Synchronizing the World of Commerce

The Rev. Dr. John S. Niles, Rector, Victoria Park United Church and Director, The Empire Club of Canada; Caralyn Quon, Grade 12 Student, North Toronto Collegiate Institute; The Rev. Bill Middleton, Armour Heights Presbyterian Church; Edward Greenspon, Editor-in-Chief, The Globe and Mail; Alan Gershenhorn, President, UPS Canada; Verity Craig, Associate, Carmichael Birrell & Co. and Director, The Empire Club of Canada; David Abney, President, UPS International; and Karen E. Maidment, Executive Vice-President and CFO, BMO Financial Group.

Introduction by Ann Curran

On the surface The Empire Club of Canada shares many similarities with UPS. Both are old, established and respected organizations. The Empire Club was founded in 1903 while UPS was founded in 1907.

Both share similar values and believe that integrity and excellence are at the heart of what they do and that tending to their customer or membership needs is central to their success.

Both are in the delivery business. The Empire Club delivers speeches and ideas across Canada and internationally through its annual yearbook and Web site. UPS is the world's largest package-delivery company and global leader in supply-chain services.

However, ladles and gentlemen that is about where the similarities encl. You see, when you factor in size, market penetration and speed, we're not the only ones that can't compete. UPS out-performs everyone!

Not only that, where I am the 100th chairman of this organization, Mike Eskew is only the ninth in UPS's 96-year history. Under Mike Eskew's direction, UPS is expanding its capabilities into new lines of business that complement the company's global package-delivery operations.

UPS is developing increasingly sophisticated solutions for its customers by synchronizing the movement of goods, information and funds. These expanded capabilities include multi-modal transportation services, sophisticated technologies, international trade management, supply-chain consulting and financial services.

A native of Indiana, Eskew graduated from Purdue Universitv with a degree in industrial engineering. He also completed the Advanced Management Program at the Wharton School of Business.

Eskew began his UPS career in 1972 as an Industrial Engineering Manager in Indiana. His advancement continued in various positions of increasing responsibility including time with UPS's operations in Germany and with UPS Airlines.

In 1994, Eskew was named Corporate Vice-President fur Industrial Engineering. Two years later he became Group Vice-President for Engineering. Eskew has served as a member of the UPS Board of Directors since 1998.

In 1999, he was named Executive Vice-President and a year later was given the additional title of Vice-Chairman. Eskew held this position prior to assuming his current role on January 1, 2002.

In addition to his corporate responsibilities, Eskew is a Trustee of The UPS Foundation and The Annie E. Casey Foundation, which is the country's largest foundation dedicated to disadvantaged youth. In 2003, Eskew was appointed to the President's Export Council. I He also serves on the Board of Directors of the 3M Corporation and is a member of the Business Roundtable.

In his address Mr. Eskew will discuss "Synchronizing the World of Commerce."

The challenges facing world commerce today seem daunting: geopolitical concerns; security issues; a stagnant world economy and rising anti-globalization sentiment.

Whether you're a multinational company that's been involved in international trade for decades, or a start-up that's venturing into the global arena for the first time, these are not easy times to be expanding your business, reaching new customers, or introducing new product lines globally.

However, this might be the right time to explore and invest in strategies, processes and technologies that allow for more seamless flows of goods, information and funds across borders.

Mr. Eskew will discuss how these investments toward frictionless international business are creating a new industry space known as synchronized commerce--a $3-trillion market focused on helping businesses get the right products, to the right places, in the right time, and in the right physical and financial conditions.

He will explain why synchronized commerce promises to be one of the most important industry spaces in the coming years and how it will impact Canadian businesses.

Michael Eskew

Thank you and good afternoon, everyone. It's nice to see such a strong turnout today. Your warm hospitality is much appreciated.

It's a real honour to be at this prestigious old club, which I understand predates UPS by three years. The two of us grew up together in the 20th century and are still viable, still fresh, almost a century later.

It's also great to be in your vibrant international city at such an important time not only for U.S.-Canadian relations but for multi-national relations as well. Toronto and Canada in general are natural backdrops for any discussion on global economies and global societies.

In fact, one of my favourite quotes on globalization comes from the Canadian publisher, Campbell Hughes. I'm sure many of you have heard Mr. Hughes's description of your fellow countrymen. He said: "A Canadian is someone who drinks Brazilian coffee from an English teacup and munches on French pastry while sitting on his Danish furniture having just come home from an Italian movie in his German car."

Now, I must admit I grew up in a small river town in Southern Indiana and we didn't have quite the same world view. Pizza and French fries were considered ethnic fare in my hometown. A Frankie Avalon and Annette Funicello double feature at the drive-in would have qualified as a bonafide Italian film festival.

But in all seriousness, I certainly do understand and appreciate the enormous linkages between our two countries, cultures and economies.

I actually got my first taste of international business experience in 1976 in Germany just a year after our company started doing business in Canada.

We looked at what was going on with UPS in Canada at the time and told ourselves not to replicate that model in Europe!

As some of you may know, we had a bit of a rocky start up here. Our first office was in the basement of a hotel right here in downtown Toronto and we had one delivery vehicle dedicated to this entire city, if you can believe that.

Our "feeder-trucks" that carried packages from one Canadian city to another were actually unregulated checker cabs with their backseats ripped out--Chevy Impalas with roof racks and U-Hauls.

It was difficult going for a while but we managed and I'm proud to say we've grown tremendously here over the years. We now employ some 6,500 people who work in more than 54 facilities from coast to coast.

At the same time, our business around the world has grown substantially. We now operate in over 200 countries and on any given day deliver about 2 per cent of the world's GDP

Yes, we are a much different company today than we were back in 1976. And certainly, the world of commerce is much different today than it was then.

To give you just one reference point, in 1970 foreign exchange transactions totalled about $10 billion a day.

Today, $10-billion worth of foreign exchange transactions occur every second.

But as dramatic as those changes have been over the last three decades, I think they'll pale in comparison to what's coming down the pike in just the next few years.

I believe we're truly on the precipice of a new age of commerce and that's really what I want to address this afternoon. With a new age comes new rules, new models, new ways of looking at things, new challenges and rich new opportunities. We'll discuss some of these ideas today and talk about what they could mean for our businesses, our people, our customers and our communities.

But first, let me back up for a moment and tell you about something that happened almost two months ago to this day.

Back on March 25, we at UPS did something we hadn't done in over 41 years. We changed our logo. If you're a major league baseball team, that might be a yearly ritual but at UPS we've changed our brand identity only two other times in our 96-year history. So this was a big, big deal.

The brand change goes beyond cosmetics. This is about much more than a new logo design or a new coat of paint. This is a reflection of a company with new capabilities--a company with a new outlook on where the future of commerce is headed and a vision to help our customers navigate and thrive in this new age.

Perhaps you saw our first TV commercial featuring this new look and attitude. For those of you who might have missed it, I brought along a copy.

Let's take a quick look.

(A 60-second commercial is shown.)

Part of what you saw in that spot are goods, information and funds coming together in a synchronized fashion. Coming together to expedite secure, efficient and sustainable trade.

We believe the confluence of these three essential flows of commerce is being driven by those two giant megatrends affecting every business and economy today--globalization and consumer-pull technologies. Technologies that empower customers like never before.

And we feel so strongly about the power of synchronization that we've aligned our company behind an ambitious mission--a mission of enabling commerce by smoothing the bumps in the road that restrict the free flow of goods, information and funds, whether those trading partners are located across the street or across the world.

We believe this new age of commerce is also creating an entirely new industry. With apologies to the late great astronomer, Carl Sagan, we think we're at the Big-Bang stage of a new industry space that will help ease and expedite the flow of commerce. A business space charged with synchronizing global commerce.

A Big Bang brought on not by stars aligning, gases swirling or atmospheres colliding, but by complementary technologies, infrastructures, business standards, managerial and financial practices and shared beliefs in the liberating powers of free, fair and unfettered world trade.

In a nutshell, synchronizing commerce is about managing and co-ordinating the various flows of goods, information and funds among supply-chain partners to better balance and optimize demand and supply cycles. All on a global scale.

A decade ago, we started hearing about the emergence of the information superhighway, and the promise it carried for commerce and society.

Today, we must look even further beyond an information superhighway--to the metaphorical equivalent of a "global interstate highway system" capable of transporting goods, information and funds with speed, precision, security and efficiency.

Another way to think about it is this: Think about all the activities and strategies involved in getting the right product to the right place at the right time and in the right physical and financial condition. That, of course, is easier said than done.

So, let's come down to earth with a real-life example of how goods, information and funds are converging to help synchronize commerce for one business.

It's a small company, located up in Montreal. If any of you have had the pleasure of financing a wedding, you might be familiar with this firm. It's called Malis-Henderson and for the past 50 years it's been making bridal veils and headpieces and selling them to bridal shops across Canada and the U.S.

It's been a success story, with the exception of one significant problem. C.O.D. payments from U.S. customers typically take 30 days to land back in the company's hands. Customs clearance processes and C.O.D. brokerage intermediaries are the main culprits.

For Malis-Henderson that means slower cash flow, which has a way of curtailing capital expansion and other growth plans. But it found an innovative solution to its problem. It involves a combination of customs clearance, warehousing, distribution and C.O.D. direct payments--all bundled into one solution.

So, now, when U.S. bridal shops place orders for veils and headpieces, and agree to pay for them via C.O.D., a whole set of synchronized actions are unleashed. First, Malis-Henderson ships its goods from Montreal to a customs-clearance warehouse facility located down in Champlain, New York. By consolidating shipments the warehouse is able to clear customs faster and expedite the movement of those goods into the U.S.

Once the veils and headpieces reach the bridal shops, C.O.D. cheques are given directly to a delivery driver who uploads that transaction into a wireless electronic note-book that's connected directly to the delivery company's financial services unit. Funds are then transferred directly into Malis-Henderson's bank account.

The result--everyone's happy. A 30-day cash cycle is flattened to about three days. Malis-Henderson managers spend less time finding, opening, posting and depositing C.O.D. payments and more time on critical customer-service and business-development issues. Customers, especially first timers, say they feel more comfortable writing a cheque to Malis-Henderson than to a third-party broker they don't know.

And finally, Malis-Henderson gets the holistic financial and shipping visibility it needs to run a growing multinational business successfully.

Goods, information and funds--synchronized for better results. Granted, that's just one small company with a small supply chain doing business on a relatively small multinational scale. But let's extrapolate that.

Now, let's say you're a large-scale manufacturer with a supply chain and a customer base that spans multiple continents. Let's say you're a precision-parts manufacturer--a maker of high-value, time-sensitive parts with extremely short product life-cycles.

Now, imagine having the power of total visibility into your supply chain from the time that iron ore is taken from the ground in Labrador until it is forged into steel in Beijing, fabricated in Milan, cross-assembled in Seattle, shipped to an end-user in Santiago and returned for recycling in Toronto.

Imagine what you could do with that entire life-cycle information from just that single part. How could that data be used to expedite customs, optimize manufacturing schedules, consolidate shipping and warehousing networks, minimize inventory costs, keep supply-chain partners synchronized, reach customers faster, service accounts more effectively and free up cash flow?

Have we arrived yet at this level of synchronized global commerce? No, of course not. But we can get there. For

the sake of our future competitiveness, we'll have to get there.

You folks know better than most the obstacles that are still in our path:

• Geopolitical uncertainties; • Fear;

• Financial issues;

• Insufficient infrastructure;

• Trade restrictions;

• Disparate technology standards; and

• Cumbersome customs procedures, to name a few. Clearly, we've got our work cut out for us. But what worries me most is not necessarily a specific trade law or disparate technology or customs requirements. We can overcome these kinds of issues. What I fear most are attitudes. Bad attitudes.

We all know the anti-trade and protectionist forces are out there and their rhetoric is gaining volume. Obviously this is not just a problem for the international trading community here in greater Toronto. It's a problem for world trading communities everywhere.

Fear of trade that may disrupt one's self-interests is not just a recent problem either. It's not all tied to 9/11 and the other geopolitical problems of our time. Back in 1845, the great French free-market thinker Frederic Bastiat wrote a satirical essay where he pointed out the absurdity of candlestick makers who claimed the sun was an unfair form of competition. The protectionists said if only all windows could be boarded up during the day, more jobs could be created making candles.

Unfortunately, a principle that Bastiat poked fun at more than 150 years ago still receives attention today. The reality is that globalization--the human desire to trade with one another--is as natural a force as sunshine.

Our job is to encourage an environment that allows global commerce not only to move forward but to move forward in a way that benefits all members of the world trade community.

Cordell Hull, the former U.S. Secretary of State, once said, "When goods cross borders, armies don't."

We've heard a lot, of late, about multilateral approaches to world peace. I would also suggest that we need multilateral economic strategies to keep commerce synchronized and moving forward. Specifically, the central banks of the world's major economies need to continue their efforts of pumping liquidity into the markets to prevent cash shortages that could disrupt commerce. The Federal Reserve and the European Central Bank and other members of the G8 nations need to be diligent in keeping interest rates low to spur investment and encourage entrepreneurship.

At the same time, governments from the world's leading economies will need to promote expansionary fiscal policies. That's why in the U.S. we support President Bush's economic stimulus package and encourage similar measures around the world that provide tax relief, encourage investment and promote growth.

At the same time, I believe there are four critical economic development trends that Toronto would do well to keep in mind as we move forward in this new age of commerce. Four trends that we need to think about as we develop ideas to keep the area attractive for business and positioned for a world of synchronized commerce.

First, we need to be aware that our playing field is getting a lot bigger. We now compete in a global arena. We need to be thinking about attracting businesses from that global arena and aware that economic development officials in other parts of the world are looking to do the same. To this end, you have great assets in the intermodal capabilities of this region and the access they provide to expanding global markets. Toronto should continue to use these strengths to further position itself as a major player in the global supply chain.

Second. Roads, bridges, harbours and airports are critical but so too are those information highways and intelligence infrastructures. The communities that will win global business in the 21st century are those that are laying down the cable, the fibre and the digital switches. The communities that will win are those that are pouring resources into primary education, university research, and prized teachers. The communities that will win are those that are attracting young entrepreneurial minds who will craft the technology innovations that grow new companies. And the communities that will win are the communities that support life-long learning.

The third trend involves embracing sustainable development practices. That's not just the phrase of the clay; it's a lasting trend as its name implies. People want to live and work in healthy communities. Economically healthy. But just as important--environmentally and socially healthy. Make no mistake, quality of life matters. Toronto has a great head start in this regard. People want to live here. Your thriving urban lifestyle is envied around the world. At the same time, open spaces are still out there and will continue to be if growth is managed carefully. Your local city and nearby provincial and national parks are also ranked among the best in world. Protecting the environment and the livability of this community are important advantages Toronto can bring to the table in the coming years. We live in an age where, let's face it, we have the technologies and the incentives that allow people to live and work just about anywhere. Quality of life matters more than ever.

At the same time, there's a fourth trend that's just as vital and I think closely related to sustainability. And that is regionalism. The best interests of Toronto are also the best interests of Ontario, Canada, and for that matter, most of the Northeastern U.S. Conversely, when those areas benefit, Toronto benefits. Regionalism and regional economic development partnerships are clearly the way to move forward in our global economy.

Jurisdictional battles and silly disputes between neighbours block progress and hinder economic development. Synchronizing commerce requires a high degree of unity in the community of commerce--a community that has high expectations for its businesses and its people, a community that embraces a strategy of globalism, regionalism, technology, education and sustainable development.

That community, ladies and gentlemen, will be unstoppable.

I'm proud to be here today to tell you that we at UPS are united with you.

We believe in Toronto. We believe in Canada.

Thank you for your time and attention this afternoon, and best of luck to all of you.

The appreciation of the meeting was expressed by The Rev. Dr. John S. Niles, Rector, Victoria Park United Church and Director, The Empire Club of Canada.