Welcome to our world. 2020 was a year of great challenges and also a year of remarkable excited about the progress we made in
the past. And we're excited about the progress we made in
the smart logistics network expanding into new market opportunities, continuing our commitment to diversity, equity and inclusion and the safety of our people and empowering UPSers to lead and shine. We are committed to sustainability, reducing our carbon footprint and emissions. We are innovating and focused on driving higher financial returns.
The world.
And so, we're very excited about the world. And so,
2021 Investor and Analyst Day. This morning, you'll hear from Carol Tomei, our CEO Kevin Warren, our Chief Marketing Officer Kate Gutman, our Chief Sales and Solutions Officer and Executive Vice President of UPS Global Healthcare Scott Price, President of U. S. International Philippe Gobert, President of UPS Supply Chain Solutions Juan Perez, our Chief Information and Engineering Officer Nando Cicerone, President of our U. S.
Operation and Brian Newman, our Chief Financial Officer. Also joining us from the UPS leadership team are Norm Brothers, Chief Legal and Compliance Officer Darryl Ford, Chief Human Resources Officer Laura Lane, Chief Corporate Affairs, Communications and Sustainability Officer And Charlene Thomas, Chief Diversity, Equity and Inclusion Officer. After our prepared remarks, we will take a short break, statements within the federal securities laws and address our expectation for the future performance or operating results of our company. These statements are subject to risk and uncertainty, which are discussed in our 2020 Form 10 ks, subsequently filed Form 10 Qs and other reports we file with the Securities and Exchange Commission. These reports, when filed, are available on the UPS Investor Relations website and from the SEC.
During our discussions today, we will refer to adjusted and other non GAAP financial metrics. The required reconciliations of these metrics are included in the presentation slides being posted on our Investor Relations website in connection with today's conference. I I also want to draw your attention to a change in naming convention within the UPS segments. As previously disclosed, As a result of the sale of UPS Freight, the Supply Chain and Freight segment is being renamed the Supply Chain Solutions segment. We have a great program for you.
So let's get started. It is my pleasure to introduce our CEO,
success. Good morning. And on behalf of the UPS executive leadership team, thank you for joining us. Here's a brief overview success on our customer first, people led, innovation driven strategy, including our wildly important initiatives. We will update you on our ESG strategic commitments and provide you with our 2023 financial targets.
And lastly, through our Q and A session and various breakout groups, success. You'll have an opportunity to interact with the UPS executives who are implementing our strategy. Success. I'd like to take you back to June 1, 2020, when I stepped into the CEO role. That week, the UPS executive leadership team established 5 core UPS principles, principles that we did not intend to change and principles that would underpin our actions.
As a reminder, Those principles are our values, our commitment to a stable and growing dividend, retaining a strong balance sheet and credit rating, success, our focus on brand relevance and finally, the importance of employee ownership. In that first week, success. We'll talk today about how our strategy is enabling us to achieve these goals. In the year 8 days since I arrived, We are using our framework of better, not bigger to focus on what matters the most to our customers and drive improvement in our financial performance. We've made good progress.
Let's review some recent accomplishments. We launched revenue quality efforts success to focus on the best opportunities in the market and ensure we are compensated for the value we provide. We've greatly improved our competitive transition through our fastest ground ever and weekend initiatives and digital access program. We focused on diversity and inclusion training and success. We're very pleased with the progress we made in the success with the interest of share owners.
We changed the way we allocate capital to focus on the highest returning parts of our portfolio. We adjusted the network to respond to the changing global market. We sold UPS Great, eliminating a low margin and highly capital intensive business. We dramatically expanded our healthcare logistics business. Success.
And as of late May, we've delivered more than 300,000,000 COVID-nineteen vaccine doses worldwide with 99.9% on time delivery. We reverse engineered many of our past practices that with time had become over engineered and we moved to a more agile decision making environment. We've strengthened our balance sheet by repaying $2,550,000,000 of long term debt and reduced our pension liabilities by $6,400,000,000 And we've done a whole lot more. But what's most inspiring to me is that UPS'ers did all of this while managing through COVID-nineteen. And for that, I am so very proud of our team.
Now, we're not taking these accomplishments for granted. In fact, we're just getting started. We are writing the next chapter of the UPS story. The next chapter of UPS is multifaceted. In short, to borrow from Jim Collins' Good TO Great.
Success. It's about focusing on what we're passionate about. What we are best in the world at success and what drives our economic engine. So what success. What is UPS passionate about?
We are passionate about our purpose, moving our world forward by delivering what matters. This is not just what we do, but why we do it. Our purpose taps into our desire to serve our customers, inspire our people, care for our communities and live our values. Success. And what are we best in the world at?
Savings. We believe our global smart logistics network is best. Success as well as best in class service levels. But it isn't just about the network. It's about the customer experience.
Success. We aspire to provide the best digital experience powered by our global smart logistics network. And lastly, what are the drivers of the UPS economic engine? It starts with effective capital allocation and making investments success to give UPS the right to win in the market as well as drive productivity and efficiency. We are pushing ourselves in terms of reimagining our network design, adopting new technologies and sweating our assets.
Success. The productivity will starts turning. It doesn't stop. You'll hear from Nando and Juan later today on how we've started to ignite the productivity flywheel. Now today's session is about looking forward.
Success. UPS operates in a large and growing marketplace. This chart represents the total global small package market. Success. The market is projected to grow to about $600,000,000,000 by 2023, driven in large part success by expected strong growth in cross border e commerce.
Looking across the chart, the global small package market reached an inflection point in 2020 due to the onset of the pandemic. Prior to 2020, sales. Revenue in the market was growing around 10% per year. Then in 2020, the annual growth rate jumped to 16%. This pull forward of demand outpaced supply.
The market is expected to continue with a double digit growth rate through 2023. So we anticipate global demand for small package services success to outpace capacity in the industry for the next several years. Now turning to our view of the U. S. Market.
We expect the market will more than double over a 6 year time frame, going from $91,000,000,000 in 2017 to $195,000,000,000 in 2023, Not volume share. Today, we are the number one small package carrier in the U. S. As measured by value share or in other words, revenue. And we expect to remain the leader here.
Now let's dive a little deeper into projected U. S. Market growth. To grow above pre pandemic norms. We estimate average daily volume here to grow nearly 20% between 2020 success.
And in this area, our integrated network provides us a significant competitive advantage. Success. As the number of online SKUs and online consumers continues to grow, the complexity of supply chains will increase even further. Success. As a result, we expect demand for end to end delivery services to remain high.
So what does this all mean for UPS? Success. Well, it means that in the U. S, UPS intends to grow in the parts of the market that value our network like B2B, Healthcare and SMBs. Kate and Kevin will address our growth plans in these areas later today.
And outside of the U. S, success. We also intend to grab value share, as Scott will describe. But intent is not a strategy and vision without action is just a dream. So let me turn and talk about our wildly important initiatives that enable customer first, people led and innovation driven strategy.
Starting with customer first, this begins with providing a frictionless end to end customer experience. In other words, making the experience simple and helpful. When we listen to our customers and provide the capabilities that matter the most to them, they stay with us. While we've made some progress here, We've got more work to do. We will track our progress by measuring gains in our Net Promoter Score or NPS.
In 2019 in the U. S, our NPS was 37 on a scale of 1 to 100. We want to take our NPS to greater than 50, which will be market leading in today's world. Customer first also means being brand relevant. In the U.
S, UPS has high brand awareness, but our relevancy success. We have plans to address both the customer experience and brand relevancy, which Kevin will describe. Now, let's move to the second element of our strategy, people led. People led focuses on the employee experience success in making UPS a great place to work. Our performance here is measured by how likely an employee is to recommend others to work at UPS.
Success. At the end of 2019, our likelihood to recommend metrics stood at 51% globally. Sales. On a scale of 1 to 100, that's not where we want to be. So we've wasted no time getting to work on this.
Success. To elevate diversity and inclusion across our company, we established the role of Chief Diversity, Equity and Inclusion Officer and reorganized our functional structures to create fewer but more impactful jobs. Additionally, we have adjusted our management performance measures to better align with the interests of our shareowners. Starting this year, Our incentive performance measures include consolidated revenue growth, consolidated operating profit and return on invested capital. Our people led goal is to move our likelihood to recommend to greater than 80%.
And I'm happy to report early progress here. So far, We've seen a 6 percentage point improvement in this metric from 1 year ago. Moving to the last leg of our strategic platform, innovation driven will be measured by consistent increase in return on invested capital. As you will hear from Brian, we aim to drive our return on invested capital success to as high as 29% by 2023. To get there, we intend to drive more productivity from the assets we own.
We will leverage our network to improve time in transit, including weekend deliveries, which adds capacity without adding capital investment. And we will invest in automation and we will continue to invest in a digital experience for our supply chain solutions customers. Juan, Nando and Philippe we'll give you more details in this area. Now I want to focus on a topic that's extremely important and that's ESG. My comments today will focus on our environmental sustainability goals.
As an innovation driven company guided by a strong purpose, Our culture centers around the values established by our Founder, Jim Casey. Jim believes that we should give back to the communities we serve and that we have a responsibility to all stakeholders for social and environmental stewardship. We have a long history of environmental sustainability. In fact, we operate a rolling laboratory of over 16,000 alternative fuel and advanced technology vehicles that drive more than 1,000,000 miles sales per day. And our plans are to do much more.
I'm pleased to announce our pledge to be carbon neutral success in all of our operations by 2,050. Our commitment takes a comprehensive approach across scope 1, 2 and 3 emissions. Success. Our road map to 2,050 is based on sound engineering principles and a fiscally responsible approach. We have set targets along the way to help show our progress.
They include, by 2025, 25% renewable electricity for our facilities and 40% alternative fuel for our ground vehicles. By 2,035, a 50% reduction in CO2 per package delivered for our global small package operations. And by 2,035, We will power 100 percent of our facilities with renewable electricity and we'll run our air fleet with 30% sustainable aviation fuel. Now, Brian will provide more details, but let me end by sharing our 2023 consolidated financial markets. By 2023, we are targeting revenues in the range of $98,000,000,000 to $102,000,000,000 Operating margin in the range of 12.7% to 13.7% and return on invested capital as high as 29%.
Success. I'm so excited about what the future holds for UPS. Through our better, not bigger strategic framework and our customer first, people led and innovation driven strategy. We are writing the next chapter of the UPS story, a story of a company with a proud past and an even brighter future. Thank you for attending today.
And now I'll turn it over to Kevin.
For UPS, SMB represents a huge opportunity. On a global basis, according to the World Bank, 90% of all businesses are categorized At small or medium enterprises and we're under penetrated. It's a global addressable market of 37 500,000 packages per day based on 2020 data. And while we've made good progress, We still have opportunities to improve and gain market share by focusing on the wildly important, Which is led by enhanced digital experiences. Before we dive in, I'd like to broaden the conversation around who our SMB customers are And where the opportunity lies.
The term SMB includes everything from a single person shipping on a platform enabled by our digital access program or DAP, all the way to a medium sized business that has hundreds of employees. And while we serve many medium and small businesses, the sheer quantity of micro and platform businesses represents a large opportunity for UPS. Now let's dive a little deeper into that opportunity. SMB volume growth in the U. S.
Small package market in 2020 was greater than a typical year propelled by pandemic drivenecommercegrowth. This market growth is not only expected to hold, but accelerate further Over the next few years, much of this acceleration like pre pandemic trends, we expect to be in B2C And volume growth from SMBs is expected to accelerate from e commerce opportunities. The B2B portion is also expected to experience faster growth in the next few years, benefiting from a multi year inventory restocking and business investment cycle. And SMBs were expected to play a significant role here as well. In fact, volume in the overall SMB portion of the market is expected to accelerate From a pre pandemic growth trend of 3% to a post pandemic growth trend of 8%, Giving plenty of room for us to grow.
And while much of this market acceleration should occur in medium sized businesses, Nearly half of all SMBs market growth is expected among platform and marketplace merchants. There's no doubt that our industry is evolving. Supply chain are becoming more digital and customers are expecting frictionless experiences. And when I say customers, I'm not only talking about shippers, I'm also talking about recipients, including businesses, consumers and patients. And these recipients are more empowered by technology than ever.
So what gives us the right to win with SMBs? UPS' success has always been rooted in the advantages our integrated network provides to customers and our industry leading reliability. And as you know, we've added more speed on the ground between key markets in the U. S. And And we're making enhancements to our weekend capabilities to increase our competitive position.
Future success for UPS will also require us to adjacent opportunities, including pricing agility, e commerce platforms and fulfillment. And we're also improving the UPS experience Through capabilities and technologies, the SMB customers value and are willing to pay for. In addition, we're improving how we acquire, engage and support customers across 16 journeys. And as Carol discussed, we're tracking our progress using the Net Promoter System. Through this process, we've learned that we're strong in some areas like reliable delivery, but we have some work to do in others like onboarding and support.
To illustrate our progress, I'll take you through the journey of a customer. We'll call her Nicole. So let's say that Nicole is selling skateboards via her website and she has a great product and solid marketing channels. She's ready to partner with UPS and she wants our help to get set up and understand what it will cost to ship with success. Up until this year, this initial step of pricing our services wasn't easy for customers like Nicole.
Our customers told us we needed a pricing process that was faster and easier to understand. We listened And over the next year and a half, we're rolling out our new global pricing platform enabled by our next generation profit initiative, Which Brian will tell you more about shortly. Our new pricing platform uses a world class SaaS solution to simplify and expedite the pricing process. And it uses pricing science to help us get the pricing right The first time, ultimately helping our sales people be more effective and enabling our customers to begin shipping sooner By saving up to 3 days of valuable time. This initiative includes self serve capabilities on ups.com Designed specifically with SMBs like Nicole in mind.
So fast forward, Nicole's UPS account is set up and she started shipping her skateboards to customers. Now as recipients, we've all experienced this before. You order something online, get the tracking notification And then refresh that page religiously until your shipment arrives. There are 61,000,000 customers tracking packages on ups.com every single day. Tracking is an important touch point on the UPS journey, But our experience lagged the competition, so we raised the bar.
In just 4 months, we launched over 150 enhancements success to our core tracking experience with further improvements coming this summer. Fast forward again, It's time for Nicole to pay her bill. Until recently, our customers told us that our billing system Was too complex and too hard to navigate. So we introduced a new industry leading billing solution, Helpful for our SMB customers who don't have the time or resources to navigate complicated billing systems. Our final stop on the Kohl's journey is claims.
Our customers told us that the UPS claims process was too slow, So we piloted a new claims approach. Through automation and procedure changes, we reduced the average amount of time it takes to process the claim From 20 days to just 5. And our ultimate aim is to resolve standard claims during the initial engagement. Plans are now in the works to scale this pilot to all U. S.
SMBs. We're making the investments needed experience to be more helpful and simpler for our customers. I already mentioned our tracking and billing improvements. We're also revamping other parts of ups.com, including design, navigation and our mobile experience. And of course, we can't talk about the digital experience without a progress update on DAP.
DAP is connecting UPS to more SMBs than ever before. The program has grown to nearly 1,000,000 customer accounts And we're on track to exceed our $1,000,000,000 revenue goal this year and that's just in the U. S. We're exploring more opportunities to expand our DAP program including advancing new partnerships and leveraging existing relationships. And new pilot expansions are currently underway in the UK and Canada with near term plans to expand around the globe, which is a perfect fit with our international growth initiatives.
As we look toward the future, We know that we need to continue to up our game and we need to make inroads across generations, especially emerging Gen Z and diverse decision makers. As Carol mentioned, we're measuring our brand relevance by evaluating customer perception of UPS Across three areas consideration, momentum and environmental, social and governance or ESG. We talked to S and B Shipping Decision Makers to understand how the UPS brand is perceived in key markets around the world. And we asked them, If you saw UPS at a bar, who would we be? The answer, middle aged man with a comb over drinking a whiskey.
We want to be seen as modern and moving forward, not your grandfather's UPS. So we're taking action To advance our reputation from trusted but stodgy shipper to a contemporary digital forward global logistics leader. And our Be Unstoppable digital marketing campaign along with other efforts is helping position UPS as a modern innovative brand That's moving the world forward. We want to get SMBs excited about what we can do together. In conclusion, I'm confident that UPS is creating the solutions that matter the most to our customers with great experiences that will continue to win with SMBs.
We've made significant progress already and we're just getting started. We're incredibly excited to continue down this
18 months ago, In January 2020, we announced the formation of UPS Healthcare with the aim of becoming the global leader in healthcare logistics. Little did we know that just around the corner was the biggest pandemic the world has ever seen. We brought together 20 years of health care supply chain experience with over 11,000,000 square feet of warehouse space across 32 countries, including significant capacity that is compliant with good distribution and good manufacturing practices, enabling us to store biologics, pharmaceuticals and medical devices. Success. And finally, our portfolio that serves lab and specimen logistics, the end to end cold chain needs of the pharma industry and the specialty services of our clinical trials and cell and gene solutions.
Our health care solutions were well aligned success to help fight the pandemic. Most importantly, leveraging our expertise and end to end capabilities, We work closely with pharmaceutical manufacturers during the clinical trial phase of COVID-nineteen vaccine development, success, giving us early insights into the unique logistics requirements for many COVID-nineteen vaccines. Success. From this, we quickly expanded our cold storage capabilities and stood up freezer farms. We implemented our own dry ice production, and we leveraged UPS Premier to provide priority handling and enhanced visibility and monitoring to COVID-nineteen vaccine shipments.
As of late May, It's amazing how far we've come in a short time. We have more capabilities now success than we had just 12 months ago. In fact, in 2020, we saw health care revenue sales increase by $860,000,000 across all segments, and we are targeting success even higher growth each year through 2023. Now I'll share what we see happening in the marketplace and some of the growth opportunities going forward. The pandemic accelerated the need for better global infrastructure and other critical health care focused innovations.
We view this as a structural shift in the marketplace and one that offers tremendous growth opportunities. So here are some of the numbers. Today, over 55% sales, which are being developed at a very rapid pace. By 2025, the biologic success. The drug industry will be over $560,000,000,000 and will represent over 48% sales.
Lifestyle diseases such as heart disease, cancer and diabetes continue to grow at a rapid pace. In the U. S. Alone, 6 out of 10 adults have 1 chronic condition and 4 out of 10 have 2 or more chronic conditions. In addition, our global populations are suffering from these conditions earlier in life.
Savings. However, biologics are extending our lifespans. This means that more biologics will be needed by more people success and over a longer period of time. As we look ahead, we anticipate there will be accelerated demand for global health care logistics. All of the expertise we have is to serve the needs of highly complex and high touch health care supply chains, End to end temperature control, speed, precision and compliance are nonnegotiables.
Success. We will meet the demands of the industry by providing the solutions that matter the most to our customers. Success. In total, across our three segments, we expect health care revenues to grow at a 12.3% CAGR from 2020 and reach around $10,000,000,000 by 2023. And generally speaking, as complexity increases, savings, a comprehensive suite of cold chain technologies and capabilities that provide complete end to end temperature controlled logistics.
And in terms of technology, our UPS Premier product offers an upgrade for health care shipments success with advanced sensor technology. All of our U. S. COVID-nineteen vaccine shipments success. And it is this product that enables our near perfect delivery performance.
Success. We have plans to expand UPS Premier to Europe and Asia in the coming months. Moving over to our efforts in packaging. We continue to generate new and unique operating models to offer our customers best in class cold chain packaging options. We pride ourselves on being able to furnish packaging for any transit duration at any temperature success and in any size.
We will be standing up a packaging center of excellence in Louisville, Kentucky, lifestyle diseases that are driving this surge in biologics are also increasing the need for regulated and non regulated medical devices, success such as heart stents, insulin monitors and diagnostics equipment. This increases demand for our health care offerings. Moving to Labs and Diagnostics. We are continuing to make gains here, including new technology and tools success to enhance the clinical site customer experience. Take, for example, our early extract program, and has enabled us to both win new customers and grow existing ones.
We have plans to expand our lab program in Europe success and continue to invest in creating new solutions for the lab industry. And looking at Marken, extracts a blood draw or other biological sample from a patient. The sample is then delivered by UPS to a manufacturing location where its cells are reengineered for treatment. The therapy is then delivered back to the patient's home by UPS and again administered by a nurse. The pandemic has accelerated home health care demand and this kind of patient focused end to end solution was not possible a few years ago, but the speed of our network, technology and expertise in this space achievements we've made in our quality system.
Quality is at the core of our solutions, success, which are designed with a high level of service excellence to ensure the safety and efficacy of the products that impact the lives and well-being success of patients around the globe. We've invested in a world class quality management system that enables effectiveness, agility and regulatory compliance. We also know that delivering high quality success and confidence in our ability to deliver strong growth and expand our business. We see many opportunities ahead within the health care industry. Success.
And UPS Healthcare is well positioned to continue leading the market. Thank you. Success. Next up is Scott Price.
Success. We are in every corner of the world, that
we're excited
to see the opportunity to deliver on our efficient airfreight network and the fastest transborder ground network in Europe. Leading the industry in sustainability success. With more packages per plane, we operate fewer flights, enabling us to move more payload and burn less fuel. By 2,035, success. We'll run our air fleet with 30% sustainable aviation fuel.
We are on the front lines of customer experience, we're also seeing a lot of growth in our business. We're also seeing a lot of growth in our business. We're full service support helping customers comply with the ever changing and complex rules, regulations and laws covering international trade. We have the efficient air fleet, the strongest air network and customs brokerage operations in the industry. At UPS, our our integrated global smart logistics network is the most extensive and efficient in the industry.
We are connecting our customers to international market. And we're
very pleased
with the progress we made in the past. And we're very pleased with the progress we made in the past.
That video is a great behind the scenes look at our international air operations. An agile integrated network with industry leading expertise, Supporting UPS customers in more than 220 countries and territories. Today, I'll provide an overview of the international market and discuss our wildly important initiatives. But first, let me highlight some of what makes our international business unique and the most profitable in the industry. As you can imagine, it's the combination of multiple elements.
First is our fully integrated global air and ground work, which includes 22740seven-eight freighters, the largest and most efficient freighter aircraft in the world. And our fleet will grow to 20 8740seven-eight freighters by early 2022. 2nd, UPS has the fastest transborder network in Europe, which is supported by more than 45 years of local market know how. 3rd, UPS provides access to the largest U. S.
Delivery footprint of all the integrators. Next is our people and their global expertise to help our customers optimize even the most complex supply chains. And finally, is the flexibility and scalability of an asset light delivery network with highly variable costs. The power of our international business model is clearly visible within our financial performance and we expect to continue to lead the industry moving forward. Now, let's turn to the market.
In 2020, The total international small package addressable market was $86,000,000,000 with around 58% of the market made up of cross border shipments revenue will grow at 6% CAGR from 2020 to 2023. What a great opportunity for us to continue to expand our market share, grow profits and maintain high margins with our asset light approach. Additionally, air capacity is expected to remain constrained. We estimate that BellySpace will not fully return to the most material trade lane, the Asia outbound lane, until 2023. And we anticipate keeping our new customers even after passenger belly space fully recovers, due in part because the services and value we offer will be difficult for customers to do without.
In addition, heightened demand for cross border e commerce is anticipated to extend the capacity imbalance in the small package market. For UPS in 2020, we saw B2C volumes increase by 75 Our objective is to gain share and grow faster than the market, just like we have over the past few quarters. Now, Let's talk about the actions we are taking to do that. It comes down to 3 wildly important initiatives. 1st is enhancing our network capabilities like time in transit.
2nd is expanding into new and existing markets through our asset light strategies. And 3rd is continuing to enhance the customer digital experience. Let's start with transit times. We are already fast, but there are few areas where we can be even faster. We will make additional improvements between markets in Europe over and above the time and transit advantages we enjoy today.
Additionally, we have identified significant opportunities to improve connections on Intra Asia Airlines. Beginning next month, we are launching a new daily flight from Osaka Shenzhen that better connects multiple countries within Asia. This will improve time and transit by a day between the countries that generate over 80% of Asia Pacific's GDP And from Japan to nearly all of Europe. There are similar changes ahead in other parts of our Air network and you can expect more announcements like this moving forward. As I mentioned in my opening remarks, the asset light approach of our business offers us a great pathway for accelerated growth.
We've identified around 40 markets, mostly in Asia, West Africa and Latin America, where UPS is underpenetrated and has the highest opportunity for market success. Our asset light plans include expanding partnerships with companies around the world that offer cost effective in country deliveries and that bring new export business into the UPS network. These partnerships will take the form of joint ventures, agents or outside service providers, also called OSPs, depending upon the competitive situation and norms of the market. To accelerate growth with our OSPs, we are launching a new program called PartnerHub that provides our existing OSPs procurement scale OSPs also value the global reach of UPS and the credibility of the UPS brand. This program will allow us to gain share within the existing markets we serve and also attract new OSP partners.
Much like what Kevin talked about earlier today, we see many opportunities to improve our digital experience, especially for SMB customers. Needs of the smallest and most profitable customers in the market. Let me tell you how. We are making it much easier for small customers to connect and ship an international package with UPS. To give you some context, package with UPS.
To give you some context, last year, customers that went to our website to ship a package had to enter 10 pieces of information, including the full origin and destination address information and exact measurements for length, width and height of the package before getting a price or creating a label. In fact, because of the complexity, many customers simply abandon the process at ups We have completely redesigned our shipping process in many countries. Now customers can use a mobile app that allows them to take a picture of a package, Select the origin and destination country, get a price and then ship within minutes. How easy is that? As a result of our changes, small businesses are now 32% more likely to complete the shipping transaction at ups.com.
And most importantly, UPS adds high yielding SMB packages to our network and greatly improves our odds for gaining repeat customers. And to make access to UPS services even easier, we're rolling out our digital access program or DAP internationally. Dapp has improved the digital experience in the U. S. And we believe it can also simplify shipping for platform users in other markets.
Negotiations with potential DAP partners are currently underway in many geographies, and we expect to begin multiple implementations in the coming months. Making international shipping easier includes making the customs experience easier too. You can't ship across borders without the required customs documents and sometimes duties and taxes. We know shipping a package across a border can be very complicated and even intimidating. There are forms to fill out, harmonized tariff codes that are needed, categories to decipher and values to declare.
Systems. And it will not move again until the discrepancy is resolved. For many SMBs, this can be a real expansion barrier. To make the whole experience easier and less intimidating, UPS launched what we call international knowledgebase on ups.com. To identify the products a customer typically ships and guides the customer to correctly identify the harmonized tariff code.
Customers experience fewer delays and shipments get to recipients on time. The tool also provides shippers with the landed cost, So no surprise taxes or fees after the package is shipped. The result, fewer return shipments and happier customers. International knowledge base is currently facilitating around 8% of our global export packages, And we anticipate a ramp up to around 60% by January 2022. And I'll quickly add that when we focus on improving the customer experience, We mean shippers and recipients.
Given the growth in B2C shipments, the recipient is a very important part of the transaction. So we are making investments to better serve recipients too, by providing a 2 to 4 hour delivery window on the day before delivery and the ability to follow my package through a live map view on the day of delivery. With new technologies like these doing business across international borders is as easy as doing business across town. We are focused on what matters the most to our international customers, speed, ease and no surprises. And though we've made a lot of progress, there's more to come.
And we fully expect our initiatives translate into market share gains and help us achieve our goal of growing operating profit. In fact, we are targeting to increase international operating profit from $3,500,000,000 in 2020 to between $4,300,000,000 $4,600,000,000 in 2023. Brian will share the details with you shortly. And now, I'll turn it over to Philippe.
Good morning. The world is changing and becoming more digital every day. Success. And that is absolutely true with supply chains. So our goal is to provide the best digital experience powered by our global smart logistic network.
Supply Chain solution comprised of forwarding, truckload brokerage, logistic and distribution is continuing to invest in creating frictionless and interconnected digital experiences for our customers. We are very busy in place. It's about making it easier For all customers to do business with yes, large, medium or small, next door or another continent. And as e commerce become a larger part of the global economy, our digital capabilities must be extremely flexible and connect across the entire supply chain. So what does the digital experience look like?
It's digital connectivity that goes across hundreds of UPS warehouses, all mode of transportation, custom data and much, much more. Everything accessible and connected through mobile apps, dashboard and platform, Giving our customer access to real time information, visibility and more control over their supply chain. Let me give you three examples of how we are helping our customers. Take e Commerce and Inventory Management. In today's world, e commerce companies sell product every day on multiple platform.
And in some cases, It's a different product on each platform. So you can see how supply chain complexity can quickly overwhelm companies. Without clear visibility across the entire fulfillment process, delays, stockouts sales can be the results. With UPS e Fulfillment, our online fulfillment portal, We take over the entire supply chain, doing everything from inventory management through pick, pack and ship, freeing up our customers to focus on increasing their reach and growing their businesses. And e fulfillment customers stay in control with shipment visibility, competitive and dynamic pricing rules and inventory management And it's all inside the cloud and available anytime on any device.
These capabilities became essential to many
of our
customers in fact, we saw e fulfillment revenue more than double year over year in 2020 and it's just getting started. Over at Coyote, UPS Truckload Brokerage Operation, we used a similar approach, giving customers the power of visibility and control in the palm of their hand and as a core part of the digital customer experience. Thanks to CoyoteGo, our on demand portal and mobile app, even our smallest customers can go online, get quotes, book their shipment, track progress and pay their bill with an easy to using interface that doesn't require them to be an expert in logistics. In fact, when we look at the Q1 of 2021 compared to a year earlier, active shippers on Coyote GO more than doubled And revenue on the platform was up 57%. We are not just bringing customers to the platform.
We are keeping them on it. And they are growing their business with us. In addition, we have made it easier for commercial drivers to do business with Coyote 2. Coyote GO allows drivers to signal their availability, immediately book a shipment and preset rates and or negotiate directly with Coyote and provide status update along the way to the shipper. And because there are more trucks on the road these days trying to serve the boom of e commerce, there's an increasing demand for parking and staging space.
That's a huge problem for commercial drivers. They are burning time on the road looking for a place to park. So we integrated Tiote Go for drivers with Truck Park, allowing carriers to see available parking on the app and website. It makes the transaction more productive by avoiding wasted time and gives drivers confidence that they will be able to make the pickup and get on their way. Providing digital connection between supply and demand, between shippers and recipients enable greater control and a better experience for everyone.
And in a world where minutes matter, we're embracing digital across our portfolio. Another example is what's happening in Global Freight Forwarding. Previously, most of our freight forwarding customers booked and confirmed shipment via e mail or over the phone. This was slow and time consuming. To speed up bookings and eliminate overheads, UPS customers can now book freight forwarding shipment completely online.
Customers can simply go to the UPS forwarding hub via mobile desktop of tablets and get air or ocean freight quotes, Schedule pickup and delivery, move shipment between modes, manage custom brokerage and track progress, All from a simple and highly intuitive interface. And we are evaluating additional enhancement to the UPS forwarding app. We are not stopping with the 3 services I just covered. As supply chain grows more complex, customers are demanding greater access to information. And it all needs to be in one virtual place available as it happens.
And we are giving our customers what they want. Customers. As the lead logistic provider, UPS give near real time visibility to product flows across their supply chain, including data from numerous third party and all through a single sign on. The Symphony platform has been built to be intuitive, secure and keep customer connected and in control. What's more, Symphony is extremely flexible.
We are using agile development to enable quick turnaround when introducing new enhancements. Our vision is to evolve Symbony into a predictive and prescriptive analytics, enabling customers to better analyze results, Inde Defy trend and leaning to new opportunities. And we are using customer input and machine learning to get us there. Supply Chain Solution is building fully digital ecosystem that will provide unparalleled level of automation and efficiency to our operations. And we are providing our customers with greater visibility and control.
Through improvement in customer experience and TK Digital Solution, we are ensuring they will continue to ship with us. This is what I call a win win. We look forward to updating you on our digital progress. Thank you. Juan is up next to share the latest with our technology efforts.
Good morning. At UPS, our second to none technology underpins everything we do. It is critical to advancing our wildly important initiatives UPS is truly a technology company that provides logistics services to our customers. And this morning, I'm going to talk about how we are using technology to make our smart logistics network even smarter. It's about technology that achieves multiple objectives, including enhancing the customer experience, optimizing our network, better utilizing existing capacity and reducing our carbon footprint.
During our technology journey, we're taking a blended approach. We're advancing our internal technologies like our network planning tools known as MPT, Our Orion Technologies, short for on road integrated optimization and navigation. We're leveraging cloud technology, and we've expanded use of best in class software as a service providers in areas where it makes sense, like with HR, billing, customer service and many others. And we're currently working on and testing cutting edge solutions in operations and customer facing solutions like robotics, artificial intelligence, virtual reality, data analytics, virtual assistance and so much more. Our advanced technology group continues to support our drone delivery efforts through flight forward and the use of vision systems to improve the utilization of trailers and many other assets across the network.
Additionally, over the past 4 years, we've added more than 22 point 5,000,000 square feet of automated sorting capacity to our global network through expansions and many upgrades. This equates to about 1,300,000 additional pieces per hour of capacity and very importantly, A reduction in the number of times that we handle a package. What's more, it is all digitally enabled. Have greatly improved the agility of our network and have allowed us to better serve our customers. And as a result of our capacity and technology investments, We have been able to support unprecedented demand for our services and enable our financial performance.
The good news is that there is just so much more to come. Moving forward, we will continue to invest in technology and in growth capacity In many more cost effective and innovative ways, there's much more of that to come. Our air and ground network optimization programs And our asset light expansions are enabling us to get more out of our existing assets, especially during the weekend. And with new innovative technologies, we're better able to respond to changes in market demand, volume surges and shocks related to weather and of course, COVID-nineteen. Here's a recent example.
When severe weather struck the Southeast in February, NPT helped us minimize network disruptions by applying advanced analytics to help us route volume around the impacted areas, adjust to volume shifts and ensure that we provided capacity where it was ultimately needed. We have completed the development of several components of our MPT platform, including demand, package flow planning, load planning and movement scheduling. This year, we will complete the development of the MPT platform with additional movement and scheduling optimization capabilities, helping us make our network more efficient. This technology has allowed UPS to avoid approximately $250,000,000 success of cost in our transportation network since 2019, with additional benefits expected in 2021 and in 2022. And in terms of our delivery driver routes, we're also seeing significant benefits with our latest enhancements to Orion.
We call this latest version dynamic Orion. The new features present our drivers with reoptimized routes based on changing conditions and provide them turn by turn directions to reduce excess miles. And the initial results point to a reduction of an additional 2 to 4 miles per driver per day, which is in addition to the reduction of 8 miles per driver per day from the original Orion deployment. Success. I'm happy to say that we are now 97% complete in this latest deployment, and we expect full deployment by the end of July.
This is truly a win for UPS productivity and for the environment and amounts to a reduction of more than 130,000,000 miles driven and sustainability through all of our solutions. To this end, we have also invested in a company called Arrival, which makes electric vehicles with autonomous capabilities. UPS has already committed to the purchase of up to 10,000 electric arrival vehicles And we have secured an option to buy another 10,000. We are conducting initial tests now within our network and early results are very positive. They will start joining our fleet beginning next year.
These vehicles offer sustainability benefits as well as fuel and maintenance savings, And we remain committed to exploring many other choices as new companies and solutions emerge. We're also testing electric shifters on UPS property. These are those vehicles that we use to move trailers within our yards. These shifters have 0 tailpipe emissions and include unique battery swap technology, which greatly reduces the idle time necessary for recharging them. As an added bonus, the vehicles are fully equipped with cameras, with sensors and multiple sophisticated algorithms to improve overall safety.
Now let me share yet another example with you. I'm extremely excited about this one. UPS' recent commitment to purchase 10 electric vertical takeoff and landing aircraft from Beta Technologies, and we have the option to buy 140 more. At this time, these aircraft have a range of about 2 50 miles and can carry up to £1400, but it only takes 1 hour to recharge the batteries. So to simply imagine the possibilities with the ability to fly packages directly from airports to our facilities and even to our customers' locations.
Success. This type of technology solution will speed up our network, will improve productivity and could eliminate ground feeds, package handles, small gas feeder aircraft as well as carbon emissions. As this technology gets proven, We see more opportunities to expand its use within our network, whether it's our existing rolling laboratory of more than 13,000 alternative fuel vehicles, New technologies like arrival in the beta aircraft or eco responsible packaging programs, UPS is fully committed technology to meet our customers' needs for growth capacity. Everything I just covered, our automated facilities, NPT or iron, electric vehicles, the beta aircraft that we will soon add to the network work just as well on a Saturday as they do on a Tuesday. So we're further expanding our weekend operations.
In fact, we can add significant network capacity without a lot of CapEx. Success. Our plans are to expand today's Saturday coverage from about 75% of the U. S. Population to around 90% by October Throughout the entire week, it also allows us to speed up our network and expand our Sunday Surepost delivery coverage.
Additionally, our Surepost matching rules still apply, meaning that if there's a UPS package and a Surepost package destined for the same address, Our algorithms will automatically match them together so that they can be delivered by UPS, creating density and reducing our delivery costs. But most importantly, UPS customers continue to get expanded services for residential as well as for commercial pickup and delivery. This is especially important to our small and medium sized business customers. Now let me tell you a little bit more about how technology is enhancing the customer experience in terms of visibility and control. And in these areas, we're developing innovations that will again transform The way that we enhance our services and the way that we manage our network.
One example is the advancements that we've made in our health care solutions with the use smart sensor technology. Our UPS Premier packages are wrapped in sensors that ensure their place in a priority lane within our network. This technology gives us a level of visibility and control unlike Anything we have had before, think about this. Our cash facility in Chicago is about 1,900,000 square feet. That's equivalent to more than 39 football fields.
With UPS Premier Sensor Technology, We can pinpoint the location of a critical health care package to within 2 meters inside of Catch. It is that proverbial finding a needle in a haystack problem. Our objective is to expand the use of this solution to other packages success. There are many, many other ways we're expanding the use of technology inside of our operations. And we're continuing to explore and implement robotic solutions in our facilities and automate small sorts to get more productivity out of our existing assets.
To better describe the impact of new technology solutions in our operations, let me share yet another example. We developed a UPS mobile delivery app That turns personal cell phones into diets. Those handheld delivery information acquisition devices our delivery drivers use every day. This solution allows us quickly to enable resources to perform work for UPS during those periods of high demand without the need for expensive hardware. With almost 40,000 downloads during our peak period last year, The app enabled industry leading service during our busiest peak ever, and we'll do more of that this year.
And throughout the use of mobile technologies, we have simplified and reduced the time it takes to train resources during preparation for peak. Technology that leads to efficiency and better customer service. That's what we love And there's much more on the way, like automated systems for loading and unloading packages, which we are now working and experimenting with. We expect these kinds of initiatives to have material benefits in efficiency, in safety and in service. 1 of our technology visions sudden spikes in service requests on ups.com and many other data feeds will allow UPS to anticipate demand Automatically adjust and move shipments in the most efficient way possible.
And by using automation, we will continue to reduce the dependency on manual intervention. And as technologies like 5 gs, like digital twins and like quantum computing mature and become more available, We will definitely advance even further. We are developing best in class customer technologies and a smarter self healing network Right now, we're getting closer with every technological advancement. Clearly, we live in dynamic times. UPS is in a constant state of technology improvement and change.
And each new technology that we add to our network, it makes it smarter, Makes it more connected, makes it more sustainable. And the cool thing is that we're just scratching the surface.
Good morning. It's my pleasure to share our plans to achieve operational excellence in the U. S. And the great news is that we are starting from a position of strength. We have the best and the brightest people in the industry And we run a massive fully integrated air and ground smart logistics network.
So how do we move from good to excellent? Well, We've already made a number of impactful improvements across several significant KPIs, including handles, driver package selection and others. Success. The first step we took to drive the change we needed was to get the right structure in place and define a few, but very clear objectives. We addressed this right away in the second half of last year.
We restructured our U. S. Package operations and our transportation group. We redefined their objectives in terms of safety, service and efficiency. This allowed us to speed up decision making and implement our cost savings initiatives faster.
Starting with package operations, we reshaped geographies and we gave our teams more direct engineering and human resource support without adding staff. The change, our package teams were buried in KPIs and reports. They were expected to manage and be accountable for 4 62 KPI elements on a weekly basis. How could anyone make real gains with so many competing priorities? So we eliminated hundreds of elements and now each team manages fewer than 10 highly impactful KPI metrics to drive improvement across safety, service and efficiency metrics.
And as for our transportation group, they are the core of our operations and are responsible for and assigned coordinators across geographies. The changes we've put in place have improved cost ownership, spending visibility and have been enabled by a new alignment of procurement and budgeting controls. Further, This restructure has allowed us to speed up the network, igniting a productivity flywheel and better optimizing overall network efficiency. Here are some of the early outcomes from our restructure. We delivered a very successful 2020 peak season success with industry leading services recognized by a third party.
We minimized weather impacts to servicing costs during February, winter storms as Juan had highlighted. And we quickly transitioned network from peak operating levels, which are roughly about 1.75 times our normal average daily volume back to non peak operating levels significantly eliminating unnecessary cost. And we are committed to reducing our cost to serve even further. In fact, as Carol says, it's wildly important to all of us. Now let's shift over to some of our impactful productivity initiatives.
We view them as good for UPS and good for our customers. Let's start with weekend operations. The world is running 7 days a week and so are we. And by the end of October, We'll cover around 90% of the U. S.
Population on Saturday. To achieve our plan, we're expanding coverage in our existing delivery centers that are operating on Saturday and opening up 2 14 additional sites. We are simply getting more from our existing assets and we expect UPS weekend delivery volume to increase by 46%. And for customers, our Saturday service is unmatched in the market This expansion will also open up more capacity for Sunday Sure Post deliveries. More importantly, we are fully committed to expanding our weekend capabilities and U.
S. Operating margin at the same time. Technology plays a very important role here. Let me tell you more about how we are using technology to drive efficiency and productivity. As you probably already know, we measure nearly everything and collect a lot of data.
Our investments over the past 4 years are enabling us to collect even more valuable data and create new digital connections throughout our network. We're using these new data connections to identify previously hidden opportunities for improvement. For example, we recently confirmed through a pilot program that we can reduce driver package selection time by up to 25%. We uncovered this opportunity by evaluating data from our delivery process. We then connected the delivery insights to our preload activities.
Which would speed up package selection for our drivers. As a result, we're rolling out preload changes across the U. S. Network that will improve productivity for more than 95,000 UPS drivers that we have in our payroll. We use the similar data driven approach to identify hidden improvement opportunities related to the utilization of cubic space within our network.
Our automated hubs captured dimensional details on every single package that moves down And we know the cubic availability of our trailers and air containers. We are connecting this data to optimize every load. This has resulted in around 10% improvement in cube utilization, meaning we get a lot more packages in every single container. It's like solving a jigsaw puzzle where you have to get all the pieces in just the right location to fill it up. These gains Combined with our network planning tool technology, which optimizes routing throughout the network, allowed us to eliminate 11,000 container movements each week.
It's a material improvement. Our network planning tools are helping our operating teams improve productivity and create capacity in other areas too. Take package handles as an example. Every time a package is touched, we count that as a handle and every handle means added expense and use of resources. Thus, by reducing handles, we can eliminate expense and become more efficient.
Our MPT technology and the scale of automation within our hubs are allowing us to build more direct loads to final delivery centers. This means we're skipping intermediate stops and sorts across the entire network. In short, we're eliminating handles and improving overall network speed and efficiency. Another benefit of MPT technology is When combined with our fastest ground ever initiative, it increases our ability to move air volume over the ground. This reduces the amount of airlift needed to meet our service commitments.
We're seeing great results from our efforts to reduce handles. In February, we reduced handles by 7.6% on average daily volume flowing through 17 of our largest automated hubs, activity metric with you that we are very focused on improving and that is packages per direct labor hour. In the Q1 of 2021, We were able to hold that number nearly flat compared to last year, despite a significant shift in B2C volume, which went from 55% of total volume in the Q1 of 2020 to 60% in the Q1 of 2021. In our business, productivity is all about packages per hour and we're confident that our initiatives will help improve productivity moving forward. All of these gains are putting us further down the path to achieving our operational excellence goals and we have more initiatives underway.
We'll also aim to improve employee safety within our facilities and over the roads, another key area of focus for our teams. We believe that every UPS'er should leave work the same way they arrived, accident and injury free. In the U. S, our annual casualty expense exceeded $1,000,000,000 in 2020 and was driven primarily by on the job injuries and vehicle accidents. This is not good for our people or our business, so we're taking action to reduce both.
On the injury side, we've redesigned training programs and included targeted injury KPIs as one of the most impactful elements for the U. S. Team to manage. For example, Our data tells us 37% of all injuries occur in the 1st year on the job and of that around 50% of the injuries occur in an employee's 1st 90 days. Our training programs are using information like this to ensure our training is focused during this most impactful time and that is structured with intentional touch points to reinforce the right behaviors.
We are making early progress here. April results and lost time frequency have improved 1.3% since we launched our new training in February. Good progress indeed, but with more to go. And in terms of driver safety training, as Carol mentioned on our last earnings call, we have reimagined Our driver training program by creating mobile units that can rapidly be deployed across the country to areas where training is most needed. Safety.
Plus, in addition to training, we're installing more safety features on our vehicles. For example, We'll add 10,500 forward facing cameras to our vehicles by the end of this year. These cameras include technology that help prevent accidents by providing onboard audio alerts to our drivers when a risk is detected. These efforts in addition to our long time use of telematics data and advanced safety features on all new vehicles we purchase. An important and impactful change here is that we have created a cycle of improvement by establishing a continuous loop between data analytics and training.
Data collected from our safety systems is analyzed for patterns, The insights are fed back to improve our training programs. We are seeing progress here. We achieved our Q1 auto frequency goal and saw 6% improvement in the frequency of our most severe accidents. Let me finish with a few comments on service and reliability and also a key focus in the U. S.
Business. We're also pleased with the progress we've made in the past. We've made
a
success to win the right volume at the right price among SMBs and our larger customers. We've made significant improvements to time in transit, But there is no finish line here, and we see even more ways to speed up our network and leverage the flexibility we've built in. In fact, We've sped up our ground time in transit on 100 of millions of zip to zip pairs, and our customers have noticed. In the Q1 of this year, volume on enhanced lanes grew 32.7% since the lanes were enhanced, of greater than 30% growth on our enhanced lanes, paying back the investments we've made in our fastest ground ever initiative. Today, you've heard us say that we are just getting started and seeing great results.
We're pursuing operational excellence at every turn with opportunities to put even more volume through our network in a capital efficient way. When you add all of this up, As Brian will share in a moment, we expect significant expansion in U. S. Operating margin. Clearly, the best is yet to come in the U.
S. Business.
Good morning, everyone. As you've heard today, momentum is building at UPS success and it's beginning to show up in our financial results. In my comments, I'll cover 4 topics. 1st, picking up on our wildly important initiatives, I will describe our next generation profit program. 2nd, I will share our perspective on the macroeconomic environment over the next 3 years.
Success. Then I'll detail our 2023 financial targets. And finally, I'll review our capital allocation priorities. Okay. Let's start with an introduction to our next generation profit initiative in the U.
S. This is an integrated cross functional program that will enhance customer experience, reduce overhead expense and drive our revenue quality efforts. Success. On the customer and revenue side, this new platform combines enhanced customer segmentation with real time data on what is happening inside our network. It allows us to optimize pricing for each customer and better align our cost to serve with the value we create.
Success. The platform is based on a fully allocated cost basis, ensuring that every penny is accounted for, including our cost of capital. And lastly, the platform is also used to assess customer compliance and support our contract renewal process. This is a big step in the right direction and we've seen proof points over the last 12 months. We are replacing a mostly manual process with technology that leverages AI.
And we are continuing to evolve the platform to leverage technology that will adjust pricing in a more dynamic manner to maximize overall profitability. But the real power of this tool can be found in its ability to link revenue quality and cost to serve at the package, product and customer levels. We review this weekly in meetings as a cross functional team. Our approach ensures that our teams are in lockstep in terms of supporting our customers with services that they value, aligning investment decisions and halting any non value added work. We strive for the best economical outcome and the ability to promptly provide customers with pricing quotes.
We have gone from working at a speed measured by a calendar to charting our progress with a watch. The success of our next generation profit initiative will be measured by sustained growth in profit per piece and significant improvements in return on invested capital or ROIC. Now moving to our market outlook. Let me begin with the macro. Starting with GDP estimates from IHS and using 2020 as the base, Global real GDP is projected to grow at a compounded annual growth rate or CAGR of 4.2% through 2023.
Forecast are moving higher based on solid incoming economic data, encouraging vaccine rollouts and heightened consumer demand. Sales. And as I mentioned on our last earnings call, we continue to monitor the inventory to sales ratio as evidence to support our confidence that demand will sustain over the midterm. Exports are expected to remain strong as demand builds in key economies, with Asia expected to lead other parts of the world. Looking at the U.
S. And again using 2020 as the base, Real GDP is expected to grow at 4.4% CAGR through 2023, driven by 2 factors. 1st is the strength of American consumers, who are sitting on an estimated $2,600,000,000,000 of savings, a record amount. And second is the combination of fiscal and monetary stimulus programs, which are driving strong growth in both B2B and B2C demand. In the U.
S, nominal retail sales are anticipated to grow at a 6.4% CAGR and electronic sales and mail orders, The proxy we use for e commerce are expected to grow at a 7.3% CAGR by 2023. Furthermore, in 2023, e commerce is expected to reach 21.8% of retail sales, excluding auto and gas. The outlook for the commercial side of the U. S. Economy is also encouraging.
Full year industrial production is forecasted to grow at a 4.5% CAGR through 2023. These macro projections provide a strong backdrop for our business moving forward. In fact, based on this data, we expect consumer demand to continue to drive a capacity imbalance in the small package market. And clearly, these trends support the doubling of the market that Carol discussed, which provide plenty of growth opportunities for UPS. Now let's turn to our financial targets, starting with a recap of our consolidated 2020 results, which we are using as our base.
Revenue was $84,600,000,000 operating profit was $8,700,000,000 an all time high for our company. Consolidated operating margin was 10.3% and return on invested capital was 21.7%. So where are we forecasting to be in 2023 based on the current outlook from IHS and our initiatives? Well, on a consolidated basis, By 2023, we aim to grow revenue to between $98,000,000,000 $102,000,000,000 grow operating profit to between $12,400,000,000 $14,000,000,000 improve overall operating margin by 2 40 to 3 40 basis points and increase our return on invested capital by 430 to 7.30 basis points over 2020. Let's start with revenue.
We plan to grow consolidated revenue from $84,600,000,000 in 2020 to between $98,000,000,000 $102,000,000,000 in 2023. Keep in mind, our 2020 base includes $3,100,000,000 of revenue from UPS Freight. Of our total volume. We anticipate SMB volume will grow at a low double digit CAGR from 2020 With SMB B2C volume growing faster than SMB B2B volume. Additionally, we expect SMB volume growth to outpace our larger customers.
Revenue quality will continue to be a major focus. Our path forward here was outlined by Kevin and Kate Creating capabilities and improving within these areas gives us the right to win in the most attractive parts of market. And in the U. S, we also expect to gain share in the mid to long zone portions of the market by leveraging the capabilities and will contribute the balance of our consolidated revenue growth. Our targeted expansion initiatives are expected to generate a revenue growth CAGR in the high single to low double digits compared to 2020 with balanced growth across all regions.
Additionally, we will continue to apply demand surcharges for as long as the market conditions warrant. For planning purposes, We expect demand surcharges to moderate in 2022 and we continue to evaluate the role, which each business segment plays in our portfolio. Revenue from supply chain solutions is expected to be relatively flat in 2023 as compared to 2020. Revenue growth in healthcare, coyote and logistics will offset the $3,100,000,000 reduction in revenue from the sale of UPS Freight. Moving over to operating margin.
Our consolidated operating margin is expected to improve 240 basis points to 340 basis points in 2023. Success, up from the 10.3% we posted in 2020, supply chain solutions segment to contribute to overall margin expansion. And lastly, international, our highest margin segment is planned to grow revenue faster than our other segments and so will also contribute to consolidated operating margin expansion from a mix perspective. On the cost side, we expect to lower our costs serve, particularly in U. S.
Domestic, where compensation and benefits is our largest expense bucket. Nando covered several initiatives that are underway that will drive higher productivity in our U. S. Operations. And Juan shared our efforts to use technology like Orion and NPT to reduce our miles.
And he highlighted new technologies that will further improve our efficiency. These initiatives combined with reductions from the non ops are anticipated to eliminate well over $1,000,000,000 in success through 2023, helping to offset cost increases in other areas like wages, inflation and investments in enabling capabilities. Throughout the day, we've talked about a virtuous cycle of improvement and capabilities that matter. Thus, we will take a portion of the productivity and revenue quality gains and put them back into the business to create new capabilities that will generate future financial benefits. For example, you saw the benefit of our fastest ground ever initiative show up in a big way during the Q1 of 2021.
And now we are using a portion of those gains to further our weekend capabilities this year. Touching on the segments for a moment, We expect to expand margins in the U. S. Domestic segment and anticipate the operating margin will be between 10.5% 12% in 2023, 21.5% in 2023. As Scott discussed, we are taking decisive steps to grow EBIT dollars and market share.
There is a tremendous opportunity for us to grow cross border e commerce and expand our market presence through an asset light strategy. Moving over to consolidated operating profit. It is expected to reach between $12,400,000,000 $14,000,000,000 Wayne, the UPS integrated network is well positioned for value creation. And as we execute our wildly important initiatives, we expect significant ROIC expansion. As Carol stated, the innovation driven part of our strategic platform will be measured by the increase success in ROIC.
As a result of our actions, we anticipate our ROIC in 2023 to expand between 430 and 7.30 basis points over 2020. We also know that capital allocation is important to investors. UPS has the potential to generate a tremendous amount of cash. From 2021 to 2023, we project cumulative free cash flow generated of between $24,000,000,000 $27,000,000,000 This is a good problem to have and allows us to reinvest in the business and return cash to share owners. Let's take a closer look at our capital priorities.
Our capital priorities remain consistent. 1st, we will reinvest in the business. Success. Next, we are committed to a stable and growing dividend. 3rd is a strong balance sheet and credit rating.
And lastly, we will use excess liquidity to repurchase shares as long as it is value creating. Success. When reinvesting in the business, we are applying a more disciplined approach to how we deploy capital and are focused on shorter payback periods. Decreased to a range of 4.5% to 5.5%. Total capital expenditures are expected to be between 13.5 $14,500,000,000 with 35% to be deployed as maintenance CapEx and around 65% allocated to growth projects, specifically towards enabling capabilities and automated capacity.
Furthermore, we expect that this level of CapEx we'll fully support the investments needed to reach our ESG targets. After investing in our business, success. Next comes our commitment to a stable and growing dividend, which is one of our 5 core principles. Our target is to pay out approximately 50% of prior year net income with a goal of increasing our dividend every year. 3rd in our capital priorities is a strong balance sheet and credit rating, also one of our 5 core principles.
At the end of 2020, we had 24 point $7,000,000,000 of debt with SAGR maturities out through 2,067. Dollars 6,900,000,000 of that will mature between 20212023 and we intend to repay on the following schedule. Dollars 2,550,000,000 in debt has already been repaid this year. We then plan to repay $2,000,000,000 in debt in 2022 $2,360,000,000 in 2020 success. By the end of 2023, we are targeting an adjusted debt to EBITDA ratio of 1.4 to 1.5.
This target supports our strong credit rating, which provides the financial flexibility we need to competitively run the business. And finally, in terms of capital priorities, we will use excess cash to repurchase shares as long as it is value creating. Success. By executing our strategy under the Better Not Bigger framework, UPS exited 2020 with significant momentum and a clear focus on improving our financial performance moving forward. When combined with the roadmap we shared today and a strong economic backdrop, We have confidence in our ability to achieve our 2023 targets.
We are creating the next chapter for our company. We are investing in the capabilities that matter most to our customers and create value for our shareholders. Thank you for your investment and interest in UPS.
Success. We are innovation driven, committed to operating the best global network in the industry. Success. When it matters most, we deliver at the right times and at the right temperature to communities all around the world. Success.
The robust, responsive and flexible network we've built makes it possible. We continue to innovate and expand our capabilities to give customers what matters most to them and create digital tools that anticipate market needs. Success through refining our supply chain solutions and expanding our commitment to a sustainable future. Success. Each new technology we add to our network makes it smarter, more connected and a better digital experience.
This is dedicated success. Thank you. Thank you. Thank you. Our next question comes from the line of
success.
Success. To all the parents who had to repeat 2nd grade, to all the teachers who are rising to the challenge, success. To all the people on the front line, to all the UPSers moving our world full and to the families they go home to.
Success. Wherever I want to do business, I can. So I do. World. And so, we're very pleased with the world.
And so, we're very pleased with the business, the
When others feared what was to come, you saw a sliver of light, opportunity. And while some try to go back, you're going all in. Rethinking, reinventing, smashing through new barriers and old fears.
Success. At UPS, we're always moving forward. It's kind of our thing. Whether we're transporting packages success. We're transforming customers' supply chains.
Our focus remains on the road ahead. Global megatrends like ecommerce, success. Urbanization and climate change against the backdrop of an unprecedented pandemic are shifting the way people live and work. Success. We're tackling these global challenges to deliver a more sustainable future.
Through our smart and sustainable global logistics network, we're accelerating the use of renewable energy across our global fleet and facilities. Success. Since 2009, we've invested more than $1,000,000,000 in alternative fuel and advanced technology vehicles and infrastructure globally. And with route optimization and innovative technologies across our network, we're meeting customers' needs with greater efficiency and less environmental impact. Success.
From collaborating with cities on last mile delivery models that reduce pollution and congestion to creating customer solutions that help minimize their environmental impacts, success. Partnerships make it all possible. But the partnerships we're most proud of are those with our people, UPSers who together strength and serve our customers, communities and one another every day. Team members from diverse success. And our industry leading safety practices ensure every UPS'er makes and more resilient communities around the world.
From protecting the environment to empowering our people, success. Our commitment to sustainability is stronger than ever. That's how we move forward.
You don't come as far as this, dreaming and believing. You fail hard. You learn strong. You keep going on. You don't aim to survive.
You're here to thrive, and we're here to help. Be bold,
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Ladies and gentlemen, good morning. My name is Steven, and I will be your facilitator today. I would like to welcome everyone to the UPS 2021 Investor and Analyst Day question and answer session. It is now my pleasure to turn the floor over to your host, Mr. Scott Childress, our Investor Relations Officer.
Sir, the floor is yours.
Welcome back everyone. Just a quick note about the Q and A portion of today's agenda. Success. At the bottom of the screen labeled Enter Question Here on the webcast interface. For those joining via the teleconference, Stephen, please open the line to our first question.
Our first question will come from the line of Sadi Khoun
The comprehensive outlook here. How much of the this is a question on the domestic side. If you can give us kind of how much of the UPS revenue you would characterize now being in the short haul zone. If you can tell us how do you characterize your competitive position in that short haul zone of the market? How do you characterize your unit cost relative to some of the competitors that you see in that kind of short haul don't enter the market?
And ultimately, how strategically important is for UPS to have a strong position in that probably more competitive end of the market.
Well, thank you very much for your question and thanks for joining us for Today, I'll kick it off. And I think I'll start big picture, talking about how we think about opportunities for growth in the U. S. Domestic market. We're looking at it through the lens of value share and not volume share.
Why? Because to your point, Not all packages are equal. They are different sizes and shapes and weights and zones and candidly not all packages are attractive to us. We're leaning into the segment of the market that values our end to end network and our specialized handling capabilities. So that's why you heard us talk about SMB and healthcare and the commercial business.
And to make this concept of value versus volume share come to life, let's look at 2020. Revenue for the small package business in the United States in 2020 was about $138,000,000,000 success. UPS was on the top of the leaderboard there from a value share perspective, followed by FedEx, the post office success and then Amazon. It's a different story when you look at it through the lens of volume share. Volume in the United States was about 74,000,000 ADV.
And when you look at the shares in that or through that lens, you can see that UPS and the post office So we're leaning into value share. We're leaning into the segment of the market that values us. SMB growth is a critical part of the growth projections that we laid out today. At the high end, we expect our SMB penetration to be over 30% coming from 23% last year. So we're leaning into that in a big way.
And clearly, if you look at the growth rate, now going back to your specific questions about zones, that growth rate in the mid to long zone where we play best
Our next question will come from the line of Scott Group of Wolfe Research. Please go ahead.
Hey, thanks. Good morning. So I want to ask on the U. S. Margins, the 10.5% to 12% guidance.
We did 10.4% in the Q1. So it doesn't seem to imply much, if any, margin improvement from current levels. I guess, can you give us some thoughts on maybe the U. S. Margin outlook for this year?
Do you expect U. S. Margin improvement in each of the next 3 years. And then maybe bigger picture, Kyle, we've had a lot of pricing momentum that I think people thought would lead to continued margin improvement. Do you see continued pricing momentum the next few years?
Well, let's have Brian describe how we put together the range that we're sharing with you today.
Hey, Scott. Thanks for the question. So, Yes, you're right. We had a good print in terms of margin in the Q1 and I think we'd expect to see sequential improvement in the Q2. So the momentum continues.
As we build out the 2023 target of 10.5% to 12%, the real variable in that, Scott, is the SMB SMBs. Carol alluded to the fact that we're expecting to get north of 30% in terms of the mix of SMBs. The low end of the range was predicated on more of a high 20s in terms of mix. And so that's the real delta. But we do expect to see continued growth In rate mix surcharge, that's going to drive over half of the lift in the domestic margin over the 3 year period.
And I would say, if there's a bias in the forecast, the bias is Truly up. When we started the year, we didn't expect to see the SMB growth that we experienced in the Q1. And to Brian's point, That SMB growth continues. So if there's a bias here, the bias is towards the up. On the question on pricing, as we've talked about the market, there is a demand supply imbalance right now.
So that suggests that pricing will remain firm. While we look at what competitors do of course, we price our products independently, separately. And if there's any changes to our pricing, well, you'll hear about it.
Our next question will be from the line of Tom Wadewitz of UBS. Please go ahead.
Yes. Good morning. I wanted to see if you could offer some thoughts on how Large customers or I guess to be direct how Amazon fits into this equation. And if you assume that there's kind of a stabilization in revenue or you assume there's a decline in revenue with your largest customer when you look at the next several years?
Well, I'm happy to address that question. As you've heard us talk about our emphasis on SMB and targeting On the high side, a 31% penetration of SMB, that means our SMB customer is going to grow faster than our enterprise customers and enterprise customers Amazon. So you're going to see a shift in the mix of business in our space by 2023.
So the shift in mix, is that absolute not like is there an assumption around continued absolute growth or absolute With your largest customers?
We would expect our enterprise customers from a penetration perspective to be lower by the end of 'twenty three than they are success today. We're growing. We've got ADV growth in the United States over the next 3 years, but there's going to be a significant shift success in the penetration based on our focus on those customer segments that value our end to end network and our specialized handling
capabilities.
Our next question will come from the line of Amit Malhotra of Deutsche Bank. Please go ahead.
Thanks, operator. Hi, everybody. Thanks for the detailed presentation. Brian, I want to come back to the domestic margin question, maybe in a slightly different way. You obviously have revenue targets.
I have to get my ruler out to make some calculations here. You obviously have the revenue number and the margin number. Can you just help us in terms of what the cumulative incremental margin implied between 2020 2023 and the cadence of that incremental as some of these productivity actions go through. And then just related to that, not related to that, but separately on your capital allocation plan, you've left the share repurchase a little bit vague, obviously on purpose, But any help on kind of how to think about share repurchase annually, 2021, 2022, 2023? Thank you.
Yes, Amit, happy to take the question on margin and then share repurchase. So as you think about the starting point of 2020, which was 7.7% in terms of domestic margin, And as Carol said, I'll use the high end of 12% given that's our bias as the comp. That would imply about 3 point $9,000,000,000 of profit improvement over that time period. As you think of the deconstruct, a little under half of that is going to come from productivity, Half of that will be basically non op and the other some of the operating initiatives that Juan and Nando walked through. And so as we think about the cadence of it, We will see a fair amount of the lift this year, as I mentioned, with the sequential improvement in Q2.
We've got some tougher comps in the back end of this year, But we are seeing good margin momentum and lift in 2021. So you'll see a fair amount of that lift. I guess the color I would offer, Amit, is I guess the 12 is not a destination, it's a mile marker. And so to the extent we can reach it, we will come back and reset targets along the way. So That's a little bit of the color on the margin.
On the share repo, look, I think I laid out on the capital allocation and framework, how we're thinking about the prioritization. 1st, it's reinvesting in the business with the type of ROICs we're looking to grow. That's a great investment for us to make. Then it's the dividend. And obviously, the 50% target implies a large step up in the dividend.
And then you've got the strong balance sheet. And then with the excess cash, we would then allocate that to the share repurchase.
So for modeling purposes, Brian, you would suggest they should put some share repurchases in their model?
I would. Yes.
$1,000,000,000 a year or something?
I wouldn't start this year. I'd say $1,000,000,000 a year starting next year is probably a good round number. Okay.
And we have a question from the line of Jordan Alliger Goldman Sachs. Please go ahead. Yes.
Yes. Hi. Just a question for you. On some of the operational improvement stuff that you guys have talked about in terms of network planning and what have you, Can you maybe draw a little bit more of a math in terms of because I assume that's Transformation 3.0, which is what you guys have talked about previously, Some of those operational things, network planning, draw a little bit more of a map or how to frame how much cost come from that or how much dollar improvement or margin improvement that will ultimately translate to? Thanks.
Yes, Jordan, happy to take that. As you think about UPS, I just laid out the math for the domestic segment, but We're going up about $5,300,000,000 if you take the high end of the range from a margin perspective or profit perspective. As you think about that $5,300,000,000 roughly $2,000,000,000 would be in the productivity initiatives, dollars 1,000,000,000 of it would come from non ops and we're expecting to get about $500,000,000 this year as I've communicated previously. So that would leave another $500,000,000 in the non operating side, previously. So that would leave another $500,000,000 in the non operating side over $22,000,000 and $23,000,000 to come through.
And then the other 1,000,000,000 It is really driven by automation robotics, NPT as you referenced, purchase transportation. Nando talked about the big opportunity in casualty. I think you need to think about this. It's sort of a perpetual flywheel that we're going to continue to drive. There's no end in that productivity.
We spent $6,000,000,000 in non op and will glide down to $5,000,000,000 based on the $1,000,000,000 reduction. We spent $50,000,000,000 in the operations. And so you can expect those numbers to Keep on moving and giving gift of giving in years to come.
And just on that flywheel comment, I might make an observation about delivery You didn't hear us talk about that today, did you? Although, you know we've been chasing that opportunity for a while. I think back in 2018 at the last investor conference, we talked about desire to improve our delivery density. Well, here's the truth. For a onetenth improvement in the number of packages delivered per stop, It's a $300,000,000 value unlock.
So as we think about how we can improve delivery density with the new tools that we're introducing and different way of thinking about delivery density. There's a value unlock that is nowhere in any of these numbers. And just to make that a little bit more real for you, We've been chasing this opportunity by thinking about it through downstream solutions. We haven't really solved the problem, have we? So now we're going all the way upstream.
And when you About upstream, if you are a retailer, you got your supply chain is upstream and downstream. Upstream is from the manufacturer to your stores and warehouses. Downstream is from your stores and warehouses to the customers. We're going all the way upstream to think about how we might drive delivery density from So more to come in that regard, but this is just an example of how productivity doesn't stop and will not stop at UPS.
Thank you.
Success. Our next question will come from the line of Allison Poliniak of Wells Fargo. Please go ahead.
Hi, good morning. Just want to go back to the commentary on SMB and the market penetration. I think, Carol, you had mentioned you're around 23% today going into the high 20s, low 30s. With the obviously underlying growth of the market as well and you're outpacing that, where would you find yourself at sort of that 2023? Would you feel more comfortable with that understanding that success.
There's further penetration to have. Success. Would that get you more in line to where you think you should be at this point?
Well, we know last year that SMBs made up about 25% of the market. I'm looking at Kevin, he's not a new fit and we were at 23%. So we were under penetrated, right Kevin?
Yes.
And then the growth rate in the Q1 was? 35%.
So now we're at about
the 27% mark in the Q1 and that's tracking in the Q2. So We're on our way. We're on our way. We're bullish with our fastest ground ever, building out our weekend capability, the DAT program. We've got lots of things going on to make us bullish that we will continue to improve our penetration from SMB perspective.
That's great. So you're no longer under penetrated now. It's really just about capturing more share here is my understanding. That's absolutely.
Success. Our next question will come from the line of Chris Wetherbee of Citi. Please go ahead.
Yes. Hi. Couple of quick questions on the outlook, the domestic outlook. So thinking first about sort of revenue growth and you've outlined the SMB targets. You've given us, maybe for the total company, it seemed like maybe it undershoots some of what you think some of these individual segments are growing like.
So I was just wondering if there are Some dynamics there. Do you feel confident about your ability to take share within SMBs and maybe your comments about share across the broader parcel market in the U. S? And then Coming back to domestic margins, can we maybe think about the cost piece of this? I think, Brian, you mentioned $1,000,000,000 potentially plus of cost takeout, but also maybe some reinvestment in the business.
Margin uplift because it would seem that the price would be able to offset all of this to provide maybe a little bit of a higher margin opportunity for you through the forecast period? Thanks.
Well, maybe I'll start and then kick it over to you, Brian. As a team, we believe in building financial plans that are grounded in reality success and then doing better than that. So based on everything that we've shared with you today on the macro outlook and the initiatives that we We believe our plans are grounded in reality and our intent is to do better than that. So if you may say there's a little bit of conservatism in the forecast, I think that's
Yes. So just picking up on that thread, the ADV, Chris, with low single digits and I commented that our revenue RVP will grow a lot faster than that. So to your point, the math would yield delivering that 12%. We do feel comfortable that that's a realistic Milestone on the cost side. As I mentioned, the reinvestment of some of that potential upside, It would go into areas like weekend.
Last year, we did in fastest ground effort and showed up in a big way in SMB in the first Q2 this year and we've been seeing sequential improvement. So those are the capabilities we're reinvesting in the business, but I just would reiterate we have confidence in the 12% out there.
Success. Okay. Thanks.
Our next question will be from the line of Mr. David Vernon of Bernstein. Please go ahead.
Hey, good morning, everyone. Thanks for taking the question. Maybe in a similar line, if you look at where we're ending up in 2021, getting to $100,000,000,000 is like 3% to percent a year revenue growth relative to those targets that you laid out or at least those market growth estimates that you just came out there, which were pointing more towards double digits. I guess the question is really, are there headwinds baked into the top line that we're not aware of? And why couldn't you do better?
And then if you think about kind of the growth for the earnings of the business, How would you characterize what an investor is investing in here? Are we really just looking at a temporary supply demand and balance that makes this a good market or what is UPS doing to make an investment in UPS success about something other than that supply demand dynamic. I apologize for the multiple questions in there, but I just wanted to kind of address whether there are So marketing headwinds we don't understand. And then if you could kind of talk to what makes this something other than a temporary supply demand imbalance opportunity for investors?
So the value proposition that we are offering is ride the margin expansion in a growing market, a growing and healthy market, earnings in the dividend. So there's a compelling value proposition that lasts past this demand supply imbalance. If we think about the growth opportunities
savings. Absolutely. Thanks. I mentioned that we'll be $10,000,000,000 by 2023 and growing well past that 12.3% growth. But think about that opportunity I mentioned as well as we go into the specialty side at over $56,000,000,000 And so the growth opportunities continue.
And again, this is the most accretive part of the market. So that's where it drops directly to the bottom line when to grow this healthcare specialized business.
And Scott, you might talk about the growth opportunities outside of United States because this is not just a domestic story any longer.
Yes, very consistent with the value share focus. We're at a 17% penetration outside the United States, which means that there's an enormous opportunity for us focus our investments and our growth in the areas where we continue to support the very industry leading margins that we have today. In terms of the supply demand, I think as emphasized by Brian, we will deliver 21.5% margin in 20 '23, which has no surcharges in it. So there is a question as to whether or not there's still a surcharge opportunity in 'twenty three. It's Still unclear relative to when BSA will come back in terms of passenger taking some of the relief off that supply demand.
So as I think Carol reiterated, we built a very credible plan and have every intention of delivering it.
And volume can choke success in the network. And as Nando said, service wins every day. And the investments that we are making to make sure that we have leading service, Well, it's paying off. And maybe Juan, do you want to talk a little
bit more about those investments to
make sure our service levels are high?
Absolutely. The first one goes into what we talked about earlier today related to capacity. And the capacity expansion in the company doesn't end in 2021. We have a couple of 100,000 pieces more that we'll add again in 2022 an additional capacity built into 2023. That capacity, as automated as it is, it gives great flexibility to the network.
It actually allows us to become more efficient in what we do. So it provides great capabilities to the organization. And the technological advances that I spoke about Earlier today, combined with new things we're working on, we didn't disclose everything that we're working on today, are really creating great value to the network. We talked about Orion in that presentation. Dynamic Orion right now has given us about 2 to 3 miles per driver per day in savings.
And Just want you to remember this, Brian alluded to this a bit. Every mile we save per driver in the course of a year across all of our drivers in the U. S. Saves us in excess of $60,000,000 a year. Those are good things for the organization and provide great capabilities to support us.
And And David, just you asked if you were missing anything. Just I want to make sure we're clear. The sale of the freight business has you mentioned a $100,000,000,000 number out in 2023. There's Obviously, dollars 3,000,000,000 of revenue that is not in that number because we sold the business and we did that because it was a low margin, capital business and so it helps our margin in ROIC. But I just on an apples to apples basis, you had $3,000,000,000 in the base that's not in the $100,000,000,000 number
Our next question will come from the line of Ms. Helane Becker of Cowen. Please go ahead.
Thanks very much, operator. Hi, everybody, and thank you very much for your success. As you think about these gains that you're forecasting where we get from last year success. How much should we think about it being market share gains from existing competitors versus organic gains from new customers that are success. Not currently doing business with one of your competitors and have you thought about, which I'm sure you have, but if you could comment on there what you think your competitive reactions are going to be?
Well, as Kevin pointed out in his remarks, we expect the SMB market to grow at 8%, and our forecast has us growing faster than that. So we're capturing share in each of the next 3 years. The share givers, if you will, well, they're all over the board, aren't they? And so our job is to stay ahead of competitive reactions By making the experience the best experience because we know, Kevin, they stay with us, right?
Yes, absolutely. So the better the digital experience combined with our industry leading reliability once we get them this day. And by the way, we think from an SMB perspective, half of the market growth is going to be in platforms And so when you have a consolidated integrated experience with more and
more customers, they want an
integrated experience. They want to be able to do demand gen and checkout and fulfillment and delivery returns in an integrated fashion versus just a la carte, That is by nature more sticky. So our digital access program and platforms are positioning us to grow, Take share from our competitors, but also
with the growth of e commerce, there's going
to be some inorganic, just some marketplace growth. And when these new customers come to market and start doing business, they'll come to UPS.
I think our platform, our DAP platform was a proof of concept in the Q2 of 2019 and now it won't be over $1,000,000,000 in revenue this year. So it just showcases just the shift in how the business things moving towards more platform like business.
That's very helpful. Thank you.
Success. Our next question will come from the line of Ravi Shanker of Morgan Stanley. Please go ahead.
Thank you. Good morning, everyone. Carol, if I can just follow-up on that question. How much of your guidance is Predicated on your competitors also being disciplined relative to capacity. Kind of if you had some of the larger the newer competitors, if you will, Kind of adding significant amounts of capacity in the industry, how much does that kind of keep that demand supply equation Kind of a little bit under pressure.
And as a follow-up on the international side, I just wanted to confirm, does guidance assume that international belly capacity kind of restores back to where it was prior to the pandemic by 2023 or do you success.
Well, why don't we answer the international question, Scott, please, first?
Yes. Thanks, Randy. So, as I mentioned earlier, our 21 Market where capacity needs to be expanded just simply because we believe a lot of this cross border B2C e commerce behavior will continue. So We've not planned for surcharges and demand supply mismatch until the end of 'twenty three. But again, we believe it's a realistic plan.
Well, we will see as we progress.
And our projected growth is based on out where we want to play because we are providing an experience that customers value. And not all packages are the same. If all packages are the same, then this is going to be a very, very different discussion. And we'd all be talking about how much square footage we're adding and how sort of capacity that we're adding. But that's just not the case any longer.
The packages are not the same. And so we are niching out and then leaning into the areas of the market that we want to serve. Now I will make a comment on same day and what you're seeing across the world actually in terms of gig economy and pop up players who want to play in the same day world. We don't have a same day product today as you know. And so we're looking at it.
Now when I think about same day, I think about it very much Like the way I think about healthcare. Healthcare, as you heard Kate describe, is a network with inside our network. Same day could be a network outside of our network, a different product, a different offering. We don't have this all the way figured out, but we've got a team of people looking at it and once we've got some pilots underway and once we get some more experience under our belt and a stronger point of view, we'll come back and talk about that. But I think there's an opportunity there that will be very different than what we've done in the past and clearly not in any of these numbers that we've just shared with you.
And for you today, and we're talking about our initiatives. We've got our minds are wheeling around about other things that we can do. It just doesn't stop in 2023. And in fact, We hit our targets earlier, just to Brian's point, we'll reset and move on. So it doesn't stop.
So wheels are moving.
Our next question is from the line of Jeff Kauffman of Vertical Research Partners. Please go ahead.
Thank you very much. I wanted to delve a little bit into your environmental investments. And you mentioned the 10,000 delivery vehicles you're looking at with an option for 10,000, the biofuels. A lot of the companies we've been talking to on the electric vehicle side have been talking about the TOC savings TCO, I guess, savings, that these vehicles require less maintenance, more uptime, that there's tremendous cost advantages Are those 10,000 initial vehicles going to be entirely in the domestic U. S?
When you look at the next slug of vehicles, What are you looking to do globally with that? And can you talk a little bit you've talked about domestic cost savings from productivity and automation. Can you talk about what you're looking to get back in terms of this investment and the environmentally friendly vehicles?
Yes, we're very pleased with our carbon neutral announcement today and part of that are these electric vehicles. So Juan, if you could take that question.
Excited about this. We only talked about arrival today, but let me make sure that it's clear. This is not the only company that we're working with. We're looking at these technologies in many different areas. We see progress in the way that the technology is evolving.
And the capabilities that it's going to bring for UPS, we speak about arrival extensively because they are building a modular type of vehicle that we already based on what they're testing and the work that we're doing with them, bringing significant capabilities to UPS in the way that we'll be able to maintain and In fact, it's not only maintaining the vehicles, but it's also the fact that they have less moving parts. These Carbon engines that we see today are complex. They burn. They get tired over time. They have to be replaced.
The electric motors in these vehicles are very sophisticated, very advanced, but also very reliable. So we also See the life of these vehicles extending and of course the downtime for maintenance purposes also going down. Now we haven't really quantified exactly how all this is going to Return in terms of overall savings to the automotive work that we do in supporting these vehicles. We're at the early stages of bringing these technologies into our network. But my goodness, the details are there in terms of the capabilities and the potential that this technology has for UPS.
Now, you asked the question about where these vehicles will go. These vehicles will Go to all the places where we have large fleets. Of course, the U. S. Is one of those.
We will have a large presence of electric vehicles here in the U. S. We have other markets like Canada, the UK, multiple locations in Europe, where we believe that this technology will be pervasive. So we're excited. Now we're also working closely with our public affairs team and with government agencies to make sure that these vehicles are properly accepted, But at the same time, making sure that the infrastructure itself is in place to support these types of vehicles in the network.
Exciting times more to come. We expect these vehicles Pretty pervasive in our network in 2023, 2024.
Thank you. If I could just follow-up on that point on the vehicle introduction. Are you looking also at vehicles, not just for delivery, but on the Class 8 basis? And just kind of give us your thoughts on Electric versus hydrogen there?
Absolutely. We are definitely working with some of our partners in the tractor space to bring that type of vehicle to the network. Not only that, I've mentioned it briefly in my presentation, but I'm also excited about these, those shifters, those that we use inside of our yards to move traders around. We see that technology advancing also very And we have a couple of those units already in operation in our facilities. They are moving a number of loads every single day with high levels of efficiency.
So that technology is advancing as well. So just to answer your question, we will definitely be in that space. We are committed and we have great partners that are providing We really need solutions for us. I think this is going to evolve very rapidly during the next couple of years.
Thank you very much.
We have an online question. The question comes from Fadi Chamoun
from BMO. His question is, Is the 4.5%
and 5.5% CapEx range something you think is sustainable longer term Or would growth CapEx have to step back up?
We're just taking a different look
at how we allocate capital than
in the past.
Think about the growth that we're going
to have outside of the United States, most of that is asset light. Now we do need aircraft. Success. Some of that includes those big freighters that Scott needs to move cargo around the world. Some of it is actually replacing our older MD-eleven We've got about 40 MD-elevens.
Their average age they're the oldest aircraft we have in our fleet. The average age is about 27 years. So we're going to start to replace those aircraft at the end of this 3 year period. So that's just that will almost become like maintenance spending, I think. As you heard from Nando, we're expanding capacity by expanding weekend.
We're not spending capital on that, aren't we? We're spending some expense dollars. You might talk now to what it means to expand the weekend? What should you invest in?
Yes, absolutely. And thanks for the question. I think When you think about the weekend, it's really an opportunity for us to really expand capacity and not add any additional CapEx. And there's a number of other initiatives that we are in pilot phases right now where we're using idle assets to expand capacity. Just like running our day preloads that typically run from 3 am till 8 in the morning, running them through the day and providing additional capacity service for our customers in addition to balancing out demand for day of week, which is a real winner for us in terms of capacity, Because that capacity is a little different each day.
And so the better we do at balancing that type of capacity during the week, we leverage our weekend operations And again, we do that with very little CapEx and we sweat the assets as intended.
Brian, anything you want to add on this?
Yes, I know.
Fadi, the question just to give you a little bit more color in terms of the $14,000,000,000 in that $21,000,000 to $23,000,000 range, approximately $5,000,000 of it's for maintenance and 9 The maintenance we talked about replacing vehicles and maintaining our buildings, but we're adding, Carol, 5,700,000 square feet of automated sort around the world. The aircrafts you mentioned and investing about $1,500,000,000 in IT capabilities. So all in all, 65% of our CapEx is going towards growth, which we think is efficient for what we need going forward.
Thank you.
Our next question will come from the line of Brian Kosbek of JPMorgan. Please go ahead.
All right. Thank you. Good morning. So just to follow-up on the weekend expansion, if I could. Can you just talk about the costs that you might need to incur that maybe aren't CapEx to get that expansion done from an OpEx perspective and the timing of those?
I assume they'd be Mostly done through 2021. And then we look at the productivity as you mentioned balancing out the network. Is there any productivity savings that you're counting on in the numbers you just gave us from this initiative. And then lastly, this relies on the Postal Service. If you can put more business through Surepost, can you just give us your expectations and confidence in having that service and that capacity That'd be there through the duration of the guidance here.
Thank you.
Well, perhaps I'll take the Postol question and throw it to, Nando, you and Brian for the rest. On the Postol, we love our Surepost product. It's Part of the contrary of products that we offer, we inject into delivery. We don't inject into their success. And so the quality and service levels is extraordinarily high with that product.
The best thing about of course is the redirect back into our business. And in the Q1, we had a 40% redirect back into our business. That's a win win win all day long. Now in terms of the productivity that we're getting off the weekend, first the investments that we make and then the productivity that we're getting off of that.
So from the cadence of the timing or phasing Brian of this spend. There is weekend investment this year and we factored into our targets or our plans weekend investment next year. It's going to be ongoing as we expand. Andrew, do you want to hit the specific initiatives that we're investing in?
Yes, sure. So Brian, we're going to be by October 90% of the U. S. Population covered for Saturday. And we'll do more in 2022 and 'twenty three, as Brian had mentioned.
I think as we look at production, we're looking from a combined Saturday, Monday point of view. Those production indices as we grow, which The expectation is we grow about 46%, allow us to continue to hone in on density and productivity. And we have demonstrated that Saturdays, As we started venturing out Saturday expansion here in the last few weeks is producing the desired results. So we have Assumed certain production indices and costs, those are built into the plan. We feel we can do we can achieve those targets.
And then I would also say working through Saturday and Monday, again helps us to curb that demand on Tuesday, Wednesday, so giving us a more linear demand curve during the week, which can help our staffing and the bench that's required to cover those peak days and also has some really great advantages on the capacity side.
Okay. Thank you.
Our next question will come from the line of Ken Hoexter of Bank of America. Please go ahead.
Hey, great. Carol, thanks for hosting the event. Investors in
the stock move
They're still looking for more detail on why you put the 10.5% out there. What gets you there? It seems like the SMB is growing from 23% to 27% at worst, over 30% at the top end of your target. So is it that costs are going to outpace revenue gains and productivity improvements? And then alternatively, Given Carol, you're usually conservative in your outlook historically, what gets you to 13% margins?
And then how Brian, how does that translate to sustainable EPS CAGR. Are we looking at upper single digits or double digits? Is there a target on the bottom line?
Yes. So It's a very fair question on the range, and it really relates to our point of view of how quickly we can capture the success in SMB. When we built the original plan, we assumed that we would be in the high 20% penetration by the end of success. It continues to grow and we're like, oh, wait a minute, there's a chance that we can actually based on what we're seeing in the business be in the low 30s. And so we put the range together because we started it with where we thought we were going to be and now we're business is moving in a different way.
So if you want to move off of the range go to the high end of the range. As we said earlier today, if there's a bias in the forecast, the bias is to the high end of the range. But I think it's important for you to understand What the only difference is the SMB penetration. There aren't any different cost headwinds. There's nothing else in it.
It's just the penetration of SMB. And you might want to talk about the 13%, what can get us to 13%, well, more productivity and more penetration of SMB.
So mix and productivity, I think, are the 2 things that can lift us there. And so we're modeling different scenarios. I would just tell you, we started 7.7% last year, Let us get to 12% and then lift up and focus on 13% after that. You also asked about EPS, a glide path, Ken. I think just to help you with modeling and everyone, I would below the line as you think about from 2020 to 2023, a couple of 100,000,000 in benefit in terms of interest cost reductions and pension income.
And then taxes, I think we've guided to 23% to 24% from a range perspective. That should take you to the high $12 area in 20.20
We have a question from the line of Allison Landry of Credit Suisse. Please go ahead.
Thanks and good morning. So you're guiding to pretty strong free cash flow over the next few years, but the $1,000,000,000 of buyback seems pretty low and it does imply a pretty significant cash build up on the balance sheet even when considering the debt repayment. So I guess, I mean, first, do you have a targeted cash balance? And then would you say that you're being conservative with respect to the buyback guidance? Yes, are you favoring raising the dividend?
So hoping you could really speak to the capital allocation priorities that we should be considering within the context of what looked like a significant cash build? Thank you. Well, maybe I'll start philosophically and then Brian you color about how much cash is outside the United States versus inside the United States and how we think about So first, Allison, we believe it's important to have a conservative financial risk profile Our condition has improved dramatically since the end of the year. We still have a lot of volatility in those pension liabilities. At the end of the year, Our pension was about 81% funded.
It's now about 90% funded. So it's better. But we still have an unfunded position, which should suggest You should keep a pretty conservative financial risk profile, and one way of doing that is keeping cash on the balance sheet. That being said, we've got initiatives underway to see how we might be able to minimize some of that unfunded volatility and we're looking at those. There are things you can do synthetically to minimize that.
We also believe that the cash is not ours. It belongs to the shareholders. It's not our intent to keep cash on the balance sheet, so we'll put it to work. Once we get this the volatility put into bed. We'll put this cash to work.
The other thing and not signaling at all that we are going to do this, but it's always capability or perhaps an acquisition that brings talent or just positions us better for the future, we might want to make that. And so if you have a little bit of flexibility in your financial structure that is helpful. But in terms of minimum cash, how much minimum cash should we maintain?
So I think the number is probably 4 to 5. But I wanted to Carol, the investment in the business, Allison, as we think about going forward, by $14,000,000,000 over 3 years, we're going to probably be guided to $4,000,000,000 this year. That's step up in CapEx because we're confident we can get the returns in terms of a shorter payback, but that implies 10 over the next 2 years. So there's a step up there. The dividend, as I mentioned, which is the 2nd priority, 50% of prior year net income, that implies a large step up there in terms of use of cash as well.
And then, I mentioned earlier the paying down of debt. We do have about 30% of cash trapped offshore or outside the U. S. And so we keep that in mind as well. And then share repo was it's the last piece of the capital allocation, but It might be a little bit like the 12% domestic margin.
Let's get to where we are and then we can move on beyond that.
Thank you.
Success. Our next question will come from the line of Bascome Majes of Susquehanna. Please go ahead.
Yes, thanks. Good morning. Your union contract protects you from labor cost inflation quite a bit this year and next, But that becomes a point of uncertainty when it expires in mid-twenty 23, presumably against the backdrop of a tight lager market and some new leadership in the Teamsters Union that are certainly going to campaign on promises to deliver gains from you guys, their largest employer. So Carol, could you just share with us a little high level philosophy on labor relations and how that might look different than what we've seen from UPS Historically and Brian, is there anything that you would add for what's baked into the 2023 domestic profit and margin targets for the Teamsters contract reset? Thank you.
Well, first, let me say
Our union workers around the world for what they've done over the past year. In the face of COVID-nineteen, these men and women got up every day, they put on their rounds and they deliver He's our General Counsel, but he's also responsible for labor. So, Norm, maybe you could talk about how we're thinking about this.
Sure, Carol. Thanks. We've been working with the Teamsters for decades and they care about growth just like we do because it leads to job creation and also career opportunities for our people. And we do talk to the team through leadership and our people frequently about the dynamics and the current competitive environment, the opportunities And you mentioned that the next agreement comes in 2023. And as always, our goals With a negotiator like that is to have a win win, something that's good for our company and good for our employees.
And in terms of what we baked into our financial plan.
So FastCo, the current labor contract has a 2.5% increase annually And we basically just annualize that for the 2023 until we get better information. So that's what's plugged into the model. Success.
Thank you.
Our next question will come from the line of Brandon Oglenski of Barclays. Please go ahead.
Hey, good morning, everyone, and thanks for taking my question. I guess as a follow-up to the prior about what would it drive or what would it take to get you to like a 13 percent domestic margin. If we go back a few quarters, I think the mantra at UPS has definitely been all about getting pricing higher, getting better margins, returns, Being better, not bigger. But it feels like now maybe the messaging is a little bit different, like we need mix from SMB to get margins higher and potentially with the surcharges rolling off next year. I guess just how can you help investors understand what the pricing trajectory looks for the next couple of years?
Well, thank you for the question. I think By focusing so much on F and B, we have diminished the importance of next gen profits. And next gen profit is a critical component of margin expansion, success coupled with all the wonderful productivity efforts that we have underway. So to Brian's point, we're not stopping at 12. When we get to 12, we'll reset.
But next gen profit, which is going to move to dynamic pricing across the customer base, is a very important part of the value equation here. And in fact, one reason half of the margin expansion that Brian talked about will occur this year is because we'll have the full year effect of all the great activity success that took place last year on revenue quality. Kate, you might want to talk a little bit about that.
Yes, absolutely. One thing I would reinforce, in the global marketplace and especially in the U. S. So we are gaining the rate increases as well as the long term contracts with our largest customers as well as growing our small and medium sized businesses in each of the segments of that critical sector Because we are showing them a differentiated value proposition, we intend to continue that on. You heard me talk about the health care opportunity, the most accretive packages success in the market and the fact that we're going to be growing 12% and beyond, and that's the organic side.
So a lot of opportunity. We're also modernizing for all size customers our pricing process to really get speed and ease and then more precision, as Carol said, that means fully allocated where every bit of cost and also our capital outlay It's factored in with the usage of the network. That's a game changer for us. We're changing our systems to really support it in mass and we already have it underway right now success customer by customer. Thanks Kate.
Thank you.
Our next question will come from the line of Scott Schneeberger of Oppenheimer. Please go ahead.
Thanks very much. Good morning. Brian, I think this is primarily for you. Obviously, appreciate the 2023 long term outlook. Just it sounds like you have a lot of momentum here in the Q2 on a lot of the commentary, Not to hear at this point midyear.
And if you could elaborate a little bit on maybe the back half comps and things you're seeing Just to give us maybe a feel for where you're exiting 2021 moving on to 2023. Thanks.
Yes, sure, Scott. Happy to take that. So today was intended to be about 2023 and where we're headed in terms of the roadmap. The comps in terms of getting tougher balance a year, particularly in Asia, we have tough comps coming out of international. And So those are providing a bit of a challenge.
Domestically, we're hoping that the commercial side comes back. We started to see signs of that, But that should provide some of the tailwind in the back end of the year to hopefully alleviate some of that pressure.
And while we didn't give specific guidance for 2020 1, Brian, you did say that half of the margin expansion is coming this year.
Expected in 2021, right. So
That's guidance because you cut the margin expansion in half and put it into the year
and You get back into it. Yes.
Success. Great. Thanks. Appreciate that.
You bet.
Our next question will come from the line of Tom Wadewitz of UBS. Please go ahead.
Yes, great. Thank you for the follow-up question. I wanted I know you talked a fair bit about sales. Pricing, I wanted to get a little more sense of your view in domestic, just supply demand. So it sounds like you're optimistic on price, but How much how long do you think the market domestically stays tight?
If you say the market is growing, is there Supply growing at a similar pace. Is it tight in 2022 or 2023? And then I guess a related question, How much is the mid and long haul market pricing connected to local? Because I think there's some concerns that crowdsource or Amazon or whatever expansion local could be greater. And I just wonder if you think the kind of network business you want is somewhat decoupled from local pricing Or whether you think that's kind of a risk if there's too much capacity addition in the local market?
Thank you.
Kate, do you want to take the question about mid and
long haul? I would. Yes, thank you. And thanks for the question, Tom. So when we actually price, we look at a customer and their total need.
Their We look at a customer and their total need. Their customers have nationwide needs and our value proposition resonates across each of the zones. I'll give you just one factor to ease that point on the short zone. There's a lot of players in the short mile zip We'll get 99% of the U. S.
Recovered in the UK. So that's a short zone. And then the long haul, you've heard us talk about our fastest ground ever. We've spent that business and that is the toughest part of the market for competitors to replicate. But when it comes to pricing, all of that is factored.
And it's important to note customers give commitments back to us for the commitment that we give to them. That means contract compliance. And we ensure that, therefore, the short and the long is priced, understanding the cost to serve of both. And then the pricing reflects that value and the total contract delivers for us.
To your first question, It's hard to know how long this demand capacity shortfall will last because we don't know exactly how capacity will be added. But it's estimated that the ADV shortfall this year will be about 7,000,000 packages. That shortfall will continue into the next couple of years. It's going to narrow, but it will continue
Our next question will come from the line of Scott Group of Wolfe Research. Please go ahead.
Hey, thanks Carol. I'm hoping you can help us because I'm struggling a little bit because everything about the message sounds so positive other than the actual guidance. And so maybe just help us with the right message here. And it sounds like maybe the 12% U. S.
Guidance that's the high end should really be thought about as the base case. Should we be thinking about all of the guidance that way or should All the high end should be the base case. When you talk about getting like half the improvement this year, is it halfway to the 12% is it halfway to the middle? And then like Dewey, is there a chance of margins and earnings in the U. S.
Not really growing in 2022 and 2023 relative to 2021? I'm just,
success. We expect margin expansion in each of the next 3 years. Half of the margin expansion will come this year. That's half of the 12th success will come this year. Why?
Because we have a full year benefit of the pricing actions that we took last year as well as an increasing penetration I am not accustomed to giving guidance in a range and having people go to the midpoint. I'm not accustomed to I'm new to this industry, maybe I should have gotten accustomed to that. I'm not accustomed to that. What I'm accustomed to is giving ranges based on what our point of view is and then to do better than that. That's what I'm accustomed to doing.
And we started with a point of view on what would happen with the industry and our SMB penetration. We're Difference, a higher performance in SMBs and that takes us up to the high end. Outside the United States, Scott, I think the same thing is true. We started with a point of view on what would happen with the growth and it's gotten there's momentum outside the United States. So hopefully that's helpful as you think about how the message because this is a message of momentum.
This is a message of a team that can get anything done and we're going to deliver the numbers that we've laid out for you today. And Brian, anything you want to add?
Yes. No, just Scott, I think The level of confidence in the high end is strong. I think that's the message you heard from us. The 12%, we have strong confidence. And Let's not put a 13 or 14 out there until we get to 12 and then we'll come back and we will say we're resetting and now here's the future guidance.
So it's As I said, a mile marker is not the destination.
Hey, that's helpful.
Stephen, we've got time for one more question, please.
Thank you, guys. Our last question will come from the line of Jack Atkins of Stephens. Please go ahead.
Okay, great. Thank you for squeezing me in here. I guess my question is on the 2 parter. First, on the international side, it certainly feels like The focus there is EBIT growth versus margin growth. When we think back over the last 5 or 6 years in the domestic business, That was sort of the message there as well.
We kind of fell into a trap of lower returns and lower profitability. How do you avoid that trap internationally when you're focusing on EBIT growth versus margins. Can you kind of walk us through that? And then secondly, within the domestic package business, when you can you kind of put all of the capacity and efficiency comments together and Help us think about how much your capacity is going to be growing in the domestic package business cumulatively between 2020 2023? Thank you very much.
Scott, do
you want to take the international question?
Yes. On the international, I think it's important to understand our starting point is a 17 So as I mentioned earlier, we're going to pick where we grow. But what's importantly, we're now in a position to leverage some of the great practices out of the United So Kevin talked about the DAP. That DAP will help us access the profitable SMB outside the United States. Kate talked about pricing initiatives and pricing imperatives that same discipline is coming outside the United States.
So we'll invest in the time in transit to have the right to win with those high margin customers. We will continue to leverage the digital experience and we'll pull the best practices out of the United States. So we will continue to maintain our margin. It will not be degraded and we will grow A bit in market share at the same time.
And Brian, do you want to have any wrap up comments here?
In terms of ADB or Yes. So look, we're expecting ADV growth in the low single digit as we look out. And The capacity we talked about during the capital discussion, we're looking for ways to expand capacity without spending a lot of capital. And so I think that's Those are the weekend opportunities to bring in additional Saturday, Sunday volume opportunities. So, Jack, that's what I would add from a capacity standpoint.
I would now like to turn the floor back over to Mr. Scott Childress.
We would like to thank everyone for joining us today. Materials from today's conversation will be posted on the EPS success. Thank you very much and have a great day.