UPS - Q3 2013

Transcript

Operator (participant)

Good morning. My name is Steven, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the UPS Investor Relations Third Quarter 2013 Earnings Conference Call. All lines have been placed on mute to prevent any background noise, and after the speaker's remarks, there will be a question-and-answer period. Please note, we will take only one question from each participant to accommodate more analysts during the call. Thank you for your cooperation. It is now our pleasure to turn the floor over to our host, Mr. Andy Dolny, UPS Treasurer and Investor Relations Officer. Sir, the floor is yours.

Andy Dolny (Treasurer and Investor Relations Officer)

Good morning, and welcome to UPS's Third Quarter Earnings Call. Joining me today are Scott Davis, our CEO, and Kurt Kuehn, our CFO, along with Chief Operating Officer David Abney, International President Jim Barber, President of U.S. Operations Myron Gray, and UPS Chief Sales and Marketing Officer Alan Gershenhorn. Before we begin, I want to review the safe harbor language. Some of the comments we'll make today are forward-looking statements that address our expectations for the future performance or results of operations of the company. These anticipated results are subject to risks and uncertainties, which are described in detail in our 2012 Form 10-K and 2013 10-Q reports. These reports are available on the UPS Investor Relations website and from the Securities and Exchange Commission. In our remarks today, all quarterly and full-year comments and comparisons to 2012 will refer to adjusted results.

In addition, we will discuss UPS's free cash flow, which is a non-GAAP financial measure. The webcast of today's call, along with the reconciliation of free cash flow and adjusted results, are available on the UPS Investor Relations website. Finally, our goal is to allow as many as possible to participate on today's call, so please ask only one question and then get back in the queue. Thanks for your cooperation. Now, let me turn it over to Scott.

Scott Davis (CEO)

Thanks, and good morning. Our third quarter results improved from the first half of the year, even though our business faced similar market dynamics. Customers continued to streamline their supply chains, allowing UPS to meet their needs with our integrated solutions and logistics expertise. The U.S. domestic business continues to benefit from e-commerce, while international experienced strong demand for UPS Deferred products. Performance in our Supply Chain and Freight segment improved, primarily from ocean forwarding, brokerage, and North American air freight results. Regarding the global economic environment, forecasts for growth in the E.U. have been revised upward as it begins to recover from recession. However, Asian economic projections are mixed, as expansion in Japan has been offset somewhat by slowing China growth. Here in the U.S., uncertainty created by the partial shutdown of the U.S. government has created some anxiety.

While the impact to UPS on the surface appears to be minimal, some experts predict the shutdown will be a drag on fourth quarter GDP. Though the shutdown is behind us, temporary solutions like sequestration and government furloughs only delay the inevitable. Hitting the snooze button on our fiscal problems only extends uncertainty and dampens economic growth. No business could survive without carefully managing its resources, and our country can't either. Now is the time for the government to fix the debt and put America's house in order. Although our political leaders struggle to effectively implement economic policy, companies worldwide are successfully adapting to evolving market conditions, evaluating all options to improve their bottom lines. UPS can help with our comprehensive portfolio of capabilities. We're built to meet the needs of business, whether it's via ground, air, or ocean.

An integral part of developing these solutions is listening to our customers. For example, when Latin American executives told us they expected strong growth in their region, we took action. During the quarter, UPS launched the industry's first guaranteed standard service from the U.S. to Mexico. By leveraging our extensive network and brokerage expertise, UPS now provides a seamless delivery experience for southbound shipments. The company also expanded our Preferred LCL ocean product to serve the Asia to Mexico lane. In addition, UPS has opened new express service centers to serve the fast-growing region of northern Mexico. Continuing our commitment to invest across the portfolio and around the world, we opened distribution facilities in Chengdu and Shanghai, China, further expanding our capabilities. Now, I want to take a moment to update you on our labor negotiations.

As we announced back in the summer, our employees approved the National Master, which covers the key elements of the contract: wages, pension, and health care. Work continues on the open supplements. In the last month, progress has been made, with the majority receiving approval. This includes the largest area, the central region, and other large areas like New York. The remaining supplements will go out soon, and we are confident in their approval. UPS will continue to work to expedite ratification so our employees can start receiving improved wages and benefits in the new contract. Until then, the current agreements remain in place. Now, let me turn it over to Kurt to provide more insight into UPS's third quarter results.

Kurt Kuehn (CFO)

Well, thanks, and good morning, everyone.

... Scott noted, while supply chains are becoming more and more efficient, they are increasing in their complexity. UPS's third quarter results reflect the company's ability to adapt to the shifting demands of our customers around the world. Earnings Per Share improved 9.4% on revenue growth of 3.4%. These are solid results considering market trends in the global economic environment. Now let's review the segment results. U.S. Domestic had a good quarter. Operating profit climbed 16%, and margin expanded 140 basis points to 14.4%. Volume growth, improved efficiency, including savings from UPS safety initiatives, and one additional operating day contributed to the success. In addition, while the fuel surcharge lag was a slight drag for the quarter, on a year-over-year basis, it was a benefit.

Revenue was up 5% on a daily package volume increase of 2.3, as e-commerce continues to thrive. B2C shipments were up 5% during the quarter, and we saw an increase in B2B volumes also, mainly from retail shippers. Looking at the product level, daily UPS Ground volume was up 3% and UPS Deferred improved 2.3. UPS Next Day Air volume declined 3.3%, reflecting losses of letter volume. Further contributing to slower air growth, some shippers have moved their distribution facilities closer to their customers, enabling a greater use of UPS Ground to obtain shorter time in transit. Revenue per piece increased 1%, reflecting base rate increases that were offset by lower fuel surcharges, lighter average weight, and changes in product and customer mix. UPS Next Day Air yield was 3% higher, while UPS Ground was up 1.9%.

Deferred yield declined 2%, primarily due to significantly lower average weight. We were able to create operating leverage and lowered our cost per piece by effectively managing the UPS network. Our typical cost metrics of miles driven, direct labor hours, and block hours all contributed to productivity. Now for some details on the international results. Total segment revenue increased 2.5% on strong volume growth of 6.5. Operating profit declined 7% to $417 million. Operating margin and profit were lower, as savings from network adjustments and cost initiatives were offset by $75 million in headwinds from currency and fuel. Without these two items, operating profit would have been up approximately 10%. In addition, the segment continued to be impacted by shifting customer preference for deferred products.

Currency-neutral yields dropped 4.3%, driven primarily by a 5% decline in export product yields. Shippers continued to use non-premium UPS products like Worldwide Expedited and Transborder Standard, both of which increased 11%. In addition, our premium products were up 1%. Growth in shorter trade lanes and lower fuel surcharges also contributed to yield declines. UPS daily export volume increased by 6.7% in the quarter, driven by faster growth from Europe, Canada and Mexico. Intra-Europe volume was up more than 10%, while Asian exports were flat with last year. Non-US domestic products climbed 6.3% per day, led by strong gains across Europe and Canada. The developing economies of Turkey and Poland were both up approximately 20%. So we saw good growth in the quarter, but overall, our results were a little bit less than we expected.

Rest assured, UPS is building on our in-country cost initiatives and will make the necessary network adjustments to ensure that we continue to generate the industry's highest margins. Now, regarding supply chain and freight. The segment demonstrated improvement this quarter, with operating profit up almost 7% on flat revenue growth. Top-line gains at UPS Freight were offset by declines in forwarding. Operating margins expanded 60 basis points to 8.9%, matching our previous high for the segment. The weak demand in the Asia forwarding market continues to put pressure on rates. International forwarding revenue declined due to lower tonnage and revenue per kilo, both down about 3%-4%. But solid performance from our ocean, our brokerage, and our North American air freight sectors enabled the business unit to expand operating profit and margin in the quarter.

In addition, our international air freight made good progress in adapting to these market conditions. In distribution, operating profit improved and generated a margin of approximately 9%, though revenue growth was relatively flat to last year. Revenue gains in the healthcare and mail services were offset by some declines in the high tech sector. And remember, during 2012, the unit did benefit from UPS's participation in the London Olympic Games. Turning now to UPS Freight, LTL revenue increased 5.5%, driven by shipment growth of about 4% and improvements in revenue per hundredweight. Operating margin for the business contracted slightly, as wage and benefit increases were not fully offset by productivity improvements. Now, let's review our financial strength. For the nine months ended September 30th, UPS generated $3.6 billion in free cash flow....

After capital expenditures of $1.6 billion. So far this year, UPS has paid $1.7 billion in dividends, an increase of almost 9% per share. In addition, we've repurchased 33 million shares for approximately $2.9 billion, well on our way to our guidance of $4 billion for the year. Our cash position and balance sheet remain strong. The first priority always is to use it to grow the business, then to reward our shareowners, and finally, to seek opportunities to mitigate risk and volatility to our balance sheet. I do want to highlight that our Q3 tax rate increased to 36%. This was partially due to an increased mix of profits from the US compared to the rest of the world. We do expect a rate of 36% for the fourth quarter also.

Now for a bit more color on fourth quarter guidance for the business segments. In U.S. Domestic, we expect daily volume to grow by 3%-4%. Revenue is expected to be up about the same as volume. Base rate improvements will be masked somewhat by lower fuel surcharges, as well as changes in mix and package characteristics. We expect operating profits to grow in line with revenue. Reflecting back to 2012, remember that our domestic margin benefited from nearly 8% growth in next-day air, something we don't expect to see this year. Looking forward, the wild card will be the opportunities and challenges of a compressed peak season. For the International segment, we expect volume growth of 3%-5%, although product mix and currency will continue to weigh on yields. We expect high single-digit profit growth with operating margin around 16%.

These expectations include a negative currency impact of approximately $30-$40 million. At Supply Chain and Freight, we expect revenue growth to be down somewhat as freight forwarding continues to experience lower demand and yield. Despite the challenging conditions in the international airfreight market and continued investments in healthcare, we expect operating margin to expand to about 8%. So overall, we remain confident in our full-year earnings per share guidance in the range of $4.65-$4.85 per share. We're looking forward to the fourth quarter and, of course, the holiday season. And now Alan Gershenhorn will share with you some thoughts about the upcoming peak. Alan?

Alan Gershenhorn (EVP and Chief Commercial Officer)

Thanks, Kurt, and good morning. The holiday peak season is always an exciting time at UPS, and this year will be no different. Consumers around the world count on us to deliver their holiday gifts on time and in perfect condition. For 2013, the National Retail Federation expects holiday retail sales to increase 3.9%. More importantly, for UPS, online sales are expected to rise between 13% and 15%. At UPS, some of our retailers are cautious in their holiday outlook. However, they go into the season with more flexible supply chain options than ever before. Retail customers are focused on managing inventory levels and providing the right customer experience to drive growth.

This includes working with UPS on omni-channel strategies, which help to create better touchpoints for consumers, improve utilization of brick-and-mortar square footage, and to ship inventory directly from stores, all enhancing the overall customer experience. Retail customers also talk to us about having a flexible supply chain so they can respond quickly to market changes. At UPS, we expect this year's holiday season will be another for the record books as we pick up more than 34 million packages on our peak day. As Kurt mentioned, in the fourth quarter, we expect package volume to grow 3%-4%. However, with the later Thanksgiving this year, there are 6 fewer shopping days from Black Friday to Christmas, and as a result, we expect daily volume over this shortened window to be up 8%. UPS is continuing to make the holidays easier for consumers, too.

Our industry-first solution, UPS My Choice, has now exceeded 5 million subscribers. Recent enhancements will provide subscribers the ability to organize their hectic holiday schedule by managing their online orders with the UPS Delivery Calendar. In addition, UPS My Choice consumers can choose to receive their UPS SurePost shipments earlier by upgrading to UPS Ground. And by the way, UPS My Choice services are now available on Facebook, the online home to more consumers. Peak season does not end for us at Christmas. The rapid growth of e-commerce has created a third peak for UPS that starts after the holidays and keeps us bustling into the middle of January. During this period, consumers are taking advantage of gift cards and retailer year-end closeouts, as well as returning gifts received during the holidays.

The UPS Returns portfolio offers several solutions that help shippers control returned goods and provide their customers with a hassle-free returns experience. As you can see, there's a lot going on at UPS to prepare for the high demands for service. I want to wish you and your family a wonderful holiday season, and of course, order early, often, and most importantly, have it shipped UPS. Now I'll turn it back over to Kurt.

Kurt Kuehn (CFO)

Well, great. Thanks, Alan, and we're ready now to open up for questions.

Operator (participant)

Our first question will come from the line of Nate Brochmann of William Blair. Please go ahead.

Nate Brochmann (Equity Research Analyst)

Good morning, everyone.

Kurt Kuehn (CFO)

Morning. How are you doing?

Nate Brochmann (Equity Research Analyst)

I wanted to talk a little bit... I mean, obviously, if you go back to last quarter, we had a lot of disruption in terms of, you know, kind of like,

... shifting around some assets to account for, you know, where the freight was coming from and a lot of the customer preferences on the deferred. Clearly, you guys have done a, you know, pretty quick job of that, and obviously, that's a benefit of the integrated network. As we go into the holiday season, and you talk about the flexible solutions that Alan just mentioned, how do you continue to reallocate assets based on where the freight's flowing to maintain the most flexibility for your customers while maintaining the most profitability for you guys?

Kurt Kuehn (CFO)

Well, that's certainly, you know, something that UPS has been working on for many years, and we think is a benefit of us being able to, you know, have one integrated network where we can shift capacity. The, you know, having a ready fleet of aircraft we can adjust to, and certainly having the ability to move those quickly is important. One area, though, that clearly we do this time of year, especially, is we spend a lot of time talking to our major shippers about the holidays, and that helps us get a little bit of a shape for the peak season anyway. And, Alan, maybe you could talk a little bit about our approach of, you know, preparing expectations for peak.

Alan Gershenhorn (EVP and Chief Commercial Officer)

Yeah, so the, you know, as I said in my opening comments there, the, you know, some of our retailers are a bit cautious, but, but they're, they're ready, you know, more than ever, with the execution of these omnichannel strategies that we're helping them with. And really, what that does is it helps these retailers better optimize, minimize, and better utilize both their, their in-store and their DC inventories, so they're prepared for any online growth acceleration. It obviously also helps them, you know, maximize the price they get for their goods by avoiding markdowns, and it also creates that seamless in-store on- and online experience for the shoppers. So we're pretty excited about the solutions that we have in place for our retailers this year to, to adjust for any eventualities.

Kurt Kuehn (CFO)

Yeah, and I guess the other component in your question there is the international component. Jim, maybe you can talk a little bit about the flexibility that we try to build and react to customer demand this time of year.

Jim Barber (International President)

So no problem. The obviously, the base network, I think you would know, as you said in the open, we've done a pretty good job over the years to balance that and utilize that. I think the other capabilities that we have in our forwarding unit go down to charters, the ability for our large customers to flex when they need it, so we can bring charters into the network or not. And then the other advantage that we have with our network is the ability to flex it with extra rotations at peak capacity. So at that time, we feel like we've got the baseline and the foundation, we have the ability to optimize the network at the same time.

Nate Brochmann (Equity Research Analyst)

Great. Thanks.

Operator (participant)

Our next question will come from the line of Ken Hoexter of Merrill Lynch. Please go ahead.

Ken Hoexter (Managing Director)

Great. Good morning. Thanks. Great job on the domestic side. So let me kind of focus a bit on international. And Kurt, if I heard you right, I think you said margins might rise to about 16%. And seeing as they were down year-on-year, if I heard that right, in this quarter, just want to know what you're doing there in order to get that margin up, and is there a cost-cutting program? Are you taking more assets out, just given that international looked like a little disappointing in contrast to the strength you saw on the domestic side?

Kurt Kuehn (CFO)

Yeah, Ken, thanks for the question. No, there are... You know, we are feeling very good about the, the activities at international. I'll let Jim talk a little bit about it, but, you know, you saw the very strong growth that we had in the quarter. We think that momentum is going to continue. And also, the, you know, the headwind of the fuel and the currency did offset a lot of the hard work. So Jim, maybe you could talk a little bit about why you have increasing confidence in our, international sector.

Jim Barber (International President)

Sure. So obviously, you know, the, this quarter, down $32 million, we had $75 million headwinds going against it, and we talked about the headwinds coming. But at the same time, beneath that, when you get beneath that and you look across the geographies, you can see increasing momentum quarter-over-quarter-over-quarter. And right now, we've got, you know, very, very good growth and capabilities in Europe and our Americas business. And you've heard some of the comments in the opening lines of the transborder network. So we're, you know, as Asia continues to struggle a bit, it's in, in the middle of that, we adjust, we go forward. And you heard a couple other comments about some of our, our new integrated networks in Turkey and Poland that have great 20% growth year-over-year.

So we're confident in the forecast, and we're confident when some of these headwinds get behind us, you'll see that as well.

Yeah, and again, and Kurt mentioned that, you know, fundamentals, we really... Group profit is 10%. You get up, you take care of the currency and the fuel. So we feel good about the fundamentals of the business. As you, as you look to 2014, again, we think the currency will not be the issue we saw in 2013. So that will eliminate one of those headwinds as we move into next year.

Ken Hoexter (Managing Director)

Appreciate the answer.

Operator (participant)

Our next question will come from the line of Tom Wadewitz of JP Morgan. Please go ahead.

Tom Wadewitz (Analyst)

Yeah, good morning. I wanted to ask you a little bit more about international. I guess that'll probably be a popular topic today, but what can you give us a sense on what pricing conditions are? And then, I guess, in terms of, you know, if there is some weakness in pricing, you got the trade down, how much of a headwind is that to margin, when you look at 2014? Or is it something that, you know, given the ability to adapt the network, that, you know, it's really not a big issue for you when you look at kind of, you know, profitability in international in 2014? Thanks.

Kurt Kuehn (CFO)

Yeah, Tom, the issue in international, even though I know the currency-adjusted yields for exports look very weak, with a negative 5%, the vast majority of that impact is not pricing pressure. It is the trade lane mix and the use of deferred products. As we said, our deferred products grew by 11%, and a very strong growth. The continent of Europe showed a 10% growth in shipments. So packages moving around Europe have substantially lower revenues, but also a lot less cost. So we feel very comfortable that the market is competitive but stable on the price side. And as we adjust and adapt, and it's great to see Europe picking up steam, I think part of that is the economy getting a little firmer, but most of it's company specific.

As we had talked about early this year, we felt that as we focus back on an organic growth strategy, you'd see the results of that. So we're pretty comfortable that the pricing environment is rational.

Tom Wadewitz (Analyst)

Okay, great. Thanks.

Operator (participant)

Our next question will come from the line of William Greene of Morgan Stanley. Please go ahead.

William Greene (Analyst)

Hi there. Good morning.

Kurt Kuehn (CFO)

Morning.

William Greene (Analyst)

Hey, Kurt. I'm wondering if you can provide us with a little bit more color on the fourth quarter. You gave a lot of details around each one of the operating segments, and that was helpful, but I think there might be some puts and takes here that I'm not fully grasping. When I look at sort of the normal sequential change in the earnings, typically, I think it's up in the fourth quarter, about 14%-15%, but the midpoint of the range here would be closer to 29%-30%. Is it all currency that's kind of driving that? It feels like that's not enough. So I'm not sure what else I'm missing that would kind of get us more to the midpoint.

Or is it just the economic assumptions that really justify the top and low end of the ranges there?

Kurt Kuehn (CFO)

So you're talking for the business in aggregate rather than just international?

William Greene (Analyst)

Yeah, more like an EPS comment.

Kurt Kuehn (CFO)

Yeah.

William Greene (Analyst)

Just because when you take the midpoint, it seems like it's a pretty big step up, and I'm not sure-

Kurt Kuehn (CFO)

Yeah

William Greene (Analyst)

I have all the pieces.

Kurt Kuehn (CFO)

Well, you know, I don't, I don't think it's, it's a, a huge gap against the historical trends anyway. You know, we are seeing good positive momentum in international and gave you the guidance on that. International, we're looking for profit growth, although frankly, there are both great opportunities and also some risks of a compressed peak season that Myron will certainly talk about in a little while. As you compress the holidays into less days, if, if things go smoothly and the weather is, is positive, then there's good opportunity. On the other hand, it, it does create some challenges. So, you know, we're comfortable that we can deliver, you know, in the range that we've given, and, and I think the, the parts of the puzzle that we gave will, will help to back that up.

William Greene (Analyst)

Okay. Thank you.

Operator (participant)

Our next question will come from the line of David Vernon of Bernstein Research. Please go ahead.

David Vernon (Senior Analyst)

Hi, good morning, guys. A quick question on the domestic competitive dynamic. On the last couple of quarters, Next Day Air volume, you know, you noted that the letter traffic is down. You're seeing some things about sort of One Rate pricing, stuff like that coming out. How do you feel about the domestic sort of priority market and the competitive dynamic there?

Kurt Kuehn (CFO)

Yeah, well, certainly, you know, the market's continuing stable. We did show some improvements, but I'll let Alan talk a little bit about some of the other issues.

Alan Gershenhorn (EVP and Chief Commercial Officer)

Yeah, certainly, we had, you know, strong growth in our Ground and our Deferred product. You know, speaking specifically to the Next Day Air, you know, certainly it's our letter volume was down, and, you know, that's tied to professional services with a slowdown in the financial services sector as a result of, you know, interest rates climbing a bit, and we did see a few losses from some of our large banks.

David Vernon (Senior Analyst)

And the corresponding uptick in the Next Day Air yield, is that a sort of a positive mix shift or better pricing in there?

Alan Gershenhorn (EVP and Chief Commercial Officer)

That'd be more packages versus letters would help drive that.

David Vernon (Senior Analyst)

Okay, great.

Kurt Kuehn (CFO)

I guess one other point, just to remember on the air, is we did have a very strong air quarter last year. I think our next-day shipments were up 7%, so part of that is a much tougher comp.

David Vernon (Senior Analyst)

Okay.

Operator (participant)

Our next question comes from the line of Justin Yagerman of Deutsche Bank. Please go ahead.

Justin Yagerman (Analyst)

Hey, good morning, guys.

Kurt Kuehn (CFO)

Morning.

Alan Gershenhorn (EVP and Chief Commercial Officer)

Morning.

Justin Yagerman (Analyst)

Wanted to dig in a little bit on the domestic side. I mean, it looks like you guys got some good pickup on efficiency gains, and I know you've got some pretty major initiatives with Orion and the SurePost redirect pieces of the business going on. So maybe you could talk a little bit about where you are in Orion implementation and how many miles you've gotten out of your network. And on the SurePost redirect, how much of that e-commerce traffic that you're moving is being leveraged by the UPS network now instead of handing off to USPS?

Kurt Kuehn (CFO)

Great. No, well, glad to. I'll turn that over to Myron to fill you in a little bit. But, no, we were pleased, clearly, with the domestic for the quarter. And I did mention, though, it had an extra working day, which also helps, and we had some safety benefits. But, yeah, Myron's people have been very busy rolling out some of these new applications. So Myron?

Myron Gray (President of U.S. Operations)

Good morning, Justin. We continue to take advantage of a healthy pipeline of technology deployments throughout the year. However, to answer your question specifically, we have been able to redirect approximately 20% of our SurePost volume back into the U.S. domestic delivery network by improving our delivery densities, and as a result of that, we've been able to control the number of direct miles driven. Simultaneously, we've also taken advantage of leveraging our Worldport operations by reducing domestic block hours by over 3.7%. And if you will also recall, we fully deployed telematics only six months ago, so we expect to get continued upside from that. And we've only deployed about 13% of our U.S. drivers on Orion right now, and early results have been extremely positive, so we believe that there's more there for us.

Kurt Kuehn (CFO)

Yeah, do remember, though, that the Orion is a multi-year rollout. It's a very, deep, integrated, expansion that has to be route specific, but thanks.

Justin Yagerman (Analyst)

That's great. Thank you.

Operator (participant)

... Our next question will come from the line of Kelly Dougherty of Macquarie. Please go ahead.

Kelly Dougherty (Analyst)

Hi, thanks for taking the question. Just wanted to stick with U.S. domestic. It was nice to see you specifically call out B2B volumes during the quarter. So just wondering if you can kind of give us a sense of the magnitude and, you know, whether we may have turned a corner from the B2B perspective. And then how we should think about that leveraging into the network? You know, had strong margins during the quarter. Can B2B help sustain levels, you know, like we saw in the third quarter going forward?

Kurt Kuehn (CFO)

Well, I think the B2B did show modest growth. Really, B2C continues to outperform. I don't want to put too positive a spin on it, I guess. It was really the retail sector, especially with the omnichannel and us moving goods between stores and retailers adjusting their supply chains that drove up the B2B component. The rest of the sectors were fairly flat, maybe slightly negative.

Jim Barber (International President)

Yeah, we're still looking for that pickup in manufacturing that's been called for. It's been slow all year long, but hopefully, if we can make some decisions in Washington, we'll get the manufacturers going again.

Kelly Dougherty (Analyst)

And then can you help us just think about whether these margin levels, you know, it was very strong in the third quarter? How can we think about that going forward, maybe?

Kurt Kuehn (CFO)

Well, we've given you some pretty good sense for fourth quarter anyway, and, you know, the growth opportunities and the challenges. We'll be talking a lot more about 2014 next quarter anyway, so we're really not at a point to give any guidance going forward. But, you know, rest assured, we're working hard to keep our customers satisfied and manage our costs.

If we keep, you know, be successful in products like Orion, that certainly bodes well for domestic margins. Jim talked about where we're going internationally, and we'll tell you a lot more in January.

Kelly Dougherty (Analyst)

Thanks very much.

Operator (participant)

Our next question will be from the line of Chris Wetherbee of Citi. Please go ahead.

Chris Wetherbee (Transport Researcher)

Good, thanks. Good morning, guys. Can you talk a little bit about international capacity? Just curious kind of how you think about the, the pace of activity internationally and whether there is really the need to do anything more with capacity, sort of where you stand in the quarter as well, would be helpful. Thanks.

Kurt Kuehn (CFO)

Yeah, let me start off with David Abney talking about their air network and utilization and how we've reacted there.

David Abney (COO)

Well, we have continued to match network capacity to volume trends. For our international, for the third quarter, block hours were down 1%, while our export volume was up 6.7. For the fourth quarter, the truck routes from Asia to the U.S., we will fluctuate between 7.5 and 8. We'll probably be down about 4% total, International Block Hours from last year. So that's why we're saying you have to remember that, we have significantly, significantly cut Asia to U.S. Block Hours by 20% over the last 2 years, and we're continuing to monitor and see where we need to make ad hoc flights cuts.

Chris Wetherbee (Transport Researcher)

Great. Thank you.

Operator (participant)

Our next question is from the line of Scott Group of Wolfe Research. Please go ahead.

Scott Group (Managing Director and Senior Analyst)

Hey, thanks. Morning, guys.

Kurt Kuehn (CFO)

Morning.

Scott Group (Managing Director and Senior Analyst)

So I want to just drill down on the domestic package margins a little bit again. Is there any way, Kurt, to just put some numbers around how much you think that the operating day benefits you? The safety improvements, is there any number around that, and do you view that as ongoing or one-time-ish? And then I'm just curious, in this interim period without the labor contract, are you still accruing further wage increases?

Kurt Kuehn (CFO)

Yeah, I guess to what we have, I think, pretty consistently estimated that an extra working day usually gives you about $50 million, maybe $60 million, depending on when it hits anyway. So that, that's something we anticipate and plan and forecast for. Third quarter every year is a year usually where we make entries for workers' comp and safety. Actually, last year, there was a little more of that in the fourth quarter than the third, so that gave us a little bit of a boost, but not material. And yeah, we are accruing for the contract as stands, and as Scott said, you know, we're working through the details on that, and are looking forward to getting that wrapped up pretty soon.

Scott Group (Managing Director and Senior Analyst)

Do you have a number on the accrual and for the safety?

Kurt Kuehn (CFO)

No, I don't. It's a little bit in multiple sectors.

Jim Barber (International President)

It's something like, as Kurt said, over the last 10 years, pretty much, you know, every third quarter, we do an actuarial evaluation, and we've done a great job on safety, and every year we see benefit.

Scott Group (Managing Director and Senior Analyst)

Okay, great. Thanks, guys.

Operator (participant)

Our next question will be from the line of Ben Hartford of Baird. Please go ahead.

Benjamin Hartford (Senior Equity Research Analyst)

Hey, good morning, guys. You know, Jim, could you provide some context, I guess, to the forwarding dynamics? I know you guys have been managing your capacity tightly in the international trade lanes. I know Asian volumes are still a little soft, at least growth is decelerating, but it sounds like capacity has been taken out in that market, and pricing dynamics within the forwarding market are still pressured. Do you get the sense that there's still lingering margin, gross margin pressure within forwarding, given the pricing dynamics in the industry, plus underlying rates firming up or being rational?

Kurt Kuehn (CFO)

Well, I guess before I turn it over, Jim, you know, in our guidance, we do expect to see modest revenue declines, although the unit's done a good job of adjusting. But, Jim, maybe you could fill us in a little bit more on the view of the market.

Jim Barber (International President)

Yeah, I guess over the last couple of days and about the last week or so, some information's come out that, you know, actually contradicts that, and that there's some backlogs out in Asia coming out. Quite frankly, the way we look at it right now is that there are some upticks in volume, obviously, which would obviously coincide with some rate issues, but we plan for that. We know there's some capacity reductions in the market as well that kind of go in hand in hand. But I think over the next couple of weeks, we'll ultimately see what happens with the demand.

... side, but we think we're at UPS we're in good shape to handle that, obviously, with the way we run the network. But you know, the other side about the forwarding business is it's a pretty volatile market all the time. You have to adjust to it, and we feel like in the last couple of years, we've invested nicely in some technology to help us do that in the years to come. So we're pretty comfortable with where the rates are going.

Benjamin Hartford (Senior Equity Research Analyst)

Thanks, Jim.

Operator (participant)

Our next question will come from the line of Art Hatfield of Raymond James. Please go ahead.

Art Hatfield (Senior Equity Research Analyst)

Hey, morning, everyone.

Kurt Kuehn (CFO)

Hey, Art.

Art Hatfield (Senior Equity Research Analyst)

Just real quick on the fourth quarter, and you've made some comments regarding the shortened holiday season. It would seem to me that given your flexibility and all the different services you can offer customers, the potential benefits would outweigh the risks. But it sounds like you're focusing on, you know, the potential, you know, incremental cost or the risk associated with the shortened holiday season. Can you kind of help me understand that a little bit better?

Alan Gershenhorn (EVP and Chief Commercial Officer)

I'll take a shot at that. That I think Kurt used the term wild card, and, you know, frankly, a compressed holiday period, if weather is perfect, is good, probably will benefit us because we're going to be able to move through, move our volume through our network efficiently in shorter days, shorter hours. The question is, if you get an ice storm in Louisville, you know, one of those days, it's going to be hard to make up for it. So I think it's one of those things that's got... It's kind of a risk-reward type deal. If weather's great, we'll probably get rewarded. If weather is bad, it'll be a challenge for us.

Art Hatfield (Senior Equity Research Analyst)

All right. Thank you.

Operator (participant)

Our next question comes from the line of Brandon Oglenski of Barclays. Please go ahead.

Brandon Oglenski (Analyst)

Yeah, good morning, everyone. Congrats on the domestic results this quarter. You know, when I go back to your 2011 analyst meeting, and you laid out the growth targets of 10%-15% for EPS, you guys, I think, were assuming a U.S. economy of 2.5%-3.5% at that time. Have you gotten to the point where you've transitioned the business to reflect the slower environment, where you think you can get back on track for, you know, some of these longer-term earnings growth targets?

Kurt Kuehn (CFO)

Well, we've, you know, we've made pretty good progress on our domestic business, with the margins steadily improving and moving forward. And so we feel that clearly, we've done a lot of adaptation, both to product shifts and economic changes. International, clearly, with the headwinds in global trade that we saw for the last couple of years, has probably been the bigger surprise, and that's one where Jim and the network people have been very busy adapting to that. And hopefully, you get a sense that we think we're making progress on that. But that, that's really been the bigger, probably, difference since the investor conference a couple of years ago.

Jim Barber (International President)

Yeah, and looking at this year, we, you know, we weren't very far off those goals when we set our guidance at the start of the year, taking out the currency, you know, and the fuel impact and pension, particularly. So, you know, hopefully, if, you know, interest rates stay where they are, you know, pension will not be a headwind next year. We think currency will not be a headwind next year, so be positioned better to get closer to those, those targets.

Brandon Oglenski (Analyst)

Thank you.

Operator (participant)

Our next question is from the line of Thomas Kim of Goldman Sachs. Please go ahead.

Thomas Kim (Senior Industrials Equity Research Analyst)

Thanks. What's the organic growth rate you're seeing out of the European operations on a same-store basis?

Kurt Kuehn (CFO)

Well, that 10% growth in exports is purely organic. That's, and now some of that, Turkey and Poland, came from acquisitions several years ago. But, you know, I think we feel particularly gratified that we're seeing, as Jim mentioned, this extension that we've done, to the periphery markets around Europe succeeding. Jim?

Jim Barber (International President)

You know, I guess, really both in Europe, I think we're pretty proud of the last couple of years. We had some acquisitions in Poland and Turkey and the UK. All those integrations are done behind us, and all of those markets, quite frankly, are all growing double digits. So that, you know, that and the combination of the transborder network over there and the express network, it's a really good story for us right now. So everything, for the most part, is good. Obviously, our next step was TNT. That's behind us now, and now we kind of turn our focus of our people and all that UPS has to offer to customers to emerging markets and some of the other places that we're now going. So we think the future is bright.

Thomas Kim (Senior Industrials Equity Research Analyst)

If I could ask, what are the sort of key end markets that the growth is occurring? Is it more intra-Europe, or is it actually transatlantic? If you could just maybe add a little bit more detail around that, that'd be helpful. Thanks.

Kurt Kuehn (CFO)

Well, right now, if you stand inside of Europe from that geography, obviously, our intra-European growth is very good. You've got a double-digit growth in the inside because of the great network we have there. You've got some lanes, depending on where you're going. Our US lane continues to grow nicely across the globe. And again, you know, we're pretty proud of being able to offer domestic customers and geographies from Turkey to the UK to Germany across the world. And that piece of the world, some great opportunity, and they grow at double digits as well. So it's growing in many facets.

Thomas Kim (Senior Industrials Equity Research Analyst)

Thank you.

Operator (participant)

Our next question is from the line of Allison Landry of Credit Suisse. Please go ahead.

Allison Landry (Senior Transportation Research Analyst)

Just following up on the European business, you know, you've, you've talked a lot about double-digit growth in the intra-European geography. So I was wondering if you could comment on the relative profitability of regional package flows versus more, you know, intra-country, and then also your thoughts on whether European margins can ultimately reflect those in the US?

Kurt Kuehn (CFO)

Yeah, in general, we do have higher margins in our export business than the domestic business. The benefit of our domestic business is they give us a decent margin, but they also create the density that allows this UPS integrated network to create the returns that, you know, you guys enjoy so much. So as far as, you know, the targets, certainly the priority is growth and export... and, you know, Jim's people balance then what the appropriate amount of domestic business is, country by country, to create infrastructure. Beyond that, Art, you know, what we really look at is return on capital, and so we make sure that those products that drive the most assets, those flying across oceans and, those things, generate the higher margins.

But, beyond that, we don't really open up the can of worms.

Allison Landry (Senior Transportation Research Analyst)

Okay. Sounds good. Thank you.

Operator (participant)

Our next question is from the line of David Ross of Stifel. Please go ahead.

David Ross (Managing Director and Group Head of Global Transportation & Logistics Equity Research)

Yes, good morning, gentlemen.

Kurt Kuehn (CFO)

Morning.

David Ross (Managing Director and Group Head of Global Transportation & Logistics Equity Research)

I want to talk about UPS Freight. Yields declined a little bit, looked partially due to the higher average weight per shipment. Can you comment on, you know, kind of what's going on with the average length of haul in that division that may have also impacted the yield? And then any update you have on the new union contract with the UPS Freight team sure would be great.

Kurt Kuehn (CFO)

Yeah, first, let me correct fact. Yields were up in the quarter, so they, you know, they weren't up quite as much as in previous quarters, but we still, we showed a 2.2% increase in revenue per hundredweight. So, there's no, that's not an issue. I just want-

David Ross (Managing Director and Group Head of Global Transportation & Logistics Equity Research)

Okay. In the Excel sheet I got, it was 21.94 versus 22 a year ago, so it had actually a decline of 0.3% in LTL revenue per hundredweight.

Kurt Kuehn (CFO)

Maybe, maybe... I don't know what you're looking at. We'll have to take it offline.

David Ross (Managing Director and Group Head of Global Transportation & Logistics Equity Research)

Okay.

Kurt Kuehn (CFO)

Go ahead, Myron, maybe on the business progress and what you guys are doing.

Myron Gray (President of U.S. Operations)

Yeah, I think our progress is in line with what we told you guys at our Investor Conference in 2011, with expected margin improvement. While revenue did improve over 5% and revenue per ton went up over 4%, they were somewhat offset by not being able to get the kind of productivity improvements that we look for out of our freight operations. And we'll continue to deploy small package-like productivity improvements with the use of technology in freight in the coming months and would expect to perform better.

David Ross (Managing Director and Group Head of Global Transportation & Logistics Equity Research)

Thanks.

Kurt Kuehn (CFO)

As far as the contract, I think, you know, we're making progress. I think we're spending a lot of time between the UPS teams and union leadership, really communicating and educating the people about the new contract. There were changes in healthcare that were confusing to people. We've done this process in the package side and the master. We've had good results when we communicated the new contract. We expect the same on the freight side. Hopefully, we'll get it out for a vote here in the near future.

David Ross (Managing Director and Group Head of Global Transportation & Logistics Equity Research)

Kurt, sorry, I was looking at the year-to-date, yield numbers, rather than the third quarter.

Kurt Kuehn (CFO)

Okay, thanks.

Operator (participant)

Our next question will come from the line of Scott Schneeberger of Oppenheimer. Please go ahead.

Danny Halpert (Analyst)

Good morning, guys. This is Danny Halpert, filling in for Scott. Touching on the buybacks and the use of capital, can you please clarify if the $4 billion is still a target for 2013? And if you can, help us understand how you think about the use of capital in 2014 as well. Thank you.

Kurt Kuehn (CFO)

Yeah, well, certainly, as we said, we remain on target to deliver the redistribution with the share repurchases. We've purchased just a little shy of $3 billion, spent a little shy of $3 billion year to date on that front. So we're, you know, we're moving along as set, and, you know, we tend to set a target each year and complete what we do. So, barring any unusual market conditions or something, we expect to continue the remainder of that. The higher priority always is to invest in growth, and, certainly, we've got the balance sheet to do it. Although our, you know, we've been targeting more smaller acquisitions, things like Cemelog in Eastern Europe to expand our healthcare network and other targeted acquisitions.

So we'll continue following that path, and also continue to support a very strong dividend. So we're looking for opportunities and application to capital, plus we'd also use capital in some cases to reduce the risk and volatility to the balance sheet. You've seen that with some of the moves we've done on the pension. So we've got a lot of choices, and you know, part of our job is to prudently allocate capital and keep remembering that it's shareowners' money, and it's our duty to use it prudently or return it.

Danny Halpert (Analyst)

Okay, great. Thanks.

Operator (participant)

Our next question comes from the line of Jack Atkins of Stephens. Please go ahead.

Jack Atkins (Analyst)

Hi, thanks for the time. Just to dig in again here on the forwarding business. Just curious if you could maybe comment on the competitive landscape, the competitive dynamics, really, within the forwarding industry, and if you've seen any improvement there as we've moved through the year, with regard to just competitive pricing pressures. And then secondly, when you think about the slate of tech launches that a lot of folks are expecting to see over the course of this quarter, what type of volume trends would you expect to see in your forwarding business out of Asia to the U.S. in the fourth Q?

Kurt Kuehn (CFO)

Yeah, I'll start off at least with kind of the trends. You know, there's clearly, as Jim was mentioning, we are seeing some pickup in demand that's typical for the beginning of peak season, and there are some launches that'll give a boost. And, Jim, any thoughts or comments on the competitive environment?

Jim Barber (International President)

Well, as I said a minute ago, I mean, over the last couple of days, some of the competitors have seen what appears to be some pickup in demand that's matched against the capacity constrictions. But from our perspective, you know, we feel like we're in good shape. We—as I said last quarter, we feel like we're a bit too concentrated in some areas in forwarding that we're gonna—we'll move in the next quarter to work through that. But you know, we know that based upon the charter activity, we're being asked to perform right now in the next, in the previous couple of weeks and going forward, we know there's demand out there, and we need to fulfill that. So we feel like we're pretty comfortable with that.

Jack Atkins (Analyst)

Thanks again for the time.

Jim Barber (International President)

Yeah.

Operator (participant)

Our next question will come from the line of Jeff Kauffman of Buckingham. Please go ahead.

Jeffrey Kauffman (Analyst)

Thank you very much, and congratulations.

Kurt Kuehn (CFO)

Thanks.

Jeffrey Kauffman (Analyst)

Most of my questions have been asked at this point. Could you give us an update on UPS Access Point, how that's performing in Europe, and if there are thoughts that that product could eventually be rolled out in other global markets?

Kurt Kuehn (CFO)

... Yeah, we'd be happy to talk about that. That is clearly a big initiative for the international access. So, Jim, you want to talk a little bit about the rollout and where we're heading on that?

Jim Barber (International President)

Sure. I think we have to remember, when we bought Kiala, they had about 6,500 access points in France and the Benelux. We've rolled that out now and expanded into the U.K. and Germany. By the middle of next year, we'll have 2,000-3,000 access points in each of those countries. The rollout's going just as we thought it would. In a second, I'll turn it over to Alan with respect to going forward to some widening of what we see. But, you know, we also like the combination of access points and what it can do for our delivery network. We're already expanding it into the use of drivers and alternate delivery.

We also like the power of the access points to create cross-border traffic in the single market of Europe. So we're pretty, pretty pleased with where we are, and Alan, if you want to add anything.

Alan Gershenhorn (EVP and Chief Commercial Officer)

Yeah, I'd, I think to that point, Jim, it's a Swiss Army knife, really, because, you know, we're changing residential into high density commercial stops. We're using it for these Not-In-1 alternate deliveries back to these access points. We're using it for e-commerce returns and prepaid drop-offs. So we're real excited about, you know, what it's enabling us to do to penetrate the B2C market in Europe, you know, cost effectively. We're over 10,000 access points now. You know, so we're now in the UK and Germany. Those were our expansion plans, and we're continuing to grow in France, Benelux, and Spain. And we're serving about 450 retailers at this particular point right now in Europe.

We're real excited about the opportunity it's creating for us in the European environment.

Jeffrey Kauffman (Analyst)

Do you think the bigger opportunity is more customer penetration because you have more convenient access points, or is there a cost-saving side where you're reducing the amount of redeliveries, or just making it easier to get packages to customers?

Alan Gershenhorn (EVP and Chief Commercial Officer)

Matt, it's actually both. So we're, as you know, in the United States, we're, you know, very big in retail. You know, retail has not been our focus really in the past in Europe from a B2C perspective. So this is a big opportunity for UPS to penetrate the retail market throughout Europe with, you know, better solutions than are available in the market today. And to your point, do it in a way that, you know, is profitable because of the density that we can create.

The other point I'd just make is that many of the consumers in Europe really prefer getting their deliveries at these access points versus at home, and some of our retailers have over 50% of their packages being delivered to these access points versus their residential homes.

Jeffrey Kauffman (Analyst)

Okay, thank you very much, and congratulations.

Operator (participant)

Our next question will come from the line of David Campbell of Thompson Davis & Co. Please go ahead.

David Campbell (Senior VP and Research Analyst)

Yes, thank you very much, and good morning. I heard you say that your international block hours would be down 4% in the fourth quarter, which is apparently more than they were down in the third quarter. Given this pickup in demand in the Asia Pacific region, how is that going to help your company's international revenues and forwarding profits in the fourth quarter?

Kurt Kuehn (CFO)

That's a good question, David. We certainly have some flexibility. But, maybe David, you could talk about that.

David Abney (COO)

Yeah, and what I said was that it'd be down 4% from last year in the fourth quarter. One of the things that we look at very closely is how the calendar falls and where we can cut flights on an ad hoc basis, and we make those decisions. We continue to monitor the capacity, and we have the ability to wrap up flights if we need to and add those rotations, but we can also cut back. So we have the flexibility, we have the network in place, and we've been doing this for years. In fact, if you look since 2008, our international block hours are down almost 5%. Our export volume is up almost 20%.

We have this thing fine-tuned, and we can make the adjustments we need no matter which way it may swing throughout the quarter.

David Campbell (Senior VP and Research Analyst)

Yeah, David, thank you.

Kurt Kuehn (CFO)

Yeah, one of the real value creations that we're being working on the last few years is to take advantage of both our forwarding network and our own fixed assets, and having that flexibility to move volume and freight, especially in and out of both of them.

Operator (participant)

Our next question will come from the line of Helane Becker of Cowen. Please go ahead.

Helane Becker (Managing Director)

Thanks very much, operator. Hi, everybody. Almost all my questions but one have been actually asked and answered. Thank you very much. As we look ahead, Kurt, to 2014, and we think about some of the changes in healthcare laws and so on, how should we think about compensation, you know, as regards to healthcare? And I know you've made some changes earlier this year to your plans, but what healthcare cost increases are going to look like? Thank you.

Kurt Kuehn (CFO)

Yeah. Hi, Helane. Unfortunately, you may help us wrap this call on a down note.

Helane Becker (Managing Director)

I'm sorry.

Kurt Kuehn (CFO)

Healthcare expenses continue to be a challenge. You know, we've made some modifications to our plans to help to manage costs, but still, the Affordable Care Act is continuing to add a burden to us. The transition tax per covered life is a big deal for us. We think there's over $100 million of expense, all in all, that is a headwind that'll be in the healthcare for next year on that.

Helane Becker (Managing Director)

... Okay, thank you. And you can repeat something positive if you want.

Kurt Kuehn (CFO)

That's okay. That's okay. It's an important issue, and certainly, we're eager to find solutions to it.

Helane Becker (Managing Director)

Thank you.

Operator (participant)

Our next question will come from the line of Anthony Gallo of Wells Fargo. Please go ahead.

Anthony Gallo (Managing Director)

Good morning. Thank you. You mentioned continued efforts with omnichannel retailing. I'm curious if you can bring us up to speed on where some of the retailer efforts are with ship-to-store activity. It was sort of a hot topic earlier this year. Is that is it experimental now? Or is traction being gained? And has there been any benefit on the margin front from the density that you gained from that? Thank you.

Kurt Kuehn (CFO)

Yeah, well, it's, it's certainly beyond experimental. Alan can fill you in on some details on that.

Alan Gershenhorn (EVP and Chief Commercial Officer)

Yeah, you know, I would say that, you know, initially the retailers were really looking at it to optimize their inventories by better utilizing their in-store and DC inventories. You know, shifting inventories sometimes, you know, all the way across the United States, if in fact the goods weren't selling in one part, but they could still get the list prices in another part of the country. Now what it's shifted to is, you know, how to compete in the local markets. So they're enabling, you know, you know, we're doing some things with late pickups in the evenings for these clients and enabling next-day fulfillment, you know, in the local territory by utilizing our night sorts

So they're really using it in a wide variety of ways to both become more, you know, more effective with their inventory, as well as serve the consumers in a better way to compete with other retailers in the marketplace. We've got probably about, you know, 25 large retailers underway today, and they're using it, you know, to ship to and from store, store to store, returns to the store. And obviously, some of those, you know, create even more B2B moves, which, you know, Kurt talked about earlier.

Anthony Gallo (Managing Director)

Is it starting to move the needle on margins or volume?

Kurt Kuehn (CFO)

Well, it's certainly a part of the B2B retail uptick that we've seen. Yeah.

Scott Davis (CEO)

Yeah, clearly, anything we do to help density helps margins in the long term.

Anthony Gallo (Managing Director)

Thank you.

Operator (participant)

Due to time constraints, our last question will come from the line of Mr. Tom Wadewitz with J.P. Morgan. Please go ahead.

Tom Wadewitz (Analyst)

Great. Yeah, thank you for giving me a chance on a follow-up. I wanted to see if you could give us a little more data on the comment of the flat export out of Asia. That was, I guess, flat package out of Asia. And was there a trade-down within that, where you had premium down and deferred up, or was the kind of 11% growth in international deferred really a phenomenon that's taking place in your European business?

Scott Davis (CEO)

Yeah, Jim can give us certainly a little color on that.

Jim Barber (International President)

Yeah, it is. I mean, we, I mean, the network has more expedited in it this year than last year, but that's, that's something we have to adjust to. And, you know, the network essentially is flat. It's got a different type of, of product in it this year. But, you know, that, that's not just with UPS. The whole, the whole supply chains across the world are moving that way, and, and it, it doesn't mean it's going to stay that way, in the future. But as it exists right now, in the flat discussions we've had, it is flat, and it's also got some down trade in it, but we have to then, back to David's comments, adjust the network the right way to be able to, to keep it, going forward for the customers and shareholders.

Scott Davis (CEO)

And, Tom, you know, to... We said earlier that, I guess, the fact is the export market's not shrinking. It's growing at a slow pace.

Yeah.

The reality is, expedite is growing at a fast pace right now. So again, and as we get more innovation development, more technology products, and the economy gets a little bit better, I would expect to see, you know, some better growth in Express going forward.

Tom Wadewitz (Analyst)

Okay, but that mix effect is true in Europe and Asia as well?

Kurt Kuehn (CFO)

It's a little bit less. I mean, Europe, quite frankly, you've got obviously big, strong ground transborder networks that are a little bit different. But you've got, I think the trade down to expedite is more predominant in Asia, obviously, because of the length of supply chain, so it's more predominant there from my perspective.

Tom Wadewitz (Analyst)

Okay, great. Thank you.

Operator (participant)

I'd like to turn the conference call back over to Mr. Dolny. Please go ahead, sir.

Andy Dolny (Treasurer and Investor Relations Officer)

I'll turn it over to Scott for some closing comments.

Scott Davis (CEO)

Thanks, Andy. You all know that the shippers and consumers around the world have come to depend on UPS to successfully deliver the holidays. Peak season at UPS is a culmination of months of planning, training, and preparation for the ultimate test. The timely delivery of almost double our normal days works. In advance, I want to thank the more than 400,000 dedicated UPSers around the world who put in the long hours and go the extra mile for our customers this year. I also want to thank all of you for taking part in today's call. Thanks.