Consumer confidence on mind of UPS CEO

As the chief executive of the world’s largest package carrier, one would think Scott Davis would want to talk a lot about little brown packages.

But in an interview Tuesday with The Atlanta Journal-Constitution’s editorial board, top of mind for Big Brown’s chief was the economy: from consumer confidence and oil prices to opening markets abroad.

“That’s what we’re all worried about right now,” CEO Davis said. “The consumer has been shaken and has lost confidence, and you see it in retail sales. If we can get any kind of light in housing, and keep these reduced energy prices, then consumer confidence may start creeping back up.”

Still, he said he believes lending is a constraint on the economy. As it’s gotten harder to get bank loans and people can’t sell their homes, it’s shaken consumer confidence, he said.

As deputy chairman of the Federal Reserve Bank of Atlanta, Davis also gets a bird’s eye view of the Southeast’s economy. The Atlanta-based federal reserve district covers Alabama, Florida and Georgia, and portions of Louisiana, Mississippi and Tennessee.

“I think Atlanta’s going to be pretty resilient,” Davis said. “In Miami, I don’t think they like what they’re seeing. Nashville, New Orleans and Baton Rouge, however, are booming;” especially the latter two cities with money to rebuild after Hurricane Katrina, he said.

Atlanta, he said, is prepared to weather the economic downturn.

Hartsfield-Jackson International Airport, the world’s busiest passenger airport, was one reason UPS moved its headquarters to Atlanta in 1991. On the down side, he said, “We get a lot of publicity on congestion, but it’s a problem nationally. Infrastructure is a huge challenge for this country.”

UPS ought to know. The company has more than 93,637 vehicles on the road worldwide.

Fuel is another concern for the Fortune 100 company. In the second quarter, UPS’ fuel bill rose 67 percent, to $1.17 billion. Prices are coming down, and Davis said UPS will be decreasing its fuel surcharge in response. “Low energy prices are good for all of us,” he said.

Still, it’s no surprise that UPS has been an innovator with alternative fuels, from trucks that run on compressed natural gas to hybrid hydraulic vehicles.

Davis said it would help if business and government could get on the same page regarding what will be the main alternative fuel.

“This will work if we can get scale,” he said. “In general, we’ve got to do an awful lot more in terms of alternative energy.”

With UPS’ fuel bill, there’s quite a lot at stake.

Said Davis: “Five minutes a day of congestion per [UPS] driver [in the United States] costs UPS $100 million per year.”

As CEO of UPS, Davis also watches overseas markets closely.

According to McKinsey and Co., he said, about 20 percent to 30 percent of trade crosses borders. “That’s going to go up to 80 percent by 2025. That’s a staggering number,” he said.

UPS has its eye on Eastern Europe and Asia for further growth. However, some of those countries are not open to competition. Places without a free market “crimp our model,” said Davis. “We’re built around free and global trade.”

Currently, 66 percent of UPS’s operating profit comes from the U.S. market. Davis said the company has set a goal of growing international and supply chain to 40 percent of operating profit by 2010.

“It takes patience,” he said.