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WHEN: Today, Tuesday, December 29th
WHERE: CNBC's "Squawk on the Street"
Following is the unofficial transcript of a FIRST ON CNBC interview with UPS CEO David Abney on CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET) today. Following are links to the video on CNBC.com: http://video.cnbc.com/gallery/?video=3000469854,http://video.cnbc.com/gallery/?video=3000470049 and http://video.cnbc.com/gallery/?video=3000470136.
All references must be sourced to CNBC.
SIMON HOBBS: THE BIGGEST EVENTS OF THE HOLIDAY SEASON INCLUDE OF COURSE THE HUGE SURGE IN E-COMMERCE THIS YEAR. AND THAT ALL THOSE QUESTIONS AS TO WHETHER THE DELIVERY NETWORKS CAN ACTUALLY GET THE PACKAGES WHERE THEY NEED TO BE IN TIME. JOINING US NOW FROMATLANTA IS DAVID ABNEY, THE CEO OF U.P.S., AND OUR OWN MORGAN BRENNAN OF COURSEIS HERE AT POST NINE WHO KEPT US CONNECTED TO THE FATE OF THE INDUSTRY THROUGHTHAT PEAK HOLIDAY SEASON. MR. ABNEY, WELCOME TO THE PROGRAM. HOW DID YOU DO INTHE END?
DAVID ABNEY: GOOD MORNING. I THINK WE DID VERY WELL. WE GOT ALL OUR DELIVERIES COMPLETED BY CHRISTMAS EVE.AND THAT'S A SIGN OF SUCCESS FOR US. AND I'LL REALLY TELL YOU, OUR SUCCESS WASLED BY WHAT I CALL THE THREE Cs. AND FIRST IS THE COLLABORATION, CLOSE COLLABORATION WE HAVE WITH OUR CUSTOMERS IN DEVELOPING THEIR FORECAST AND MAKING SURE WE HAD THE OPERATING PLAN THAT WOULD HANDLE THEIR BUSINESS. ANDTHEN SECOND IS CONTROL. IT'S NOT IMPORTANT HOW MANY PACKAGES YOU CAN ENTER INTOYOUR SYSTEM. OF COURSE IT'S IMPORTANT HOW MANY YOU CAN GET SUCCESSFULLYDELIVERED. SO WORKING WITH OUR CUSTOMERS ON A DAY-TO-DAY BASIS, AND HAVING THEDISCIPLINE TO WORK WITH THAT OPERATING PLAN. AND THEN THIRD IS JUST THECOMMITMENT OF OUR PEOPLE. YOU KNOW, WE HAD OVER 500,000 PEOPLE AND A LOT OFTHEM ARE LONG-TERM EMPLOYEES THAT HAVE TAKEN CARE OF THEIR CUSTOMERS FOR YEARSAND YEARS. AND YOU TAKE THOSE THREE ELEMENTS AND IT LED TO A SUCCESSFUL PEAKFOR US AND WE'RE VERY HAPPY ABOUT IT.
MORGAN BRENNAN: HI, MR. ABNEY. IT'S MORGAN BRENNAN HERE. THANKS FOR JOINING US TODAY. JUST TO FOLLOW UP ON THAT, AT THE BEGINNING OF THE MONTH WE SAW SERVICE DROP A LITTLE BIT. WE SAW SOME DELAYS ON PACKAGES. HOW SPECIFICALLY DID U.P.S. – WHAT DID YOU PUT INPLACE TO RECOVER FROM THAT?
ABNEY: YOU KNOW, GOOD QUESTION, MORGAN. GOING INTO CYBER WEEK, WE HAD GOOD PLANS. THEN CYBER WEEKEND AND CYBER MONDAY, THE VOLUME – I WOULDN'T SAY SURGED THROUGHOUT THE NETWORK ,BUT IN TWO OR THREE PRIMARY LOCATIONS WE GOT MUCH MORE VOLUME THAN WE ORIGINALLY THOUGHT. WE RECOGNIZED IT IMMEDIATELY, WE DEPLOYED READY TEAMS WHEREWE MOVED U.P.S. INTO THOSE AREA, WE DID SOME LOAD SHIFTING AND CHANGED OUR NETWORK AROUND. AND WITHIN A WEEK, WE HAD THAT PROBLEM RESOLVED AND THEN WEREABLE TO QUICKLY RESTORE INTO OUR 97, 98% EFFECTIVENESS AS FAR AS MAKING SERVICE, WHICH WE WERE ABLE TO MAINTAIN THROUGHOUT PEAK SEASON. SO WE WERE REALLY HAPPY WITH THE WAY OUR PEOPLE RESPONDED TO THE CHALLENGE THAT WE RECEIVED IN THAT WEEK.
BRENNAN: DID YOU HAVE TO CAP VOLUMES?
ABNEY: YOU KNOW, I WOULDN'TSAY THAT WE CAPPED VOLUME, BUT WHAT WE DID DO WAS AGREED WITH OUR CUSTOMERS ON HOW MUCH VOLUME THAT THEY EXPECTED TO BE ABLE TO GIVE US. AND THEN THROUGH OUR CONTROL TOWER, WE WORKED ON HOW WE COULD ADVANCE ADDITIONAL VOLUME INTO OUR NETWORKS. SO WE DID A LOT OF WEEKEND ESCALATIONS. IN FACT, WORKING FOR OUR CUSTOMERS WE WERE ABLE TO GET SO MUCH VOLUME MOVED INTO THE WEEKEND BEFORE CHRISTMAS THAT WE ACTUALLY MOVED PEAK DAY FROM TUESDAY, 12/22, TO MONDAY,12/21. AND IT'S THAT KIND OF COOPERATION FOR OUR CUSTOMERS THAT REALLY MADE A DIFFERENCE THIS YEAR.
BRENNAN: AND TALKING ABOUT ONE OF YOUR CUSTOMERS SPECIFICALLY, AMAZON. LAST WEEK THE WALL STREET JOURNAL REPORTING THAT RELATIONS THERE ARE TENSE. ARE THEY TENSE? IS AMAZON IN THE PROCESS OF BECOMING ONE OF YOUR COMPETITORS POTENTIALLY? ARE YOU WORRIED ABOUT THAT?
ABNEY: YOU KNOW, AMAZON IS A GOOD CUSTOMER OF OURS AND WE WORK CLOSELY WITH THEM. WE REALLY WOULD NOT TALK ABOUT CUSTOMER RELATIONSHIPS WITH ANY PARTICULAR CUSTOMER. WE WOULD TALK TO THE CUSTOMER DIRECTLY. WE FEEL THAT AS LONG AS WE CONTINUE TO INVEST IN OUR BUSINESS, ADD THE VALUE THAT WE DO WITH OUR GLOBAL SCALE, WITH OUR SCOPE OF HAVING CUSTOMERS FROM ALL DIFFERENT INDUSTRIES THAT PEAK AT DIFFERENT TIMES IN OUR NETWORK, AND THEN HAVING OUR TECHNOLOGY, THAT WE ADD VALUE AND DENSITY THAT REALLY WE JUST DON'T SEE HOW ANY OF OUR LARGE RETAILERS WOULD BE BETTER OFF WITHOUT US. SO WE FEEL VERY COMFORTABLE IN THAT RELATIONSHIP.
HOBBS: DAVID, I DON'T KNOW IF YOU GOT TO TWICE YOUR NORMAL DAILY VOLUME. I KNOW THAT YOU WERE PLANNING TO BASICALLY HANDLE THAT GIVE OR TAKE. E-COMMERCE IN THIS COUNTRY IS STILL ONLY 14 OR 15% OF TOTAL RETAIL SALES. AND AS THAT RISES, IT CLEARLY HAS A DISPROPORTIONATE EFFECT ON YOUR BUSINESS FOR THOSE PEAK 20 DAYS. SO MY QUESTION WOULD BE REALLY THE DEGREE TO WHICH THE BUSINESS CAN GROW AND DEAL WITH THIS AT TWO TIMES, TWO AND A QUARTER TIMES, TWO AND A HALF TIMES THE NORMAL DAILY VOLUME OR IF YOU REACH A POINT AT WHICH THE ORGANIZATION SIMPLY CAN'T STRETCH FOR THAT PEAK AND STILL BE WHAT IT IS TODAY. AND WHETHER YOU KNOW WHAT THAT POINT IS YET.
ABNEY: WELL SIMON, I WOULD TELL YOU THAT YOU SURE CAN'T BE MY GRANDFATHER'S U.P.S. AND BE ABLE TO DEAL WITH THE E-COMMERCE TRENDS THAT WE'RE SEEING. SO IT'S NOT ONLY A PEAK ISSUE. WE THINK THAT E-COMMERCE IS A BIG CHALLENGE, BUT IT IS ALSO THE BIGGEST OPPORTUNITY FOR THIS GENERATION OF U.P.Sers. SO WE NOW HAVE 20 MILLION U.P.S. MY CHOICE MEMBERS THAT HELP US CONTROL THE DELIVERY FOR THESE E-COMMERCE DELIVERIES. WE ADDED 8,000 ACCESS POINTS THIS YEAR. SO WE'RE REALLY CHANGING OUR BUSINESS TO BE ABLE TO HANDLE THE ADDED NEEDS. SO, NOT GOING TELL YOU IT'S EASY, BUT WE FEEL LIKE WE'RE ADJUSTING ACCORDINGLY.
HOBBS: YOU KNOW DAVID, ANYBODY WHO STUDIED OR TRIED TO STUDY WHAT YOU'RE DOING, I THINK, WOULD HAVE HUGE RESPECT FOR THE SHEER SCALE. ALL OF YOU. FOR FEDEX AND THE UNITED STATES POSTAL SERVICE, HUGE RESPECT FOR THE SHEER PHYSICS OR PHYSICALITY OF WHAT YOU'RE HAVING DEAL WITH. MY QUESTION REALLY IS WHETHER AS E-COMMERCE GROWS, THERE'S A BRICK WALL BEYOND WHICH IT CANNOT GROW OR PRICES FOR DELIVERY RISE TO SUCH AN EXTENT THAT IT CHALLENGES THE FREE DELIVERY MODEL AND THE FREE RETURNS MODEL. AND IF THAT IS WHY AMAZON IS BUILDING OUT IN THE WAY THAT IT IS BECAUSE IT KNOWS THAT IS THE KEY TO FUTURE SUCCESS WHEN OTHERS MAY NOT BE ABLE TO COPE. I MEAN, DO YOU A HUGE AMOUNT OF WORK ON THIS TYPE OF THING. WHAT DO YOU SEE FIVE YEARS DOWN THE LINE?
ABNEY: YOU KNOW, WE DON'T BELIEVE, SIMON, THERE'S A BRICK WALL. WE BELIEVE THERE'S CHALLENGES, AND THAT'S WHY WE'RE WORKING SO HARD TO PUT IN ORION, WHICH IS OUR OPTIMIZE DISPATCHES, IN 70% OF OUR DRIVER ROUTES THIS YEAR. IT WILL BE 100% NEXT YEAR. THAT'S WHY WE'RE AUTOMATING OUR BUILDINGS. IT'S WHY WE'RE DOING THESE CREATIVE CUSTOMER SOLUTIONS SUCH AS ACCESS POINTS AND U.P.S. MY CHOICE. AND WE REALLY BELIEVE THAT THE KEY TO E-COMMERCE IS DENSITY. AND THESE LARGE RETAILERS ARE GOING TOHAVE MORE DENSITY WITH US THAN THEY ARE GOING TO HAVE BY THEMSELVES. SO WE CERTAINLY FEEL LIKE WE ARE THE MOST IMPORTANT E-COMMERCE SOLUTION FOR RETAILERS OUT THERE. AND FIVE YEARS FROM NOW, WE STILL FEEL THAT WE WILL BE IN THAT POSITION.
DAVID FABER: MR. ABNEY, SPEAKING OF THE FUTURE, MORGAN REFERENCED THAT WALL STREET JOURNAL STORY FROM LAST WEEK. AND I WOULD LOVE YOU TO JUST RESPOND TO A QUOTE FROM WHAT THEY SAY WERE EXECUTIVES WHO SAY THAT YOUR HUB AND SPOKE SYSTEM, MOVING A PACKAGE FROM SHIPPER TO SORTING HUB TO BROWN VAN TO YOUR HOME, IS GROWING OBSOLETE. HOW DO YOU RESPOND?
ABNEY: YOU KNOW, WELL, FIRST,WHEN YOU TALK ABOUT UNNAMED EXECUTIVES OR FORMER EXECUTIVES, OUR BUSINESS HAS CHANGED A LOT. AND ANYONE THAT IS FAMILIAR WITH OUR BUSINESS TODAY KNOWS THAT WE HAVE DONE SUCH AN INCREDIBLE JOB OF EXPEDITING THE NETWORK, AND TAKING BARRIERS OUT AND PUTTING MORE FLEXIBILITY IN. SO, I ABSOLUTELY DO NOT AGREE THAT THAT IS A CONCERN. I BELIEVE THAT WE ARE A GROWING, CHANGING, VERY FLEXIBLE COMPANY. AND OUR CUSTOMERS, INCLUDING OUR RETAILERS, GAVE US REAL GOOD REPORTS THIS YEAR FOR PEAK, AND WE BELIEVE THAT WILL CONTINUE. SO WE ARE VERY CONFIDENT IN OUR POSITION TODAY AND FIVE YEARS DOWN THE ROAD.
SARA EISEN: DAVID, LAST QUARTER YOU NOTED SOFTNESS IN THE U.S. ECONOMY AND SPECIFICALLY YOU NOTED SOFTNESS IN MANUFACTURING. I'M WONDERING IF YOU CAN ELABORATE A LITTLE BIT ON WHAT EXACTLY YOU'RE SEEING IN THE U.S. ECONOMY AND HOW THAT RELATES TO THE OUTLOOK FOR NEXT YEAR.
ABNEY: YOU KNOW, WE ARE REALLY SEEING THE SAME THING. WE SAID LAST TIME MIXED VIEWS. AND WHEN YOU LOOKED AT CONSUMER SPENDING, YOU GET A LITTLE ENCOURAGED AND WE FELT GOOD ABOUT THAT. AND I THINK THAT SHOWED DURING PEAK OF THIS YEAR. BUT THEN WHEN YOU LOOK AT INDUSTRIAL PRODUCTION AND THE ACTIVITY THAT THE FED IS DRIVING, YOU'RE JUST NOT SEEING THE SAME GROWTH. SO IT CARRIED ON INTO THE FOURTH QUARTER AS WE THOUGHT. AND GOING INTO THE FIRST QUARTER OF NEXT YEAR, WE'VE REALLY GOT TO SEE IF THIS INCREASED CUSTOMER'S CONSUMER SPENDING, IS THAT REALLY GOING TO START DRIVING INDUSTRIAL PRODUCTION? NOW WITH THE STRENGTH OF THE DOLLAR AND SOME OTHER FACTORS, WE'RE JUST NOT SEEING IT. BUT WE'RE HOPEFUL TO SEE THAT CHANGE COME FIRST OF THE YEAR.
BRENNAN: I'VE GOT ONE MORE QUESTION FOR YOU AND THAT'S THE FACT THAT I THINK A LOT OF FOLKS OUT THERE DON'T REALIZE THAT U.P.S. IS ONE OF THE TOP CUSTOMERS FOR THE FREIGHT RAIL INDUSTRY IN THIS COUNTRY. WITH ALL OF THIS CONSOLIDATION CHATTER THAT HAS BEEN GOING ON WITH CERTAIN RAILROADS, HOW DO YOU, AS A SHIPPER, SEE THAT? ARE YOU CONCERNED ABOUT IT?
ABNEY: YOU KNOW, WHAT WE'RE CONCERNED ABOUT IS MAKING SURE THAT THE RAILROADS CONTINUE TO PROVIDE US THE SERVICE THAT THEY CERTAINLY HAVE OVER THE LAST YEAR OR SO. AND IF THEY CAN DO THAT IN THE PRESENT STRUCTURE, OR IF THERE'S A DIFFERENT STRUCTURE DUE TO CONSOLIDATION, AS LONG AS WE HAVE FLEXIBILITY, AS LONG AS WE GET THAT KIND OF SERVICE THAT WE'RE LOOKING FOR, THEN WE WILL DEAL WITH THE COMPANIES THAT WE NEED TO DEAL WITH AT THAT TIME. SO IT'S NOT SOMETHING THAT WE'RE OVERLY CONCERNED ABOUT.
HOBBS: I'M SECRETLY WONDERING DAVID, IF YOU ALL HAVE TO WORK THROUGH CHRISTMAS AND NOW YOU GET LONG HOLIDAYS. IS THAT HOW U.P.S. WORKS?
ABNEY: YOU KNOW, IT WORKED LIKE THAT AT ONE TIME, SIMON. AND YOU COULD GET THROUGH 12/24, AND THEN YOU COULD TAKE A COUPLE WEEKS OFF. NOW WITH RETURNS, YOU KNOW, RETURNS WILL PEAK NEXT WEEK. AND SO, NO. YOU'LL SEE U.P.S. IS WORKING JUST ABOUT AS HARD FOR THE NEXT COUPLE WEEKS. THEN WE'LL HAVE SOME PEOPLE THAT WILL BE ABLE TO TAKE SOME BREATHERS.
HOBBS: RETURNS OF COURSE ARE A HUGE STORY IN THEMSELVES. DAVID, IT'S GOOD TO SEE YOU. THANK YOU FOR SPENDING THE TIME. DAVID ABNEY JOINING US THERE, THE CEO OF U.P.S. FROM THEIR HEADQUARTERS IN ATLANTA AND OF COURSE, OUR OWN MORGAN BRENNAN AS WELL.
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