Archived Speeches
Remarks of Tom Weidemeyer, President, UPS Airlines
to the Aero Club, September, 1999
Thank you for that kind introduction, and good afternoon, everyone.
I know there’s a tendency to drift off after lunch … so I’m going to start with a little interactive exercise.
How many of you folks have email addresses? Please raise your hand.
Now, keep your hand raised if you had email 7 years ago. Not many.
Okay, now raise your hand if you’ve bought anything on-line in the past year? Please keep your hand raised if you were shopping on the internet 7 years ago. Not as many.
One last question: How many of you today have your own personal web pages? Not too many.
I’ll bet if I ask that question two years from now, this room will be filled with raised hands.
That’s how fast technology – and technology acceptance – are changing the way we live, work, and do business. In just the past seven years, the Web has gone from a novelty act, used by a few thousand academics, and researchers, into one of the most pervasive communications channels in America.
In fact, today one quarter of American households have web access, and it’s climbing rapidly. In comparison it took 16 years for one quarter of American households to own a computer… 26 years to own a television… and 35 years to own a telephone.
I’m not here to talk specifically about the internet or email.
There are other more qualified to lead that discussion.
But, like you, I am in the airline business… and my company, UPS, is in the business of moving and enabling global commerce.
Information technology is forcing all of us in the aviation industry to rethink many things… including traditional ideas about commerce and global trade.
Electronic commerce is creating a whole new business model … a model that relies on “pulling,” rather than “pushing.”
Today, electronic supply chains are forming around the needs and desires of end users… and not the needs of suppliers and manufacturers.
Customers are leveraging electronic connections to compare prices… shop features… reach across geographies to a wider pool of vendors… and connect directly with each member of the supply chain to pull out what they need, when they need it.
That’s what we mean by pull… as opposed to having manufacturers or retailers push products, on their own terms, to consumers who had fewer choices of providers… less ability to price shop… and fewer avenues to research consumer information.
The customer truly is becoming king. And in today’s marketplace that customer is as likely to be in Beijing as Bethesda.
Like many of the airlines represented here today, UPS is in a unique position… standing at the crossroads of technology and trade.
Commerce is about the movement of goods, information and money. With the rapid acceptance of networked technologies… those three flows of commerce are moving faster, more frequent, and with greater strategic importance for those of us in the logistics business.
We at UPS believe that an efficient, integrated global supply chain has become one of the last competitive frontiers for multinational businesses.
But the ability to create truly integrated global supply chains is being stifled by a half-century-old, regulatory structure, for transporting goods and services. The bilateral system that governs international air transport today, was negotiated in Chicago 50 years ago, by people who could not have envisioned either the integration of world markets, or the technology making it possible.
With the limited flow of goods and services then, negotiating aviation rights one handshake, and one border, at a time made sense.
But today, outstretched hands of opportunity are reaching across all borders, in all directions. Opportunity has no home country from which it leaves and to which it returns.
My message to you today is simple: a seamless web for trading goods and services is meaningless—and, ultimately, unattainable—without a seamless web for transporting goods and services.
To be sure, we’re making progress. GATT, NAFTA and other multilateral agreements, have opened not just individual markets, but entire regions, to global trade.
And what trade liberalization enables, information technology empowers. Electronic commerce has made every consumer a global shopper and, therefore, every business potentially a global shipper.
The same technology driving E-commerce is also transforming business practices, by making it possible to perfect inventory management. Manufacturers increasingly order only what they need, and produce only on demand. As a result, capital that was once tied up in maintaining warehouses has been unleashed to create wealth.
Overnight express delivery is a linchpin of many industries.
UPS and the services we provide—transport and logistics—lie at the nexus between those trends, and this technology. We connect bits and bytes with people and places. The rapid expansion of E-commerce has fueled an explosion in small-parcel express shipping.
Last Holiday season, for instance, UPS shipped 55 percent of all E-commerce packages, according to Zona Research, and we look forward to continued growth in this sector of the economy.
A few measurements show just how important express air freight has become. The Organization for Economic Cooperation and Development, or OECD, now estimates that air freight transport accounts for more than one third of the value of world trade in merchandise.
Domestic air cargo has tripled in the last two decades. International air cargo has grown even faster. Air cargo has become the leading conduit for growth in a global economy. And UPS stands ready to meet the challenges created by that growth. We are working to build the business connections of the next century.
Our 330,000 employees around the world move 12.4 million packages and documents a day, almost 2 million of them by air. They maintain a ground fleet of 157,000 vehicles and a jet fleet of 229 planes, and over 300 chartered aircraft.
In addition to shipping goods within the United States, we also ship to more than 200 foreign countries. Where we are allowed, we transport goods within foreign domestic markets, and in the fast-growing foreign-to-foreign market as well.
But the integration of world markets for trade, stands in stark contrast to the clumsy, cumbersome network of aviation rights.
While multilateral trade agreements could make transactions for goods and services transparent and simple, the myriad of bilateral aviation agreements keep the transport of those goods and services complex and unpredictable.
Although the idea of multilateral agreements is open opportunity, aviation remains governed by bilateral agreements whose premise is managed trade and whose result is a tall obstacle to the free flow of goods and services.
The Departments of Transportation and State deserve credit for their Open-Skies initiative, which is negotiating more bilateral agreements and opening more markets, one at a time, to air transport. But their success has stretched the bilateral system to the limits of its potential. The instant demands of global markets, and the enormous flow of goods and services have now overwhelmed the bilateral system in both their quantity, and their importance to the international economy.
Let me give you a few examples of how the bilateral system is impeding that flow.
Under NAFTA, the United States trades goods and services with Canada in relative freedom. But under our bilateral aviation agreement, an American cargo carrier actually delivering those goods and services may not continue to a second Canadian city after it lands in a first.
Latin American countries generally permit U.S. carriers to land, but often prohibit them from flying on to another country.
As you know, most of Europe is the friendliest to aviation rights, and the one in which Open Skies has achieved its widest success.
But even though the bulk of the European aviation market is nominally open, a complex web of local restrictions still disrupts the flow of goods and services. For example, UPS might be permitted to land in one European country and depart from it for another, but local restrictions often prevent us from doing so at the times necessary to meet express on-time shipping requirements.
The Asian-Pacific market, one of the hot spots of global economic growth, remains a tangled knot of competing rules. The region is home to some of the world’s most liberal aviation regimes—such as Korea and Singapore—but also to some of the most restrictive, like China. Countries with liberal fifth freedom rights often restrict rights under the seventh freedom. Under bilateral agreements, for example, a carrier may deliver a package to Hong Kong, but may not continue on to deliver packages bound for other countries in the region.
The Open-Skies initiative has only begun to open foreign-to-foreign markets. As international markets become more integrated, more and more of the world’s trade will take place across these routes.
And it will take years, not to mention millions of dollars in time and effort, for even the most aggressive advocates—and we have them at the Departments of State and Transportation—to negotiate our way into foreign-to-foreign markets.
Meanwhile, many countries with which we have bilateral agreements that permit landing rights, still restrict the number of carriers who can serve them. Brazil is one of these. China is the most prominent.
Today, our bilateral agreement with China permits five passenger carriers and one cargo carrier—Federal Express—to serve the U.S.-Chinese market. China recently announced it would allow one additional U.S. carrier to fly to the mainland. The Department of Transportation is tasked with reviewing applications for this slot. You will not be surprised to learn that UPS will be one of those applicants—nor that we believe we are the outstanding choice.
We would be, for several reasons. The U.S.-China market is already well served by passenger carriers.
But adding another cargo carrier would inject real competition, and therefore help build a sustained economic and political bridge between the United States and China.
Furthermore, providing the designation to UPS will give consumers the benefits that naturally accrue in a competitive market.
While passenger airlines do carry a limited payload of cargo, they do not serve the just-in-time express market that constitutes the bulk of the fast-growing E-commerce market.
But the most important benefit from granting this slot to UPS would not be for E-commerce consumers in China. It would be for jobs in the United States.
Increasing opportunities to ship goods from the United States to China would create American jobs at home and reduce our trade imbalance with China abroad.
There’s a very simple formula that helps explain what we mean: for every 40 international packages handled by UPS, we create one new job here in the United States.That helps explain why our 200,000 unionized employees support our application.
We believe the openness of the transportation network, between the United States and the Asian-Pacific region, is one of the key ingredients that will determine the success of the global economy.
And we believe the Transportation Department’s choice of a carrier for this new U.S.-China designation is one of the defining decisions in the future of that network.
For that reason, UPS will make the application for this slot our top priority before the Department this year.
Ultimately, though, we believe much more than one application is needed—and that much more than one company is at stake.
What we need—what the international economy needs—is an international aviation system to match today’s way of doing business.
Let me suggest a few steps we can take.
First, we were greatly encouraged by the agreement for aviation liberalization reached at the just-concluded APEC summit in New Zealand. Leaders there directed their transportation ministers, to support implementation of a series of steps to open markets to the free flow of air cargo. One of those steps will be to remove limits on the number of designated air carriers in bilateral aviation agreements.
We believe these steps will create jobs in the United States, facilitate progress toward a more seamless global transportation network and help the economic recovery in the Asian-Pacific region, whose rapid growth is severely straining the existing framework.
I’m pleased to note that UPS will be even more involved in this vital region, thanks to the recent appointment of our Chairman and CEO, Jim Kelly, to chair the US-ASEAN Business Council.
Second, the World Trade Organization is exploring whether it should include air services in its next round of trade negotiations. We believe it should – at least for all-cargo services.
We believe GATS 2000 provides an excellent mechanism for eventually phasing out the old bilateral system in favor of a multilateral approach that will open aviation markets across entire regions.
GATS is not the only forum for achieving this objective, but it does offer a mechanism that is already global, and up and running.
We were pleased that the Coalition of Service Industries recently issued a statement supporting this multilateral approach.
Third, the Transatlantic Business Dialogue provides a forum through which businesses may be able to work together directly, reaching across borders to facilitate a seamless transportation network.
This dialogue, in which UPS and KLM have worked closely together, gives us the opportunity and influence, to educate policymakers on both sides of the Atlantic about these issues.
And dialogues like this may ultimately be the solution to transitioning over the bilateral system and creating a multilateral approach.
Finally, we believe the so-called “Free Trade Area of the Americas”—the conceptual successor to NAFTA whose goal is to link North, Central and South America in one zone of open trade—supplies an opportunity to liberalize aviation rights at the same time.
To be clear, we believe the aviation industry needs to look at the future now. We must look beyond the Open Skies bilateral process to a system that will meet the challenges of the next millennium. We commend the vigorous advocates at the Departments of Transportation and State for their exceptional efforts to make a system designed for 50-year-old passenger traffic conform to the 21st century flow of goods and services.
And we are intent on safeguarding the significant progress they—and we—have achieved.
We meet to consider these issues at a moment when the global economy has just begun to show us the outlines of its potential.
E-commerce, efficient inventory management, and other emerging industries and practices are revolutionizing the economy, creating wealth, and spawning new choices for consumers.
But we must not devote our energy to opening markets for goods and services, only to strand those products at international borders.
We must not devote our imagination to new business practices that lower costs and create wealth, only to maintain barriers to the efficient transportation networks on which they rely.
And we must not invest our hopes in a global economy only to persist in a policy that prevents us from efficiently connecting these bits and bytes to people and places.
A seamless web for trading goods and services is meaningless—and, in the end, unattainable—without a seamless network for transporting them. UPS stands ready to meet the challenges of this global economy by building the connections that enable businesses and consumers across the world, to harness its full potential.
But while UPS is ready, the international aviation framework that governs our business is not. It’s time to move beyond the bilateral system of the 20th century to a multilateral approach that can meet the needs—and unleash the potential—of a global economy in the 21st Century. Thank you.
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