Globalization of Logistic Services

From the perspective of a leading air cargo carrier

Uwe Glunz, 23 October 2012 Airfreight accounts for 0.5% of the tonnage of global trade - in terms of value it makes up around 35% of the total

1 The airfreight industry is shaped by various influences in a highly volatile market environment

● Cost sensitive industry

● Unpaired freight flows

● Extraordinary volatility

● Skyrocketing oil price

● Chronic overcapacity

● Carbon Footprint

2 The majority of freighter capacity is deployed on the Asian routes while North and South America are covered by belly cargo capacity to a large extent

Quelle: Seabury Air Cargo Industry Demand vs. Supply Dynamics

3 is driving globalization for more than 80 years

Bild Konzern ● Globally-operating aviation company

● More than 400 subsidiaries and associate companies

● Five Business Segments ● Passage Airline Group ● Logistics () ● Engineering () ● IT Services (Lufthansa Systems) ● Catering (LSG Sky Chefs)

● Hubs ● Frankfurt ● Munich ● Zurich ● Vienna

● Employees: over 120,000 and 149 nationalities worldwide

4 A combination of the core freighter operation, a multi-airline belly cargo network as well as partner capacities provide global reach

18 MD-11F ● 54% of the freight is transported on freighters

Belly ● 46% of the freight is transported on 450 capacity aircraft of Lufthansa Passage and

Partner ● In addition, capacities of partner companies capacities are used, e.g. on AeroLogic

5 Hub-and-spoke business model guarantees highest efficiency and best connectivity for a scheduled cargo operation around the globe

FRA

• Global network of passage bellies and dedicated freighter capacity for a robust operation

• Best economic & environmentally friendly business model

• 80 % of Lufthansa Cargo’s worldwide tonnage runs through FRA

6 Globalization can be observed in our cargo holds, with a changing seasonal pattern

2.000 horses, 14.000 dogs and cats, 80 Mio tropical fish,

300 tons of worms for anglers, 8.000 pigs, 6 hippopotamuses, 2 leopards,

3.500 tons of fresh meat, 11.100 tons of fresh fish and seafood,

26.000 tons of fresh fruits and vegetables, 20.000 tons of plants and

flowers, 1.200 tons of roses for Valentine‘s Day, 5.600 tons of other foods, 5.800 tons of valuable freight, 1.450 life-saving organs

7 A full chain of products supports the globalization of our customers – one product for every special airfreight requirement

8 Security became a major challenge for the industry after 2001 – early integration in the strategy positioned Lufthansa Cargo as an industry leader

We continuously invest in the security of our processes and systems • Regulated Agent in • Regular security conferences in Germany, Austria, and others Germany & USA • Certification under C-TPAT • Support for shipping agents and and PIP, AEO in preparation consignees in the implementation of the EU directives • ACC3 certification

• Collaboration with national and international • Own air security agents worldwide public authorities and organizations • Worldwide audit system in combination with Lufthansa and partner

• Research project air freight security technology

• Future Cargo Hub Frankfurt

9 The “Environmental Cube” serves as a strategic framework for the continuous improvement of environmental performance

Environmental performance

Dialogue .. Dialogue .. ..with science ..with customers and suppliers

Communication

10 Future prospect: The new strategy “Lufthansa Cargo 2020“ is the key

Cargo Hub FRA Integrated IT platform Fleet Development

- Ready to build up the - Integrated workflow - Fly the world’s most most efficient cargo Enhanced data quality efficient standard hub in terms of speed, & security air freighter quality and connectivity - Easy-to-connect - New Boeing 777 will interfaces for 3rd party enter the fleet start software 2013

Quality, Lean Logistics eCargo Cooperation

- Continuous quality - Seamless digitalisation - Expand the worldwide improvement to become of information and data net No. 1 cargo airline (asset-free growth) - Exchange with - Most efficient and customers service oriented and partners

11 Thank you very much for your kind attention! Uwe Glunz General Manager Lufthansa Cargo Korea eMail: [email protected] Phone: +82 2 3420 0300 www.lufthansa-cargo.com Infrastructure: The new cargo hub FRA will be the most efficient cargo hub upon completion in 2018 back

13 Fleet: With the B777F Lufthansa Cargo is investing in the most efficient freighter for its business model back

● Since 2009: Proven reliability of 99,41 % through our eight B777F at our subsidiary AeroLogic

4 Engines ● Lufthansa Cargo is investing in ten (5 + 5 options) Boeing 777Fs. The first aircraft will enter service in November 2013

● The two Engine A/C burns on average 17% less 3 Engines fuel than the MD-11

● Right Aircraft type to gain high capacity utilization

● Sustainable and ecological growth; -25% CO² 2 Engines reduction in 2020 based on 2005

14 IT platform: A new, integrated IT platform will be the basis for all other strategic projects back Current landscape

15 IT platform: The core IT & business functionality of Lufthansa Cargo will be affected incl. the major sales, production and finance functionalities back Future landscape

16 eCargo: A number of projects and activities will digitize information and data exchange at Lufthansa Cargo for a start-to-finish paperless process back

● Today the air cargo industry transports an equivalent of 80 – 747 jumbos per year only for freight accompanying documents.

● The IATA eFreight initiative has the goal to replace the 12 core documents in air cargo industry by electronic messages.

● Lufthansa Cargo targets a share of 20%+ for 2012.

● Several obstacles prevent a faster and broader implementation if e-freight: ● Export and Import country must support electronic customs ● Not all airlines participate in the IATA e-freight program ● Data quality issues ● Bilateral EDI agreements must be signed between forwarder and airline to regulate liability

Source: iata.org

17 Quality & Lean Logistics: Quality is the hallmark of Lufthansa Cargo and Lean Logistics is designed to achieve ongoing improvement in the company’s quality standards back

● Quality is the hallmark of Lufthansa Cargo ● Excellent quality is a key cornerstone for Lufthansa Cargo to strengthen and expand its market position ● The challenge is to continuously improve processes to deliver a sustainable advantage for our customers ● Quality leadership ensures the market position Target ● Establishing and improving high quality standards in our daily work as well as in all projects is essential for Lufthansa Cargo’s strategic goal of quality leadership ● Continuous improvement of processes to create consistent advantages for our customers ● Customers can rely on Lufthansa Cargo quality, every day

18 Cooperation: Better integration of capacities and new partners will enlarge the global network even further back

● Use of synergies and economies of scale with partners in and outside of the Lufthansa Cargo Group ● Increase of revenue and profitability due to cooperation with partners on the largest trade lanes e.g. Northern Atlantic, Far East ● Faster service quality and reduction of cost due to more direct connections ● Adaptation of IT systems to include cooperation capabilities ● Simplification of interline processes ● Development of new cooperation models > Increased customer benefits through better and wider global network

19 Air cargo shows a tremendous volatility since the beginning of the global financial crisis in 2007 back

Source: IATA Financial Forecast Dec-2011

20 Air cargo is marked with significant seasonal deviations even in non-crisis years back FTKs per month, billions

Source: IATA Air Transport Market Analysis Oct-2011

21 Oil price (Brent) in USD from 2001 to 2012 back

22 World wide air cargo load factors have continued to decrease since their peak in 2010. back

Source: International Air Transport Association—WATS 56th Edition

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