Good morning, everyone. On behalf of the UPS management team, welcome to the UPS Transformation Conference. Thank you for joining us here in New York City, and to everyone joining us via the web. We greatly appreciate your interest and investments in UPS. As the UPS investor relations officer, it is my privilege to travel around the world and share with you the great things going on at a diverse and global company. In a nutshell, we are here to make you much better informed of our transformation plans, and how transformation enables the UPS strategy. We will share our strategies, we'll review some tactical initiatives, and discuss how the execution of our plans uniquely positions UPS for growth and creates value for our customers as well as our share owners.
As a reminder, today's presentations are being webcasted and are also available for download on the UPS investor relations website. For those registered for the conference, the presentations will be emailed to you throughout the morning. Taking the stage for prepared remarks today will be UPS Chairman and Chief Executive Officer, David Abney, Chief Strategy and Transformation Officer, Scott Price, Chief Marketing Officer, Kevin Warren, Chief Sales and Solutions Officer, Kate Gutmann, Chief Engineering and Information Officer, Juan Perez, Chief Operating Officer, Jim Barber, and Chief Financial Officer, Richard Peretz. Also joining us in the audience from the UPS Management Committee are George Willis, President of U.S. Domestic Operations, Norm Brothers, Senior Vice President, General Counsel, and Corporate Secretary, Nando Cesarone, President of UPS International, and Teri P. McClure, Chief Human Resources Officer and Senior Vice President of Labor.
After our prepared remarks, we will take a short break and then move into the Q&A session. Following the Q&A session, we will conclude the webcast and adjourn for lunch. We have a great program for you. Let's get started.
Good morning, ladies and gentlemen. Uncertainties are described in detail in our 2017 Form 10-K and may also be described from time to time in future reports filed with the Securities and Exchange Commission. These reports are available on the UPS investor relations website and from the SEC. Unless stated otherwise, today's presentations contain adjusted financial results. This webcast, along with a reconciliation of GAAP and non-GAAP financial measures, will be available on the UPS investor relations website for a limited period of time. Please welcome UPS Chairman and Chief Executive Officer, David Abney.
A good strong morning, everyone. Before I get started, I would like to express my thoughts and prayers for the people that are affected by Hurricane Florence and all the other disturbances that are throughout the world at this time. Can we take just a second to hesitate, please? I'm very excited to host this meeting and speak with you today. I wanted to have today's event for two reasons. I want to update you on our transformation initiative and on our business strategy, including our efforts to date
Our expectations going forward. We know the timing of this conference is a little different, and we're eager to share the progress we're making. In 2017, I told you what we would do to fuel the next era of growth at UPS to deliver increased value to our shareholders. We committed to invest, grow, and to deliver. UPS is in the middle of the investment cycle and is already operating from a position of greater strength because of the actions we've already taken. This meeting is an opportunity for us to communicate in greater detail the additional actions we're taking to drive performance. We'll discuss the steps we're taking to enhance our competitiveness in this fast-changing landscape. Today, we'll update you on our enterprise-wide transformation that's touching every part of the organization, from culture, to leadership, to business processes, and the way we go to market.
We have completed an intensive review of the company's business strategy and opportunities in today's ever-changing environment. We have created strategies to capitalize on the global mega-trends that offer the highest quality of revenue and earnings growth. Today, the team will walk you through our strategic framework and how we will measure and communicate our progress going forward. Our transformation further enables an enhanced business strategy that will deliver the following. First, a powerful U.S. business where we're rebalancing the customer and volume mix and reducing operating costs to generate more financial leverage. Second, strong, balanced growth in revenue and EPS for our continued investment in our international and supply chain and freight business units. Third, greater market differentiation via continuous investment in our network, our people, our technology, and our products.
This will enable UPS to provide a value proposition to our customers that our competitors just can't match. Our business strategy will enable UPS to improve revenue per piece, maintain our industry-leading growth, and achieve a higher level of earnings growth. We're on the path to a UPS that leverages our current strengths while taking us to new heights. We are enhancing management focus and rigor, investing to create greater value, and implement winning strategies for growth. In short, UPS is strong today in creating our tomorrow. We have organized our transformation into three major areas. We're pursuing targeted opportunities for high-quality revenue growth. We are driving efficiency and cost reduction to improve our margins, and we're further developing our talent to enhance our world-class management team and reinforce a culture of continuous transformation.
We are sharpening our focus on opportunities, shaking up the status quo, and building upon our commitment to execution across our organization. Over the past year and a half, we've made substantial progress on the network investment initiatives we discussed in early 2017. We built and are continuing to invest in a global logistics network that is smart, highly integrated, and efficient to capture growth and generate higher operating margins. We are significantly expanding capacity through the investments in our operations. To prove the point, consider this. In 2018, in the U.S., we're opening almost seven times the capacity we did in 2017, and I'm confident that we will achieve our historical returns on these investments. We are implementing technology that's making our network and our company more efficient, more flexible, more resilient, and more anticipatory.
We've expanded our services and solutions to create greater customer value and to strengthen customer loyalty. We've invested in digital technology and automation to capture opportunities in an era that has changed the way humans connect and communicate. We have further automated our technology platform to give our customers enhanced visibility, as well as access to special services. Using technology and automation, we're optimizing the flows of freight, packages, and our equipment across the network. Today, I'm excited to share with you my vision for an even brighter UPS future. We're embarking on this transformation from a position of strength. UPS has a tremendously respected brand, an exceptional and essential global network, a broad product and solutions portfolio, great cash flow, the industry's highest margins, strongest balance sheet, and a return on invested capital that's the envy of our sector and many others.
Our aim is to solidify UPS's position as the fastest, most technology-enabled, and most responsive company in the industry. Through growth, increased efficiency, and reinvigorated culture, we're taking a business built on trust, reliability, and integrity to the next level of performance. We're doing this supported by an unmatched global network that every single day, either through our small package or freight shipments, connects more than 2.5 million businesses in more than 220 countries and territories with 10.5 million consumers, businesses, and other constituents. We continue to invest in that powerful network to facilitate global trade, to help customers succeed, and to grow a higher quality revenue base. We will grow through four strategic imperatives, which you will learn about in greater detail today. First, the continued development of high-growth international markets. Second, profitable expansion through both B2B and B2C e-commerce.
Third, further penetration of the healthcare and life sciences market. Fourth, our commitment to small and medium-sized businesses. We are executing on dozens of initiatives to improve efficiency. These include comprehensive actions across the board from centralizing certain company-wide functions for greater benefits from scale and streamlining processes using automation and technology, to flattening the organization to reduce costs and speed decision-making. We will reinvest the savings in our business ultimately to continue to improve shareholder return. We have a proud 111-year history at UPS, and we have more than 454,000 employees with diverse backgrounds, experiences, and perspectives who are committed to delivering the best service to every one of our customers. I've also recruited more outside talent to build on our strong history. I'm bringing in executives with a breadth of new skills and new perspectives.
These new executives are collaborating with the seasoned and newly promoted UPS leaders to blend the best of existing UPS thinking and practices with new ideas and new experiences. Together, we will enrich and strengthen our business processes and culture to shift a culture historically centered on constructive dissatisfaction to a new mindset of continuous transformation. That's the key: continuous transformation. You'll hear today from a team that exemplifies this culture. We're making our company stronger and more capable of delivering attractive returns in both the near and the long term. Our presentation will take you through our latest transformation initiatives in more detail. Scott, who joined us almost one year ago, will discuss our strategy and how we're allocating capital and resources aligned with our transformation. This will enable us to leverage mega trends and the resulting market opportunities ahead of us.
Kevin, who recently joined us, will discuss the changes in our go-to-market strategy to better serve our customers while securing higher revenue quality. Kate will discuss our solutions processes that create value for our customers and yield improvement for UPS while enhancing the customer experience. Kevin and Kate and their teams are creating powerful commercial offerings for our existing and growing customer base. Juan will discuss how we're using the latest technologies to drive increased productivity, service levels, and operating capacity and customer connectivity. Jim, who was recently named our Chief Operating Officer, will walk you through our network enhancements and management processes to drive execution. He will also highlight the expected outcomes as we reach completion in the coming years. Finally, Richard will share with you the financial benefits of transformation and how it builds on the initiatives we already have in flight.
Everything you'll hear about today is part of a multi-year plan that's already begun delivering benefits. As each of these initiatives mature, we will use some of the proceeds to pursue the many growth projects that I discussed earlier, rotating professional and financial resources to the best opportunities. Some of the proceeds will be used to provide additional value to our shareholders. The new transformation initiatives we will talk about today incrementally increase adjusted earnings per share between $1 and $1.20 by 2022. This is a strong indication of the extensive scope of the transformation and also the significant impact on UPS's earning power. I am confident what you'll see over the coming years is a UPS with all the great strengths of the company today and more.
More alignment, a more powerful network, and a culture that is reinvigorated, one that emphasizes innovation, speed to market, and customer responsiveness. A UPS that is strong today and creating a better tomorrow. Thank you.
Please welcome Chief Strategy and Transformation Officer, Scott Price.
Good morning. Mic. Do you want me to go? Here we go. All right. I traditionally do not like standing behind a podium, but I'll do my best. Again, good morning. David made mention of new executives who have joined the company, and I'm proud to be one of those. I joined UPS late last year after having served in several U.S. and international roles at The Coca-Cola Company, DHL, and most recently, Walmart. UPS is an amazing company with abundant opportunity. My role is to provide structure and repeatable processes that result in a future-proofed business strategy, as well as a process for strategy renewal and resource prioritization. Our transformation process has put us on a path that has both near-term and long-term benefits, we'll be covering that throughout this morning.
I'll be detailing our transformation program, which as you have heard from David, is focused on three areas. The first, pursuing the best market opportunities for high-quality revenue growth. Second, to drive efficiency and cost efficiency to enhance margins. Finally, further developing our talent to reinforce a culture of continuous transformation. Before I do that, I'd like to step back, though, and review how transformation supports our overall strategy. Over the last six months, UPS took a deep dive into the mega trends that will affect us and the industry for the next five to 10 years. Rapid technology shifts, value chain consolidation, e-commerce growth, shifting trade lanes, and changing demographics around the world all represent major strategic growth opportunities where we believe UPS is well-positioned to take advantage. The long-term outlook for growth is healthy, with the global addressable logistics market at more than $800 billion last year.
Even in a mature economy, we project the U.S. package market to grow by 40% from 2017 to 2022. Outside the U.S., there are many markets that will grow even faster. The identification of targeted, higher quality growth areas led to our focus on four strategic imperatives that will leverage the expanded, highly efficient capacity that exists in our core business. There will be ample opportunity, although we will be selective in how we target those opportunities that will yield the right volume and customer mix optimally aligned for the most efficient processing in the UPS network, thereby maximizing shareholder returns. The first of the strategic growth imperatives that David mentioned is high-growth markets.
As you know, our international business generates industry-leading double-digit margins. We will continue to focus on Asia, Europe, and other markets where we see import-export market share opportunities, a maturing middle class, as well as above-average GDP growth rates. We expect growth in three areas: worldwide express packages, a core part of our business today, intracontinental or transborder package services, and in domestic package services in selective markets. The global package market is on track to grow from $300 billion to $480 billion by 2022, with roughly two-thirds of that growth outside the U.S. Our growth markets strategy also includes complementary growth in our forwarding and contract logistics services. We are well-positioned to take advantage of international opportunities due to our integrated global network, multimodal service portfolio, and international trade management technology and expertise. Our second strategic growth imperative is e-commerce. We see tremendous opportunity in 2 categories.
Although B2C e-commerce gets most of the headlines, we also see major value by delivering value-creating solutions for B2B customers, where profitability is even more attractive, particularly in the critical small and medium-size or SMB segment. B2B e-commerce shipments not only skew towards SMBs. They also provide better delivery densities and tend to be more consistent throughout the year, week by week. In the retail segment, we are leading the industry with solutions for merchants of all sizes, providing differentiated offerings for end consumers. Solutions like My Choice, which just surpassed 51 million members. This allows merchants to offer choice, control, convenience, and enhanced visibility to their customers. Another great opportunity for UPS is cross-border e-commerce. In B2C e-commerce, we will expand our position as the preferred shipper through the creation of synthetic density. That's enabled by our 28,000 global Access Point locations, as well our technology-based solutions.
We will drive further efficiency and higher revenue per piece. Of course, we will continue to charge appropriately for the value we bring to the market and fully recover the incremental costs that come during more expensive peak periods. Healthcare is the third strategic growth imperative. Our goal is to reinforce the trust that has been placed in us by continuing to deliver outstanding customer experience. We will accomplish this by bringing further innovation to the healthcare and life sciences sector and by enhancing our specialized end-to-end supply chain solutions. These solutions ensure visibility and embed control and reliability that are combined with the right quality assurance for compliant deliveries. This is applicable to customer needs ranging all the way from life-saving medications to the developing home care services industry. In the U.S., healthcare spending represented 18% of the U.S. economy in 2017.
The global outsourced healthcare logistics market is projected to grow from more than $85 billion in 2017 to $105 billion in 2021, with growth rates in Asia and ISMEA predicted to be even higher than in the U.S. We have continued to expand our global footprint of healthcare distribution facilities and our capabilities through both organic as well acquisition strategies. In order to strengthen our capabilities and to take advantage of this growing opportunity, we have recruited significant talent in this area and throughout other parts of the business. Our acquisition of Marken is another example of how we are expanding our talent and capabilities in the healthcare space. We have achieved sales and cost synergies by utilizing the UPS global network. This integration of the two has created many customer acquisition opportunities. Kevin will detail more of this during his presentation.
Our fourth and final imperative is comprehensive effort to attract and to retain small and medium businesses around the globe. We'll do this by providing new, differentiated solutions included in the previously mentioned e-commerce and healthcare spaces. With this intensified focus, we are intent on gaining share in the highly profitable small and medium business segment, which is estimated to generate 50% of all U.S. package revenue with just 30% of the market volume. In the United States, SMBs represents 95% of all businesses and accounts for approximately 50% of GDP. Our global smart logistics network and industry segment solutions will enable SMBs to connect with customers anywhere from wherever they are and deliver product when, where, and how the customer desires.
We will continue our investments in rapid transit times in the U.S. and around the world while launching new platforms for asset-light services like the recently announced Ware2Go business. These solutions, coupled with our global portfolio, will enhance the customer journey and will provide an unmatched commercial experience and engagement. UPS remains uniquely positioned to enable customers around the world as we have leading scale, delivering over 5 billion packages a year. The combination of our global footprint, our smart logistics network, our collective capabilities derived from different business units, and our talented UPSers represents a powerful competitive strength. We see an opportunity to allocate disproportionate investment levels in our four strategic imperatives while using transformation to support an even more efficient business model. We began our transformation journey last year by taking an outside-in view of our company, benchmarking all aspects of our business.
As David said, this is an enterprise-wide effort that goes well beyond our delivery operations. Although we validated many areas where today we are best in class, we also identified cost reduction opportunities that once implemented will help fund our targeted growth, technology enhancement, and talent development initiatives, as well improve our operating margins. We have implemented investments and improvements in our cash flow management and already gaining traction as seen in the strong results in the second quarter. In our organization structure, we are reducing management layers while increasing individual spans of control, thereby reducing cost and importantly, increasing the speed and agility of decision-making within the company. This was the genesis of our voluntary retirement program that we announced in July.
It was well subscribed by UPSers with preexisting eligibility that created several hundred career development moves across the company, as well a significant reduction in our operating costs. We also saw an opportunity to leverage UPS's massive scale through the creation of a global procurement center of excellence that maximizes our sourcing power. The procurement team has already generated significant savings and cost avoidance, which is funding our initial programs of further modernizing our back-office processes. The speed of technological advancement represents a significant opportunity for UPS to leverage its scale in achieving world-class cost performance in support services. We have identified many opportunities to modernize processes, to invest in new cloud-based platforms, and to accelerate robotic process automation or RPAs in non-operation activities to drive down our transactional costs. We are leveraging technology to drive growth by enhancing customer service-oriented solutions.
AI-driven chatbots creates a faster, personalized customer experience at reduced costs. Technology-driven sales support ensures our customers get the very best focus from our sales force who will have more time to spend on selling. Transformation-funded modernization, which also encompasses sunsetting legacy technology platforms and increasing virtualization while also shifting to cloud-based solutions. Like most large-scale global operations, UPS is highly matrixed to achieve the greatest possible leverage. Therefore, our foundational and modernization efforts in administration, procurement, working capital will all benefit to our operations, especially in the U.S., but also around the world. Our investments in the global smart logistics network are well-known and bring great value to UPS. Through our transformation diligence, though, we uncovered further opportunities across many areas to continue to drive improvement in processes and use of available technologies.
Execution against those initiatives will enhance our productivity and capability for growth through an increasingly efficient integrated network. Our transformation efforts are strengthened by the engagement of talented UPSers and by building upon our evolving rich UPS culture that David referred to. We have a proud history which would not have been possible without the millions of UPSers who have touched our company over the decades. We continue to focus on modernizing our systems to attract, develop, promote, and support our great talent. We also recognize that adding new and existing experienced talent into the mix of professionals is critical going forward. You see evidence of that commitment in the senior leadership team, but we have also brought in other leaders at the next levels throughout the organization. Transformation of our talent will optimize the very best of what UPS is today and will be tomorrow.
The role of transformation is to support the enterprise strategy by bending our total company cost curve, allowing us to fund investments in high-quality growth, technology, and talent. Said another way, we are creating processes, virtuous cycles of self-funded growth that will generate stronger bottom-line results. We are already funding investments in modernization of our back-office services while continuing to invest in the very latest operational technology. As David discussed, transformation is an ongoing process, continuous transformation at UPS. What I've described today are only the first steps in our transformation journey as we balance required investments to achieve sustained cost reduction with investments focused on targeted growth. We will deploy resources in innovation services, platforms that will fund and propel our growth and profits for years to come.
Our approach will use disciplined management and our cost savings and investment cycles, combined with deliberate effort to strengthen our differentiated positions in high-growth areas. With the expertise and strength of our management team, Big Brown is more nimble, more competitive, and better positioned to deliver enhanced shareholder value today and into the future. We will deliver. Thank you.
Please welcome Chief Marketing Officer, Kevin Warren.
I just joined the company a few short months ago after serving most recently as the chief commercial officer at Xerox. I'm honored to be part of this great company and leadership team. At Xerox, I led our go-to-market strategies focused on enterprise, specialized segments, and especially SMB customers. As you can see from Scott's growth imperatives overview, my experience is highly relevant. When I joined UPS, David made it clear that he wanted me to elevate the contributions of marketing. Today, I'm convinced marketing will play a critical role in UPS's transformation and in its long-term success. I bring a profit-focused growth mindset. Our objective is to maximize long-term profitable growth by providing greater value to our customers, enabling a price premium commensurate with that value.
Our plan is to complement the strong UPS brand attributes of trustworthiness, dependability, and reliability with new dimensions, such as entrepreneurship and agility and contemporary digital competencies, all designed to take UPS and our customers to even higher heights. We are laser-focused on four strategic growth imperatives, and they will receive the lion's share of management focus and company resources going forward. They are emerging in other high-growth markets around the world, e-commerce, healthcare and life sciences, and small and medium-sized businesses in all markets. Jim will further discuss the international opportunities and actions in his presentation, but let me just say this represents a tremendous growth engine for UPS. Why? International trade will continue to expand as both B2B and B2C transactions increasingly involve cross-border trading relationships.
Our differentiated products built around industry segments and geo-specific customer needs, combined with our global reach, provide a strong competitive platform to support our customers' growth. I'd now like to discuss our approach to healthcare and life sciences sector. Today, the worldwide outsourced healthcare logistics industry is an $85 billion market on pace to reach $105 billion by 2021. UPS operates a sizable healthcare business with a solid double-digit share of the U.S. market, and there's still plenty of room for growth. There's also tremendous untapped opportunity in Asia and Europe, and we are prioritizing these markets as we refine our healthcare strategy. One of the most attractive trends in this industry is home health, which is rapidly emerging due to personalized medicines and digitally connected healthcare services. UPS is trusted on the doorsteps of homes and businesses nationwide.
Our vast network, augmented by specialized healthcare distribution facilities and special packaging, enhanced tracking and visibility, and time-definite delivery, puts UPS at the heart of the home health trend. Further, our expertise in navigating complex global healthcare regulations helps customers remain in compliance while still optimizing their supply chains, all to minimize stress and worry for our customers. After all, we know our customers are entrusting UPS with more than just a package. They're entrusting us with their customers' health. Combining Marken's capabilities with UPS's legacy healthcare services means that UPS is now the industry leader for global inbound clinical trials logistics. Together, we're offering new customer value by combining the high-touch customer care of Marken with a hybrid transportation solution that leverages the scale and speed of the UPS network.
Powered by the strength and support of UPS, Marken is now the leader in direct to patient and direct from patient services. We're also investing in our core healthcare quality assurance capabilities, especially differentiated visibility and control solutions. A great example is our UPS Proactive Response service for critical healthcare shippers that includes unique labeling, enhanced visibility, and a dedicated control tower that ensures special healthcare packages get the priority handling they deserve. The customers understand the tremendous value we provide, as evidenced by their desire to do business with UPS at a price point that allows us to realize attractive margins. Our next strategic growth imperative focuses on expanding our presence with what is the backbone of most global economies, small and medium-sized businesses, or SMBs.
You may have heard UPS talk about the SMB opportunity in the past, I assure you, this current effort is not a repeat of past programs. We're employing new digital marketing technology and new pricing strategies and new tools for generating growth and greater personalization. As Scott mentioned, the U.S. SMB small package market is large and attractive. With just 30% of the market volume generating half of the market revenue. SMBs ship more than 14 million higher margin pieces per day in the U.S. and substantially more globally. An important part of expanding our share is ensuring we are where these entrepreneurs need us, both in the physical world and in our digital connections. This means having a robust global network of retail channels, 28,000 UPS Access Points, including 5,000 UPS Store locations, UPS delivery lockers, and our conveniently located UPS drop boxes.
We're enhancing our digital marketing capabilities to create unique customer experiences, leveraging digital platforms, including our web presence, online advertising, and many other channels. To improve the simplicity and velocity of the pricing and selling process with these customers, we're using advanced analytics at every touch point in the customer journey. We're able to quickly determine the most effective, bespoke, and easy-to-understand digital offers, which create higher engagement and improve our win rate. We've expanded our B2B fulfillment options for small businesses and new shipping integration solutions like our new Shopify checkout delivery application and the recently announced Ware2Go fulfillment and warehousing platform. Both position UPS as the preferred shipper within the application. Another exciting development to be launched in early 2019 is a service similar to UPS My Choice, but for businesses. It will feature many great UPS My Choice services fine-tuned to small business needs.
For example, it provides consolidated delivery alerts that tell business users the number of pieces in an incoming shipment so they can plan staffing and space required. These innovations, along with continued network enhancements, enable our broad base of SMB customers to better serve their customers, which then creates profitable growth for UPS. Our fourth strategic imperative is to capture the phenomenal growth in global e-commerce. Buyers are changing the way they buy, consumers are empowered like never before. Merchants can now sell across the globe from a single location, UPS is right in the center of it. The strong demand for B2C delivery is already apparent. We're also seeing new phases of growth in the emerging B2B e-commerce and cross-border shipping markets.
B2B e-commerce is projected to reach $1.2 trillion in gross merchandise sales. It will account for 13% of all B2B sales in the U.S. by 2021. Cross-border e-commerce is already growing at 17% and is projected to accelerate to 28% over the next three years. UPS has already invested in e-commerce with experience, knowledge, and a vast global network. We were the first to market with UPS My Choice. Today our community has grown to 51 million users. That's about five times the size of our nearest competitor. The growth rate is accelerating as we expand this service and leverage new apps and mobile to deliver an outstanding user experience to even more residential and business customers. We're targeting the optimal mix of B2C, B2B, and cross-border at the right price to drive our revenue per piece and our profit per piece to even higher levels.
Technology doesn't just enable UPS to be more efficient. It also adds reach, enables a customized value proposition and customer experience. UPS is helping SMBs access services previously only available to large companies through programs like our Customer Technology Program, where more than 50 business software applications are offered at a discounted price when linked to a UPS shipping contract. Likewise, the UPS Ready program includes more than 100 logistics and procurement software programs with UPS shipping applications fully integrated. For our customers, digital means frictionless transactions via mobile and social engagement. Frictionless also means helping them extract value from their data and optimize their online and physical presence. Our customers across the globe are continually asking us to reimagine our relationship and what we can help them accomplish. We are listening. We are responding.
We've combined our fulfillment and delivery capabilities in a digitally enabled one-stop shop that helps customers sell their products through multiple e-commerce channels to help them grow. Innovative services like our Access Point network offers customers greater post-purchase flexibility and delivery and return options, including a consolidated returns program through The UPS Store. UPS simplifies the entire process for participating customers by offering a convenient drop-off location and immediate credit card reimbursement for consumers. We bundle several returned merchandise items to reduce the collection, packing, and shipping costs of returning the merchandise to our customers. This is not just e-commerce. It's connected commerce, delivering customer efficiency and value to help them meet the needs of today's consumer. For same-day delivery, our partnership with Deliv connects customers with same-day delivery options, supporting their growth and higher overall UPS small package volume.
Our entire organization is focused on the growth imperatives discussed at length today. Creating innovative new products and services, digital marketing engagement, and platform approaches to helping customers grow is the right strategic approach. We will create the right quality growth both for the near term and well into the future. As David said, UPS is strong today, creating our tomorrow by helping our customers serve their customers and growing with them along the way. Thank you.
Please welcome Chief Sales and Solutions Officer and Senior Vice President at The UPS Store and UPS Capital, Kate Gutmann.
Thank you, good morning, everyone. You've heard about our vision, our investment in new technology and efficiency, and the four strategic imperatives where we see the greatest opportunity for profitable growth. I want to continue that conversation by talking about how we further differentiate UPS with our unique go-to-market strategy, which will be enhanced through this transformation, enabling us to double the engagements with our customers, increase our reach with small and medium-sized businesses, and do so in new markets around the world. This drives quality revenue by increasing our mix of small and medium-sized businesses and premium products, an approach which needs us strong today as we create our tomorrow.
These are dedicated professionals around the world who are in front of our customers and in their facilities regularly, who understand our customers' objectives, and who can inject industry and commercial insight and best practices. They can help customers solve their problems and also help identify and then capitalize on new opportunities. Throughout this process, these UPS experts also identify opportunities for deeper customer engagement and higher levels of UPS integration in our customers' business processes. Through transformation, we're enhancing customer experience with UPS by deploying new digitally enabled technologies that, among their many benefits, give us real-time feedback from our customers, enabling us to respond more quickly and further increase satisfaction. At the same time, we've invested in world-class sales and solutions tools to ensure our team maximizes their efforts, their time, and the customer impact.
We've also further aligned sales compensation with profitable growth and increased the weighting of this component to drive margins further. With these technologies and tools, we've positioned our sales force to win with value-driven pricing that delivers strong returns to our shareowners. To UPS customers, our professional sales resources and customer solutions engineers are the face of the most comprehensive supply chain portfolio in the logistics business. Our portfolio consists of an extensive menu of products and services, including cold chain services, brokerage, flexible returns, and UPS My Choice marketing services, to name just a few. Our team helps to adapt them to meet our customers' needs and solve their problems across the full range of transportation modes. What the customer experiences is a client-specific combination of services that access our global integrated network.
We couple these services with innovative supply chain technologies to form unique value-generating solutions for B2B and B2C. These solutions are good for our customers, and what's good for our customers is good for us. Many customers start with a solid logistics foundation, but the speed of change is accelerating, and today, disruption is business as usual. As a result, a growing number of customers look to UPS for assistance with complex global supply chain challenges like warehouse location design, network optimization, inventory placement, and a returns process that our competitors can't and just don't match. This is where the UPS sales and solution team excels, developing deeper engagements while creating solutions that deliver measurable financial gains for our customers, strong margins for UPS, and even stronger returns for our investors. Our worldwide sales force and global customer solutions team engages through a multi-step process. Here's how it works.
First, we assess a customer's needs. We combine tools like supply chain mapping with strategy sessions and industry benchmarks to develop a deep understanding of the customer's challenges. This is done hand-in-hand with the customer. We use financial analysis and industry comparisons to identify key value drivers. Next, we map their global supply chain, including our solutions, to quantify the value that they bring to the customer. These solutions often generate revenue and efficiency savings for them. Then we finally design and implement the solutions. This is where the magic happens. Our 1,500 customer-facing supply chain engineers and project managers apply the expertise they've gained over decades to design and implement high-impact solutions. The solutions we design and implement are holistic in nature. They incorporate movement from their suppliers, who are oftentimes overseas, to their distribution centers or even direct to their customers.
We cover the full customer experience, including the broadest returns portfolio in the industry. In fact, as the world leader in returns transportation, we've seen that a flexible returns process means shoppers spend more online. Only UPS brings this value to our customers. Most Fortune 500 companies have identified supply chain solutions redesign as a critical need for their companies and future success. They invest their resources to work with us because we find savings for our customers in areas of inefficiency throughout their global supply chain. In doing so, we're able to make sure that we receive proper return for our contributions. We meet with the customer to agree on the amount of value our solutions create for them. This ensures value is a central part of the decision process, creating pricing leverage and increased loyalty. That's how we work.
When it comes to our global customers, they confirm that UPS delivers impactful solutions with our unique go-to-market approach. In fact, customers who work with us realize a 10%-30% cost reduction when they employ one or more of our solutions. Many have stated that they don't have other work streams that achieve that level of impact. For UPS, these engagements also drive loyalty. They generate more revenue as well as better margins. How do we know our go-to-market approach works and that it's mutually beneficial? Simple. We know that customers who engage with us for solutions significantly increase their UPS spend. With large customers, the transportation spend increases up to 10 times more than those with comparable customers who don't use our solutions. That includes premium products, cross-border business, because we're encompassing their global supply chain.
We connect our solutions resources to companies of all sizes, with specialized programs for each of the strategic imperatives: healthcare, e-commerce, international, and small and medium-sized businesses. In fact, we know that after partnering with UPS, small and medium-sized businesses generate more UPS revenue because we expand their usage of services throughout the world and in our portfolio, and we help them have broader connections to their customers as a result. Over the last five years, UPS Customer Solutions, working with sales, has collaborated with more than 100,000 B2B and B2C customers. Over the next five years, through transformation, we will nearly double these engagements, reaching small and medium-sized businesses more extensively through digital platforms. Let me bring the impact to life by highlighting how we've helped one of our smaller customers who was looking to expand their business globally.
A N.Y.-based retailer had sold top-of-the-line culinary tools to home cooks for nearly 40 years and began selling globally via its e-commerce site. In 2015, international visitors made up 20% of their online traffic, but conversions lagged. What was the reason? Many international customers were surprised when duty and taxes were added to the cost of their orders, and the carriers required extra payment upon delivery. The result was bad reviews and high international returns. Our team recommended using our i-parcel solution, which automatically converted product prices on the retailer's website into local currencies and displayed the duties and taxes in the shopping cart. Returns went down sharply, and what's more, their international orders doubled within nine months, revenue generating. Another example is one of our customers based in France who produces high-quality wines.
UPS was able to bring solutions that differentiated us from other carriers, creating an integrated offering tailored to these specific needs in the wine industry. First, UPS Customer Solutions designed special packaging for the wine shipments. In addition, we established a system that allowed flexibility in delivery time and location and implemented use of an automated tracking system as well as UPS My Choice. Our customer's clients can receive their deliveries safely and rapidly wherever they are in the world. The impact of our sales and solutions approach resonates with our customers and, in turn, with our share owners. We aspire to create even more value in the future. We'll do that by doubling the Customer Solutions impact on the organization by 2021. We'll expand our footprint in emerging markets, intensify our focus on customers within our four strategic imperatives, and reach even more businesses with digitally enabled solutions.
In summary, our tested go-to-market approach has delivered solid growth and annual price improvement over several years. Quantified value creation works for our customers and for UPS. With each engagement, we see an opportunity to help our customers succeed. This approach ensures UPS continues to add more quality revenue, maintain premium price, and deliver the returns our shareowners expect well into the future. This approach keeps us strong today as we create our tomorrow. Thank you.
Please welcome Chief Information and Engineering Officer, Juan Perez.
Good morning, everyone. At UPS, we pride ourselves on having the answers for our stakeholders. Every answer starts with a question. Of course, in technology, the question we ask ourselves constantly is: What if? What if we could make it even easier for our customers to interact with our network, to get answers about their shipments? What if we could decrease the cost and increase the value of their supply chains? What if the network and our drivers could adjust automatically to changing conditions? We today are answering big questions like this with our global smart logistics network. Last year, we told you that we're making significant investments to create the smart logistics network of the future. These investments will provide the automation, the capacity, the new services, the visibility, and those delivery solutions that our customers need.
We're helping them meet the growing demands of e-commerce, respond to the mega trends like personalized healthcare, also supporting them in emerging markets with growth. We're helping them by doing many different things, we also ensure that UPS is a critical and irreplaceable part of their future plans. In the last year, we restructured, we combined IT and engineering, we also formed the Advanced Technology Group. This structure has actually reduced the complexity in our processes and has improved the speed of implementation. Let me share with you the progress we've made since then on two of the big goals that are supported by technology. First, enhancing our operations, staple of what we do with technology at UPS, second, engaging with our customers. Integrated technologies help us achieve improved operational results while enhancing our products that the customers experience when accessing the UPS network.
The key to improving operations has been, and continues to be, integrating UPS's physical assets with our virtual digital network. Our digital network exists through our warehouse, our fulfillment, and all our supply chain operations. It also permeates our small package transportation, our sortation, and our delivery operations, and it gives our customers tremendous visibility into the status of their shipments and their deliveries. Today, data and information are fueling even greater capability across all areas of the enterprise, as you've heard today. In distribution and logistics, we're modernizing our warehouse management systems that support customers in a wide variety of industries. We're enhancing our supply chain visibility systems to better provide more timely and accurate information to our customers.
In small package operations, we have two major objectives when it comes to technology: improve our network and increase the level of automation in our facilities and in our fleet. To improve the network, we're deploying operational technology in four key areas. The first one, network planning and optimization. The second one is operations management and execution. Third continues to be route optimization. Lastly, the support of mobility. These four smart logistics network improvements and these initiatives are on track to generate the $800 million to $1 billion in cost reductions and avoidance that we outlined previously. We're making excellent progress as we phase in all these programs, and we're optimistic about their ability to deliver efficiency and optimization benefits across the company.
Applying advanced technologies in these four key areas of our business improves efficiency, speeds up the network, reduces our dependence on manual processes, and also improves the service that we provide to our customers. Now, the first area is network planning and optimization. NPT, or our network planning tools, when fully deployed, will support optimized network planning and modeling, load balancing, and optimized driver and asset scheduling. It will also interface with the automation systems we're implementing for the most efficient operational execution. These tools give us unprecedented flexibility in the way that we route, the way that we load, and the way that we move packages across our global network. When conditions change, for example, we can adjust and optimize the flow and the movement of packages to ultimately attain maximum capacity utilization over more than 1,500 facilities and 230,000 vehicles and trailers.
Operations management and execution is the second area, where we're deploying technology to assist our teams with real-time decision support and wider management capabilities. For example, the UPS Smart Trailer solution provides improved visibility on the location of our trailers as they move across the network. Through geographical information systems, integrated with our load management and dispatch systems, we more effectively manage the assets that we have in the network and ensure that every load is accounted for. We've nearly completed full deployment, and we will see benefits in 2018 of this technology. Another leading project is EDGE, a proprietary suite of solutions to manage on-road and inside operations. EDGE brings advanced analytics to mobile devices, which our supervisors, in turn, use to execute daily operating plans, the tasks that they're responsible for, including training and, of course, productivity improvements.
There are several applications, but I'm going to give you one great example. It's our ODC or Origin Data Capture consolidation project that automates the collection and the data that is required for processing international shipments globally. We consolidated shipment processing activity from our widely dispersed multi-site structure into a new process with only a couple of sites. By streamlining and automating, we greatly improve our customer service, we eliminate exceptions created by incomplete shipment information, and at the end, the result is satisfied customers who receive their packages on time while UPS saves time in researching the missing data, and of course, we support our customer needs. Focus area number three is route optimization. We have been advancing for a while our company's analytics practice.
From descriptive analytics to today, real prescriptive analytics, providing more insight and more direction to our people than ever before, and minimizing UPS's impact on the environment as well. Our next generation ORION, we call it ORION 3.0, will make dynamic near real-time adjustments to route instructions for our drivers, re-optimizing constantly. When I speak in other forums, after explaining ORION, sometimes I hear, "Tell me, what's the big deal? I can do that in my car." That's not true. ORION 3.0 optimizes the best route based on traffic and customer commitments, while analyzing not one stop, but 120 stops throughout the driver's route. It's not just about telling you how to get from point A to get to point B.
To deliver the packages assigned to just one route, ORION evaluates millions of combinations before choosing from hundreds of thousands of the best potential routes, the one, the final one, that will be the most optimized solution to provide to our service providers. The next generation of ORION will not do it before the drivers leave the facility. The next generation will dynamically adjust and recalculate the optimized route for that day, considering the remaining packages and pickup requests on the route, changing traffic conditions, and also other factors that impact the route. Another difference, ORION 3.0 utilizes proprietary UPS delivery point data for millions of households and businesses. Unlike conventional navigation, it would route drivers to the loading dock or other preferred drop-off locations, not the main lobby or the front door.
When we combine ORION's DIAD navigation with ORION, our drivers will have the best suite of route optimization and navigation technologies in the industry. The fourth operational focus area for enhancing our network is mobility. We're in the process of developing the next generation driver handheld or DIAD with software and hardware that gives us new ways to interact with our customers, including the ability to interface with vehicles and also with very important smart home devices. It will enable UPS to create new visibility, new tracking and delivery confirmation services for our customers like no other. The new DIAD will also help us reduce training time, it opens the architecture to even more enhancements. Along with ORION 3.0, we will be able to provide narrower delivery windows in support of our customers as well.
Now, that brings me to the second major objective of operational technology, which is automating our facilities. We have a very active and very successful R&D practice at UPS. Working with experts, we are identifying the materials handling technology solutions that will have the most significant impact on our operations and benefits for our customers. Previously, we announced that we would be investing in about 70 new or expanded package and hub facilities worldwide over the next three to five years. I can tell you that we're well on track with these projects, and we'll deliver them in line with our current plans. With several that will be in place before peak season this year. We're also investing in building super hubs, seven core automated sortation facilities in major regions of the country.
For example, the newly opened South Metro Atlanta Regional Terminal, we call it SMART, is an automated hub that can sort over 100,000 packages per hour. It builds direct loads to destinations in the southeast U.S. and attains 30%-35% productivity improvements versus a comparably sized manual sort facility. This is an example of how we're building capacity to support our strategic imperatives. As David mentioned, UPS is adding more than 400,000 additional pieces per hour of global automated sortation technology in 2018, the most in UPS's history. We will continue to add capacity at near this pace in 2019 and 2020. As we finalize the current construction and renovation of our network projects by 2022, we will attain near 100% of eligible U.S. volume processed using these new highly automated facilities.
this is just a glimpse of what we're doing with operational technology, improving the network, and automating our facilities. It is how we reduce cost at the end, and it's how we ultimately increase our efficiency. Now let's move to our customers and how we're engaging them using our technology to simplify their lives and create value. We firmly believe that digitization enables UPS to create industry-leading capabilities, such as better tracking and visibility. We now receive and we process more than 200 million tracking requests every day. Our highly reliable tracking information helps our customers manage their personal lives and also their business supply chains, replacing complexity with certainty. Disruptive technologies like mobile, like social, like IoT, cloud technologies, and big data have created a consumer-centric business model and put personalization at the heart of e-commerce.
Our focus covers the entire spectrum of customer interactions with UPS, whether they're shipping with us or they're returning merchandise. Our electronic returns, those applications that we've built to support returns, simplify the management of returns for consumers and for businesses as well. We're linking the virtual and the physical worlds, and we're creating platform solutions that improve communication and open up new revenue streams for UPS and of course for our customers. UPS My Choice is a great example of that type of growing platform. the recently announced UPS My Choice Deals presents to members special discounted offers on merchandise and services using the power of UPS. you may be sitting there and thinking, what is next? Well, earlier in my remarks, I mentioned our Advanced Technology Group.
When I think and talk about the Advanced Technology Group, I really get excited about how this will help UPS. ATG's role, that's what we call it, is to help UPS create a better tomorrow by identifying testing and recommending solutions that can be implemented in the next three to five years, but at the same time, keeping track of emerging technologies with longer-term horizons. Solutions that will help us improve efficiency, enhance our services, support growth, and delivering strong shareholder returns. Here are just a few of the projects that ATG is exploring, starting with drones. We have and continue to test drone usage for special situations, and we continue to evaluate these technologies in connection with proof of viability demonstrations that the FAA is conducting. We're currently testing different applications for drone technology at UPS.
For example, in the security space, security drones in the Denver commerce facility are being used to monitor activity on our property. The next area for ATG from a focus perspective is robotics and automation. We're evaluating and we're very actively testing automation assistance for package sortation, for loading, for shelving, and for delivering packages. Smart package is another big initiative in ATG, an exciting one. Advances in digital labeling technology now make it possible to continuously track packages in the network, error-proof sortation, support vehicle loading, and it also can help us help our drivers identify and find packages more quickly in the cargo area when they're making deliveries. It is an enabler for many other efficiency gains, and we're excited about where it will go. Containerization is another one.
We're piloting specially designed containers for use when we load package cars and when we move shipments that are going out for delivery. Containerization can make these processes more efficient and better integrated into our automated sorting facilities. Of course, blockchain. We're working with leading experts in blockchain applications to streamline complex multi-party data flows. We see the potential application across many areas in our business. We have some live real examples today. A great one is the work that we've done with UPS Capital in managing the claims process and status tracking of those claims. Blockchain is increasing the transparency and the efficiency of data sharing among carriers, brokers, consumers, vendors, and other supply chain stakeholders. Of course, we are connected with pilot projects through our active participation in organizations that are responsible for setting those very important standards.
It is no surprise that we believe technology is an engine of transformation. At UPS, we believe digital transformation just doesn't have a beginning, doesn't have an end. It's continuously evaluated to be sure that our technology strategy, very importantly, aligns with our business strategy and effectively solves real business problems. We are also acquiring and building systems to streamline our back office and implement the functional modernization projects that Scott talked about earlier. Together, UPS IT and engineering are jointly optimizing efficiency and cost with operational technology and increasing customer engagement. Over the last year, my group, the UPS IT group, has undergone its own transformation. We have realigned our group. We have adopted new agile application development practice. We've expanded our use of cloud technologies. We're using outsourcing and other application delivery models.
We have created practices in artificial intelligence, in virtual reality with real applications, by the way, with also the goal, using advanced analytics, to prepare UPS for the future. Our vision for the future combines our virtual and our physical worlds. They can't be separated. The outcome for us will be improved visibility, better control, better choice for our customers, improved connectivity across all users of our technology, and of course, growth for UPS, growth for our customers. Technology is transforming UPS. We're strong today, we're creating our tomorrow, but I can tell you that I know that the best is yet to come. Thank you.
Please welcome Chief Operating Officer, Jim Barber.
I feel the need to ask, is this mic on back there? Perfect. Morning, everyone. Thanks, Juan. I would also say thanks to all of you for coming this morning. It's a pleasure to be with you, and we really look forward to the Q&A after we're done. To open with, I think it'd be appropriate to talk a little bit about the past. A little more than 5 months ago, as many of you know, I took this new role at UPS. David asked me to come into the COO role after my term in international, and we talked about 3 key priorities. We talked first, and obviously in many of your minds, foremost, creating additional financial leverage in our U.S. operation. We'll talk more about that.
Second, maintain the momentum in the international segment that you've heard for the last couple of years. Continue, finally, to optimize and connect our supply chain to the express businesses across the globe. That's the reason we're in that third segment. To do that, our vision collectively is to really take a look across the world, get the best of UPS, that to be clear, started in this country 111 years ago, spread it to the rest of the world, and then bring it back and forth across this globe. That means taking really best pieces of this business. Oftentimes, it may come from Europe, where we actually redid the networks over there a few years ago, and you've seen the output of that. We participated over the years in targeted growth strategies. You'll see more about that.
Kevin talked a bit about that, as well as Kate. Really, some creative partnership approaches that you have already heard about, but you'll hear more in the future about those. When we bring them back together across this globe, we will further make them standard operating procedures at UPS, something we're awful good at in this company. We will focus on best practices rather than the cultural uniqueness oftentimes of the country we're in. After I left my previous position, we named Nando Cesarone to take my place, and George Willis, who replaced Myron after his retirement. Those two partners will also be on stage with us here as a collective when we're done for Q&A. Obviously, George running the U.S. segment and Nando taking over international for me.
All of us together, including those outside the operations, have a very well orchestrated plan to continue to maintain the momentum where our track record is strong, and quite frankly, jumpstart an improvement trajectory where we need additional focus. In my remarks this morning, I'll take you through the forward strategy across the three operating segments and link back together the transformation and how it'll link all the segments together. We'll also pick up some back and forth, obviously, in the Q&A. Many of you might know that I had the ability to participate in, if not lead transformation efforts in international and supply chain and freight, and it was my pleasure over the last 15 years to do that. As I said five months ago with George and the rest of the U.S. partners, began to take a similar look at our U.S. business.
We're five months into it. We will connect it to what Scott has talked about this morning, obviously, and again what we'll talk about more going into the future together. As we've stated a couple of times here this morning, the U.S. domestic segment is going to get the majority of the benefits from transformation you've heard about today. I would also tell you they will get more you haven't heard about today. In a moment, we'll outline the work in the U.S. network to really focus on reducing costs because we know that is a major issue for us. Then pay back the efficiency investment on a lot of the capital we've put in. Juan talked about pieces of it, and of course, Rich will talk about it when I'm done.
Coupled with, you put on top of that, the efficiencies, the effectiveness, the operational heartbeat of this. You add to it what Kate and Kevin and Scott talked about, this is about growing this business differently in the future. We'll talk a lot about the U.S. today, don't forget, it's the whole globe. We'll keep moving forward. It will continue to drive operating leverage in all the segments together. We realize, as we would say, we're constructively dissatisfied with some of that right now, but that part of our legacy, we will not let go of. The U.S. has, as you know, been our historic core market. It always will be. It will continue to provide great economics for our shareholder.
There is the core fact of this, as we've talked about the globe and introduced our strategy, that the day will come, we don't know the date yet, it will come, that the majority of our earnings will not come from the U.S. domestic segment at UPS. It will come from the other segments across the globe. If it takes your breath away, it shouldn't. 95% of the consumers in the world live outside this country. 350 million Chinese middle class that will come to bear. It will come, we will be part of that, we will grow our business and our profits and economics will go. We'll continue to diversify the investments. The U.S. business will continue to grow.
We realize we have to keep moving this core business forward, the economics still today are heavy, we have to make sure our investors are paid back for the investment we put in. Supply chain international will definitely grow faster in the years to come. The segments also, putting aside the economics for a minute, you get to this concept of innovation, which for me, was really the hallmark of the fun I had for the last 15 with the partners, because you could innovate outside the U.S. easier. A lot less risk, a lot more nimble, a lot different operating models you can put into play. Quite frankly, we know reverse innovation will come back to us in the years to come. It will be birthed in other places, in other countries, in other ways, and we should bring it back.
We have to be careful not to always push U.S.-centric across the globe because there are different cultures, different economics, different models that can really benefit our shareholders in different ways. They're not the same across the world, we will bring them back when it's time to leverage in the U.S. where appropriate to talk about and deliver what we're talking about today. Most recently, for example, one we haven't talked about this morning, particularly the country of Ireland. A small country happens to be located right to our biggest building in Dublin. We bought Nightline a few years ago. They brought to us a very different e-commerce platform. Number 1 locker provider in the world, if you look at per capita, the country of Ireland. We bought that company a couple of years ago. We're the market leader now in B2C in Ireland.
We will take a look at that, bring it into, we'll merge together with it. Things like MyChoice and the other e-commerce segments we talked about today, we'll figure out where that belongs in other countries in the world. Kiala did that for us as well. When I was in Belgium, we bought Kiala. Denny and his team had a good platform but couldn't scale. We brought it in, we brought the Access Point network in, we handed it back to the U.S. It's connected to part and parcel of UPS Stores. It drives synthetic density in a way that, in the future, could really ramp up the margins, we're still in the early days, we have great promise in that as well. Other projects we won't talk about today are in the early beginning, quite frankly.
The stuff that David opened up with and Rich will talk to you about, it is here, it is now, you can do the math. There is much more here across the globe, and in years to come, you are going to hear about UPS, and that clearly is what Transformation is about. The strategy is to reset and to realign our operations across this globe and the network, create the synergies, go horizontally across operating units, make them play together and leverage each other, and keep moving. That goal becomes pretty simple. Get them to go together. The market forces will shift. We will talk about that, I am sure, in the Q&A. Meet the needs of buyers and sellers that we have not met before in the past. The world is a big place, and we are only 111 years old.
There is a lot more to come from UPS, and it is about taking those buyers and sellers and the customers, delivering to them what they need. The profits will come, and the shareholders will be paid back. There is no question about that. Let me walk you through a couple of segments here. Let me start with international. The segment, as you would know, many of you, if not all of you, we have had a pretty good run in international. Fun to be part of. The financials have been pretty strong. You take the currency out and the effects of that, 14 straight quarters of double-digit profit growth. Nando and the team will continue forward and have great success because the foundation is very strong. Products are strong, business model is strong. This Transformation will also play into Europe again and provide really strong benefits.
Do not forget, we also have service partners across the road, a little bit different than the U.S. It provides us a very different operating model. The international package business for us at UPS, we are very bullish on it. We will continue to build out the network of the future on the partnership back, the UPS employed network, agents, business partners, joint ventures, the things you have heard about, and it will continue to expand. I see it really as limitless. The core international strategies, specifically, some of them you have heard about on some of the earnings calls and communication, they will continue to come forward, and you will see those connect to the Transformation as well. You have heard about the lift and the connectivity to the global network, obviously. You have got population trends, you have got migration trends going on.
We started to move deeper into places like Southeast Asia now, into the Middle East and other region, and we are connecting this. We talk about the smart network. It is connecting the globe very differently. Recently, you would have seen the announcement of the 747-8s. They are coming in as we speak. We will talk more about that. We have got about nine of them in at the end of this year, 16% more efficient than the 4s. So far, they are actually operating better than we had planned, because sometimes they are a new model, and bringing them in, you have to make sure they fit properly, and they have done beautifully for us. They really have given us the extra capacity we have needed in these big trade lanes, and they also allow us to come back and bring more lift into the U.S. because it is needed there as well.
Middle East has been a great surprise for us, an upside surprise. We opened a business unit there in the Indian Subcontinent, Middle East, and Africa early on. Great link of trade east, west. To cement that, we've done two things. The Expo 2020 Dubai, on the back of a couple of our very successful Olympic supports across the world. Expo 2020 Dubai is a big one. There'll be more visitors there than many of these Olympic Games, so we're the official, if you will, supplier to them. Then we, this year, launched a direct flight from Louisville to Dubai. We've got a 747 flying direct, picked up a day, a time in transit, and we'll connect that east, west trade very differently, showing our commitment to kind of link fast-growing parts of the world to our network.
Still in network, if you go out into Europe and you think about what we're doing in the U.S., similar in Europe. We started many years ago, obviously. Big hubs have come online so far this year in London, in Paris, Dijon, Utrecht, Leuven, some good sizable cities in Europe. Eindhoven's been a big one for us as well. Eindhoven will come on this year as well. Big key markets where we're able to keep growing the business. 40% of Europeans today shop across borders. Shop. They don't ship as well as they should across borders, but we'll help them do that. Our $2 billion investment we've talked to you as a group about in the past is making us grow faster and become more efficient. You can see that in the numbers.
Typically, as you get outside of a market like that, you move out to Asia Pacific and things. We've talked about deepening and widening initiatives, that allows us to move faster and further into some of these emerging markets than if we waited to go brown by ourselves. It would take too long. We would lose too much opportunity. We're bringing asset-light models in and partnerships and joint ventures there to create kind of new virtual networks across the globe that our brand moves quicker and at more pace with the speed of business to get to these markets where they really provide us great opportunity, and you'll hear much more about that in the years to come. You've heard a lot about small and medium business today and from pretty much all of the talks. They are a great upside for us.
I think Kevin said it's not the way of the past. He's absolutely right. Still today in the world, if you take a look at it, in Europe, a single market that was designed to export as a single market across border, only 5% of those small businesses cross the border. In the U.S., it's only 1%, according to studies still today, that they actually trade across borders, and when they do, it's typically to a neighboring country. You know what those two countries are. What can we do to help them move out across the world? That's what we're talking about today. Our portfolio, the opportunities we talk about, this is a segment. It's time for us to move ourselves forward in a different way, and we will. The services Kevin talked about, and Kate, specifically, you go down into it.
We recently have expanded more of our express services. We've put deeper footprints now on the back of the 747-8s into China, South Korea, Asia Pacific, speeding it up, offering more capabilities. Cut-off times we're bringing forward, which sometimes can be difficult. We found markets, we've pulled back up to five hours in Asia Pacific now to bring volume into the network in a different way. We've talked lightly about brokerage at times. I submit to you in the years to come, we will talk much, much more about that. Technology like blockchain is in the middle of that. We are right in the middle of that to look at how we can deliver seamless when it hits the ground, if you will, delivery. Kate talked a little bit about it in her My Choice example.
Brokerage will be a benefit as the world's number one broker today, what we can do in the future with technology. It continues to be about fueling that international small package segment and keeping it going. We've got the network to do it. We've got the people to do it. Our business is healthy. The services are there, the partnerships are there, and we can keep going at international. They asked me yesterday in D.C. on a panel how long, and the answer is longer than we can see. We've been at it 111, and there's a whole bunch more to come. Freight and supply chain, let's talk about that one.
Supply chain, I'm still deeply involved in, and I'm really happy to, because I think it's one of the kind of the little children in the family here that's going to continue to grow up and provide great benefit. We don't talk about it as much as we will in the future, but it has really been building some momentum. I'll start with forwarding very quickly. About the last year, we took a look back and looked at some things here we wanted to change, and started about two and a half years ago. We talked about it a couple times collectively on earnings calls. The last three quarters, if you pay attention to the supply chain, it started to move. The numbers have started to move. They'll continue to move. Three quarters in a row of double-digit revenue growth. Lots of things behind it.
Two key focuses really was, this business is about mix and consolidation and getting everything right in the right networks. The middle market didn't play strong enough for us in forwarding. It is now. It's going at a very different pace. Customer experience was two big words together. We've made some investments in that, and the customers are recognizing that, hence the top-line revenue growth. We're putting new visibility and tracking tools in. We've needed to do that for years, make sure the customers can see it. We're bullish on forwarding. Coyote, many of you watched that acquisition move a few years ago. I think it was a little slower than we wanted out of the gate, but boy, does it provide some benefits across this network. It helps us at peak. It helps us in some of the solutions Kate talks about with our customers.
It brings together this full portfolio of services in different ways and partnership models. 50,000 LTL carriers come into their suite of asset now in Coyote. They are expanding. We had the Freightex acquisition a few years ago in Europe to put our footprint down over there. We also focus very much on the Mexico-U.S. trade lane. We're expanding there. But generally, Europe has been a big focus for us the last couple of years. In fact, this year, we've doubled the load counts in Europe in the last 12 months as we've gone across that continent. The expansions and the portfolios and everything coming together, you would know publicly the size of Coyote when we bought them in 2015, and I will tell you they've almost doubled since that time. It's a great tool we now have in the toolkit. In supply chain, we'll talk more about.
Over to logistics real quick. We don't talk enough about that. We will continue in the years to come to opportunistically grow that out. Obviously, a lot to do with the healthcare. We're doing well there. We focus on healthcare still, aerospace, some of those industries. But I would also tell you in some of the discussions we've had today, we won't talk too much about it today. I think our distribution has great upside. The Ware2Go discussion Kevin talked about has the ability to come at a foundation and up into contract logistics, as you will. It's basically an Uber model that can grow. Logistics, you'll hear more about that in the years to come. Keep your eye on that.
Really, you put it all together, it allows that whole segment to be nothing but upside in my perspective, and that was one of those cores David talked about is make it connect better, make it help us grow better in different ways, and we plan to continue to do that. Let's come back home here to the U.S. now. The place I started 33 years ago, I've come back. I've been at it now five months. Actually, it's a different business than what I thought, actually, when I came back. I was on a road trip with George and some others the last couple of weeks, and it's still the great UPS we've always known. It's transforming itself. Some of these things come in stages. But it's going to continue to be a great part of UPS. The strategy itself, we'll talk more about probably in the Q&A.
I won't kind of retread a lot of that turf because Juan's talked about it. We know about that. You may want to talk a little bit about the teams to ratification today and how it affects the U.S. and the freight segments. To be quite frank, we're not going to talk much about that. They're both out for votes. You know that as well. Last month, we announced the tentative master. They're voting this week in the package agreement, 260,000 UPSers. We think it's a good agreement for everybody. When you look at these agreements and you look back to when it started in UPS, it's about customers, it's about employees, it's about flexibility, it's about growing this business and adding jobs and creating a new future for UPS, and we think this current agreement is good for everyone.
We expect the ratification vote to come forward early October, so we're not far away. We hope that's the timeframe. Supplements will come behind it. Early autumn, we're excited, obviously, as we move through this mentally to this other thing David talked about, which was peak season. It is a very different peak season when I started 33 years ago. What hasn't changed is what Jim Casey talked to us about and he left us with, and that is in most of our belief of how you support a customer, it's about reliability. He used to say any small boy could deliver a package, but there's much more complexity in this, and that's where reliability comes in. It's about when you are dealt a hand of cards that's not expected, you still deliver.
We don't think we've done as well as we should have the last peaks at UPS in the U.S. We call that constructive dissatisfaction. We are modifying our approach this year in a very different way. It is, yes, we realize we have to get the margins. Make no mistake, though, what customers pay us for is our service, and we think we have a better and much more robust plan this year. In the past, you would have heard us talk about collaboration, a couple of the C words. This year, we're going in a very different way. We basically had come at peak from a total volume, if you will, capacity perspective. We flipped the model this year. We're going origin and destination. Kate and her team have their solutions teams involved in 80% of the volume in UPS. We've completely redesigned it.
The capacity we have coming on is very timely. George and the team are doing a great job. We're going to try and move order fulfillment this year like we never have before. That means to a customer, this we can take, that we must move. It needs to be a network that performs for everyone, and we plan to do that, and Kate and the team, I'm glad to say, is off to a good start. It's not easy, but we believe we have a job to do there on behalf of our network. Pricing plays a big piece in it, no question. Kevin's talked about that. Packages are getting bigger and smaller at the same time. We need to do much better. What's in our network should be at the right strike price, at the right way, and we should deliver for them.
There's more of that coming to make sure that we deal with peak properly. We have non-retail customers too. This is just not a retail network. Number of steps we have to take there. We've talked about healthcare at times. We've talked about other verticals and industrial manufacturing. They're all great UPS customers, and at peak season, they all count on us. We believe this peak will be a better peak for everyone, customers and UPSers as employees. In summary, at peak season, numerous planning improvements this year. We believe we can do service, service, financials, financials, and have a great peak season in 2018. It will never be perfect, and we will continue to get it better every year as we are supposed to. This U.S. domestic segment, to be quite frank, five months into it's like coming home for me.
Starting as a driver 33 years ago, seeing it then and today, moving across the network and seeing of some of these brand-new buildings, the SMART hub in Atlanta, Salt Lake, West Coast, and Ontario. Boy, this is an invigorated UPS right now. It comes in step changes, and we're in the first step change. It is invigorated, and there are many parallels here to the European investment we made over the years. We needed capacity in Europe. We were behind. We waited on the TNT merger, didn't come, had to catch up. Here comes $2 billion. What happened? 30% volume growth as soon as we got the network set. You've seen the financials. Premium products we can demand differently when your network's fit for it, and we continue to drive export in that network. U.S. is the same thing.
It has a bit different set of inputs to it, obviously, but you've got to have the capacity, you've got to have the transit times to deliver service standards to unlock this smart network to add more to it that we're talking about today. We realize the economics need to come. They will come. It may be on a different day than you and I think, and maybe the day can't be seen on the day yet, but it's getting close. Last year, we added 700 package car positions, 53,000 pieces an hour. You've heard everybody talk about what we're going to do this year. 400,000. How many times? I look at it a little bit differently. The walk I walked with George and the team, I've never seen it at UPS in the history before. We've never tried to undertake this before, and we're doing it. That's big.
In a business this size in the U.S., to put new wings on the plane as it's flying is no small feat, and the team is doing a great job. Every time we do, 30%-35% more efficient. That's a piece we owe back to the shareholders, but there's other pieces that should increase the performance. The big hubs for us are coming so far. We've got three of the pieces. We've got Atlanta done, effectively, launching now as we're standing here. Salt Lake, Dallas, Indianapolis, and Phoenix, good size. Northeast, we've got yet to go. It really is coming at a time that we need it that links to this transformation, and we won't talk about everything it'll bring us today, but the future is bright. Turning back, if you will, to the aircraft. As I said, nine in the house now.
Between now and 2022, we'll put, if you will, 19 more to get to the 28. There'll be 12 767s coming through in the years 2019 and 2020. A third more, if you will, lift, and 10 million pounds. Good for us, good for the trading, good for the buyers and sellers. Juan talked about technology initiatives earlier, right before me. It links to all of that. The airplanes are one thing, but when they actually land is where we can create great value in this business that's all about this transformation discussion today. Kind of looking and summarizing this smart logistics network that we're talking about here, what we're doing here today is just the next step in this continuum. We've transformed four times, in my belief, in UPS. This is the next one. It's a more strategic approach to the changing landscape.
The operations are moving, the people are moving, the service will move, the financials will come. There's no question about it. We've all talked about being strong today and creating our tomorrow, that is what we're going to do. I look forward to the Q&A back and forth with myself and the partners. Again, I appreciate you coming, and hope you've had a great day so far. Thank you.
Please welcome Chief Financial Officer, Richard Peretz.
Thank you. Good morning, everyone. Having now heard our transformation plans, it should be clear that UPS, with its diverse product portfolio, superior team of leaders, go-to-market strategy, and financial flexibility, is well-positioned for growth and success in this ever-changing world. The actions we're taking to enhance our global smart logistics network and the new transformation initiatives are squarely focused on strengthening the company's financial position and creating greater shareholder value. Today, I'll walk you through how the transformation will deliver the financial performance and the targets that we've set, and how we'll measure them to ensure success. This allows UPS to reinvest in the business to generate high-quality growth while leveraging our network scale and differentiating products to better serve our customers and outpace our competitors.
As earlier speakers explained, we are approaching transformation from a position of strength with the industry's highest operating margin, highest return on invested capital, and the strong free cash flow. At the heart of our success is the UPS operating efficiency. Let's take a look. In the U.S. from 2000 to 2013, our cost per piece increased about 2%. Key investments such as the first phase of ORION help offset cost pressures between 2013 and 2016, bending the cost curve and keeping the unit cost inflation below 1%. Today, we are investing for the future by expanding our network, adding new capabilities like the implementation of Saturday Operations. This, along with the upfront cost for our network projects, have caused our expense to rise slightly in the short term.
Importantly, with the continued development of our smart logistics network, you can see our incremental cost per piece will slow over time. UPS's digital expansion described by Juan will make our business model smarter and much more efficient. As these projects reach full deployment and the transformation initiatives begin to yield positive results, the operating leverage in our business will continue to improve. The savings from the smart logistics network that we outlined at our last conference are included in our current long-term EPS guidance. Looking ahead, we expect to see improved performance as the new buildings and expanded capabilities come online that were talked about this morning. UPS has demonstrated the ability to successfully execute structural changes. In fact, an example is our recent work and actions around the UPS-sponsored pension plans.
We have taken in opportunities in other areas to ensure that our balance sheet remains strong and stable. We most recently demonstrated our disciplined focus on working capital with almost $1 billion in incremental cash flow to prove it. Finally, as the industry evolves, we have experienced impressive top-line growth. We've realized double-digit operating profit gains and expanded margins in both international and supply chain and freight that Jim just covered. In fact, those two segments have grown operating profit over the last few years by $700 million. Further, they've improved their contribution to company profits from just about 35% to about 45% today. The U.S. domestic bottom-line results are positioned to improve, our investments and strategies are taking hold, and they will create positive gains in our domestic margins.
Now, when we talk about transformation at UPS, there are really two internal areas that we're addressing, and it's virtually across the entire organization. First, transformation is an enabler to implement our strategic imperatives that Scott discussed, and second, the continued development of our global smart logistics network. Ultimately, these together lead to higher revenue per piece, strong growth, improved efficiency, and an enhanced competitive positioning, enabling us to better serve our customers. Together, we expect these actions to grow our business, improve productivity, generate additional jobs, as well as enhance our long-term returns. This cycle of success will continue to repeat itself. Transformation is uncovering opportunities which will strengthen revenue and drive profit in the U.S. and globally, and it will lead to higher levels of value creation for all stakeholders. Let's take a deeper dive into our transformation.
We have a well-defined framework and plans for execution, each of which complements and builds on the other. Let me briefly recap a few of the initiatives in front of us, as well as a few already underway. We are pursuing higher quality revenue growth in targeted markets, driving pricing to ensure UPS is appropriately compensated for the value of the solutions that Kate talked about and that we're delivering to our customers. We're leveraging the Voluntary Retirement Program or VRP, which helped us to reallocate resources to revenue-generating opportunities and reduce staffing expense by about $200 million annually. The net present value or return on this type of project is tremendous. Again, our procurement actions have already generated nearly $1 billion of improved free cash flow. We can expect additional cash flow benefits moving forward.
Some of the initiatives will result in near-term impact to the company, like the VRP, which will be at full run rate in the back half of 2019. Said another way, the full payback is around 18 months. Certain projects that address a single function or process will generate a quicker payback, while the effect of many of the initiatives that impact multiple functions or interdependent processes will take more time. Let's take a look at one example, procurement and global sourcing. The procurement team is working on executing new strategies on our annual spend of between $20 billion and $25 billion in commodities. The opportunity is great. Our plans are based on two simple objectives that are very powerful given the size and scale of UPS. First, centralization of procurement across the globe. Second, the application of best-in-class policies and practices across commodities.
In fact, approximately one-third of the bottom-line transformational benefits will come from procurement-related initiatives. These activities are extremely accretive. The remaining two-thirds of our transformational savings can be grouped into modernization and transformational categories that Scott discussed earlier, as well as the high-quality revenue growth that Kevin and Kate discussed. To be more specific, we are streamlining processes with technology. For example, we are early in the development of a new inception-to-billing process. Once completed, we'll deliver a more technology-enabled solution, resulting in better customer engagement and satisfaction. These investments will pave the way for a more efficient process and have a great payback in 2021 and beyond. We're also implementing transformational projects that further align span and control, as well as other initiatives that are structural and efficiency-driven in nature.
Now that we've reviewed a framework for executing transformation and explained how it will impact our business strategy, I'd like to bring it all together and discuss the financial goals. As part of the transformation journey we have established and will provide updates along the way over the next few years. Turning to our outlook, at our 2017 conference, we provided guidance for long-term EPS growth of 5%-10%. In that three-year guidance included the cost and the benefits and investments in the Smart Logistics Network. The initiatives we've covered today will significantly improve our financial performance and better position UPS. As David mentioned at the outset, we expect net savings from transformation to incrementally increase adjusted earnings per share in the range of $1-$1.20 by 2022. This is above and beyond our current long-term EPS guidance.
We further expect around two-thirds of the savings to directly benefit the U.S. domestic segment. An important takeaway from today is that all of our strategies are centered on actions within our control. This, combined with our current assumptions for external conditions, gives us great confidence in achieving our new targets and also the potential for upside. As transformation unfolds, we know we'll uncover even more opportunities for efficiency and revenue growth that could push the financial benefits beyond our current expectations, driving an even better tomorrow. Much like the VRP, we have other projects that have upfront costs, and when fully completed, will generate permanent savings. As a result, I can assure you of the strong and positive net present value for each of the initiatives that we're undertaking.
To realize these benefits, we expect non-core upfront transformation charges in the range of $550 million-$750 million over the period. As we develop and execute the initiatives that we have laid out, we anticipate transformation benefits to build incrementally across the time period. In the near term, we expect our bottom-line results to improve. The benefits of these actions will be partially offset by the planned headwinds from the continued deployment of the additional capabilities in our network that we laid out. The contributions from transformation will begin to layer in as initiatives are launched and take hold in the medium and long term. Let me give you a little more shaping based on our current plans. As a result of the number of projects that are being launched today and the associated investments, we anticipate a modest benefit in 2019.
The incremental gains set out for 2020 and the following two years hold the majority of the benefit. We are moving quickly to implement the initiatives and will give you updates along the way through our normal annual process as well as the quarterly updates. Transformation is a pivot point for UPS. It's about leadership, capabilities, and efficiency, all driving bottom-line results. We also expect capital expenses, as I previously announced, to remain 8.5%-10% of revenue for the next two years, then start to moderate down over time, returning to our long-term average of around 7%. We believe this level of capital is necessary to distance ourselves and remain the industry leader. It also positions us for our business in the future. The buildings we're building today are generational. They last from 20-40 years, and they're changing our network.
The combination of the benefits from the Smart Logistics Network investments and the multi-year transformation initiatives will continue to contribute to the best return on invested capital, which is between 23%-28% in our industry. This is the hallmark of UPS. It's a confirmation of the financial power of the integrated network. The integrated network that uses all products go into one network, and it's done efficiently and allows us to continue to deliver a high return on invested capital. In addition, our responsible approach to capital allocation does not change. We plan to continue to reward investors with the company's generous dividend policy. UPS has maintained or increased its dividends for nearly 50 years. Most recently, the dividend was increased almost 10% year-over-year. We expect the buyback program to remain at its current levels. As I conclude my remarks, UPS is innovating and leading our industry.
The transformation plans we discussed further differentiate our unique integrated business model and result in the right growth and EPS improvement. We're confident that UPS's continued financial hallmarks will remain: high dividend yields, strong cash flow, industry-leading ROIC, that will persist for many years to come. The future is bright for UPS as we are strong today. We're creating an even better tomorrow. Thank you.
Please welcome back UPS Chairman and Chief Executive Officer, David Abney.
Good morning again. Today, you've heard me and members of our impressive UPS leadership team discuss our business strategy and our enterprise-wide transformation. I'm optimistic about the future and excited by the quality and intensity of our team. I'm also confident in our vision for the company, our strategies to win, and commitments to enhance shareowner rewards. We are strong today, but we know that the pace of change requires that we create a better tomorrow. We're using a structured and disciplined transformation process to build a stronger foundation to energize our organization, re-examining and refreshing every part of our enterprise, from our processes and our technology to our network and to our culture. Transformation enables and accelerates our business strategy. We are already unleashing the creativity and the resources we need to build a UPS that moves faster, is nimbler, more productive, more customer-driven.
Through transformation, we're improving leverage and increasing the company's long-term earnings power. Clearly, our incremental EPS outlook proves our confidence. Confidence in our opportunities, confidence in our plans, and confidence in our execution. As we implement our business strategy, you'll see numerous benefits materialize to the efficiency of our highly automated operations, the revenue quality as we grow, our competitiveness in the marketplace, and in the improved returns we deliver to our shareowners. You also heard how we're building a culture of continuous transformation where the entire UPS family is diving in to execute our strategies. You heard about our strategic imperatives and how we'll execute on the rich opportunities we see in healthcare, e-commerce, international, and the small and mid-sized businesses who operate in these and many other industry segments.
How our solutions process creates a better experience for customers, better yields for UPS, and ultimately, better returns for our shareowners. You also learned about the added capacity, new technologies, and future innovations we're using to generate enhanced productivity and create more operating leverage. We also shared the go-forward strategy for our three operating segments and the work underway to build even tighter integration and to spread new ideas and innovations across each of these groups. Last, we shared the financial benefits of our transformation, which will fuel our continued success and strengthen shareowner rewards. As you know, UPS has faced many industry disruptions in our 111-year history. Each time, we pivoted and achieved new levels of success. This time is no different. We've achieved this remarkable success because of our strong culture, our dedicated people, and the power of our ever-expanding global network.
With our revitalized business strategy, tools and processes of transformation, significant investments in the network, plus the passion and ingenuity of UPSers around the world. We know UPS is strong today. We are confident in a better tomorrow. Thank you.
Ladies and gentlemen, the Q&A portion of this conference will begin after a 15-minute break.
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Ladies and gentlemen, please take your seats. The Q&A portion of the conference will begin in approximately three minutes.
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Ladies and gentlemen, please make your way to your seats. Our program is about to begin. Thank you.
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Welcome back for the conference Q&A session. We'll be taking questions from the audience. If you have a question, please raise your hand and we'll bring a microphone to you. Please welcome back to the stage all of today's presenters, and joining them, George Willis, President of US Domestic Operations, and Nando Cesarone, President of International.
Let's go.
Okay. Scott?
Let's see. I'll offer two questions if that's okay. First, just in terms of, maybe Richard, the transformation, the $1-$1.20, how much of that is revenue? How much is cost takeout? Just a rough sense of how we should think about that split. The second question is a lot of focus on SMB. I think of maybe increased leverage to large customers as a headwind the last, I don't know, 5 years, 10 years. Tell me if that's wrong, but I think that's been a headwind. Is this a reversal of that trend that you expect to achieve, or how optimistic are you on SMB initiatives? Thank you.
Okay. We'll start, Richard, you can answer the first part of that, and then the SMB side, that would be Kevin, and then Kate, if you want to jump in.
Can you hear me okay? Okay. The great majority of the EPS incremental improvement is around cost. It's about the cost initiatives like the VRP and some of the procurement, as well as the transformational and modernization initiatives that Scott talked about. There is some piece for the revenue and what we're doing on growth to your second part of the question, but we also see an upside based on some of the things that we've been talking about that would be on top of where we're at right now. We feel comfortable giving you the range we have, but we do think there's some additional initiatives that we're looking at, and we'll guide those along the way, which is what I had mentioned in the talk.
I think that is a good point. This is 2018, we're talking about 2022, and we have a lot of initiatives that are already baked, but it's not stopping there. We're continuing to look and continuing to develop and suspect that there will be upside that Richard referred. Let's talk a little bit about the SMB and start out for you, Kevin.
We are excited about the opportunities in SMB. When we look at the revenue per piece and the profit per piece, it's several times higher in the SMB segment versus the rest of our network. We're going to lean in on that effort, and that's why we called it out as one of our strategic imperatives. Our approach will be somewhat tactical, but also strategic. From a tactical standpoint, we're looking at how we're looking at analytics to price more effectively to improve our win rate as well as reduce our churn. We're also bringing out products that are specific to the SMB market, particularly with the emergence of B2B, in which SMBs are really trying to figure out how can they leverage this B2B e-commerce trend going forward and making sure that they can deliver in the timeframe in which these customers want.
With new offerings, new focus, new pricing actions, it will be an enterprise-wide approach, so it just won't be a marketing effort. It'll be in collaboration with sales. It'll be in collaboration with our customer experience. It'll be in collaboration with our operations group. We're very excited that we'll be able to complement the performance that we've done in large customers by bringing in a richer mix of these SMB clients. I think they're waiting for us to do that, and we're going to deliver on that.
Just adding to that, if you think about what Kevin just said, enhancing our value stack for the small, medium-sized businesses, it's going to be in areas that they've said are priorities in their decision-making. Also, we talked about the digitally-enabled technologies where we'll be able to reach more of them around the world, which will indeed impact our mix, and then fortify it so that it's a balanced and higher quality revenue. That is an outcome we're excited about. It is something that's going to resonate in the market.
Just one quick thing I want to add to that is, and you heard it today, but UPS My Choice for business. First, you got to remember that we have 51 million UPS My Choice members, right? UPS My Choice for business for these small and mid-size, especially the smaller companies, it's going to allow them to better dispatch, to know what they have coming in on a day-to-day basis. That is going to be a competitive advantage for us. That's just not something that is offered today. We're really excited about that upcoming offering. All right?
Great. It's Ken Hoexter from BofA Merrill. David, thanks for the update. Just looking to get a little bit more meat on the bone. Richard, I just want to understand, are you now targeting double-digit earnings, or do you stay at the 5%-10%? Is that just a 2018, 2019, the 5%-10%? How should we think about the billion three if I pre-tax the $1-$1.20 in terms of the timing and contribution? Then Kate, maybe just a little bit more specific thoughts on pricing. Is that a bigger hit here, or are you looking to focus more on getting pricing through this transformation?
Start with Richard.
Sure. The $1-$1.20 is incremental to the guidance that we've given you. As you well know, Ken, we've given guidance for a three-year period. Sometime going forward, we'll update you on that guidance, and at that time, we'll kind of try to put it all together. This is really about what we're doing in transformation, what it means as the transformation is completed, and gives you a way to understand what the benefit of the transformation is. We feel real good about the guidance that we've given you. There are specific initiatives, measures, but it's not going to be an even distribution, and we tried to talk about that both in the call, and as we guide 2019 in the fourth quarter, I'll give you a little bit more.
We are talking about a three-and-a-half-year time horizon, it's important to understand that there's going to be some bumpiness because different initiatives come in at different times. We have all that laid out, we are three and a half years out, we'll give the guidance. You now know at the end of transformation how it all comes together.
Just adding to the pricing component, as I mentioned, quality revenue, that is a yes on improved pricing practices. As we've seen, there's different changing characteristics. Some of the large is growing more online. We have better transparency to understand our costs and align our pricing with that. You saw mid-year Take Five pricing actions is a demonstration of what I'm talking about, that will continue. As we've talked about, both Kevin and I, the mix will change as well, fortifying that price to the market with small or medium-sized business as well as premium products throughout the other strategic imperatives.
I think Kate hit the point I was going to add. I think we have shown disciplined pricing in making sure that we have value offerings for our clients, and we get that value back in pricing. You've seen 3% or so base pricing increase over the last few years. Taking that and then participating in richer mixes, particularly the SMB space that Kate just referenced. Healthcare is another area in which clients, because of the criticality of these shipments being delivered on time, that's more of a value play versus a commodity play. We're going to participate in richer pools in addition to having some really good value exchange on our pricing, we'll definitely get the benefit of both of those.
When we talk about creating our tomorrow, that is not that it starts or you'll start to see it in 2022. Creating our tomorrow starts today. We have given you the view of how we see today. We're going to continue to look at initiatives and opportunities. You'll continue to get updates
This transformation is now, it is not years down the road. All right. Scott?
Hi. David Vernon from Bernstein. Richard, I'd like to just narrow back to the question Ken brought up a second ago around what you're saying around the longer-term EPS growth targets. It sounds like you're raising them, but you're not necessarily raising them in percentage terms. Can you just tell us in simple terms, guidance was 5%-10%, now it's going to be X to Y%? Then if you could also maybe talk a little bit about, kind of embedded within that guidance, what your expectations are for the domestic margins specifically over the next three years, and how the cadence of that should look. That's really what I think investors are trying to understand is, will this company get leverage to that e-commerce growth that is a structural driver for you? Thanks.
The short answer is yes, it will get leverage, and it's going to be built because of the smart logistics network that's embedded in the 5%-10% and the incremental $1-$1.20. At this point, we'll give you the 2019 when we get to that time. It's just not appropriate to start going there with that. We feel very comfortable that on top of what we've given you for long-term guidance, that the benefits from transformation are in addition to. We're going to put all that together. When we talk about 2019, we'll give you that in a more consolidated manner. We thought one of the important points here is that this $1-$1.20 is a destination, and it's going to have pieces in 2019, 2020, and 2021.
The shaping of it, as we mentioned in my talk, it's smaller in the first year because the investments we're making in things like the Inception to Billing Process and some of the other initiatives. We'll come back and give you how all of that comes together for 2019, ultimately, sometime in the future, we'll have to do the new three-year guidance just as we would do on a three-year cycle.
Okay.
Hey, thanks. Chris Wetherbee from Citi. Two questions. First on CapEx. I guess I just wanted to get a sense, Richard, if you could give us a little bit more specificity about the timing of coming back down to those long-term numbers. I think 7% is what you talked about. Is that 2022? What would be the drivers from the sort of elevated levels now to dropping down to that? The second one is on pricing. It sounds like there's a mixed story that you guys are talking about with healthcare and the SMBs, but e-com is really where the majority of the growth is coming from right now. What are your strategies on e-com pricing? Is there a step function we should be expecting this holiday or in the coming year or so? That seems like that's the biggest headwind right now.
Okay, Richard, you want to start the first one?
I think the first thing to remember on CapEx, it's about opportunity and growth. We have a slightly elevated CapEx today. We said it would be a three-year peak, that's because we are continuing to build buildings that are more efficient as we grow the business. The way it slopes down has to be balanced with what growth opportunities and returns we have. We know the building of facilities after the three years starts to come down. We're not ready to say that just because that's coming down, there won't be another opportunity that has bottom-line results. We do know and do expect it's coming down from the current levels that we've communicated. We've said that, and you'll see us do that. We're talking about three years out.
As the business changes, we talked about how fast the environment's changing and how we're changing not only the company, but the strategic imperatives that are aligned with that. As we get closer to that and the recognition of the tremendous value that we're creating, we'll give you where that finally settles. I can tell you that buildings and facilities are coming down after the 3-year peak.
All right.
I will address the pricing questions that you had as well as the mix. To start with the pricing, it is for all of the industries, and yes, as Kevin indicated already, showing the increases doing mid-year as well as going forward enhancing that. That, yes, quality growth is a priority and tied into transformation. E-commerce specifically, when I talk about large packages and big growing online, that is primarily e-commerce. Definitely, that's what we're focusing on most readily. We also, through our solutioning approach, we're looking to increase density. We have these synthetic density solutions Access Points. The more you can have on a destination, millennials are showing a large double-digit preference to having their package brought to another secure location, which is an Access Point, in short.
You're going to also see more profitability from some of those deliveries because of the density. Lastly, I would say with the e-commerce side of it, the two components that go hand in hand, many times people think about the residential, but about 22%, according to industry reports on apparel retailers, is returns. An Access Point is a drop-off by a consumer going the other way. You also get a high delivery, which lends to the profitability, and then premium products, cross-border trade within e-commerce. That's global trade. E-commerce is the one really exploding, and six to seven times GDP goes hand in hand with that, pricing tied to all of those components.
One other point, just to build on Kate. When we've talked about e-commerce before, we've thought primarily B2C. As I mentioned in the talk, we're seeing really the emergence of B2B e-commerce driven by SMB players. That has a different profile from a profitability standpoint. As we help these new SMB players figure this out, we'll be able to participate in a richer mix there. It'll be B2C and B2B. We'll make sure that the B2C that we participate in is good, healthy quality. The fact that we have an integrated network allows us to be able to play in both. We're optimistic from a combination of pricing and mix, it'll be accretive to our profitability in the future.
Okay.
Thanks. Right here to your right. Thanks. Deutsche Bank. I have one financial question, and then maybe one density question related to B2C. You have $5 billion of free cash flow guidance for this year. I think $1 billion of that is roughly the tax refunds associated with the pension contributions. Underlying, call it $4 billion. How much of that $1 billion of working capital efficiencies are in that number? As we progress from 2018 to 2019, should we expect a step function improvement in free cash flow just based on those working capital initiatives? Just, Richard, related to that, there's some service cost noise in the pension and the EBIT numbers. Excluding all that, should we expect domestic profits to be up on a year-over-year basis in 2018 and 2019? One density-related question, if I could.
A lot of the density discussions in B2C have revolved around efficiencies, pricing. We haven't actually talked about what can happen in terms of number of packages per stop over time. Today, one package per stop, are there things that we can do or you can do, whether it's Ware2Go and building synthetic density on the back end to actually, five years from now, raise that density to two packages per stop, just improve the unit economics significantly on the back of that? Thank you.
Richard, you start with the first part of that question, and then when we get to the density, there's a couple of you that I think could really step forward here. Scott and Kate.
Your first question around free cash flow. We expect that the actions that we're taking around procurement and working capital continue to improve working capital next year. Again, when we get to guiding you on 2019, we'll give you a little bit more on that. We expect, and we moved our free cash flow guidance to the top of our range last quarter, and that was really around actions that were being taken through transformation and procurement around EAM and just the techniques that you would expect. We have a very large spend of almost $25 billion in commodities, so we think we're going to see additional gains in 2019. In terms of service costs, I'm going to point you to the website on the actual pension change because we gave a pretty detailed presentation on that.
Remember, we are investing in both Saturday operations and expanding buildings that are in our guidance for 2018. That's part of what's going on in this year.
As we think about overall e-commerce, there's been quite a bit of discussion around it, we're talking about how the net average revenue per piece and the net average cost per piece start to move in a direction. There's three drivers of it. First, of course, is channel. We talked about healthcare. We talked about other areas where we can benefit in terms of the overall pricing action to recover, and then finally, just product and moving much more towards more premium product. Ware2Go actually is a process, so that's W-A-R, 2, GO.co for those of you who may have warehousing space. If you think about Ware2Go, that gives us an opportunity to actually, one, create the synthetic density to be able to reduce the cost per piece, but also it's a profitable revenue per piece.
If you think about small and medium-sized businesses, one of the challenges they have to compete is they have to get their product nearer to the consumer. They do not have the ability to create the infrastructure of distribution centers. Ware2Go is basically the Airbnb of the market, where there's a lot of ad hoc warehousing that can be tied up. That gives them the opportunity to access that. We get both an RPP improvement, but also CPP improvement.
From the density side of the house, I mentioned those 1,500 engineers. Their primary initiative is synthetic density, and I'll give you two highlights on the solutions that really help to drive this. The first, I mentioned Access Point. Even part of our peak strategy, we will change the allotment number for a customer if indeed they actually integrate Access Point as the delivery, which then makes it a multi-piece commercial stop. That's a benefit to them, a benefit to us, and it drives the density you're talking about. The other thing is synchronized delivery. We have a solution that actually syncs up in the virtual hold of their order, so in their order pipeline. It matches against the package level detail of all the other shippers going to, say, my home.
They may hold a package for a day virtually and then drop it to be fulfilled and then come, and that creates a two-piece stop. We've even expanded that service to now where it's proximity. Same cul-de-sac, one stop of the driver now delivering three packages, and we're seeing the difference there by the customer and going to continue further through transformation.
When you think of density, you automatically think of B2C, but we really believe that My Choice for business is going to drive additional density to B2B, too, which obviously more packages you deliver per business stop is certainly in our favor. Again, it's pricing. It is focused not only on B2C, but B2B, and we think that we have some excellent solutions there. Did you have something, Juan, you wanted to?
One more, David. From an operational technology perspective, we are constantly looking for ways to create that density. A great solution that we've been getting some great benefit from in terms of creating that density is our SurePost redirect solution, where before packages go out for delivery, we are.
--analyze all the data, and we determine where drivers are going to go to a stop anyway that is not SurePost. For us to be able to eliminate the cost associated with that SurePost delivery, we make that package available to our driver to complete that delivery and create that density. It's working really well for us.
If I could get this mic. Can you hear me? I'd like to add a point because from the foundation of the history of UPS, it's always been about running the most efficient, integrated network in the world. To be quite frank, I think we might be losing a little appreciation for what this capital investment is going to do for us in the next three years. That means that when you have an integrated network that doesn't have enough capacity, it doesn't function as well as it should. The economics don't come out the other end. You can see that in the financials. What's going to happen over the next three years as the capacity comes on, yes, as Juan would talk about, and Rich, 30-35% more independently in a building. No question about that.
We can see it, we can touch it, we have it now. What's the unknown piece to most people is the interdependent nature of what happens to your network when the efficiency comes. It is upside in the future, and I'm not putting a number to it. Rich will do that when the time and place comes, and we saw that in Europe. That's how the margins went. When the capacity comes, the integrated network performs. The other thing which we added air capacity this year was our air network needed capacity. They come together, and the efficiency becomes compounding. I think it's very important. Our job is to keep the cost low, as low as we can, and then get the right strike price for the right margins. We proved we could do that between 2012 and 2015. We kept the cost.
You can see it historically. Capacity got a little bit short. We're catching up now. Those economics will come forward, then the strike prices will become where they need to be as well. I don't think we should lose appreciation for that in an integrated network.
Thanks.
Thanks. It's Scott Group from Wolfe Research. I know there's been a bunch of questions already on price and mix, but maybe just a simpler version of those questions. Is the 3% pricing target changing? Are you assuming mix is positive or negative going forward? Just bigger picture as we think about the plan. Can you comment on where B2B margins are today versus B2C margins, and is the plan more about driving B2C margins higher, or is it more about refocusing on B2B growth and de-emphasizing B2C?
Okay. A lot of parts to that question. Let's make sure that we at least cover the main elements of it. Kate and Kevin, would you like to answer that?
Yeah, absolutely. On the pricing side of it, and as we've indicated, especially this year on the earnings calls, the 2%-3% is a false ceiling. We've moved away from that. We've demonstrated through the quarters, not only certain months above that pricing level, as well as midyear rate action. You are seeing a change trajectory with pricing during transformation, and as David says, that starts now. It's not tomorrow. That will also translate into our pricing strategies will drive mix to the benefit. We will be targeting aggressively the small, medium-sized businesses around the world. The premium product that comes with B2C and returns as well, again, within B2C is that hidden B2B on the return side of it. Each of those will be a difference and will show up in the pricing line.
The strategic imperatives we picked, the markets are markets that are growing and are richer. That will really dictate the investments that we make, the management focus we make, the talent that we apply to those areas. As I said earlier, the SMB space is a multiple of our revenue per piece versus the rest of our network, and even higher multiple profit per piece. In addition to having consistent base rates and holding that based on the value we deliver, as we penetrate more in these areas, healthcare, SMB, the B2B aspect of that, cross-border opportunities, that will get a lift from the mix and the base and will benefit from both of those.
Mike, I think I understand that. The last several years, mix has been negative for you guys. I am trying to understand if the guidance assumes that mix goes to a net positive or if it is just less of a negative going forward. That is really what I am getting at.
Again, the $1 to $1.20, the great majority of that really is about cost savings. There is a small piece for the growth in revenue volume, the upside here is tremendous. I think David said a minute ago, the $1 to the $1.20 isn't the ceiling. It is based on what we have on the plan right now and what we are implementing. Scott, through transformation in the TO office, has other things that we are looking at that could raise that. At this point, I think you can count that the $1 to the $1.20 we are very comfortable with some upside that we will give you as we go, just as the changes in the strategic imperatives are changing our target and our customers and the returns. We will give that to you as we implement and when it is the right time in the fourth quarter.
We have a lot of inquisitive people in the audience, we want to try to get to as many people as we can. We are going to ask you to kind of take it easy on the numbers parts of your question, because we just want to get to more people. If we could think about that.
Satish Chandral here.
Yeah.
I want to ask questions relating to e-commerce, which is driving a lot of change. Just as a matter of some numbers, the zone 2 short-haul deliveries have gone up by 100% in the last 15 years, while the long-haul packages have dropped by 40%. How are you transforming your network to handle the shorter haul volumes? Particularly zone 1, if you look at Amazon, seven billion packages a day are all delivered within 50 miles. How are you transforming your network and your facilities, Jim, in terms of handling packages that can be dropped off in Atlanta, in New York, for deliveries within here? For Kevin, you talked about delivery. I know it's a small matter, but you look at JD.com in China, they've got 65,000 people doing same-day delivery.
How are you positioned to handle same-day delivery at that scale a year or two years from now?
Okay. You're keeping the tradition of the multi parts of the question. We do have a lot of audience members, so we're going to have to answer the main parts of that. Let's start with talking about the network and Juan, either George or Jim, let's address that part of the question.
Absolutely. Thanks, Dave. A good question. From a network perspective, you heard us speak about the numbers of facilities that are coming online. Those facilities are well-positioned to support both modes or distance modes that we're talking about here. The example that I gave during the talk when we talked about the SMART facility, that facility is well set up to be able to process packages that come from longer zones, and also packages coming into or out of the Atlanta area, and serve those within the two-day territory with automated capacity. That strategy is going to provide great benefit for us, because associated with the automation itself, being able to bring those packages into these facilities will support not only those short duration timeframes, but also the longer ones at a much lower cost.
Let me add a point there, Satish. 50 years ago, when we started to come across the U.S., remember we had intrastate and interstate commerce regulation, right? We actually had intrastate rates, and we had interstate rates. We were in Texas together, George and I, a few weeks ago, what came before our eyes as we were in Willowbrook and some of the automated hubs is that, See, our network has always delivered zone 2 to zone 8, and the discussions that you're having now of zone 1 in that discussion. Automation can give you that. It's one of the things we're looking at. I would also, though, encourage you to think about our supply chain business and how it might deliver that. It is one of the initiatives we're analyzing right now to connect to that.
Some of the other ones we've talked about on the stage. It absolutely is. The world is demanding closer, faster, shorter, all that. Our Saturday product, there was an announcement by one of our competitors recently around here about Saturday. We've had the better Saturday product. We haven't fully leveraged it yet. We have that in one of the strategic imperatives as well under e-commerce. We realize we have to do more of the trajectory we're on. We also want to talk about Sunday around here as we go forward. There's lots of it that is under the analysis. Also remember that international can and will be the Petri dishes to test that to come home at the same time. I'll leave it at that on the stage today.
All right. One of the things Jim referred to on Saturday is a competitive advantage we have that we're the only carrier that's picking up on Saturday and delivering-
Monday
on Monday. We do believe that that is going to be more and more important to our customers, and it's one of the things that differentiates us from other carriers. All right?
Matt Russell from Goldman Sachs. Thanks for taking the question. Jim and George, can you elaborate a little bit on the strategy into this particular peak season?
I'll do this one
Were you suggesting that there is going to be a bit more focus on yield over growth in this peak? Then one for Richard, just on free cash flow. Should we expect the earnings growth that you laid out to convert to free cash flow at the same rate and over the same timeframe as your legacy earnings base?
Okay. Let's focus on the peak part of this, because we do have a lot of questions that we want to get to, and I think you've talked about free cash flow.
I like George.
George, why don't you talk about peak?
Sure. We feel really good about peak season 2018. We actually started planning for it the day after 2017. One of the reasons why we feel strong about it is looking at our capacity. You saw in Jim's slide where he talked about globally, we were adding 400,000 K of sorting capacity throughout the globe. 350,000 of that is in the U.S. network. Taking a look at our perceived super hubs, which are large regional facilities, we feel really strong about that. The other part that we were able to do is work with our customers. Through a collaboration of working with our customers, we have a strategy this year that we're working with our origin capacity.
What that means is, you heard Jim talk about that just a little bit, was in our origin capacity mode, that gives us an opportunity and with the maximum capacity of each one of those buildings, what they yield, to build to that. Then take the entire network, lay it out, and then there lies your capacity for your network. We're able to fully maximize that. With those things, working with our customers, and then able to optimize our network, we feel real strong about the most important part, and that's servicing our customers better year-over-year.
I would add two things to what George said. Number one
On the pricing piece, the last couple of quarters we've reported, you should have seen the lift. You have started to see the lift for the first time in a while, the way we look at it. That was linked to peak. Make no mistake about that. The other piece that's different this year is that Cyber Weekend, we're looking at completely differently, and our air network connected to it because that became the first step each year that we felt like we underperformed. We believe we have a very good plan going into cyber this time. That means you control the front end of the barbell and the back end. In the middle, you have great opportunity. You put those together, that's a big piece of the difference in peak. Pricing has already begun to manage that already as well.
All right. When you're talking about peak, you automatically jump to the U.S., We have a very fast-growing international business, There are some countries that peak in a fairly similar way to the U.S. Nando, quickly, just give us a rundown on peak internationally.
Yeah, sure. Internationally, obviously, 14 quarters in a row of double-digit growth profit, A lot of that being fueled by increased volume and services that we're offering customers that we've put out to market in the right way. In handling that, we've got a combination of alliances, partnerships, and also an asset-light model that allows us to scale up and scale down at peak season. In addition to that, we've invested 70% of the $2 billion five-year investment program in Europe, where peak really takes place in a small number of countries, Takes place similar to the U.S. That capacity is allowing us to deliver the service, the efficiency, and of course, translating into the bottom line with double-digit profit.
We feel like we're well-positioned also internationally from a peak season, as e-commerce also starts to evolve more and more in some of these core countries that we operate in.
From a technology standpoint, the investments that we're making on the smart logistics network are geared to also support better peak season execution, and I can give you a couple of examples. The types of technologies that we're building to make it easier for the seasonal workers to perform at better rates at UPS are certainly having a difference and will continue to have a difference in 2018. Tools to simplify the work in our buildings for temporary workers as well, and of course, better solutions to provide visibility to the entire network, both for our customers, and back to George's point, in the way that we model the overall capacity across the network. That iterative process continues to provide great value to us from a technology standpoint.
Sure.
Thanks. Allison Landry from Credit Suisse. Richard, during your remarks, you talked about flat cost per piece from 2013 to 2016, and if I'm not mistaken, I believe that includes fuel. Really, as we think about all the initiatives that you outlined today, how should we think about the cost per piece exclusive of fuel through 2020? 2022, sorry.
Actually, during my remarks, I talked about cost inflation under 1% because we were trying to adjust for the fuel change, because during that period, fuel did come down, so the reported was basically flat. We do see that with the improvements in the smart logistics network and bringing the transformation initiatives together, that our cost per piece goes back to more historical levels or below, depends on which year. Again, in 2019, we'll give you the 2019, and then when we do the three-year, we'll give you that as well. We do see cost reductions, which means unit cost coming down from what we've seen in growth rates and going back to more of historical growth rates.
Ben Hartford with Baird. Kate, you talked about doubling the customer experience, I am curious what role The UPS Store can play in that as these worlds are kind of blending together. Is there anything revolutionary that that strategy and your partnership with the franchisees can bring about, either through the scope of this transformation through 2022 or beyond?
Absolutely, thanks for the question. The UPS Store is exactly built into our strategy, especially with healthcare, high tech, and e-commerce. I will give you a quick example of one of the transformative solutions we have just released, that is a label-less return. It is a pin-based application that comes to a person's phone. If you do not have a printer, many millennials do not own printers, you just go to a UPS Store with your item, you finish out the shipment. The other thing we mentioned in Kevin's discussion was about consolidated returns through The UPS Store. We are actually doing a form of triage for the retailers and capturing different numbers that they need to streamline their returns process. We then save them money for efficiency, we are able to leverage that for more price.
The UPS Store is absolutely the heart of a lot of our solutioning and expected to go further, I am proud of the relationship that we have with the franchisees. It is very positive. Thank you.
Sure.
Thank you. Brandon Oglenski from Barclays. David, if I can unpack this a little bit, if we go back to the 2014 analyst meeting, we were talking about ORION 1.0 or maybe 2.0 at that point. Now we are at 3.0, we are talking about EDGE, hub automation, network planning, synchronized delivery. Yet, EBIT margins have been, let us call it roughly, not meeting expectations in the past four or five years. What is the postmortem of what happened in that period? Why does transformation now all of a sudden change the trajectory on profitability of the business? Should we be thinking, this comes back to Scott's question, is B2B mix more fundamental in the outlook? Is that going to stop declining?
Is it just been the investment cost and the headwinds that Richard's been telling about, Saturday delivery, new facilities, that is really masking underlying improvement that maybe we haven't been able to see?
Okay. Again, a lot of pieces to that were answered, the main pieces. I'll start it, then, Juan, I'm going to go to you a little bit about the EDGE and the other technologies. We'll start with ORION. We always knew ORION was going to be developmental. It was going to start, and now we are most excited, and we've been talking about ORION 3.0 for quite a while, to where it is dynamic and it is navigational. We do believe that we're going to get another big hit in that initiative. When I say another big hit for efficiency gains. It's a very important part of our strategy, as are all of those technologies that we've been talking about with the smart logistics network. You want to talk a little bit more about that, then, Scott?
Absolutely. ORION 2.0 has had demonstrated benefits to UPS. We see it every single day. The benefit of ORION was multifaceted. Part of that benefit came from a reduction in miles. Every single day, we see the difference between running a route without ORION or running a route with ORION. Those benefits have been quantified in excess of six miles per driver, which, of course, turn into financial return to the company. ORION 3.0, and the reason why we're so excited about that technology, is because it also has the potential to continue to help us improve the efficiency on the route and reduce those miles. The other technologies that you mentioned now start changing the focus from the on-road operational side of UPS and putting more focus on the way that we run our facilities inside the four walls.
Those technologies will now provide better visibility to our supervisors for them to make decisions in how they manage those operations in more real-time, more proactively, and of course, help us improve the overall productivity of the people that are in our facilities. We believe that that technology will have huge impact in the organization. Lastly, you mentioned NPT. Think about NPT as ORION, but now for a broader, wider network. Now the technologies that we will be releasing soon here, the first release of NPT, will give us unprecedented visibility to how the network runs and where we may have opportunities to continue to improve the efficiency of the network as a whole.
I think you just have to remember that it's an overall picture. We do not feel that any of these technologies have been disappointed. We've been very happy with ORION in particular. We think this new version will be even better. There were also other things that were going on in the U.S. operation, such as the number of buildings that we've added, adding the Saturday service, and others, that overall could have masked some of the benefit from ORION and some of these technologies, but it doesn't mean that they were not there. Scott, you had something you wanted to
The crux of your question is what's different this time? I've been about a year in, and what I could tell you is, this is an enterprise-wide effort that has brought in a programmatic discipline that is world-class. As you think through the 4 steps of the process of level 1 of ideation, then you go through due diligence, then you go through roadmap, and finally, you begin to implement. Cost and growth. On the cost side, technology is changing our customers, and it's changing us, and it's allowing us an opportunity to leverage technology and reduce our costs. On growth and opportunity to leverage growth to be able to use up that capacity. When David announced the $1 to $1.20 that Rich unpacked, that's not a budget that we're trying to achieve. That is our level for today.
There is upside opportunity when you look at L2 and L3. It is the ability of the organization through new talent and cultures that we talk to be able to start to build the strength to be able to implement those as we go through each quarter and as we go over the next couple of years. It really is different in terms of the approach that we're taking very systematically within the company.
Just a question on the International business, actually. How sustainable are the margins that you're producing in that business right now and the double-digit growth that we have experienced in the last few years, especially in the context where one of your competitor will probably be in a stronger fighting shape potentially in the next 12-18 months?
All right. I will address especially the end of that remark, then I'll turn it over to Nando. Where our focus is, we've got this unmatched network in Europe especially, and it is getting stronger, not weaker, and we're seeing more and more gains. We're in the peak part of that cycle, and we think that cycle is going to continue for quite a while. I don't believe that there's someone else that's catching up and someone is going to interfere with the progress we make. We just have an unmatched value proposition there. We see that value proposition getting stronger. Now you have to prove me right, Nando, why don't you take it up from there?
Just a couple of points on that. One, we have very strong discipline on our pricing metrics in international, so we stay very close to the value that we're creating, and we continue to provide more value by generating new services that are compelling to those customers. Two, we run, in some regards, a very asset-light network that allows us to make sure we keep our costs at bay and we remain competitive while we're producing those services. A good example in Europe, for example, if you want to talk about our service offering or the value we're creating, we're actually the fastest on the ground throughout Europe. We deliver 80% of the population in two days or less. That was in anticipation in making sure we close the door on any competitor that wanted to infringe on that.
Obviously, we're the fastest carrier on the ground, and that's generating, again, with the combination of My Choice, Access Point, new service offerings, and the speed at which we're delivering internationally, we have some pretty good momentum. Just one other example, when you look at China, we're early stages with a joint venture in SF Express. That's China's largest domestic player. That's allowing us to reach 331 additional cities, middle markets, small customers, and they've got 13,000 Access Point to plug into our integrated network throughout the world. We feel pretty bullish on what we're creating and how we move forward. In spite of what the competition may think they're going to come with, I think we keep a very close eye, and we want to stay two or three steps ahead.
Let me add two points to it. Number one, we spend a lot of time in Europe, obviously, in these discussions. I'll make a point about Europe and then another point, which is, we've got 26,000 UPSers over there that stuck this out through 1996 and the relaunch of our portfolio. Our network now against, quite frankly, in my mind, any merged network, I wouldn't trade for all the money in the world. It's a perfect hybrid network that's going to do just fine against any competition that comes, in our opinion, because we're ahead of them. By the way, when you're in these countries, you're already having three competitors when you walk in the door. It's not like you don't have the, "Oh, gosh, there's a competitor now." There's about 50 of them over there. We do just fine.
You let your mind's eye go where you want it to go in time. With international, it's not just Europe. Nando had the joint venture. Canada, great guns for us. Mexico, Vietnam, Southeast Asia. That's been going on the last four, five, six years because David asked us when he took the helm to move this thing to a different place. Stop depending on a couple core countries. That's what's been going on. At the end, the last statement I'll say is, we're in 220 countries. The infantry of our machine, the ground force, is in about 10 in the world. You do the math. How far do you think in the future we can keep growing if we put the right models in on the ground to capture e-commerce against the competition that we've proven we can beat?
I think it's a pretty good horizon for UPS, quite frankly, international. Domestic, too, don't worry.
All right. I'm going to embarrass a couple of these guys, the reason that we have Jim now as the Chief Operating Officer is I believe that a lot of the fundamentals that he learned in the international part of our business, even though he had a strong domestic background before that, we left him there long enough to where he certainly picked up on the international perspective. I believe there's going to be a lot of synergies coming back to the U.S., as Jim talked about a little bit in his speech. Nando is the first person that we've ever had run international as International President, that his entire career has been international and in most all major areas, and that is also reflective of most of the leaders that we have in our international business. It's just a growth engine.
We're not worried about somebody catching up. We're focused on charging forward. All right? Okay, I'm getting a signal from Scott that says we're running out of time. There will be a time during lunch, I will warn any of the newcomers on the management committee, if you have not had lunch with this group, don't plan on doing a lot of eating. You're going to get a lot of questions, and you're going to be answering. We encourage that's why we have various members of the management committee assigned to your table so that we can continue that conversation. I am going to just wrap it up for a couple of minutes.
I do not necessarily like speaking from a podium, but also, as short as this stage is, I'm really not comfortable about the view that the management committee would have if I step in front of them and start talking to you. I will stay here at the podium. I had several objectives in mind for this meeting. One was to share my vision that UPS will even better connect our global community through our smart logistics network. I believe that has been communicated several times today. How we're going to differentiate our transformation and our business strategies, and show how our business strategies align with these mega trends and market opportunities. To lay out our strategy to shift our customer and revenue mix to support our targeted growth and enhanced margin objectives.
To show how we will match future higher quality revenue to our expanded capacity, to our new technology, and a more efficient cost base. To introduce you to the new UPS leadership team that will be driving this strategy forward. Of course, this is the majority of our team. I think we've already recognized that Norm Brothers and Teri are here in the audience, that completes the team. Finally, to show how transformation, our business strategies, and our leadership and the leadership of our people are shifting our culture to a mindset that embraces continuous transformation. I view this morning's discussion and commitments as important milestones. We delivered a lot of information. We quantified the incremental impact, and it is the incremental impact of our initiatives on adjusted EPS. Strong proof that these plans will contribute meaningfully to our improved financial performance.
We've taken a confident step forward to show you that our transformation and business strategy is rooted in achievable plans that are already generating new value that will continue for years to come. I am confident that UPS is strong today, and through these actions, we are creating a better tomorrow. A better tomorrow for our customers, for our employees, and for our shareowners. Thank you again for your participation today. Thank you.