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Original Source: FD (FAIR DISCLOSURE) WIRE
ANDY DOLNY, VP, IR, UPS: Good morning. Good morning. I'm Andy Dolny, Vice President of Investor Relations. It's my pleasure to two welcome you on behalf of UPS management to the conference. I also want to welcome those of you who are joining us on the Internet. The webcast of this conference will remain on the IR website for the next few months so you can review it in the future.
For those of you that are here, at your seats you'll find binders containing copies of today's presentation slides as well as a backpack for carrying the binder and UPS conference mementos. You'll notice that there is an evaluation form in your binders right behind the Table of Contents; please fill it out before you leave today and drop it off on your way out. Your feedback is important to us and influences how we will structure these events in the future.
Before we begin I need to review the Safe Harbor language. It's our intention that this language applies to the entire conference. Some of the comments we'll make today are forward-looking statements that address our expectations for the future performance and results of operations of the Company. These anticipated results are subject to risks and uncertainties which are described in detail in our 2007 Form 10-K report. This report is available on the UPS Investor Relations website or from the Securities and Exchange Commission.
Additionally, some of the materials you'll see contain adjusted numbers. A reconciliation of the adjusted numbers to GAAP results is in your conference binders. With us today are Scott Davis, Chairman and Chief Executive Officer; David Abney, our Chief Operating Officer; Alan Gershenhorn, Senior Vice President of Worldwide Sales and Marketing; and Kurt Kuehn, Chief Financial Officer. Now to open the program I'll turn it over to Scott.
SCOTT DAVIS, CHAIRMAN, CEO, UPS: Thanks, Andy, and good morning. Welcome to our conference and thanks so much for joining us. For those of you who were with us in New York a year and a half ago at our last conference, you might remember that the conference was held at a basement of a rather shabby hotel. This year you notice that it's definitely been upgraded, so please don't correlate that with our outlook on the economy going forward.
I'm confident that you'll come away from today's meeting understanding that we're operating with a compelling strategy. We're ready to reap the benefits from a lot of hard work we did to realign our organization over the past few years and that we're standing on the door steps of tremendous opportunity. Let's talk a bit about that opportunity.
Regardless of the short-term economic uncertainties in the world, we continue to see a number of longer-term trends that feed directly into our strategy of enabling global commerce. Global trade, for example, will keep moving forward at unprecedented speed. Mackenzie reports that the value of cross-border transactions has grown from $3 trillion in 1990 to $10 trillion in 2007 and will grow to more than $70 trillion by 2025.
Today only us 20 to 30% of trade actually crosses a country's borders. By 2025 that statistic is expected to be 80%. That means a lot of opportunity going forward. Key markets such as China and India will continue to grow and gain in importance in the world economy. Furthermore, new countries are expected to grow join the EU. Russia is aspiring to join the World Trade Organization and Middle Eastern economies are expanding.
Other emerging markets will develop as technology opens borders further and connects new economies to the global marketplace. Rising middle classes, particularly in the BRIC nations, will drive changes in consumption. In China and India for example, it's estimated middle classes will make up 40% of each country's total population by 2020.
With 1 billion new consumers expected to enter the global economy in the next decade opportunity markets will open up around the world. The connected and empowered consumer will demand speed and choice from the companies they do business with. And direct to consumer shopping and business models, fueled by the Internet, will intensify.
Today more than 1.25 billion people use the Internet and that figure should grow to 2 billion in just three years. These global trends make our company and our industry a great place to be. We've built our enterprise to capitalize on what's happening in global commerce, helping our customers handle the complexities of global trade and growing our business in the process.
Now let me tell you a little bit about UPS' strategy. We are developing and providing comprehensive transportation services for our customers by leveraging our asset and non asset-based capabilities. Our distribution and logistics services extend the breadth of capabilities we can provide our customers. This strategy provides a competitive advantage in that we function as a seamless solutions provider for customers regardless of how simple or complex their transportation or supply chain needs.
It is all supported by an operating model that is the best in the business. Our ability to optimize small package movements between our networks provides powerful efficiencies. This is complemented by our use of a single driver for pickup and delivery; all products on board, as we say. We've extended this innovative operating model to the LTL and the international airfreight. Here we once again have created a truly unique offering, functioning as both an integrated carrier and a freight forwarder. David will talk more about this in a few moments.
Two key underpinnings to our strategy are technology and the breadth of our capabilities. We've done a tremendous job with technology, linking ourselves to more of our customers and getting them on platforms like Worldship and Quantum View. We know that when customers are linked to us through technology we grow volume faster and increase customer loyalty.
UPS technology is recognized by our customers as being better than any of our competitors. Within the last year we've introduced industry-leading offerings such as Delivery Intercept, UPS Returns, Paperless Invoice and our integrated freight portfolio. These are clear differentiators that increase our ability to bring solutions to our customers. You'll hear more about them also shortly.
I can tell you we are excited with where UPS is today. We're poised for what we see is a terrific time for our company despite any short-term economic challenges. We did a lot of hard work starting about a decade ago to create a new vision for the Company and a strategy to get us there. Transforming from a small package company to an enabler of global commerce offered dramatic changes in the way we do business. It called for a series of acquisitions to expand our capabilities and our footprint. It called for significant investments in technology and it called for a realignment and reorganization of our enterprise.
It's been quite a process to get to this point and it has required a long-term perspective. But it's paying off. Today we're entering a period of execution where we can move ahead more effectively than ever before. And I'm confident we can deliver long-term results.
We are creating a consistent customer experiences in service levels and technology interfaces across our multiple transportation offerings and across the globe. UPS product portfolio continues to get more robust with the addition of our LTL capabilities in global air and ocean freight services.
Adding freight capabilities to our portfolio was a critical step in our strategy and much work has been done to integrate these capabilities into our network. Furthermore, connecting our small package, LTL and airfreight offering creates a powerful market advantage.
We're leveraging our industry-leading technologies to bring new capabilities to the marketplace. We're also going to market with an integrated salesforce that offers focused end-to-end service to customers. David, Alan and Kurt will provide more insights into these topics shortly.
You've heard us talk in the past about UPS' spirit and constructive dissatisfaction; how we're always finding ways to improve the business. It is evident in our efforts to align our organization. We've centralized our global transportation capabilities, consolidated our network planning and optimization groups, realigned and consolidated UPS' operating regions and districts, integrated our package and freight brokerage capabilities and brought together our international supply chain and package management teams outside the U.S.
These changes provide an opportunity for us -- to leverage expertise across the enterprise; to offer improved consistent service to our customers, eliminate redundancies and reduce expense, and truly function as an integrated carrier. Let's talk a bit about growing our business in the coming year.
Economic forecasts for this year are uncertain at best. We cannot count on U.S. economic growth alone if we are to meet our revenue objectives. Instead we have to create our own growth opportunities. And we've positioned our business to achieve just that. Combining supply chain and freight solutions with small package will create new revenue opportunities for UPS. Customers are responding well to these offerings. Let's briefly look at each of our segments.
The domestic package segment is UPS' historic strength, generating more than half of our revenue and operating profit. As such the U.S. remains an important market for us and we will continue to invest for future growth. These investments will span the horizon from infrastructure to new product development and from training to productivity enhancements. Remember, over the long-term we expect package volume to grow at or above U.S. economic growth.
Last year we were successful in resolving a major uncertainty affecting our domestic operations, our labor contract. It was due to expire in July of this year. This contract is historic because it was ratified eight months early. It allowed us to withdraw 45,000 employees from the central state pension plan and we were able to do this in a financially responsible manner.
Perhaps more importantly, over the past couple of years we've changed the way we do business with our unions and they've changed the way they do business with us. Today we are on the best footing ever on the labor front.
Our international package business is a growth engine for UPS. One of our real strengths is …