UPS Comments On Postal Service's Financial Troubles

During its 2nd Quarter, 2011, United Parcel executives responded to two questions about how proposed changes in operations at the Postal Service would affect UPS's business.  Here are the questions and answers from the transcript provided by Seeking Alpha.

Question on Ending Saturday Delivery

John Barnes - RBC Capital Markets, LLC

Okay, all right. That makes sense. And then lastly, given how public the postal service's problems have become and with all the rhetoric anywhere from getting rid of Saturday delivery to 15 years from now going to 3-day delivery, whatever it may end up being. Have you seen -- is that uncertainty around their service creating any further opportunities on the parcel side now? Or do you think that, that bears fruit 2 or 3 years from now?

Kurt Kuehn - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Treasurer
I don't think it's a big issue in the short term. Most of the very deep integrated B2B business is not with the post office, and those are the ones where a long lead time would make a big difference in the supply chain. So they're focusing on finding their strengths and working on the last mile. We are collaborating with them and competing with them. Clearly, the post office have to make dramatic changes to improve their financials, but I don't see that as a big issue for day-to-day customers decisions.

Scott Davis - Chairman, Chief Executive Officer and Chairman of Executive Committee
Yes, John, I think the Saturday delivery is probably the most imminent issue right now for customers. And there are some looking for different solutions, so that could have a more immediate impact on us. If they do go eventually down the road from 5 days to 3 days, that changes the game pretty dramatically, but that's down the road.

Question on Closing Post Offices

Jeffrey Kauffman - Sterne Agee & Leach Inc.

I want to follow up on the question John asked with respect to the post office. There is an announcement just yesterday that the post office was going to close about 3,600 locations. On one hand, you compete with them on a number of services. On the other hand, you utilize parts of their delivery network. If the post office were to close 3,600 locations, is this a net opportunity for you? Would it be kind of a net push with some offset? How do you think about that?

Kurt Kuehn - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Treasurer
I think anytime a competitor pulls back capacity and access, it's an opportunity. So clearly, we will look at the gaps that are there, and we've got a wonderful footprint with the UPS Store and offering consumers and small businesses good access. So we'll look for opportunities where it makes sense. As Scott mentioned, the more dramatic their network changes, then the more opportunity. At the same time, we'll look for collaboration alternatives as the post office looks to outsource some parts of their network, maybe where they're not best-in-class, so it's a balancing of competing and cooperating.

**************

These comments clearly show that operating changes that will come to improve the Postal Service's finances have business risks.  Finding ways to minimize these risks will be critical for the Postal Services survival