Good morning, everyone. And on behalf of the UPS management team, I welcome you to the 2017 UPS Investor Relations Conference. Thank you for joining us here in New York City and to everyone joining us via the web. As the UPS Investor Relations Officer, it is my privilege to speak with you as we travel the world. We appreciate your interest and investments at UPS.
This year's theme is very appropriate: Invest, Grow, Deliver. It's been 2 years since our last conference. We have been executing and making progress on our multiyear strategies. Some of the topics today will be familiar, and you we will expand your knowledge of others. We will share time lines, quantify amounts and paint a picture of where we're going.
Today's presentations are being webcast and are also available for download at the UPS Investor Relations website. For those in the audience, the presentations are available on your iPads. Taking the stage for prepared remarks will be Chairman and CEO, David Abney President of U. S. Operations, Myron Gray President of International Operations, Jim Barber Senior Vice President of Worldwide Sales and Solutions, Kate Gutman Chief Information Officer, Juan Perez and Chief Financial Officer, Richard Perritz.
Also joining us in the audience from the UPS management team are Alan Gershenhorn, Executive Vice President and Chief Commercial Officer Norm Brothers, Senior Vice President, General Counsel and Corporate Secretary Teresa Finley, Chief Marketing and Business Service Officers Terry Plummer McClure, Chief Human Resource Officer and Senior Vice President of Labor and Mark Wallace, Senior Vice President of Global Engineering and Sustainability. After our prepared remarks, we will conclude the webcast. Those of you in the audience will take a short break, then move into small group Q and A sessions. We will conclude the day with lunch. We have a lot ahead of us today, so let's get started.
At UPS, we consider our job is not only to be successful today, but also for generations to come.
UPS is an innovation engine. We're continually providing differentiated offerings to our customers that create mutual value for them and us.
We focus on this smart logistics network.
As some of us know, networks always win. That's the core and the underlying foundation.
You're going to invest in new technologies that make us more efficient.
The information around packages and how we can give it back to our customers can be game changing.
If I think about what the opportunity is for UPS, it is frankly unbelievable.
It is a global economy. We are more and more connected.
The world's changing so fast today and you see so much innovation in every industry.
The world's definitely in a bloom of automation. You can try and stay the same, but the world is changing around you.
It is a disruptive world that we live in. We have to go invest now we can capture
the benefits that we get from the shift changes in technology. Our ability to build those capabilities and those solutions enable us to grow and seize these opportunities that are out there for the
business is changing today.
Ladies and gentlemen, please welcome David Abney, UPS Chairman and Chief Executive Officer.
Good morning, everyone. It's great to be here. Today, we'll share with you our vision for the next 3 years and beyond. You'll hear how we are investing in the next generation of our network, a smart logistics network that will fuel the next era of growth at UPS and enable us to deliver the returns you expect. Indeed, those three words serve as the touchstones that drive our every decision: invest, grow, and deliver.
When we met at our last investor conference in late 2014, we promised to grow our business, maintain the highest operating margin and the highest return on invested capital in the industry, and deliver strong shareholder returns. Here's our scorecard: Total company operating income has risen 14% to more than $8,000,000,000 We've returned 108% of our net income to shareholders, and our return on invested capital remains the industry standard. What's more, we delivered on those goals while embarking on the most sweeping transformation of our network in decades: a global transformation that will enable us to take advantage of new growth markets and create greater efficiency in our existing business. We're upgrading and investing aggressively in new sorting capacity, technology, automation and capabilities. We're investing in new flexibility even as we're bending the cost curve.
2 years ago, I said we were putting a renewed emphasis on growth, and we have. To extend our capabilities, we have announced 10 acquisitions and strategic partnerships with game changing companies like the ones you saw in the opening video. We have invested more than $5,000,000,000 to expand, automate, and optimize our integrated global network, and those investments are paying off. Since we met in late 2014, we've recorded 8 consecutive quarters of double digit growth in our international operating profits. We completed the first phase of Orion, generating more than $400,000,000 in annual cost savings and avoidance.
Orion was not a one off project, but part of an integrated IT ecosystem that will support new levels of efficiency and growth. Now we've heard from investors that you want to know more about how we plan to deploy additional capital to maintain long term profitability. So today, we'll discuss our plan to increase our capacity while generating approximately 800,000,000 dollars to $1,000,000,000 in annual cost savings and avoidance when we finish in 3 to 5 years. We will continue to create value to our shareholders and maintain our capital discipline with the highest return on capital and the highest margins in our industry. I am confident you'll see that we're moving in the right direction.
We've been reassessing every element of our operation, our product mix, our investment levels, and our pricing. Looking back, we've been well aware that having the world's largest, most efficient, and most integrated network has enabled us to maintain industry leading margins even as our industry has been buffeted by a global recession, volatile oil prices, shifts in trade driven by currency and demand swings, expansion in cross border trade and the political uncertainties that had left businesses reluctant to invest. By looking forward, we realized that to seize the opportunities before us and to achieve new levels of efficiency, we need to bend the cost curve further, and we need to raise our investments above recent levels. So for the next few years, we are ramping up our investments in automation, technology and capacity to build the smart logistics network of the future. We're increasing investment in fast growing segments like health care, manufacturing and in e commerce solutions for our B2C and our B2B customers.
We're also making acquisitions and entering into partnerships that extend our capabilities significantly. Over the next several years, we are transforming UPS to achieve new levels of efficiency, connectivity and growth. And this will enable us to serve our customers with a smart, integrated and innovative logistics network that our competitors just cannot match. We'll do this by maximizing the strength of our balance sheet to increase total investment and the power of our network, to enhance our portfolio and our service offerings. Understanding the market dynamics and our customers' expectations is critical.
So as part of our service expansion today, I'm happy to announce that we're launching Saturday ground operations in the U. S. On a rolling basis, with plans to reach a significant percentage of the U. S. Population later this year.
Expanding our Saturday services will allow us to provide new levels of customer service. Saturday deliveries will also free up more ground capacity during the first half of the week. That expands our delivery capacity with no incremental capital investment. It also maintains the flexibility to take advantage of new opportunities that come our way. So let's talk further about automation.
Today, roughly 40% of eligible volume in the U. S. Moves through selected sites with high levels of automation. But we've only just begun investing significantly in automating our facilities. By 2021, we will have implemented this high level of automation in every eligible location throughout the country.
And given the ongoing improvements in robotics and technology, we expect to add new automated capabilities all along the way. Think of it as the next generation of the UPS network, a smart, efficient, and integrated network. This isn't just a U. S. Story either.
All around the world, we're building out our network, deepening and widening the services we provide in fast growing markets. In fact, in 2016, our 4 fastest growth markets included China, Vietnam, Pakistan, and the UAE, each of which recorded double digit growth. Collectively, the 15 developed and emerging markets we've prioritized offer between 1 $120,000,000,000 $130,000,000,000 in opportunity across all of our business units. UPS is at the forefront of global trade. Over the last decade, global exports have grown at 3.5% compounded annual rate, while UPS exports grew at double that rate.
And we've helped deliver that growth around the world. We are committed to helping our customers navigate the complexity in global trade and take advantage of the opportunities that come with opening up markets. Our global operating model has evolved to serve multinationals and small- and midsized businesses who also want to ship regionally and locally. In fact, about 85% of our Europe business stays on the continent, and about 70% of our international revenue comes from volume that never touches U. S.
Soil. We look forward to expanding our international footprint through organic growth, partnerships, and acquisitions. You'll hear more later this morning and also in the coming months. There's no ignoring fact that e commerce is having a profound effect not just on retail but on all of business. As more and more companies start distributing directly to consumers.
We believe the shift online is permanent. In fact, the trend is accelerating. And as a result, we've embarked on a multiyear journey to create profitable solutions that allow us to lean in to this future growth, serving retailers, manufacturers and other businesses. The good news is that as we ride the wave of e commerce, the investments we're making in capacity and in new solutions will benefit all of our customers regardless of industry. That's important because just as e commerce has changed consumer expectations, the Internet is changing B2B procurement.
The other good news is that adding more efficiency and technology in our integrated network will create more density on all of our routes, lower our operating costs and bolster our returns. We are making these investments to increase the efficiency, the capacity and the profitability of the network. In conclusion, we are investing so we grow and deliver for our shareowners. In a few minutes, Myron will take the stage to discuss the trends reshaping our U. S.
Business and the investments we're making to transform our network. Jim will discuss the investments we're making to continue the international growth we have seen the last two years. Kate will take you on a deep dive into our market strategy in some of our key industry segments. Kate will explain how we're using innovation and customer solutions to differentiate UPS. She'll also cover our pricing initiatives, including measures to align revenue to product mix and the impact of volume surges throughout the year.
Juan will talk about how we're using technology as the foundation for our smart logistics network and how it's improving our operations and our customer service. And following Juan's presentation, Richard will share our long term financial goals. I am confident that these presentations will show how we're transforming our operations. This transformation creates great opportunities for our customers and for our investors. With that, I'd like to invite Myron to the stage.
Change is just occurring at a phenomenal rate, but it's also providing tremendous opportunities.
Things are moving so fast, it really does require a lot of investment on building the future state of the company.
We're going continue to invest the leverage technology, leverage automation, data optimization.
We're investing to make our smart logistics network even smarter. Mobile devices, analytics, the Internet of Things, understanding more what's going on in the drone space.
UPS is
investing in disruptive
technologies, but it's also investing in UBS is investing in disruptive technologies, but it's also investing in disruptive people. Technology is changing all the time and you really have to be deep experts in the technological product and services that you're delivering.
When you connect these investments in technologies and talent to the foundational platform of UPS, you end up with a differentiated solution where a customer cannot get that service anywhere else in the market.
You can't just minimally improve your solution. If you want to be a disruptor and you want to create something that is totally different and changing industry, you've got to invest ahead and build out that solution ahead.
I believe that the responsibility is truly to our customers. They are expecting UPS be a disruption so that they can benefit from that disruption.
Now is the best time to invest for us. So we keep building this smart
Please welcome Myron Gray, President of U. S. Operations.
Thank you, and thanks to all of you for joining us today. As David mentioned, the world is changing rapidly. And at UPS, we're embracing the opportunities of that change in our U. S. Operations.
The biggest change has come from the e Commerce Revolution, which started as a consumer phenomenon, but is changing the needs and behaviors of all of our customers. Without a doubt, this is the biggest growth opportunity in the logistics business, and it comes with its own dynamics. E commerce requires UPS to scale and flex to volume swings on a day to day basis. It conditions consumers to expect faster deliveries, and it creates more single package deliveries. If challenges are opportunities, then demand is a great opportunity to have.
Of course, all of this requires us to think differently about the capabilities and the value of our network. Market leadership in the future will require a smart logistics network with full integration across, well, everything that we touch. It'll require integration starting with the order intake at the customer to the multimodal shipment transfers throughout our hubs, freight warehouses, and package centers, all the way to the final mile, whether it's a loading dock or a doorstep. Our plan is to implement a fully interconnected smart logistics network with higher levels of automation and integration than ever before. We've taken steps towards this vision in the past with Orion, our existing hub modernization projects, and the new facilities that we're building.
But these are just the first steps in what will be a sweeping transformation of the UPS network. I'll begin with an update of Orion, the powerful route optimization system. I'll then talk about our plans for upgrading our existing operations while we simultaneously build new capacity. I also plan to cover our synthetic density initiatives and then provide an update on the other capacity expansions that will further position UPS for success. Together, these actions describe a comprehensive plan, essentially creating a UPS ecosystem that will create new efficiency and growth opportunities.
Let's start with the backbone of our network integration plans, Orion, because it demonstrates the powerful impact of extending innovation within our network. We finished Phase 1 of Orion last year. So far, we've reduced the number of miles we need to route our routes by more than 210,000,000, which helped us increase the average stops per mile by 9%. We also promised that Orion would help us save 6 to 8 miles per driver, and we've already met that estimate. Orion will become even more important to us in the future.
We're generating more than $400,000,000 in annual cost savings and avoidance to help offset our headwinds. And we're now deep into development of a dynamic, real time version of Orion that will roll out with complete coverage in 2019. This next phase of Orion will serve as a springboard for significant gains in integration, system efficiencies, and the capability to implement profitable premium customer services. The new version of Orion will mark the biggest leap yet in functionality with dynamic updates, better navigation, and dispatch decisions. And since we have experience at deploying Orion, we'll implement this real time version quicker and cheaper than the first phase of Orion.
And once the additional phases are in place, we expect to realize a cumulative $150,000,000 to $200,000,000 in additional annual savings when fully implemented. Now let's turn to facility automation. Our automation initiative is dramatically improving the efficiency and connectedness of our hubs and package centers and transportation network. When we met in 2014, our hub automation initiative had just been kicked off, and we were planning to retrofit our largest ground facilities. Retrofitting a hub does improve direct labor labor savings as we complete these retrofits and create more integrated networks.
By given the ongoing market shifts and changes in our own needs, we realized that retrofits wouldn't be enough to handle our future efficiencies and growth plans. So we're expanding in 2 additional ways. In addition to upgrading a hub within its footprint, we're also expanding existing facilities where possible. Building a new wing creates less disruption and complexity and creates the incremental capacity our business needs. We're also building new facilities to augment the network using operational technologies that enable us to achieve the most efficient results possible.
The all new facilities enable us to boost our productivity savings even higher since new buildings generate about 10% higher productivity than retrofits. These will employ the very latest in automated sortation and other technologies. As we move through the next several years of our build out, we will increase the number of packages processed through our new automated facilities and bring the resulting savings to the bottom line. The cost, relative size, and certainty of payback on automation has moved into a sweet spot for UPS, and we're confident that now is the time to accelerate spending. In fact, we're already investing.
Last November, we revealed plans to invest $400,000,000 to build a new regional sorting hub on the west side of Atlanta. On Friday, we'll break ground in a major new hub in Salt Lake City that will add another 800 and 40,000 square feet of capacity. In total, we will have about 70 new package and hub projects around the world that will be completed in the next 3 to 5 years that will add capacity all at a lower cost than today. All these facilities will enable us to make the world's most integrated network and most effective network even more efficient by increasing capacity, flexibility and reducing costly touch points. That's important because after operating expense investments, we know that for every 5 percentage points of volume that's processed by UPS's highly automated facilities, we'll generate around $30,000,000 in annual savings and cost avoidance at full implementation.
When we put all of our automation initiatives together, we're targeting between 300 $1,000,000 $400,000,000 in annual cost savings and avoidance when fully built. These productivity savings also help offset the headwinds from B2C. The power of having a fully integrated network means that as we add more automation to handle this tremendous growth opportunity, we create capabilities that benefit every one of our B2B and B2C customers. In addition to investing to optimize our facilities, we're also driving innovation in our data management processes to produce the trifecta of the shipping world. We'll improve our customer service, our operating efficiency, and by harmonizing deliveries on a single delivery day, we're also improving the company's delivery experience.
With our Synchronized Delivery Solutions, or SDS for short, we're using enhanced data analytics to create more synthetic package density across multiple product categories. We initially introduced lower cost delivery options and improved margins through Surepost and Surepost Redirect. And in 2017, we will roll out our new Surepost Hold and Redirect 2 day option, which adds more opportunity for a match. And we're expanding not just to a single address but to surrounding areas as well. Our broad customer base gives us a big advantage as we match up more packages with different delivery commitments from different geographies.
While Orion like algorithms, we can determine in real time whether we can optimize delivery locations and service commitments. Combining these synthetic density initiatives with advanced delivery notifications using My Choice and Follow My Delivery plus alternative delivery locations with access points, will make the delivery experience even more satisfying for our consignees. Building our capabilities and improving the customer experience are key ways we leverage the core of our integrated network. As announced earlier, we're taking another logical step forward by investing to expand our Saturday operations. Adding Saturday Ground will also enable us to broaden the service we provide to our B2B and B2C customers.
And by leveraging our assets this way, we're able to open more capacity in our network throughout the week. We will have 6 delivery days, 6 sort days, and 6 pickup days for both business and residential customers. That means we'll have the fastest and widest delivery service on Mondays. We'll be able to pick up on Saturdays and deliver on Mondays. We'll expand Saturday ground service on a rolling basis, reaching more than 50% of the U.
S. Population in 2017, and we'll add more in 2018. At the outset of my comments, I mentioned that I would also talk about some other capacity enhancements. Later this year, we'll take delivery of the first three of 14 Boeing 747 Dash 8 Freighters. Working with Boeing, we were able to advance 1 additional aircraft by year end rather than in 2018, which of course gives us more capacity for peak.
This additional air capacity will help us address our growing international and U. S. Domestic business as businesses and consumers shop and source from everywhere via the Internet. Adding these freighters to what's already the youngest fleet in the industry will progressively increase our ability to optimize the air network, opening up more capacity and a global cascade of equipment reassignments. So to summarize our initiatives, we're rolling out the next phase of Orion, building new facilities, retrofitting existing ones to promote greater growth and efficiency.
We're reengineering our processes to create greater synthetic density. We're adding the most efficient air network assets, and there are many more initiatives that I don't have time to cover today. We know that if we invest, we will accelerate our growth and deliver the returns that you count on. Jim will be up next to walk you through other growth opportunities outside the U. S.
That are also part of our list of major growth platforms. Before I turn it over to Jim, I want to emphasize that in my career at UPS, I've never been more optimistic about the future or more excited about the investments that will take us there. Thank you. Jim?
Please welcome Jim Barber, President, UPS International.
As David referenced in his opening remarks, our international operations have been on a roll, generating double digit growth in operating profits for 8 straight quarters. I'm here to tell you that we are confident in our ability to grow the business well into the future. We're confident because we've been making ongoing investments in our international business and winning more and more customers, which in turn gives us the scale and critical mass to expand and reach even international team. More than 40,000 UPS'ers inspired by this opportunity, rewarded for the achievement and passionate about our UPS culture. Our people execute every day, every one of them.
We first expanded outside the U. S. A little more than 40 years ago, and today, we serve more than 2 20 countries and territories. We initially entered many of these markets to support the globalizing demands of our biggest U. S.
Customers, the multinationals. If the 1st 30 years was laying the foundation, we spent the past decade aggressively expanding our footprint in many of those markets by going deeper and wider geographically in key markets by expanding to serve more regional and local middle market customers while staying connected to those multinationals, and by expanding the portfolio of services we offer customers in these markets. The good news is that achieving scale has made us attractive to more and more customers who increasingly believe that UPS can help them ship what they need, where they need it and when they need it, and we can. And here's the payoff. If you compare the growth we've seen in international export volume to that of FedEx, you'll see that over the past 10 years, the compounded annual growth rate in our export volume has grown 3x faster.
And given our integrated network and tight operating discipline, we've been able to translate that volume into the highest international operating margins in the industry. In short, what you're seeing is a textbook case where investment begets growth and that growth begets more growth well into the future. You can also think about it in terms of the flywheel effect that Jim Collins wrote about in his seminal book Good to Great. In my talk, I'll show you how this flywheel effect positions us well for continued growth in international, profitable growth. Now I'd be remiss if I didn't take a step back and talk about the climate we're operating in today because over the past year, a few prominent commentators have begun questioning whether the golden era of trade is over.
I don't personally share that pessimism. While macro trade growth has been tepid, I believe that largely a function of the political uncertainties and slow growth in isolated lanes over the past few years is at the core. As the global economy strengthens, trade will rebound. As markets have opened and capitalism has spread over the last 30 years, consumers around the world have developed a taste for goods made all over the world. I don't personally think you can put that genie back in the bottle.
The international market is an $856,000,000,000 opportunity that we believe will continue to grow given the demographic shifts and income gains we're seeing in the emerging economies. And over the next 5 years, the international market for logistics is projected to grow at roughly double the growth of global GDP. And having seen the growth ourselves, we believe we're operating in a new environment of actually higher demand. So we're confident that our international business will continue to serve as a long term growth engine for UPS. Our success the last few years has been driven by a set of winning strategies that are generating recurring improvements.
So what are they? In every market, we employ a 3 part strategy in building out our capabilities. We build and maintain a great foundation first, Then we work on optimizing the business results and at the same time, we create the services that give us the bandwidth to succeed over the long term. The first step is building a foundation, which means building capacity at a cost efficient level that makes us competitive. We usually start by bringing our air service into the market, then building out the ground network, which in turn helps to optimize the air network.
That's the foundation, and of course, we must continue to invest in maintaining a strong UPS foundation. As we will be doing along with the new aircraft Mairin just talked to you about, we're bringing into the network and the capital investments we've been making to expand our European ground network and ground network and facilities. We've also been expanding our industry leading Express service. Today, our flagship global product, UPS Express, provides the broadest time of day coverage in the market. As a result of our investments, our Express Saver service now provides global coverage to almost anywhere in the globe in 20 to 48 hours, guaranteed, which for us generates higher yields, profits and other benefits for our domestic and international integrated network.
And in the coming months, we will offer more enhancements to our Express service, continuing our claim to the top market position for network speed across the globe. In 2016, we expanded our AM Express service in 52 countries. We also added Early AM Express Plus to 26 new countries. And during the Q1 of this year, we're expanding further in existing markets and bringing our Express and Express Plus services to 37 new countries. We now reach every major city in the 20 largest countries with morning delivery, that's the most locations in the industry.
This geographic expansion is delivering the results we expected with demand for this service up more than 10% and in the 4th quarter in the 4th quarter and yielding great margins. The second part of our strategy is about optimizing our operations in a country or a region. By expanding our footprint beyond the major urban and transportation centers to capture more local and global volume and increase brand recognition. Let me show you how this works in practice in Asia. Our Asian network supports both global and intra Asia trade.
We offer more than 200 weekly flights connecting Asia to the world via 228 operating facilities. In China, over the last 24 months, we've enhanced our service offerings in transit times across 33 existing cities, opened in 21 new cities, all with more than 1,000,000 of population. Collectively, we've opened a new market of more than 50,000,000 people. Combined, these deepening and widening initiatives generated unprecedented growth across China in the second half of twenty sixteen. These initiatives were a big reason why our China export volume growth led the world last year, rising by double digits.
The third part of our international strategy, which is just as important as the first two, is continually expanding the suite of services we're offering our customers, both large and small. We call this the create part, and we've been aggressively creating new services for our international customers. First, we've expanded our customer centric solutions like UPS Access Points, UPS My Choice, our return services and our Iparcel service, which makes international e commerce as easy as domestic for both shippers and consumers. 2nd, in the coming months, we're expanding our capabilities to handle more shipments classified as dangerous goods, which as you'd imagine is largely a B2B market. By expanding our dangerous goods service to 36 new countries, we're effectively expanding the addressable market opportunity by $660,000,000 What's more, expanding our dangerous goods services will enable us to win more conventional business from our customers, some of whom actually disqualify carriers who can't carry both dangerous and conventional goods.
Our experience so far tells us the ratio is more than 10:one. So this is really a $6,000,000,000 expansion in the addressable market opportunity, and we are very excited by this potential. I'd also like to talk a little bit more about Europe, our largest and strongest international market. In Europe, we're offering the leading seamless integrated portfolio that supports complex, domestic, cross border, international express and standard shipments while generating highly competitive margins. Between 2014 2019, we will have invested nearly $2,000,000,000 in our European infrastructure to accelerate and expand our B2B cross border, global trade and e commerce services.
We will do so with global trade opportunities firmly in mind, but at the same time, we will continue to deliver best in class margins, which is precisely what our shareholders are seeking. We're also making optimizing technology investments in Germany, France and the U. K. This year. And the good news for our financial performance is the benefits of these investments are just starting to kick in.
On the ground, these enhancements cut a full day out of cross border transit times. UPS serves 101,000 city pairs in Europe, such as Paris to Brussels or Frankfurt to Geneva. By the end of this quarter, we will have improved ground transit times by at least one day in the city pairs that represent nearly 2 thirds of the daily volume. What's more, we've enhanced our air service by positioning many of our gateways closer to our customers and our delivery volume. That's enabled us to offer later pickup times, earlier deliveries and expand the coverage map for overnight service.
We continue to invest in our European hubs, including our primary hub in Cologne, where we're increasing automation and sorting capacity and in our new South London hub, where we've improved transit times between the U. K. And the mainland. And to top it off, last year, we entered the massive European 3PL truckload market with the acquisition of FreightX. By combining FreightX's local knowledge with Coyote's state of the art technology, this deal helps us reduce the cost of purchase transportation in Europe, improve asset utilization rates for our backhauls and generate more cross selling opportunities in that market.
You could say that Europe is 1 big flywheel of its own now, generating growth from growth. We're seeing similar effects in other parts of the world now. Here in the States actually, we've cut the transit times to Canada from more than 400 U. S. Cities by one full day.
We've also made great enhancements in our U. S. To Mexico cross border service. Today, we offer small package customs brokerage consolidation and deconsolidation, all within a single solutions portfolio. Along the way, we've added and gained additional cross border knowledge that we can use elsewhere, perhaps creating more flywheels across the world.
Before we move on, a few other points on our international initiatives of note. 1st, in the EMEA region, which includes the Indian subcontinent, Middle East and Africa, 2 years ago, we created a new business unit based in Dubai to support the fast growing region. We used a combination of organic initiatives, partnerships and acquisitions to fuel the growth. This is a part of our emerging market strategy and approach, which in 2016 grew profits by more than 50% in the import and export lanes we target. 2nd, one of the other untapped opportunities we're focusing on is with micro small businesses.
Historically, these customers have used their National Post or other local specialists. We're serving this segment by using our newly introduced ups.com platform. Later this year, we will provide these micro small businesses a radically new experience, making it easier for small customers to find and use our solutions and connect to a portfolio service they assumed were the exclusive domain of large shippers. And finally, I wouldn't be giving you a complete picture of UPS International if I didn't touch on our supply chain business units, UPS Forwarding and UPS Logistics and Distribution, both complement our small package business. However, as we know, these markets are highly fragmented and many regional players and sector specialists play the game.
In these markets and verticals, we provide an integrated UPS offering, which includes value based solutions, effective technology deployment, high standards of compliance and robust pricing models. Customers who choose UPS as their forwarding and logistics partner recognize the value we bring and commit to it. Combining our large Express Carrier assets with a large freight forwarding and logistics business enables us to optimize our asset utilization. It creates the differentiation that helps us grow and improve the returns on our investments. In closing, I want to emphasize that UPS is uniquely positioned across the global markets with our technology, our experience, our integrated network and perhaps most important, our people that enables UPS to excel in today's complex marketplace.
This integrated capability cannot be easily duplicated and positions UPS as the market leader poised to accelerate profitable growth. Thanks for listening. Next up is Kate Cuppin.
What are you going to do as a company to differentiate yourself from the field and to create value for the customers you serve?
Every one of our customers is a B2B customer at the end of the day. They're moving merchandise between distribution centers. They're thinking about their air products and their commercial movements as well.
When you figure out what our customers' customers want and what our customers need, that dictates the investment, both organic and inorganic.
If you want to grow organically, you have to invest people, geographies, you have to expand it to new regions, grow your product line internally. Inorganic growth is, of course, what most people do when they want to grow fast, and that's to go and buy companies. A lot of interest coming our way after the announcement of the UPS acquisition and even more interest now that we're fully on board with UPS. I see big upside for UPS. We see 8% growth on a $4,000,000,000 minimum market just in clinical trials alone.
There is tremendous amounts of opportunity for more and more buyers to connect with more and more sellers, more and more patients to connect with healthcare providers, consumers, with e commerce companies.
With the rise of commerce, we've seen also a rise of customer returns. There's $265,000,000,000 of returns a year and worldwide it's 1 point $5,000,000,000,000 potentially billions of units that could be shipped parcel, creating a great new innovative industry really.
There's really the convergence of 3 brand new set of dynamics at once. It's digitization, it's automation and effectively the Internet now enabling and powering those together that really sets up this to be a completely different age of growth in the world. A very unique place in time of host the 4th Industrial Revolution.
Please welcome Kate Gutman, UPS Chief Sales and Solutions Officer.
Thank you, and good morning, everyone. This morning, you've heard about our vision, our investment in new technology and efficiency and the markets where we see the greatest opportunity for profitable growth, I want to continue the conversation by talking about how we differentiate UPS with our go to market strategy, leveraging our solutions group, our new product development capabilities and the innovative solutions that drive value for our customers. I'll also talk about how we continue to bring pricing into alignment with our cost to serve. The UPS growth story begins with our customers. Our 2.5 1,000,000 customers around the world come in all sizes and cover a wide band of industry verticals.
And while B2C and the E economy are in the headlines, our customer and revenue base is diverse across industries and geographies. UPS has the industry's leading portfolio of supply chain services, but we also have a go to market approach that redefines the way customers think about and buy logistics. We do this through a dynamic sales organization of dedicated professionals around the world who understand our customers' objectives, inject commercial insight and then help them to solve their problems but also seize opportunities. In addition to our sales team, we have a global customer solutions organization of more than 1,000 supply chain professionals, largely engineers, who focus on retooling our customers' global supply chains. Our freight forwarding and supply chain services, when combined with small package operations, provide unique capabilities, enabling UPS to create deeper relationships.
The customer solutions organization is a key differentiator for you for us at UPS and a critical component of our strategy. We help customers with critical decision making on optimal shipment origins, distribution patterns, warehouse locations, technology and investment, and the list goes on. Basically, all of the critical path decisions to optimize their supply chains. So how do we know our solutions create value for customers? Well, because customers who engage with us for solutions significantly grow their transportation revenue.
For large customers, they grow transportation revenue up to 10 times faster than customers without solutions. And the majority of UPS' largest customers use our solutions group. That's the value proposition for UPS. Contracting with our solutions team generates meaningful additional UPS revenue across the full portfolio. We connect these resources to companies of all sizes, not just the large accounts.
And we have programs with the right specialization for small and medium sized businesses, our most profitable segments. In fact, we know that small and medium sized businesses, after partnering with UPS, generate more UPS revenue because we expand their use of supply chain solutions and create broader connections throughout the world. Next, I'd like to spend a few minutes on e commerce and some new and innovative solutions for both B2C and B2B customers. Digitization is connecting companies and consumers in new ways, and this trend spans multiple industries. We know that 55% of shoppers today prefer to shop online rather than going to a store.
We also know that 1 in 3 consumers want to reroute their packages to somewhere other than their home. Our Access Point network and UPS My Choice services address this growing need. UPS MyChoice offers more services, tighter delivery windows, less costly premium service upgrades and links to 4 times the number of alternate delivery locations than the competition's offering. It's simply a better solutions for our customers and consumers. We have more than 33,000,000 registered users in 15 countries who value visibility.
The ability to control when their packages arrive and when to pick it up at an alternate delivery location. To that point, we have more than 26,000 access point locations in 18 countries where consumers can pick up their packages. In 2016, our customers picked up more than 36,000,000 packages at Access Point locations, and the numbers continue to grow. For instance, in December, our Access Point volume grew 38%. With Access Point, we demonstrate to our customers the efficiencies and cost benefits due to higher density deliveries, but also the potential for revenue gains.
60% of consumers surveyed recently said their ability to pick My Choice with our access point locations, they provide My Choice with our access point locations, they provide an even more powerful solution for retailers to increase satisfaction by increasing the number of successful first attempt deliveries. It's this kind of innovation that differentiates our services. Next, let's turn to UPS return services portfolio. So how important is returns or reverse logistics for the E economy? While traditional brick and mortar retailers normally experience return rates of 4% to 8%, e commerce return rates are typically in the 20% to 30% range, and that figure can be higher depending on the category.
During our returns peak week, holiday shoppers used UPS to return nearly 5,800,000 packages in just 1 week. So there is a critical need for a comprehensive reverse logistics solution. We continue to enhance our best in class returns portfolio, and our customers are noticing. Our returns portfolio volume grew 12% in 2016. Our mobile return service is a new and innovative solution that further differentiates our complete returns service.
UPS Mobile Returns allows retailers to send a pin tied to a return to the consumer's mobile device via either email or text. The consumer simply stops by 1 of the more than 4,005 100 UPS stores for just a few moments to complete the return without ever printing a label. And while the retail industry will clearly benefit from UPS mobile returns, the process is applicable to many industries for warranty industries with repair and returns for field service technicians. Returns transportation is only a small part of the complete reverse logistics value stream that UPS is serving. Retailers are motivated to improve their customers' merchandise return experience, while at the same time trying to maximize the recovery value of the returned items and minimize processing costs.
To meet this need, we recently announced an exclusive alliance with Optoro to complement our existing returns portfolio. By combining Optoro's predictive analytics software capabilities with UPS' operational expertise, we've created an innovative and powerful suite of reverse logistics solutions to help customers manage and sell returned and excess inventory. And we're excited about our alliance and the differentiating opportunities it brings. Our commitment to solutions also extends to our operating plans, and Myron has already described our Saturday ground operations. Expanding our Saturday ground service later this year helps all businesses meet their customers' expectations for faster delivery.
And we talk a lot about e commerce because this is where the market growth has come from recently. However, we're also very focused on the commercial shipments tied to B2C. And we have many omnichannel solutions that help to solve for needs like inventory shifts between stores and also ship to store, just as two examples. We continue to be focused on B2B. And remember, we've been the market leader in B2B for many years.
In fact, the vast majority of our revenue across the enterprise in 2016 came from B2B customers. For the next few minutes, I'd like to take you on a deep dive into one of our critical B2B verticals, health care. UPS is a strong player in health care with an 8% share of a growing $70,000,000,000 market for health care logistics. The growth opportunities in both medical devices and pharmaceuticals are being driven by several factors, including the aging population in developed countries, the growing middle class in the emerging markets, the universal pressure to make quality health care more affordable, the pervasive increase in chronic disease, and not least, the medical innovations giving rise to a new breed of custom or personalized medications. And on that last point, we see personalized medicine creating greater need for smaller, express and complex cold chain solutions, and that's good for UPS.
Globally, healthcare is expected to grow at 7% annually through 2021, and we are perfectly positioned to take more than our fair share of that growth. That's because we're investing and growing our cold chain solutions with our Express, Express Freight and Temperature True services. We're also investing in health care compliant facilities, all to help our customers in both developing and developed markets with specimen logistics, clinical trials and other temperature controlled services. In 20 16, we expanded our capabilities with the acquisition of Marken. Marken provides patient centric supply chain solutions, transporting 50,000 complex drug and biologic shipments every month to more than transporting 50,000 complex drug and biologic shipments every month to more than 150 countries.
The market addition also makes us the leading player in the $1,500,000,000 clinical trials market. That makes UPS the world's largest integrated inbound clinical trials carrier. By leveraging Marken's strong position in developed markets and its growing presence in emerging markets, we'll be able to further differentiate our innovative health care solutions. I'd like to close out my talk by discussing one of the complexities that all delivery services face in an era when the public thinks shipping is free. Yet contrary to what you see in the banner ads, shipping is not free.
And that brings me to our pricing strategies. We will enhance our pricing strategy going forward to ensure we align price with cost regardless of service level or package size. For 2017, we've already taken a number of actions to achieve yield improvements. 1st, the general rate increase became effective December 26, 2016 and was designed to maximize our base rates and profitable growth. We expect to realize a base rate increase around the midpoint of 2% to 3%.
The change in characteristics of our packages require us to match our cost to serve with targeted price increases. So we've created a new dim weight divisor for U. S. Packages greater than 1 cubic foot. We've also increased the handling fees for packages where we incur more cost.
And we've raised the maximum surcharge for all large and unusual sized packages. In addition, residential delivery surcharges were increased and our fuel surcharge will be adjusted weekly. Each UPS service is priced to align with cost. However, when trends move quickly like at peak, refinements can be needed. Our collaboration with high impact peak shippers is at a record level.
Through extensive forecasting efforts, we work together to understand the needs that they have and earmark the appropriate capacity for them. In 2017, we're enhancing our peak planning process through a new forecast accuracy tool. The process enables us to charge for unused committed space based on the UPS product reserved. As this drives the forecast capacity required in our network during peak periods. And this is just one example of the continued measures that we're taking to align revenue and cost to product mix and volume surges to ensure that we're compensated for the value UPS creates.
To sum it all up, I am confident that the innovative solutions that differentiate our services and create value for our customers will allow us to meet our growth and margin objectives in 2017 and beyond. I look forward to speaking with all of you in the Q and A sessions. Thank you.
Please welcome Juan Perez, UBS Chief Information Officer.
Hello and good morning, everyone. You've heard my colleagues today talk about the investments and innovation that are creating a next generation logistics network at UPS, one that is smart, integrated, flexible and global, a network with higher levels of automation, integration and real time connectivity than ever before. You've heard about the value these investments have created in our operations and for our customers. It's certainly not an overstatement to say that information technology plays a critical role in this transformation. And the scale of our information technology infrastructure and our capabilities makes it all happen.
In fact, through these capabilities, we were able to process 212,000,000 tracking requests on peak day alone. And we also ran 2,300,000,000 delivery route optimizations in 1 year. Now, what transforms our physical assets into the world's most integrated and the smartest logistics network is a combination of experience, expertise and technology that it's truly powered by real time data. Together, they create an efficient and a very productive way to create unique value to our customers. And I'll also add, it's an interconnected network that would be impossible to replicate.
When I was named Chief Information Officer a year ago, I identified 3 key immediate goals for the IT group. 1st, to continue to work closely with engineering, with sales and marketing to create an even much more richer experience for our shippers and their customers. The second one was to accelerate our business capabilities through technologies that can transform our business, including artificial intelligence, mobility, the Internet of Things and advanced analytics. And lastly, to build quicker reflexes. So the IT team moves faster than before.
Our group truly understands the momentum of e commerce and the need to provide customers with a great experience, no matter where or how they interact with our company each and every day. We are platform agnostic. We recognize the importance of being fully aligned with enterprise goals and with strategies. That makes it critical that we move quicker to support and anticipate our customer needs and that we collaborate with our business partners. To do it all, we're making ongoing technology enhancements that not only make our operations more efficient and more connected, but also improve the customer experience in ways that drive more business and profit.
Our annual technology budget is in excess of $1,000,000,000 We prioritize spending on improving operational efficiency, supporting growth initiatives and improving the customer experience. For example, this year we're launching a new and improved ups.com, a simplified set of tools to onboard customers and to ship packages and technologies that continue to make us more efficient in everything we do. Our technology is reaching more people than ever before. During our peak period alone, we provided over 137 1,000,000 My Choice alerts to our residential customers. So let me put that in perspective.
That's more than the total number of households in the U. S. That connectivity with our customers through technology is just unmatched and that connectivity enables to optimize our access point network, our synchronized delivery solution and sure post redirect, all examples of how we generate cost savings through technology. We're also looking ahead developing roadmaps, strategies and experiments to prepare for the long term. Projects like the next generation Dyad, which is the driver mobile device, will transform the way that we provide services and information to our customers.
All this technology at the end generates a stockpile of data, data that is opening more opportunities than ever before, not just to become more efficient, but also to create a far richer customer experience. Our approach is truly part of a virtuous cycle. As we build technology to support operational improvements, that same technology helps us create new services and capabilities. We call it our innovation cycle. As an example, operational technologies like package flow technology has helped us develop a variety of new customer focused solutions that include package intercepts, access points, My Choice and recently Follow My Delivery.
Now, let's talk for a few minutes about efficiency. It's one of the most important words in our vocabulary at UPS. As you heard from Myron, the continued growth in e commerce has changed the dynamics over last mile deliveries. We're balancing the business stops where we pick up and deliver multiple packages with residential stops where the density is lower. A greater proportion of residential stops means fewer packages per stop, less density and in the absence of any other factors, lower productivity.
Now, technology is helping us address the constant changes and the demands of e commerce. Solutions like Synchronize Delivery, which use technology to analyze packages in the network in real time and then notify shippers who release shipments at the time they need to improves overall delivery density. Other exciting new enhancements in the pipeline include our new network planning tools or what we call NPT. NPT applies advanced analytics, artificial intelligence and operations research to provide new levels of efficiency. The best way for me to describe NPT is to actually draw an analogy to Orion, which uses a sophisticated algorithm that tells drivers their optimum route every day.
Now imagine creating a larger scale version of Orion, one that optimizes the flow of up to 60,000,000 packages in our U. S. Network each day from our customers loading docks through our hubs and sorts to their final destinations. NPT is designed to lower cost and transportation sort costs and it's multimodal. Route optimization, hub optimization come together into one tool that tells us the most efficient way to run our network each day, even when our U.
S. Volume spikes and the destinations change. It's one more element of the fully integrated smart logistics network that Myron was talking about. MPT brings multiple benefits to the network and to our customers. It will help us efficiently route and reroute package flows using a series of sophisticated algorithms.
So we can reroute in transit volume flowing to a hub that is already running at or near capacity to another hub that is that has available capacity. The key is our ability to act on real time data. This will help no matter the time of the year as volume changes. NPT also moves volume to lower cost transportation modes to optimize our margins without affecting service. When major storms impact a geographic area, NPT will help us analyze every variable and every option.
It will preemptively reroute packages to alternate lanes and minimize unexpected costs and delays. By minimizing the effects of bottlenecks, we can make our network more agile and capable of handling more volume, which translates into more growth, all while reducing operating costs. We will begin implementing NPT later this year and when we're fully deployed in 2020, we expect to generate nearly $100,000,000 to $200,000,000 in annual savings and cost avoidance. NPT, of course, is very closely linked to our hub automation strategy since dynamic execution of any change to our network is much easier with automation. Keeping with our ongoing search for efficiency, also let me share another set of proprietary technologies that will improve our planning and execution and service levels, while helping us again bend the curve the cost curve.
I am referring to the EDGE program. EDGE stands for Enhanced Dynamic Global Execution. Think about it this way, EDGE is to inside operations, what Orion is to on road operations. It includes a number of technology projects that use again real time data to optimize our inside package operations. Edge helps us in many ways, shared real time data across operations to improve real time decision making.
It uses data to locate every operations asset instantly. It utilizes mobile tools in our operations to provide real information to our team. It helps us optimize operating plans and reduce cost. And of course, Edge continues to make our logistics network smarter. We started implementing Edge projects in 2015.
We expect it will be fully deployed in 3 more years. And at that point, we plan to generate $200,000,000 to $300,000,000 in annual savings and cost avoidance. All these examples demonstrate how we use our technology and our data to connect the pieces of our business to boost efficiency. Needless to say, it takes a lot of data, a lot of computing power to do this effectively, efficiently and consistently. But the good news for us is that we have the data, we have the computing data, we have the computing power and IT has the right people to accelerate UPS' comprehensive plan to increase volume growth and maximize our profits.
A solid technology strategy connected with our business strategy is required to integrate customer requests through my choice to our operational technology, to our drivers and ultimately to our access points. And we're also working with other new data driven technologies, including artificial intelligence or AI. I'm excited about the possibilities that artificial intelligence will bring to UPS in the years to come. This technology when integrated with our drivers handheld devices, with our supervisors mobile devices will help them make better decisions that meet our customers' needs and our preferences. That's important given that more and more recipients want to customize their delivery preferences.
And by using technology, we can shift from offering mass services to customized services that are tailored to each customer's unique needs. In our customer service centers, on our websites and on our mobile applications, artificial intelligence will make it easier for our customers to get their questions answered. In fact, back in November, we launched a chatbot that mimics human conversation to help users find UPS locations, get shipping rates and also be able to track packages. And we don't stop there. Our chatbot is available through multiple platforms and later this year, we will integrate it with UPS My Choice.
There's a lot more that we will do with artificial intelligence. Now we also have some exciting initiatives in development in our customer technology group. I really can't share all of the details yet, but we're working on things that will ultimately streamline our merchants business operations. We'll provide a much better delivery experience to consignees of international shipments. Will expand UPS' international payment options and will generate earlier delivery alerts.
Each of these projects will truly generate meaningful revenue or cost savings. We are building the world's largest and most advanced smart logistics network. It's smarter for a number of reasons. First, it's highly connected and becoming more predictive. It adapts, it learns and it uses real time data from multiple sources to ensure that we operate efficiently, that we optimize our network solutions and it's reliable.
And it's allowing us to drive operational improvements for our business and for our customers. Now I've shared a number of initiatives that focus on small package, but we're also making technology investments in supply chain solutions. We're introducing lightweight warehouse management systems for small and midsized distribution customers and also for e fulfillment. We're implementing solutions to support serialization in healthcare and we're integrating Coyote Technologies into our transportation management services. Now, it seems that everywhere I speak these days, I'm asked about the future of delivery.
So here it is. Here's how we see it. I can imagine a day when we dispatch a fleet of autonomous package cars each morning that are guided by real time versions of Orion. The onboard technology anticipates bad weather, accidents and adjusts to accommodate new pickup requests. Now imagine a day when these autonomous vehicles have a UPS delivery person on board, who not only delivers packages to the customers' doors, but also deploys a future generation of delivery drones.
We believe that there are many ways drones can augment our services, whether it's in our warehouses or in our delivery routes. We think drones can help us with some of our routine daily deliveries in rural areas, for examples, where our drivers often take long distance travel between stops. Now consider the savings when we send a drone on a remote route and the savings that can come. In fact, this is just not fiction. It happens every day in Rwanda where we deliver vaccines and critical medications to remote and hard to reach areas using Zipline's drone technology.
Technologies like the ones I've described here make our networks modern and more predictive. Technologies like Orion and with NPT were making our network more prescriptive. Our network will connect the dots and spot broader problems and opportunities even before we can. And we'll generate creative solutions the moment the package data becomes available. In the coming years, all that will be the norm.
I hope I've given you a glimpse at some of the ways the technology is making the world's most efficient logistics network even more efficient. We have a saying that underscores our technology strategy at UPS. We say that our business drives technology at UPS. I really can't think of a better way to describe our approach. Our business growth strategy is driving our technology strategy.
As a company that plans to be a vital part of global commerce for the next 110 years, we will invest, so we can continue to invent and so that we can continue to innovate. We will invest in technology to grow our business and deliver results to our customers, to our share owners. Thank you. We do one of the most basic things in the world. We get people what they need when they need it.
The whole question is different today even than it was 3 years ago. What do you still need to go to the store for now? Not what would you order online?
Everyone has computers in their pocket. If you want a car or blinds for your house, you can order it instantaneously. People expect to be delivered the next day and they get it.
We see opportunities in e commerce, business to consumer, but also business to business and then specialized markets, healthcare, high-tech, aeronautics.
Everything that we do with the UPS network can be translated into new products and services for our customers.
Every blood sample that we pick up and deliver to a lab has to be there within 48 hours. With UPS using the Browntail, using the network, using their expertise in customs brokerage, using their expertise in freight forwarding, we have the opportunity now to offer the entire service.
We are not only looked at as a company that can get my package from Chicago to Des Moines or Chicago to Hong Kong. We're looked at as a company that can help drive demand.
The key to being successful in our business is to balance. We had to grow our business that keeps us relevant. It keeps us at the forefront of the industry. And at the same time, we have to deliver industry leading margins. The way that we do that is to focus on the right strategies and make sure that we execute on those strategies.
As we do that, we will continue to provide long term value to our shareholders.
Financial Officer.
Thank you. As you heard this morning, UPS is a company on the move, investing in automation and innovative technology, adding capabilities in growth markets and transforming into the industry's leading smart logistics network. At UPS, it's our time to invest, grow and deliver. During my talk today, I'll update you on our progress since our last conference, discuss our strategic investments and how we're putting capital to work for our customers and ultimately shareowners. And finally, I'll bring it all together and provide you our financial targets for the next 3 years.
At the last investor conference, we presented long term targets through 2019. Those were based on leading economic forecast at the time as well as the benefits of internal initiatives such as Orion and others. We considered also the forecast for e commerce and of course expectations and reality are often quite different. By every measure, the macro environment was not as robust as expected and consumer driven growth accelerated while the industrial side of the economy took a dive and moved into negative territory. In addition, the U.
S. Dollar continued to accelerate throughout the period. But over the last 2 years, we've pushed harder on the UPS investments, helping to offset some of the impact of this mix economic conditions. Results in our U. S.
Business moved in the right direction, but were below our expectations. Reported revenue was slightly below our target, but there's about 150 basis point change just from fuel. Looking at our cost management from 2000 to 2013, our cost per unit growth was running around 2% annually. Our recent investments have generated higher benefits continuing to bend the cost curve. Since 2014, we've been able to exceed our goal of 1% unit cost inflation.
Operating margins in the U. S. Expanded, but were not as strong as anticipated. The margins were muted due to lower industrial production, the lower pension discount rate and we did not stay far enough ahead of the dynamics of product and customer mix. Moving to the International business.
This segment outperformed all of our expectations. While fuel and currency weighed on the revenue line, UPS initiatives drove growth in units and created leverage in the segment. As a result, we overachieved on bottom line results and operating profit. And at the same time, our margins expanded. Our international margins are the envy of the industry.
And finally, in the supply chain and freight area, we saw revenue at the low end of our guidance range. Despite weak macro trends in the forwarding and LTL market. To overcome this weakness through the period, we first removed some costs where appropriate and then we focused on profitable customers and lanes. Finally, these efforts along with the new capabilities we've added recently give us a good foundation as we move forward. Total company revenue was slightly below expectations due to the impact of currency and lower fuel.
Our 2 year adjusted earnings per share increased 21% or slightly above 10% on average. When we look back at our strategic and financial progress, it's been good, but we've had bumps along the way. As we've adapted to the changing environment of global trade along with uncertainty from the political and economic shifts around the world and the stronger e commerce trends. Considering all these factors, UPS remains a superior performer with a 350 basis point margin advantage over all the other players in the small package industry. And we have high return on invested capital of more than double our nearest competitor.
Now I want to go back to something I said earlier. We got a lot more from our investments. We have a long history of applying a disciplined approach to deploying capital. In fact, we've returned in excess of 20% of capital historically, and it gives us great confidence as we make these new investments that we've discussed throughout the morning. As a reminder, these investments are part of a multiyear program to enhance UPS' industry leading integrated network.
All of these additions make our business model stronger and it also lowers the incremental cost per piece over time. As the projects come online, the operating leverage in our business will increase. For over 110 years, we've built a powerful network with a commitment to create long term value. We've had investment cycles throughout our history to build package tracking technology, to create our airline, to expand into our international market and to create the supply chain and freight capabilities. We have a proven history of investing in anticipation of the next opportunity.
The investments ultimately delivered great long term value. Over the last 30 years, our average revenue reinvestment rate has been between 6% 7%, although it has been lower in recent years. Today, we've outlined a pivotal shift in investments in capacity, both facilities and aircraft, data analytics, automation and technology that will deliver the great returns. As a result, we anticipate moving to a range more in line with our historical average over the next several years. Let's look at a return of 1 of more recent projects Orion.
The first phase of Orion was built on the back and integrated with previously deployed technology systems. It was a natural extension of package flow. Orion improves area density and offers time savings, and that was used to support growth and productivity gains. This is a project that bends the cost curve every day and the returns are impressive. Operationally in 2016, we have grown volume and stops over 4%.
Yet remarkably through the efficiency of Orion, package miles were held to less than 0.5% gain. And we generated positive NPV of more than $700,000,000 on Orion. And this cycle will repeat as we implement the next phase as well. We are expecting more value creation from projects discussed earlier this morning by Juan and Myron. The projects will generate savings and avoidance just like Phase 1 of Orion did.
Going forward, we look at the 4 major initiatives driving the future smart logistics network: Facility Automation, Edge, Orion Next Phase and the Network Planning Tool. Think of these core 4 in 2 groups. 1st, we have aggressive plans inside our building with edge and facility automation. Implementing these will dramatically increase the connectivity of our network. The second area of investment involves the on road optimization through Orion and NPT.
The next phase of Orion enables the most powerful feature, real time decision making. You've also heard about the future benefits from our innovative network planning tools. These investments are strong profit drivers. Altogether, we anticipate savings and avoidance of the 4 initiatives together of $800,000,000 to $1,000,000,000 annually when fully implemented in 3 to 5 years. We'll use those benefits to push back against inflation, the dynamics of growing market and more importantly, it gives us the next technology platform for future advancement in our network.
By doubling down and accelerating investments like these into our smart network, we'll drive strong returns on capital. Over the next 3 years, our enterprise return on invested capital will be about 25%, extending our legacy of leading returns. Our goal is to balance the needs of the business with a return to the shareholders. It all starts with our ability to generate high levels of cash. Given our integrated global network, our significant scale and our focus on efficiency, we will continue to grow our strong operating cash flow, which drives our financial flexibility.
We expect to generate between $26,000,000,000 $30,000,000,000 over the next 3 years. And when we think about how we use this cash, our capital priorities remain the same. Let's take a moment to walk through them. Our first priority is to reinvest in the business and it's at the foundation that sustains our strong returns on capital. The fast pace of today's marketplace is driving tremendous innovation and disruption in the economy, and it offers UPS a great opportunity.
We're investing in proprietary software, automated facilities and aircraft for growth. These elevated investments over the next several years using a disciplined approach will ensure we remain the market leader in our industry. Our second priority is our generous dividend policy. Since our last conference, our dividend has grown over 24%. We've had a stable or growing dividend for almost 50 years.
And since we became a public company, our dividend has been a leading component of the UPS investment proposition, and it's grown about 10% on average over that period. Our target remains to be between 50% 55% for dividend payout ratio. And today, our yield is over 3% and that's well above the S and P average. The next priority is ensuring our balance sheet remains rock solid. By doing so, we have flexibility and options to fund strategic and opportunistic initiatives, to invest in both organic and inorganic growth, and to take advantage of opportunities in the best interest of shareholders and UPS and of course to absorb cyclical market volatility.
Late last year, we closed on the Markkan acquisition and we were able to make a pension funding decision allowing us to mitigate the increasing PBGC premiums from new legislation. And finally, we believe all capital that's left excess should be returned to the shareholder through repurchasing of our shares. We anticipate share repurchases to be in the range of $1,000,000,000 to $1,800,000,000 annually over the next 3 years. Our strong cash flow and the disciplined deployment of capital is an important component of our appeal. Focusing on capital deployment on reinvestment allows us to earn above our weighted average cost of capital and it creates the next generation of growing shareholder value.
So let's review our long term targets. I'll briefly touch on 2017, but I will spend most of my time on the following 2018 2019. I do want to make a quick remark on providing you the targets. The fast pace of change in today's marketplace and our plans, along with the other unknowns around the world have caused us to take a more measured approach in projecting the future. As a result, we're moving back to a 3 year target range.
And our view on this is based on the economic assumptions that are in forecast externally that affect our business. These assumptions and our expectations include the current consensus on global economic outlook, forward looking commodity prices and the geopolitical and trade policies around the world. In the U. S, GDP growth is forecasted between 2% 2.5%. Industrial production is expected to grow from today's level to over 2%.
And in global markets, the global GDP is expected to expand from today's level to about 3%. Now let's look at the financial targets within each segment. The U. S. Domestic segment will feel the effects of the significant projects underway.
From a cost perspective, we anticipate a drag of between $100,000,000 $200,000,000 in annual operating penalties as we implement Saturday operations, expand new capabilities and ramp up construction in 2017 and beyond. In the area of revenue, the revenue initiatives follow a philosophy to align price with cost to serve. This is a dynamic process to ensure we are properly compensated for the changes in product mix and cost to manage volume surges throughout the year. This year, we've implemented many initiatives to ensure the base rates are pulled through to the bottom line. Our pricing strategies balance the value we provide, the demands of our network and ensuring we receive the appropriate return.
Given all of our plans, market dynamics and external forecasts, we expect revenue for 2018 2019 to be in the range of 4% to 6%. Operating profit should expand in the range of 5% to 9% and margins will come in between 13% 14%. Now looking at international, during our Q4 call, we discussed that 2017 would be a transition year due to the currency hedge program. The new methodology for currency will take full effect in 2018. The strength in our international business is real.
We've had great momentum moving forward. In fact, our operating margins remain strong, and we expect 2018 2019 margins to be in the range of 16% to 19%. International shipments per day are expected to grow 4% to 6% and that will drive revenue up 5% to 8%. With all the initiatives that Jim reviewed, we're confident that the international business will continue our success and we expect operating profits to be up 8% to 12%. Now looking at Supply Chain and Freight segment for 2018 2019, we expect to see improved results in the segment.
All the business units will continue to rebound. Revenues expected to increase 4% to 8%. Top line improvements in 2017 from new acquisitions made in Truckload Brokerage and Healthcare will overlap in 2018. Operating profit should be up 6% to 10% and the margins for the segment are anticipated to be in the range of 6% to 8%. Looking at the company as a whole, we anticipate revenue gains of 4% to 6% with product, customer and lane mix affecting reported results along with stable commodity prices.
The timing of our current investments do create a layer in effect as benefits of bringing projects online are somewhat offset by new projects starting construction. This will mask the true results over the 3 year outlook. The combination of investments and the opportunities and challenge of growing in our dynamic market will continue, but we will also continue to bend the cost curve. Total operating profit will be between 5% 9%, and we will continue to deliver industry leading operating margins of between 13% 14%. We anticipate adjusted earnings per share to grow between 5% 10%.
Clearly, our investments are designed to deliver long term value. Our ROIC remains strong as the benefits of 1 integrated network transform into the smart logistics network of the future. Throughout this period, ignoring any U. S. Tax policy change, we anticipate our tax rate staying around 35%, but it will be impacted quarter to quarter as in the Q1 of each year, there's a new accounting standard on stock compensation that will change the Q1 reported taxes.
Our plan obviously includes a lot of moving pieces and the targets we're sharing reflect the impact of how we will sustain a long term advantage by balancing and managing the details of our operational effectiveness in the U. S, continuing to build our international capabilities, using vision and persistence in technology and applying innovative solutions for customers and in shielding yield growth, and together, all managed by a philosophy of prudent use of capital. To summarize, the future of UPS and our smart logistics network is bright. We are great stewards of capital and our investments will fuel a new era of efficiency and growth. We'll use our strong cash from operations to maintain and ensure we have a generous shareowner distribution policy.
The legacy of these great hallmarks and our future prospects make UPS a great high quality stock. And with that, I'd like to welcome back David to the stage to wrap up the presentation portion of the conference.
Please welcome back David Abney, UPS Chairman and Chief Executive Officer.
Well, good morning again. We've shared our vision for how we will invest, grow, and deliver. We discussed in detail our primary growth opportunities in e commerce, international markets, and specialized segments like healthcare. We also discussed our strategies to utilize partnerships and acquisitions to bring new capacity and special expertise into the company. You heard about the transformative investments we're making to create the smart logistics network of the future.
An integrated network that operates in real time is flexible in nature, global in space, and will fuel the next era of growth at UPS. We're investing to create a growth network that will enable us to deliver the returns that you expect. Looking forward, the biggest challenge we face is to respond to the growing demand for our services around the world. From exporters, companies with specialized needs and from the B2B and B2C companies riding the e commerce wave. As far as challenges go, that's a pretty good one to have and a very manageable one.
Meeting this demand for our services will require us to go through a period of investment by executing on the plans today we discussed will emerge a stronger, more efficient, more responsible, and a more profitable version of the company we are today. To recap the presentations from this morning, Myron walked you through what would be the most sweeping transformation of our network in decades. We're making investments in new automation, new sorting capacity and new technology like edge and NPT, and the next generation of our Orion initiative. In a few years, we will have dramatically expanded our capacity while generating $800,000,000 to $1,000,000,000 in cost savings and avoidance. Jim took you on a tour of our international business.
I hope you see why the international markets remain our biggest long term opportunity. We will continue to expand our global footprint, deepening and widening our network in the 220 countries and territories we serve. The investments we make will feed on themselves. That creates flywheel effect that Jim spoke of, where growth begets more profitable growth. You heard Kate discuss how we're using our physical assets and capabilities to deliver a new generation of solutions that build greater satisfaction.
By integrating My Choice with our access point locations, with our return services, including our new mobile return feature, we position our shippers to achieve levels of customer satisfaction that our competitors just can't match. You also heard Kate talk about our ongoing efforts to make sure our pricing reflects the true cost of service. Juan gave you an overview of the technology we're developing, much of which is proprietary, that optimizes our network. This technology will enable our network to flex and scale increasingly in response to real time changes in everything from demand to the weather. And of course, Richard walked you through the financials to show how we'll balance the need to reinvest with our commitment to delivering strong shareholder returns.
The good news is that at UPS, we know that as we execute on the many strategies we discuss today, our future is bright. I'm confident we will succeed. Because in addition to all the initiatives I just discussed, we have another asset up our sleeve, the passion and dedication of 450,000 UPSers around the world. Our people are the best in the industry, head and shoulders above the competition. Everything you heard today is their story, and it's our people who are writing the future of UPS.
The passion they invest in this company will ensure that UPS grows and delivers the returns that our shareowners expect. Thank you.