dispelling the old myth that all packages are created equal and that volume solves all problems, because it's just not true. Instead, we looked at our end-to-end network, our global smart integrated network and said, okay, who can we serve best. [00:03:46] S0: And serve them better than anybody else? [00:03:48] S2: And we've determined it's not a lightweight short zone box of sweaters. It's actually complex logistics, like complex healthcare, where we've made significant investments over the past six years. You know, when I got here, our healthcare revenue was less than $ 6 billion. By the end of this year, it will be more than $ 13 billion. And we've invested around the world. We have over 20 million square foot of dedicated square footage for healthcare logistics. We operate in, gosh, 36 countries. We have 273... buildings. We have coaching capabilities. We have special labeling, control towers. So we have cemented our leadership position as the number one provider of complex healthcare logistics in the world. [00:04:32] S0: It doesn't stop there.
00:04:32 · S0, Carol Tomé, S1, Romaine Bostick
[00:04:32] S0: It doesn't stop there. [00:04:32] S2: We've gotten growth in other areas as well, but this is certainly one. [00:04:36] S0: Area of focus. [00:04:36] S1: On healthcare though, are the margins materially better than the overall delivery business? [00:04:42] S0: The margins are in the low to mid teens. [00:04:44] S3: Okay. [00:04:45] S1: And you view that as a longer term growth driver for UPS overall? [00:04:50] S2: As we look at the addressable market for complex healthcare logistics globally, it's about $ 90 billion. There's lots of opportunity for growth there. And just think about what's happened with the explosion of GLP-1 drugs, and now the pharmaceutical company is going direct from manufacturer to home. [00:05:07] S0: We're delivering all of that. [00:05:09] S1: Do you have sort of a unique position in that space, meaning is this something that UPS is only capable of, or UPS and maybe FedEx and a couple others? [00:05:17] S2: It's a very attractive market and lots of carriers are attempting to get into this market, but we've invested in capabilities that provide a superior experience for our customers. And we really earned this right during the pandemic. We invested in cold chain because we knew the vaccines that were coming out would need cold chain logistics. We were the first carrier to deliver the COVID-19 vaccine. We did it with our Brown network. We delivered a billion vaccines in the first year at 99.9% effectiveness, which meant we never lost someone. [00:05:50] S0: We didn't have a temperature excursion.
00:05:50 · S0, Carol Tomé, S1, Romaine Bostick
[00:05:50] S0: We didn't have a temperature excursion. [00:05:51] S2: That gave us the authority to win in this space. [00:05:54] S0: And we've done very well with this since then. [00:05:57] S1: There's been a lot of talk about your pullback from Amazon. You laid out a plan in early 2025. the Amazon, then your single largest customer would have to be a much smaller portion, if any portion at all of the UPS business. That plan is largely complete. You dictated that to investors today. What does a post Amazon UPS look like for investors? [00:06:21] S2: Well, we're returning to growth, both volume, revenue and profit growth on a network that's much more automated and efficient. [00:06:31] S0: And so this was a difficult pivot, candidly. [00:06:34] S2: Lots of hard decisions had to be made. But we knew it was the right thing to position us for the future. Because now as we look to the future, we have assessed the addressable market to be about $ 923 billion. And that means from factory floor down. to front door. We serve every step of a supply chain, and we're going to lean into that in a meaningful way. [00:07:00] S0: But we want to also focus. [00:07:02] S2: In on the premium part of that market, which globally is about $ 535 billion. And here in the United States, It's about $ 150 billion, so lots of opportunity for us to grow in the premium space. [00:07:13] S3: Well, I am curious. [00:07:14] S1: I mean, your supply chain solutions umbrella, however you characterize it, had decent growth, I think, in the quarter. [00:07:20] S3: It did. 18% growth, roughly.
00:07:20 · Romaine Bostick, S1, Carol Tomé, S0
[00:07:20] S3: It did. 18% growth, roughly. [00:07:21] S1: It's still only, what, less than 15% of your business overall. How much further can you get that in terms of as a share of your business and in what time frame? [00:07:31] S2: So we're very excited about the opportunities for growth in that side of our business, which is really forwarding and logistics. [00:07:37] S0: And let's just focus on forwarding. That would be ocean freight and air freight. [00:07:42] S2: We saw 17% growth in that business in the quarter, driven really by two things. [00:07:46] S0: One, premium healthcare. data centers. [00:07:50] S2: So yes, with the explosion of data center growth here in the United States, the builders of these data centers, well, they need materials to construct. [00:07:59] S0: The data centers. [00:08:00] S2: And most of those materials, many of them are being manufactured outside the United States. They need to come over to our country and some sort of a forwarding asset, be it ocean or air. So we can bring it here, we can then warehouse it for them, and then we can get it delivered to their construction site. Once things are at the construction site, there's a small package need as well. So we assess the opportunity for data centers in the logistics space. Well, it's over $ 15 billion. [00:08:28] S1: Is that, though, just a short-term story? Once these centers are built, does that business go away? How do you make that a longer-term business?
00:08:28 · S1, Carol Tomé, S0, Romaine Bostick
[00:08:28] S1: Is that, though, just a short-term story? Once these centers are built, does that business go away? How do you make that a longer-term business? [00:08:33] S2: Well, what I know about assets, we're a capital intensive business. What I know about them is they have to be refreshed. So this isn't one and done. This is something that's going to continue. [00:08:43] S1: Well, then you have to obviously have been paying close attention to what's been going on in the tech space with regards to the data center build out. Based on your own internal projections for UPS, are you seeing any delays or any potential road bumps in that data center build out? [00:08:58] S0: We aren't. [00:08:59] S2: Now, it's early days for us, and we're nascent in this space, I will say, but we haven't seen any delays. [00:09:05] S1: So you think that this could also be a material part of the business longer term? [00:09:09] S0: I do. [00:09:09] S1: Because I'm trying to get at sort of what UPS looks like five, 10 years, 20 years from now, maybe, when you're gone. [00:09:17] S3: I assume you'll be gone then, right? Yeah. [00:09:19] S1: There's been a lot of speculation about how. [00:09:21] S3: Long you're going to stay around. [00:09:22] S1: I heard you on the conference call today saying that, you know, you want to be around to negotiate the next Teamsters contract. [00:09:27] S0: That's in 2028. It is. [00:09:28] S3: You've been here six years. It is. You plan to be here through 2028?