Presentation to National Governors AssociationExpert Roundtable on Natural Gas Vehicles

“Alternative Fuel Vehicles at UPS, With Focus on Natural Gas”

Jim Bruce, Sr. VP UPS Corporate Public Affairs

August 28, 2015

Proprietary and Confidential: This presentation may not be used or disclosed to any person other than employees of Customer, unless expressly authorized by UPS.© 2013 United Parcel Service of America, Inc. UPS, the UPS brandmark, the color brown and photos are trademarks of United Parcel Service of America, Inc. All rights reserved.2

Overview of UPS alternative fuels fleet

History of natural gas vehicles and UPS -- Why we bought them

Future challenges for natural gas vehicles

State procurement issues

Factors that lead UPS to deploy in a State

Lessons learned

What I Hope to Leave You With In 15 Minutes

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Proprietary and Confidential: This presentation may not be used or disclosed to any person unless expressly authorized by UPS.© 2014 United Parcel Service of America, Inc. UPS, the UPS brandmark, the color brown and photos are trademarks of United Parcel Service of America, Inc. All rights reserved.3

U.S. Small Package Fleet: 4,003 (4.6% of US Small Pkg Fleet) Compressed Natural Gas Vehicles: 1,071 Liquid Natural Gas Vehicles: 1,249 Hybrid Electric Vehicles: 380 Electric Vehicles: 102 Hydraulic Hybrid Vehicles: 41 Propane Vehicles: 760 Composite Body Diesel: 400

International Small Package Fleet: 1,085

(7.3% of International Small Pkg Fleet) Propane Vehicles: 836 Compressed Natural Gas Vehicles: 84 Electric Vehicles: 78 Ethanol Vehicles: 62 Biomethane Vehicles: 19 Hybrid Electric Vehicles: 6

Total Alternative Fuel & Technology Vehicles 5,088 total vehicles in service as of 12/31/14

Proprietary and Confidential: This presentation may not be used or disclosed to any person unless expressly authorized by UPS.© 2014 United Parcel Service of America, Inc. UPS, the UPS brandmark, the color brown and photos are trademarks of United Parcel Service of America, Inc. All rights reserved.4 PROPRIETARY AND CONFIDENTIAL: THIS PRESENTATION MAY NOT BE USED OR DISCLOSED TO ANY

PERSON OTHER THAN EMPLOYEES OF CUSTOMER, UNLESS EXPRESSLY AUTHORIZED BY UPS.

Planned Alternative Tech Vehicles (U.S. & International): 7,781

U.S. Small Package Fleet: 6,480(7.5% of US Small Pkg Fleet)

Compressed Natural Gas Vehicles: 3,091Liquid Natural Gas Vehicles: 1,249Hybrid Electric Vehicles: 380Electric Vehicles: 120 Hydraulic Hybrid Vehicles: 41Propane Vehicles: 1,182Composite Body Diesel: 400Hydrogen Vehicles: 17

International Small Package Fleet: 1,301

(8.8% of International Small Pkg Fleet)Propane Vehicles: 1,019

Compressed Natural Gas Vehicles: 84 Electric Vehicles: 111 Ethanol Vehicles: 62

Biomethane Vehicles: 19Hybrid Electric Vehicles: 6

Planned Global Alternative Fuel and Advanced Technology Vehicles Approved to Deploy through 2015: 7,781

Proprietary and Confidential: This presentation may not be used or disclosed to any person unless expressly authorized by UPS.© 2014 United Parcel Service of America, Inc. UPS, the UPS brandmark, the color brown and photos are trademarks of United Parcel Service of America, Inc. All rights reserved.5

1821 1st natural gas well dug 27 feet deep, in NY State by hand with shovels, gas pipeline was hollowed-out logs sealed with tar and rags.

1933 Mack introduced the first diesel truck, which swept heavy trucking and diesel displaced gasoline very quickly after World War II.

UPS began using compressed natural gas (CNG) in delivery vans in 1980’s• Centrally fueled, simplifying infrastructure• Price volatility of diesel fuel posed risks• Reduced fuel prices for natural gas – like a buck a gallon difference• Domestic fuel supply

In heavy trucks, there was no viable alternative to diesel until after 2000.

UPS began using liquid natural gas in 2002, in heavy class 8 tractors as CNG lacked range.

Natural gas was cheaper, cleaner, and domestic

A long road of innovation…

UPS Trucks and Natural Gas

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1920’s Cutting Edge Car

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Further Advances in the 1930’s

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Chinese Natural Gas Vehicles: 1980’s

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UPS Modern Natural Gas (CNG) Vehicle

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2015 Mack LNG

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2015 Kenworth CNG

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Low diesel and gasoline prices

Higher cost of alternative fuel vehicles -- rough cost penalties on package cars – in ascending order from gasoline powered delivery trucks• Propane• Diesel• CNG • Electric vehicle• Hydraulic hybrid -- projected

Fuel economy penalties/advantages in ascending order from gasoline package car• Propane• CNG• Diesel• Hydraulic hybrid (projected)• Electric vehicle

Best vehicle -- tradeoff of vehicle cost, fuel cost, fuel economy

Future Challenges for Natural Gas Vehicles

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EPA stage II efficiency standards -- low rolling resistance tires?

Urban access (congestion, noise, air quality)

Sustainability (carbon emissions), especially Europe and California

More Challenges for Natural Gas Delivery Vehicles

Proprietary and Confidential: This presentation may not be used or disclosed to any person unless expressly authorized by UPS.© 2014 United Parcel Service of America, Inc. UPS, the UPS brandmark, the color brown and photos are trademarks of United Parcel Service of America, Inc. All rights reserved.14

Urban Access Restrictions in Europe

Major Access Regulation Schemes

Low Emission Zones

Legend

Proprietary and Confidential: This presentation may not be used or disclosed to any person unless expressly authorized by UPS.© 2014 United Parcel Service of America, Inc. UPS, the UPS brandmark, the color brown and photos are trademarks of United Parcel Service of America, Inc. All rights reserved.15

Global Emissions Trading Schemes & Carbon Taxes

Source: The CarbonNeutral Company

ETS: Emissions Trading Scheme

Proprietary and Confidential: This presentation may not be used or disclosed to any person unless expressly authorized by UPS.© 2014 United Parcel Service of America, Inc. UPS, the UPS brandmark, the color brown and photos are trademarks of United Parcel Service of America, Inc. All rights reserved.16

UPS will have over 4,400 trucks on natural gas by end of 2015, over half our “rolling laboratory”

Does not count 64 LNG tractors UPS just announced it will buy for heavy freight division

Cheap natural gas and government incentives made these vehicle purchases and infrastructure possible

The next chapter: Renewable Natural Gas (RNG) from “anything that rots”

Cut carbon emissions by more than 90% --- Why?

May 5, 2015 UPS announces it is buying RNG for 400 package cars in California –1.5 million gallon equivalents

Natural Gas Is A Fossil FuelPathway for Transition to Renewable Fuels

Proprietary and Confidential: This presentation may not be used or disclosed to any person unless expressly authorized by UPS.© 2014 United Parcel Service of America, Inc. UPS, the UPS brandmark, the color brown and photos are trademarks of United Parcel Service of America, Inc. All rights reserved.17

Proprietary and Confidential: This presentation may not be used or disclosed to any person unless expressly authorized by UPS.© 2014 United Parcel Service of America, Inc. UPS, the UPS brandmark, the color brown and photos are trademarks of United Parcel Service of America, Inc. All rights reserved.18

State Procurement Incentives

• U.S. Government spends $500 billion/year on goods/services

• States spend hundreds of millions each

• They can give extra points in their solicitations to bidders who exemplify policies consistent with those of the State.

• President’s Executive Order

• UPS efforts on State level -- Illinois

Proprietary and Confidential: This presentation may not be used or disclosed to any person unless expressly authorized by UPS.© 2014 United Parcel Service of America, Inc. UPS, the UPS brandmark, the color brown and photos are trademarks of United Parcel Service of America, Inc. All rights reserved.20

How many trucks in each hub? Are there enough to justify cost of new fueling infrastructure to or at our hub? Distance between our hubs?

How many miles does each package car tractor travel each day?

What is the price of natural gas or propane in that area?

How close is the fuel supply to our hubs? Can we get near exclusive use for a station?

Terrain

ROI, ROI, ROI

State financial incentives?

Factors that lead UPS to deploy in a State

Proprietary and Confidential: This presentation may not be used or disclosed to any person unless expressly authorized by UPS.© 2014 United Parcel Service of America, Inc. UPS, the UPS brandmark, the color brown and photos are trademarks of United Parcel Service of America, Inc. All rights reserved.21

Biggest attraction for natural gas as a truck fuel is price of the fuel • Not carbon emissions• Not fuel economy

Cheapest cost of alternative fuel vehicle is propane, good for rural areas

Conversions are rare, usually means original equipment failed

State financial incentives are the final, deciding factor• Tax incentives are helpful• Financing is usually not helpful• ROI, ROI

Lessons Learned for UPS

Proprietary and Confidential: This presentation may not be used or disclosed to any person unless expressly authorized by UPS.© 2014 United Parcel Service of America, Inc. UPS, the UPS brandmark, the color brown and photos are trademarks of United Parcel Service of America, Inc. All rights reserved.22

Thank you.