Good morning, everyone. And 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. And 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 our diverse and global company.
In a nutshell, we are here to make you much better informed 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 shareowners. As a reminder, today's presentations are being webcast 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 Gutman Chief Engineering and Information Officer, Juan Perez Chief Operating Officer, Jim Barber and Chief Financial Officer, Richard Peritz. 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 Cicero, President of UPS International and Terry Palmer McClure, Chief Human Resource Officer and Senior Vice President of Labor. After our prepared remarks, we will take a short break and then move into the Q and A session.
Following the Q and A session, we will conclude the webcast and adjourn for lunch. We have a great program for you. So let's get started.
Certainties are described in detail in our 2017 Form 10 ks 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.
A good strong morning, everyone. You know, 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. So 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 and our expectations going forward. We know the timing of this conference is a little different, and we are 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 megatrends that offer the highest quality 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.
2nd, strong balanced growth in revenue and EPS for our continued investment in our International and supply chain and freight business units. And 3rd, greater market differentiation via continuous 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 ROIC 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 3 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 were opening almost 7 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. And 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' position as the fastest, most technology enabled and most responsive company in the industry. Through growth, increased efficiency and reinvigorated culture, we are talking 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 of freight shipments, connects more than 2.5000000 businesses in more than 220 countries and territories with 10.5000000 consumers, businesses and other kinds of needs. And 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 4 strategic imperatives, which you will learn about in greater detail today.
First, the continued development of high growth international markets. 2nd, profitable expansion through both B2B and B2C e Commerce. 3rd, further penetration of the healthcare and life sciences market. And 4th, 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 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're here 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 1 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. 1, we'll 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. And 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 multiyear plan that's already begun delivering benefits. And 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. And some of the proceeds will be used to provide additional value to our shareowners. The new transformation initiatives we will talk about today incrementally increase adjusted earnings per share between $1 $1.20 by 20 22. This is a strong indication transformation and also the significant impact on UPS's earning power.
I am confident what you'll see over the coming years is that 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.
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. So 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, And 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 3 areas. The first, pursuing the best market opportunities for high quality revenue growth. 2nd, to drive efficiency and cost efficiency to enhance margins.
And 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 6 months, UPS took a deep dive into the megatrends that will affect us and the industry for the next 5 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 $800,000,000,000 last year.
Even in a mature economy, we project the U. S. Package market to grow by 40% from 2017 to 2022. And outside the U. S, there are many markets that will grow even faster.
So the identification of targeted higher quality growth areas led to our focus on 4 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 and we will continue to focus on Asia, Europe and other markets where we see importexport market share opportunities, a maturing middle class as well as above average GDP growth rates. We expect growth in 3 areas: Worldwide Express Packages, a core part of our business today Intercontinental or transborder package services and in domestic package services in selected markets.
The global package market is on track to grow from $300,000,000,000 to $480,000,000,000 by 2022, with roughly 2 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. Now, 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, but 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 51,000,000 members.
This allows merchants 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 Accent point locations as well our technology based solutions. We will drive further efficiency and higher revenue per piece.
But 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 3rd 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 lifesaving medications to the developing home care services industry. In the U. S, health care spending represented 18% of the U. S. Economy in 2017.
The global outsourced healthcare logistics market is projected to grow from more than $85,000,000,000 in 2017 to $105,000,000,000 in 2021, with growth rates in Asia and EMEA predicted to be even higher than in the U. S. We have continued to expand our global footprint of health 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 market 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 and this integration of the 2 has created many customer acquisition opportunities. Kevin will detail more of this during his presentation. Our 4th 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 Where To Go 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 5,000,000,000 packages a year. The combination of our global footprint, our smart logistics network, our collective capabilities derived from different business units and our talented UPS' represents a powerful competitive strength.
We see an opportunity to allocate disproportionate investment levels in our 4 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. And 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 Q2.
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 pre existing eligibility that created several 100 career development moves across the company as well a significant reduction in our operating savings and cost avoidance, which is funding our initial programs of further modernizing our back office processes. The speed and technological advancement represents a significant opportunity for UPS to leverage its scale in achieving world class cost performance and 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 driven 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 were 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. 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 UPS'ers 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.
And 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 and 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. So 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' 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 4 strategic growth imperatives and they will receive the lion's share of management focus and company resources going forward.
Healthcare and life sciences and small health care 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 health Care and Life Sciences sector. Today, the worldwide outsourced health Care Logistics Industry is an $85,000,000,000 market on pace to reach $105,000,000,000 by 2021. UPS operates a sizable health care 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 health care strategy. 1 of the most attractive trends in this industry is home health, which is rapidly emerging due to personalized medicines and digitally connected health care services. UPS is trusted on the doorsteps of homes and businesses nationwide. And our vast network augmented by specialized health care distribution facilities and special packaging, enhanced tracking and visibility and time definite delivery, puts UPS at the heart of the home health trend.
Further, expertise in navigating complex global health care 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 Markin's capabilities with UPS' 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 Markin with a hybrid transportation solution that leverages the scale and speed of the UPS network.
Powered by the strength and support of UPS, Markit is now the leader in direct to patient and direct from patient services. We're also investing in our core health care quality assurance capabilities, especially differentiated visibility and control solutions. A great example is our UPS proactive response service for critical health care shippers that includes unique labeling, enhanced visibility and a dedicated control tower that ensures special healthcare packages get the priority handling they deserve. 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, but 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. And 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 14,000,000 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.
Furthermore, we are 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 Where to Go 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 4th 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 and merchants can now sell across the globe from a single location and UPS is right in the center of it. The strong demand for B2C delivery is already apparent. But 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 point $2,000,000,000,000 in gross merchandise sales and 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 3 years. UPS has already invested in e commerce with experience, knowledge and a vast global network. We were the 1st to market with UPS My Choice and today, our community has grown to 51,000,000 users. That's about 5 times the size of our nearest competitor, and 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 from programs like our Customer Technology Partnership, 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 and 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 for participating customers by offering a convenient drop off location and immediate credit card reimbursement for consumers.
And we bundled several return 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. And 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 Lymph 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.
Thank you, and good morning, everyone. You've heard about our vision, our investment in new technology and efficiency and the 4 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 to strong today as we create our tomorrow. We begin with our best in class sales organization.
These are dedicated professionals around the world who are in front of 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 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 share owners. 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 engagement 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 multistep process. Here's how it works.
1st, 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. And 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. And then we finally design and implement the solutions. And this is where the magic happens. Our 1500 customer facing supply chain engineers and project managers apply the expertise they've gained over decades to design and implement high impact solutions. And 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. And 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 They invest their resources to work with us because we find savings for our customers in areas of inefficiency throughout their global supply chain.
And 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, And that's how we work. And 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% to 30% cost reduction when they employ 1 or more of our solutions.
And 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. So 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 10x more than those with comparable customers who don't use our solutions. And the growth comes across the portfolio. So 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 and 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 sized medium 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 5 years, Global Customer Solutions working with sales has collaborated with more than 100,000 B2B and B2C customers. Over the next 5 years, through transformation, we will nearly double these engagements, reaching small and medium sized businesses more extensively through digital platforms. But let me bring the impact to life by highlighting how we've helped one of our smaller customers who is looking to expand their business globally.
A New York based retailer has 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 lag. 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.
So our team recommended using our Iparcel 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 9 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.
1st, 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 My Choice. Now our customers' 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. And 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 4 strategic imperatives and reach even more businesses with digitally enabled solutions. So 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 UPF. And 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 share owners 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. But every answer starts with a question. And 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 makeup trends like personalized health care and also supporting them in emerging markets with growth. We're helping them by doing many different things. And 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, and we also formed the Advanced Technology Group.
This structure has actually reduced the complexity in our processes and has improved the speed of implementation. And let me share with you the progress we've made since then on 2 of the big goals that are supported by technology. 1st, enhancing our operations, staple of what we do with technology at UPS and 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' 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. And 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 2 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 4 key areas. The first one, network planning and optimization. The second one is operations management and execution.
3rd, continues to be route optimization. And lastly, the support of mobility. These 4 smart logistics network improvements and these initiatives are on track to generate the $800,000,000 to $1,000,000,000 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 of our more than 1500 facilities and 230,000 vehicles and trailers. Operations Management and Execution is the 2nd 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. And 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 are supervisors in turn used to execute daily operating plans, the tasks that they're responsible for, including trading 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.
And 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 3 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. Now when I speak in other forums after explaining Orion, sometimes I hear, well, so tell me what's the big deal? I can do that in my car.
Well, 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, 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. So unlike conventional navigation, it will drive it would route drivers to the loading dock or other preferred drop off locations, not the main lobby or the front door. Now when we combine Orion's diet navigation with Orion, our drivers will have the best suite of route optimization and navigation technologies in the industry. The 4th operational focus area for enhancing our network is mobility.
We're in the process of developing the next generation driver handheld or diode 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 dyad will also help us reduce training time and 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 our operational technology, which is automating our facilities.
We have a very active and very successful R and 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 3 to 5 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, 7 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 attains 30% to 35% productivity improvements versus a comparably sized manual stored 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' history. And we will continue to add capacity at near this pace 2019 2020. As we finalize the current construction and renovation of our network projects by 2022, we will attain near 100 percent of eligible U.
S. Volume processed using these new highly automated facilities. And 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 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 200,000,000 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. And the recently announced My Choice deals presents to members special discounted offers on merchandise and services using the power of UPS. So you may be sitting there and thinking what is next.
Well, earlier in my remarks, I mentioned our Advanced Technology Group. And 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 3 to 5 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. And 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 ATGs 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.
And 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 And of course, blockchain. We're working with leading experts in blockchain applications to streamline complex multiparty data flows. We see the potential application across many areas in our business, but 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 things.
Blockchain is increasing the transparency and the efficiency of data sharing among carriers, brokers, consumers, vendors and other supply chain stakeholders. And 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 get go using advanced analytics to prepare UPS for the future. And 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 Mike on back there? Perfect. Good morning, everyone. Thanks, Juan.
And 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 and A after we're done. To open with, I think it would 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, and we'll talk more about that. 2nd, maintain the momentum in the International segment that you've heard for the last couple of years. And continue finally to optimize and connect our supply chain to the Express businesses across the globe.
That's the reason we're in that 3rd 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 the really best pieces of this business. Oftentimes, it may come from Europe. 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 will see more about that. Kevin talked a bit about that as well as Kate. And really some creative partnership approaches that you have already heard about, but you will 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 Cicerone 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 and 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 jump start an improvement trajectory where we need additional focus. In my remarks this morning, I'll take you through the forward strategy across the 3 operating segments and link back together the transformation and how we'll link all the segments together. We'll also pick up some back and forth obviously in the Q and 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.
And as I said 5 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 5 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.
But 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 And then pay back the efficiency investment on a lot of the capital we 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. And we'll talk a lot about the U. S. Today, but 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 we 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. But 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, but 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. 350,000,000 Chinese middle class that will come to bear. It will come and we will be part of that and we will grow our business and our profits and economics will go. So we'll continue to diversify investments. But the U.
S. Business will continue to grow. We realize we have to keep moving this core but 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 can innovate outside the U. S.
Easier, lot less risk, lot more nimble, a lot different operating models you can put into play. And 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, but 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, take you to the country of Ireland, 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. So 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 and bring it into.
We'll merge together with it. Things like My Choice and the other e commerce segments we talked about today. And we'll figure out where that belongs in other countries in the world. Keyala did that for us as well. When I was in Belgium, we bought Keyala.
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 because we're still in the early days, but 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's here, it's now, you can do the math. But there's much more here across the globe in the years to come you're 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. So that goal becomes pretty simple. Get them to go together, shift the market forces will shift. We'll talk about that, I'm sure, in the Q and A. And meet the needs of buyers and sellers that we haven't met before in the past.
The world is a big place, and we are only 111 years old. There's a lot more to come from UPS. And it's 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's no question about that. So 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've 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. Don't forget we also have service partners across the world, a little bit different than the U. S. It provides us a very different operating model.
So the international package business for us at UPS, we're very bullish on it. We'll 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've heard about, and it will continue to expand. And I see it really as limitless. The core international strategies specifically, some of them you've 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've heard about the lift and the connectivity to the global network, obviously. You've got population trends, you've got migration trends going on. We started to move deeper into places like Southeast Asia now, into the Middle East and other regions, and we're connecting this. We talk about the smart network, it's connecting the globe very differently. Recently, you would have seen the announcement of the 747-8s.
They're coming in as we speak. We'll talk more about that. We've got about 9 of them in at the end of this year, 16% more efficient than the 4s. So far, they're actually operating better than we planned because sometimes they're a new model and bringing them in, you have to make sure they fit properly and they've done beautifully for us. They really have given us the extra capacity we've needed in these big trade lanes and they also allow us to come back and bring more lift into the U.
S. Because it's 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 2 things. We the Dubai Expo 2020 on the back of a couple of our very successful Olympic supports across the world. Dubai Expo 2020 is a big one. There will be more visitors there than many of these Olympic Games. So we're the official, if you will, supplier to them.
And then we this year launched the direct flight from Louisville to Dubai. So we've got a 74 flying direct, picked up a day of 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 and 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, Lumen, some good sizable cities in Europe. Eindhoven has been a big one for us as well. Eindhoven will come on this year as well. So 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. But our $2,000,000,000 investment we've talked to you as a group about in the past is making us grow faster and become more efficient, and 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 talked about deepening and widening initiatives. And 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 is a single market across border, only 5 percent of those small businesses cross the border. In the U. S, it's only 1% according to studies still to 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. So what can we do to help them move out across the world? And that's what we're talking about today. So our portfolio, the opportunities we talk about, this is a segment for 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 47-8s 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 pull back up to 5 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, deliver it. 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.
So really, 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 in international. And 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 2.5 years ago. We talked about it a couple of times collectively on earnings calls. But the last three quarters, if you pay attention to the supply chain, it's started to move. The numbers have started to move. They'll continue to move.
3 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 get 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.
And customer experience was 2 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. It's been 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 assets now in Coyote.
They are expanding. We had the Freight X 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 we bought them in 2015. And I will tell you they've almost doubled since that time.
So it's a great tool. We now have 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 health care.
We're doing well there. We focus on health care still, aerospace, some of those industries. But I would also tell you in some of the discussions we've had today, you won't talk too much about it today. I think our distribution has great upside. The basically an Uber model that can grow.
So logistics will you'll hear more about that in basically an Uber model that can grow. So logistics will you'll hear more about that in the years to come. So 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.
So 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 5 months.
It is a different 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 and 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, 200 and 60,000 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 a ratification vote to come forward early October, so we're not far away. We hope that's the time frame. 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. But 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. And 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, you have to 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 has talked about that. Packages are getting bigger and smaller at the same time. We need to do much better. What needs 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 2.
This is just not a retail network. Number of steps we have to take there. We've talked about health care 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. And we believe this peak will be a better peak for everyone, customers and UPS' employees. So in summary, at peak season, numerous planning improvements this year. We believe we can do service, service, service, financials, financials, financials and have a great peak season in 2018. But it will never be perfect, we will continue to get it better every year as we are supposed to.
So this U. S. Domestic segment, to be quite frank, 5 months into it, 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 some of these brand new buildings, a smart hub in Atlanta, Salt Lake, West Coast in Ontario, boy, this is an invigorated UPS right now. It comes in step changes, and we're in the first step change.
But 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. It didn't come.
Had to catch up. Here comes $2,000,000,000 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 networks 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.
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. And 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% to 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 3 of the pieces. We've got Atlanta done effectively, launching now as we're standing here. So Lake, Dallas, Indianapolis and Phoenix, good size.
Northeast, we've got yet to go. But we're it really is coming at a time that we need it to that links to this transformation. And we won't talk about everything it will bring us today, but the future is bright. Turning back, if you will, to the aircraft. As I said, 9 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 2020, a third more, if you will, lift. And £10,000,000 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. So 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 4 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. And the financials will come. There's no question about it.
We've all talked about being strong today and creating our tomorrow. And that is what we're going to do. I look forward to the Q and A back and forth with myself and the partners. And again, I appreciate you coming and hope you had a great day so far. Thank you.
Thank you, and 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're measuring them to ensure success. This allows UPS to reinvest in the business to generate high quality growth by leveraging our network scale and differentiated products to better serve our customers and outpace our competitors.
As early 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 strongest 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 helped offset cost pressures between 2013 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. And 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' digital expansion described by Juan will make our business model smarter and much more efficient. And 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 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. And we have taken 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 $1,000,000,000 in incremental cash flow to prove it. And 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 $700,000,000 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 and 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 2 internal areas that we're addressing, and it's virtually across the entire organization.
1st, 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 $200,000,000 annually. The net present value or return on this type of project is tremendous. And again, our procurement actions have already generated nearly $1,000,000,000 of improved free cash flow. And we can expect additional cash flow benefits moving forward.
Some of the initiatives will result in near term impact of the company, like the VRP, which will be at full run rate in the back half of twenty nineteen. Or 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 independent process 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 $20,000,000,000 $25,000,000,000 in commodities. The opportunity is great. Our plans are based on 2 simple objectives that are very powerful given the size and scale of UPS. 1st, centralization of procurement across the globe and second, the application of best in class policies and practices across commodities. In fact, approximately 1 third of the bottom line transformational benefits will come from procurement related initiatives.
These activities are extremely accretive. The remaining 2 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, I will provide updates along the way over the next few years. But turning to our outlook.
At our 2017 conference, we provided guidance for long term EPS growth of 5% to 10%. In that 3 year guidance included the cost and the benefits and investments in the Smart Logistics network. 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 to $1.20 by 2022. This is above and beyond our current long term EPS guidance.
We further expect around 2 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 expectation, driving an even better tomorrow. Much like the VRP, we have other projects that have upfront cost and when fully completed would 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 $550,000,000 to $750,000,000 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. But 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 up for 2020 and the following 2 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, importantly, 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 they previously announced, to remain 8.5% to 10% of revenue for the next 2 years and then start to moderate down over time, returning to our long term average of around 6%, 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 to 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, and 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 discuss further differentiate our unique integrated business model and results in the right growth and EPS improvement. And we're confident that UPS' continued financial hallmarks will remain.
High dividend yields, strong cash flow, interestingly, ROIC and that will persist for many years to come. The future is bright for UPS as we are strong today and we're great and even better tomorrow. Thank you.
Please welcome back UPS Chairman and Chief Executive Officer, David Abney.
So 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 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 predictive, 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 share owners. 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 midsize businesses who operate in these and many other industry segments and how our solutions process creates a better experience for customers, better yields for UPS and ultimately better returns for our shareholders. 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 3 operating segments and the work underway to build even tighter integration and to spread new ideas and innovations across each of these groups.
And last, we shared the financial benefits of our transformation, which will fuel our continued success and strengthen Share Owner 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 UPS' around the world.
We know UPS is strong today, and we are confident in a better tomorrow. Thank you.
Ladies and gentlemen, the Q and A portion of this conference will begin after a 15 minute break. Ladies and gentlemen, please take
your seats.
The Q and A portion of the conference will begin in approximately 3 minutes.
Gentlemen,
Welcome back for the conference Q and 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. Now please welcome back to the stage all of today's presenters and joining them George Willis, President of UPS Domestic Operations and Nando Cicerone, President of International.
Scott?
I'll offer 2 questions, if that's okay. So first, just in terms of maybe Richard, the transformation, the dollar to $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? And the second question is a lot of focus on SMB.
I think of maybe increased leverage to large customers as a headwind in the last, I don't know, 5 years, 10 years. And so that could 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 the S and B initiatives?
Thank you.
Okay. So 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.
So the great majority can you hear me okay? Okay. The great majority of the 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 and 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.
And 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.
But let's talk a little bit about SMB and start out for you, Kevin.
So 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. So we're going to lean in on effort, and that's why we call it out as one of our strategic imperatives. And 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.
But we're also bringing out products that are specific to this 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 time frame in which these customers want. So 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 will be in collaboration with sales. It will be in collaboration with our customer experience.
It will 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. And I think they're waiting for us to do that, and we're going to deliver on that.
So 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 set our priorities in their decision making. But 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. So 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 My Choice for Business. First, you got to remember that we have 51,000,000 My Choice members, right? But My Choice for Business for these small and midsize, 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.
So 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% to 10%? Is that just a 2018, 2019, the 5% to 10%? And how should we think about the $1,300,000,000 if I pretax the $1,000,000 to $1,200,000 in terms of the timing and contribution? And then Kate, maybe just a little bit more specific thoughts on pricing.
Is that a bigger hit here? Are you looking to focus more on getting pricing through this transformation? Start
with Virtu? Sure.
So the $1 to $1.20 is incremental to the guidance that we've given you. As you all know, Ken, we've given guidance for a 3 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. But 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 Q4, I'll give you a little bit more. But we are talking about a 3.5 year time horizon. So 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, but we are 3.5 years out, so we'll give the guidance. But we now know at the end of transformation what how it all comes together.
And then just adding to the pricing component, as I mentioned, quality revenue, that is, yes, on improved pricing practices. As we've seen, there's different changing characteristics. Some of the large packages are large is growing more online. And we have better transparency to understand our costs and align our pricing with that. You saw us mid year take 5 pricing actions is a demonstration of what I'm talking about.
And that will continue. And then 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. And you've seen a 3% or so base pricing increase over the last few years. But then taking that and then participating in richer mixes, particularly the SMB space that Kate just referenced, healthcare is another area which clients because of the criticality of these shipments being delivered on time, that's more of a value play versus a commodity play. So we're going to participate in richer pools, in addition to having, some really good value exchange on our pricing.
And we'll definitely get the benefit of both of those.
So 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. And we have given you the view of how we see today. We're going to continue to look at initiatives and opportunities and you continue to get updates. But this transformation is now, it is not years down the road.
All right, Scott?
Hi, David Brennan from Bernstein. Richard, I'd like to kind of just kind of 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 sort of simple terms guidance was 5% to 10%, now it's going to be X% to Y%. And then if you could also maybe talk a little bit about kind of embedded within that guidance, what your expectations are for the domestic margin specifically over the next 3 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. So the answer 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 to $10 and the incremental dollar to $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 too. And so we're going to put all that together when we talk about 2019, we'll give you that in a more consolidated manner.
But we thought one of the important points here is that this $1 to $1.20 is a destination, and it's going to have pieces in 2019, 2020 2021. And so the shaping of it, as we mentioned in my talk, it's smaller in the 1st year because the investments we're making in things like the inception to billing process and some of the other initiatives. And we'll come back and give you how all of that comes together for 'nineteen. And then ultimately, sometime in the future, we'll have to do the new 3 year guidance just as we would do on a 3 year cycle.
Okay.
Chris Wetherbee from Citi. Two questions. First on CapEx. I guess I just wanted to get a sense, Richard, if you 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?
And what would be the drivers from the sort of elevated levels now to dropping down to that? And then the second one is on pricing. So it sounds like there's a mixed story that you guys are talking about with health care and the SMBs. But e comm is really where the majority of the growth is coming from right now. So what are your strategies on e comm
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, do you want to start the first one?
So I think the first thing to remember on CapEx, it's about opportunity and then growth. We have a slightly elevated CapEx today. We said it would be a 3 year peak, and 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 3 years starts to come down.
But we're not ready to say that just because that's coming down there won't be another opportunity that has bottom line results. But 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 3 years out. And so 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.
And so 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. But I can tell you that billions of facilities are coming down after the 3 year peak.
And then to address the pricing questions that you had as well as the mix. So to start with the pricing, it is for all of the industries. And yes, as Kevin indicated, already showing the increases during mid year as well as going forward enhancing that. So that, yes, quality growth is a priority and tied into transformation. For e commerce specifically, when I talk about large packages and big growing online, that is primarily e commerce.
So definitely that's what we're focusing on most readily. We also through our solutioning approach, we're looking to increase density. So we have these synthetic density solutions access points. So 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.
And lastly, I would say with the e commerce side of it, the 2 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. And 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 6 to 7 times GDP goes hand in hand with that. So 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. And as we help these SMB these new SMB players figure this out, we'll be able to participate in a richer mix there.
So 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. So we're optimistic from a combination of pricing and mix. It will be accretive to our profitability in the future.
Okay. Thanks. Right here, if you're right. Thanks. Deutsche Bank.
I had one financial question and then maybe one density question related to B2C. So you have $5,000,000,000 of free cash flow guidance for this year. I think $1,000,000,000 of that is roughly the tax refunds associated with the pension contributions. So how much so underlying, call it, dollars 4,000,000,000 how much of that $1,000,000,000 of working capital efficiencies are in that number? And so 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?
And just Richard related to that, when you 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 2019? One density related question, if I could. A lot of the density discussions in B2C packages per stop over time. And so today, one package per stop, are there things that we can do or you can do, whether it's where to go and building synthetic density on the back end to actually 5 years from now raise that density in 2 packages per stop and so just improve the unit economics significantly on the back of that? Thank you.
Okay. So 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. So Scott and Kate?
So 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. And so again, when we get to guiding you on 2019, we'll give you a little bit more on that. But 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 EoAP and just the techniques that you would expect. We have a very large spend of almost $25,000,000,000 in commodities, so we think we're going to see additional gains in 2019. And 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.
But remember, we are investing in both Saturday operations and expanding buildings that are in our guidance for 20 18. And so that's part of what's going on in this year.
As we think about overall e commerce and 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. So there's 3 drivers of it. 1st, 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.
Where to go actually is a process. So that's war2geo.co for
those of
you who may have warehousing space. But if you think about where to go, that gives us an opportunity to actually, 1, create the synthetic density to be able to reduce the cost per piece, but also it's a profitable revenue per piece. So 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. Where to go 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.
So we get both RPP improvement, but also CPP improvement.
And then from the density side of the house, I mentioned those 1500 engineers. They are their primary initiative is synthetic density. And I'll give you 2 highlights on the solutions that really help to drive this. The first, I mentioned access points. Even part of our peak strategy, we will change the allotment number for our customer if indeed they actually integrate delivery, which then makes it a multi piece commercial stop.
And 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. So we have a solution that actually syncs up in the virtual hold of their orders, so in their order And they may hold a package for a day virtually and then drop it to be fulfilled and then come and that creates a 2 piece stop. We've even expanded that service to now where it's proximity. So same cul de sac, one stop of the driver, now delivering 3 packages and we're seeing the difference there by the customer in going to continue further through transformation.
And 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 the more packages you deliver for a business type is certainly in our favor. So 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 want to add?
More, David. From an operational technology perspective, we are constantly looking for ways to create that density and a great solution that we've been getting some great benefit from in terms of creating that density is our short post redirect solution where before packages go out for delivery, we analyze all the data and we determine where drivers are going to go to a stop anyway that is not sure post. And for us to be able to eliminate the cost associated with that Surepost delivery, we made that package available to our driver to complete that delivery and create that density. And it's working really well for us.
If this is Mike, if 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. And 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 3 years. And 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 3 years as the capacity comes on, yes, as Juan will talk about and Rich, 30% to 35% more independently in a building. No question about that. We can see it. We can touch it.
We can 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. And 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. And 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.
And we proved we could do that between 20122015. We kept the cost. You can see it historically. Capacity got a little bit short. We're catching up now.
Those economics will forward, and then the strike prices will become where they need to be as well. So I don't think we should lose appreciation for that in an integrated network.
Thanks. It's Scott Kirk from Wolfe. So 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? And then are you assuming mix is positive or negative going forward?
And then just bigger picture as we think about the plan. So 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 deemphasizing B2C?
Okay. So a lot of parts of the question, let's make sure that we'll just cover the main elements of it. So Kate and Kevin, would you like to answer that?
Yes, absolutely. So on the pricing side of it, and as we've indicated, especially this year on the earnings calls, the 2% to 3% is a false ceiling from we've moved away from that. We've demonstrated through the quarters not only certain months of above that pricing level as well as mid year rate action. So we are you are seeing a changed trajectory with pricing during transformation. And as David says, that starts now, it's not tomorrow.
And so that is that will also translate into our pricing strategies will drive mix to the benefit. So we will be targeting aggressively the small, medium sized Each of those will be a difference and will show up in the pricing line.
So the strategic comparators we picked, the markets are markets that are growing and are richer. And so that will really dictate the investments that we make, the management focus we make, the talent that we apply to those areas. So as I said earlier, the SMB space is multiple of our revenue per piece versus the rest of our network and even higher multiple of profit per piece. So in addition to having consistent base rates and holding that based on the value we deliver, as we penetrate more in these areas, health care, SMB, the B2B aspect of that cross border opportunities. That will get a lift from the mix and in the base, and we'll benefit from both of those.
So again, the $1 to $1.20 dollars is the great majority of that really is about cost savings. There's a small piece for the growth in revenue and volume, but the upside here is tremendous. And so I think David said a minute ago, the $1 to $1.20 isn't the ceiling. It's based on what we have on the plan right now and what we're implementing. Scott, the transformation in the T.
O. Office has other things that we're looking at that could raise that. And so at this point, I think you can count that the $1.20 we're very comfortable with, with some upside that we'll give you as we go, just as the changes in the strategic imperatives are changing our target and our customers and the returns. We'll give that to you as we implement and when it's the right time in the Q4.
We have a lot of inquisitive people in the audience, and we want to try to get to as many people as we can. So we are going to ask you to kind of take it easy on the number of parts of your question because we just want to get to more people. So if we could think about that.
Satish, general here. I want to ask questions relating to e commerce, which is driving a lot of change. And just as a matter of some numbers, the Zone 2 short haul deliveries have grown up by 100% in 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, 7,000,000,000 packages a day are all delivered within 50 miles.
How are you transforming your network and your facilities, Tim, in terms of handling packages that can be dropped off in Atlanta,
jd.com in China,
they've got
65,000 people doing look at jd.com in China, therefore 65,000 people doing same day delivery. How are you positioned to handle same day delivery that scale a year or 2 years from now?
Okay. And you're keeping the tradition of the multiple parts of the question, but 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 and then either George or Jim, let's address that part of
the question. Absolutely. Thanks, David. Good question. From a network perspective, and you heard us speak about the numbers of facilities that are coming online, those facilities are well positioned to support both modes of 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 2 day territory with automated capacity. That strategy is going to provide great benefit for us because as associated with the automation itself, being able to bring those packages into these facilities will support not only those short duration time frames, but also the longer ones at a much lower cost.
So let me add a point to that, Chadi. So 50 years ago, when we started to come across the U. S, remember, we had intrastate and interstate commerce regulation, right? And we actually had intrastate rates and we had interstate rates. We were in Texas together, Georgia and I, a few weeks ago.
And what came before our eyes as we were in Willowbrook and some of the automated hubs is that, yes, 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 others we've talked about on the stage, but it absolutely is. The world is demanding closer, faster, shorter, all that. Our Saturday product, there was an announcement by one of our competitors 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 competitors as well under e commerce. So 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. So 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.
So I'll leave it at that on stage today.
All right. So 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 on Monday. And 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. Jim and George, could you elaborate a little bit on the strategy into this particular peak season? And Jim, are you suggesting that there is going to be a bit more focus on yield overgrowth in this peak? And 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 time frame 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. But George, why don't you talk about peak?
Sure. We feel really good about peak season 2018. We actually started planning for the day after 2017. We feel 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 of sorting capacity throughout the globe, 350,000 of that is in the U.
S. Network. And taking a look at our perceived super hubs, which are going to be a 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 and 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. And then take the entire network, lay it out and then there lies your capacity for your network. We're able to fully maximize that. So with those things working with our customers and then able to optimize their network, we feel real strong about the most important part and that's servicing our customers better year over year.
I would add 2 things to what George said. Number 1, 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.
And so you put those together, that's the difference a big piece of the difference in peak. But pricing has already begun to manage that already
as well. When you're talking about peak, you automatically jump to the U. S. But we have a very fast growing international business and there are some countries that peak in a fairly similar way to the U. S.
And Endo quickly just give us
a rundown on peak internationally. Yes, sure. So internationally obviously 14 double digit growth profit, but 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. And 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 $2,000,000,000 5 year investment program in Europe, where peak really takes place in a small number of countries, but takes place similar to the U.
S. And that capacity is allowing us to deliver the service, the efficiency and of course, translating into the bottom line with double digit profit. So 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.
And from a technology standpoint, And 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. We 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. So that iterative process continues to provide great value to us from a technology standpoint.
Thanks. Allison Landers 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. But really as we think about all
the initiatives that you outlined today,
we think about the cost per piece, exclusive of fuel through 2020 2022, sorry.
So actually, when I 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 this 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 3 year, we'll give you that as well.
But we do see cost reductions, which means unit costs coming down from what we've seen in growth rates and going back to more historical growth rates.
Ben Hartford with Baird. Kate, you talked about doubling the customer experience. I'm curious what role UPS Store can play in that as these worlds 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. And thanks for the question. So the UPS store is exactly built into our strategy, especially with healthcare, high-tech and e commerce. I'll give you a quick example of one of the transformative solutions we've just released, and that is a label less return. So it's a pin based application that comes to a person's phone.
If you don't have a printer and many millennials do not own printers, you just go to a UPS store with your item and you finish out the shipment. The other thing we mentioned in Kevin's discussion was about consolidated returns through the UPS store. So we're 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 and we're able to leverage that for more price. So the UPS Store is absolutely the heart of a lot of our solutioning and expected to go further.
And I'm proud of the relationship that we have with the franchisees. It's very positive.
Thank you. Brandon O'Brien speaking with Barclays. So 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're at 3.0, but we're talking about Edge, Hub Automation, Network Planning, Synchronized Delivery. And yet, EBIT margins have been, let's call it, roughly not meeting expectations in the past 4 or 5 years.
So what is the postmortem and what happened in that period? And why does transformation now all of a sudden change the trajectory on profitability of the business? Should we be thinking it's going back to Scott's question, but is B2B mix more fundamental in the outlook? Is that going to stop declining? Or is it just been the investment cost and the headwinds that Richard has been telling about, like Saturday delivery of new facilities that has really masked the underlying improvement that maybe we haven't been able
see. Okay. So again, a lot of pieces to that. We'll answer the main pieces. And I'll start it and then Juan, I'm going to go to you a little bit about Edge and the other technologies.
And but we'll start with Orion. And 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. And we do believe that we're going to get another big hit in that initiative.
When I say another big hit for efficiency gains. So 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. So you want to talk a little bit more about that? And Scott?
Absolutely. So Orion T2.0 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. And every single day, we see the difference between running around without Orion or running around with Orion. And those benefits have been quantified in excess of 6 miles per driver, of 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 4 walls. And 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. So we believe that, that technology will have huge impact in the organization. And lastly, you mentioned NPT.
Think about NPT as Orion, but now for a broader, wider network. And 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.
So I think you just have to remember that it's an overall picture, and 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 would be even better. But there were also other things that were going on in the U. S.
Operation, such as adding these, 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. So Scott, you had something you want to add? The crux of
your question is what's different this time. And 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. And as you think through the four steps of the process of Level 1 of ideation, then you go through due diligence, then you go through road map and finally you begin to implement. Cost and growth, so on the cost side, technology is changing our customers and it's changing us and it's allowing us an opportunity to leverage technology to reduce our costs. On growth and opportunity to leverage growth to be able to use up that capacity.
So when David announced the $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, but it is the ability of the organization through new talent and cultures that
you can talk to
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. So 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 are 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 your one of your competitor will probably be in a stronger hiding shape potentially in the next 12 to 18 months?
All right. I will address especially the end of that remark and then I'll turn it over to Nando. But where our focus is, 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. And so we're in the peak part of that cycle and we think that that cycle is going to continue for quite a while. So 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, and we see that value proposition getting stronger. Now you have to prove me right, Mando. So why don't you take it up from there?
So just a couple of points on that. One, we have a 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. 2, 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 2 days or less.
And that was in anticipation and making sure we close the door on any competitor that wanted to infringe on that. And obviously, we're the fastest carrier on the ground and that's generating, again, with the combination of my choice, access points, new service offerings and the speed at which we're delivering internationally, we have some pretty good momentum. And just one other example, when you look at China, we've got we're early stages with a joint venture in SF Express. That's China's largest domestic player. And that's allowing us to reach 331 additional cities, middle market, small customers.
And they've got 13,000 access points to plug into our integrated network throughout the world. So we feel pretty bullish on what we're creating and how we move forward. In light 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 2 or 3 steps ahead.
Let me add 2 points to it. Number 1, we spend a lot of time in Europe, obviously in these discussions. And 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 1990 6 and the relaunch of our portfolio. And 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.
And by the way, when you're in these countries, you're already having 3 competitors when you walk in the door. It's not like you don't have, oh gosh, there's a competitor now. There's about 50 of them over there. And we do just fine. So you let your mind's eye go where you want it to go in time.
But with international, it's not just Europe. And Nando had to joint venture. Canada, great guns for us. Mexico, Vietnam, Southeast Asia, that's been going on the last 4, 5, 6 years because David asked us when he took the helm to move this thing to a different place, stop depending on a couple of core countries. And that's what's been going on.
And at the end, the last statement I'll say is, we're in 100 I mean, we're in 2 20 countries. The infantry of our machine, the ground force is in about 10 in the world. So 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, in international.
And domestic too, don't worry.
All right. I'm going to embarrass a couple of these guys. But the reason that we have John 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. And I believe there's going to be a lot of synergies coming back to the U. US, as Jim talked about a little bit in his speech.
Ananda is the first person that we've ever had run internationally as the International President. 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. So it's just a growth engine. We're not worried about somebody catching up.
We're focused on charging forward. All right? Okay. So I'm getting a signal from Scott that says, we're running out of time. So there will be a time during launch.
And 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. But we encourage that, And that's why we have various members of the management committee assigned to your table so that we can continue speaking from a podium, but I 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. So I will stay here at the podium. But I had several objectives in mind for this meeting.
One was was to share my vision that UPS will even better connect our global community through our smart logistics network. And 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 megatrends 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 cost efficient and a more efficient cost base. To introduce you to the new UPS leadership team that will be driving this strategy forward.
And of course, this is the majority of our team. I think we've already recognized that Norm Brothers and Terry are here in the audience that completes the tape. And finally, to show how transformation, our business strategies and our leadership and the leadership of our people are 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 in business strategy is rooted in achievable plans, 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.