AIR FREIGHT -The Future of the Industry

Michael Schaecher, DHL Global ForwardingPhoenix, May 2011

PageCNS Conference | May 2011

AGENDA

Raising the Awareness of Air Cargo

A DHL Global Forwarding perspective on future challenges

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PageCNS Conference | May 2011

RAISING THE PROFILE OF AIR CARGO

• Do consumers care about the means of transportation?• If they become more aware, do they then see the environmental

impact through increase in the CO2 footprint?• Are consumers only concerned when things go wrong?

• If the value contribution of cargo to the network is not visible/not seen then the Head of Cargo/CFO are not doing their job

• Air cargo is often the difference between route profitability and loss• Have you ever seen articles in airline onboard magazines that talk

about the importance of air cargo within the supply chain ?

• WCO: cargo already high on the agenda• EU: focused on customs and security• DHS: focused on customs and security• Are Regulatory bodies really concerned about facilitating trade for air

cargo or is it tax revenue is maximization or an increased security threat

CONSUMERS

AIRLINE’s

REGULATORYBODIES

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PageCNS Conference | May 2011

THE PROFILE OF AIR CARGO -IS THIS STILL THE QUESTION AFTER ALL?

China factories face shortages due to Japan

quake

Diamond cutters in India were unable to ship gems to dealers

Belgium.

Toyota to suspend North American

production

Nissan extends Easter closure in UK due to

parts delays

Automobile plants in China couldn't get parts from Germany due to

Ash cloud over Europe

Fruits and vegetables grown in Africa were left on the

ground.

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PageCNS Conference | May 2011

AGENDA

Raising the Awareness of Air Cargo

A DHL Global Forwarding perspective on future challenges

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PageCNS Conference | May 2011

Sustainability ofGlobalization

CHALLENGES THE AIR CARGO INDUSTRY IS FACING

Security

Technology

Getting the basics right

Modal Shift

Cost of Fuel

Environmental Policy Air Cargo

Industry

(adapting to the threats and opportunities)

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PageCNS Conference | May 2011

HAVE A LOOK AT WHAT MAY HAPPEN

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PageCNS Conference | May 2011

GETTING THE BASICS RIGHT

…we know it is not so easy, but we need to get it right!

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PageCNS Conference | May 2011

GETTING THE BASICS RIGHT –WHAT ARE THE BASICS

Much excellent work has been completed by industry, based on milestones that are relevant to the customer (Door to Door)No carrier specific exceptions – customers do not differentiate, they buy a standard product, whatever the airlineDGF approach is to take implementation forward bi-laterally with carriers using scorecard concept

Quality Management

DGF’s vision on e-Business is end to end across the supply chainNot only about removing paper documents, but entering data once and accuratelyData flows from the shipper booking to the forwarder booking with the airlineThis will reduces exceptions’ management and improve the quality of visibilityCustoms and Regulators; need to be totally behind the concept

e-Business driving data quality

CASS does not provide me with a tool that my customer demands, i.e., it does not reflect required and market conform frameworktoday ‘managed’ by IATA centrally in Europe by resource who are ignorant of local markets and people

Commercial

Reduction in industry high units costsAbsolute must for maintaining profitabilityDrives efficiency to help alleviate the threat of modal shift to sea

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PageCNS Conference | May 2011

TECHNOLOGY

…we know it is not so easy, but we need to make

the right selection!

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PageCNS Conference | May 2011

TECHNOLOGY AND COMMUNICATION

The Black Box of Communication

Forwarders

Customers

Customs

Information processed late?

Information filtered?

Systems not integrated?

• Integrate the data into your operational system

• Adopt XML as messaging standard

Airlines

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PageCNS Conference | May 2011

TRACK AND TRACE TECHNOLOGY

Opportunities to adopt technology such as RFID The infrastructure needs to be shared; why would you build different infrastructure at the same airportIf airlines and forwarders invest – which standard do you adopt?There is an aviation industry role to lead hereMust ensure regulators allow RFID on aircraftIf we can demonstrate that this will improve security then it is more likely that regulators will allow the technology to be used on aircraft

RFID

Will it ever happen? or When will it happen?It is being used by military and some commercial organizations to track critical consignmentsIt will take time for the fall in infrastructure and technology costs before its use is widespread

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TECHNOLOGY – VISION AND REALITY

What we need = Vision

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What we have = Situation

What we get = Reality

PageCNS Conference | May 2011

THE CHALLENGE OF GLOBALIZATION

…we know it is not so easy, but we need to bring

everything to the same place at the same time!

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PageCNS Conference | May 2011

THE CHALLENGE OF GLOBALIZATION

Air cargo supply chain is heavily reliant on the globalization of tradePolitical instability is a constant threat to air cargo’s lifeline and cost base - oil productionEnvironmental catastrophes - whether it be volcanic ash or tragic events in Japan- impact the industry greatlyAs strategic impact we may see production and procurement of goods and components locally or closer to marketIt does demonstrate the importance and reliance on air cargo and it can be an opportunity

Globalization of Trade

Whatever the political or geographical environment, if our industry does not maintain a cost effective, efficient solution there is a clear threat through local sourcing or modal shift

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PageCNS Conference | May 2011

CHALLENGE FOR THE FUTURE –ENVIRONMENTAL POLICIES

…we know it is not so easy, but we need to plan

ahead for the future!

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LEGISLATION ON CARBON IS BECOMING A MARKET RESTRICTION AND A COST FACTOR

• Cut emissions by 17% below 2005 levels

Canada

• Reduce carbon emissions by 60% by 2050 (BL2) 1990)

• EU ETS effective for aviation from 2012

• Mandatory reporting on GHGs1)

since 2010 and allowance purchase in UK

European Union

• 25% GHG emission reduction by 2020 (BL2)

1990)• Carbon trading scheme

covering 1,400 entities in greater Tokyo area3)

Japan

• Government to introduce “carbon tax” on 1st July, 2012

Australia

• 36.1 – 38.9% reduction of GHG1)

emission by 2020 (BL2) 1990)

Brazil

• 30% reduction of GHG1) emissions by 2020 (BL2)

2005)

Mexico• Cut of carbon intensity by 40%

to 45 % by 2020 compared to 2005

• Increase share of non-fossil fuel energy to 15%

China

• Cap & Trade GHG pilot scheme launched in 2010

South Korea

• Carbon tax policy finalized by mid-2011 & implemented in 2012

South Africa

Source: Allianz Knowledge Portal, April 2011; Reduction targets as submitted to Copenhagen summit in 2010; 1) Green House Gases; 2) Baseline; 3) The 1,400 most energy intensive organizations have to cut their carbon emissions by 6% until 2014; 4) Environmental costs could add four to five cents per kilometer for truck journeys

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PageCNS Conference | May 2011

LEGAL FRAMWORK URGES COUNTRIES TO REDUCE WASTE AND EMISSIONS

The direction and the legal landscape is set, driven by regulation, the industry has to conformFor example, the EU white paper on its 2050 vision on a competitive and resource efficient transport system has two of its 4 key objectives related to the logistics sector:40% use of sustainable low carbon fuels in aviation; at least 40% cut in shipping emissionsA 50% shift of medium distance intercity passenger and freight journeys from road to rail and waterborne transport

Legal Framework

This will have a significant impact on intra EU traffic and cross feeding of traffic to major gateways in and out of Europe

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PageCNS Conference | May 2011

Our Industry Our Goals Our Program

The Deutsche Post DHL climate protection program…

• …is currently being rolled out in all business units worldwide

• …focuses on fleet renewal, energy efficiency, new technologies, employee engagement and the involvement of our business partners and customers

• Improving the carbon efficiency of DP DHL andits business partners

• Intermediate step: improving own carbon efficiency

The transport sector…• …has a share of 14 percent

in global carbon emissions• …plays an important role in

combating climate change• …is faced with high

awareness of climate protection issues by policy makers and customers

30 % by 2020

10 % by 2012

DPDHL has committed to improving CO2 efficiency by 30% by the year 2020

ENVIRONMENTAL POLICY –OUR CHALLENGE FOR THE FUTURE

Source: DPDHL

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PageCNS Conference | May 2011

THE FUTURE OF AIR CARGOWHICH PEOPLE AND WHICH ATTITUDE IS NEEDED?

Do we need him? Or her?

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