TIACA Executive Summit 2016 Plenary Session: Air Cargo Challenges from the Shipper’s Point of View Thursday, May 26, 2016 9:00 am – 10:30 am Learn the shipper’s perspective on what we are doing, what we need to do, and what gaps exist. What do they say about the current state of our industry, and what are they looking for? A panel to delve into global shipper concerns and future requirements. Hear from a cross section of shippers, forwarders and carriers on this important topic. Subject Matter Experts:

 Moderator: Lars J.T. Droog, Head of EMEA Supply Chain, TOSOH EUROPE B.V.  Tim Cantwell, Airport Director, MidAmerica St. Louis International Airport  Robert Mellin, Head of Distribution, Ericsson  Tim Strauss, Hawaiian Airlines  Gary Lupinacci, Vice President of Security, Government Compliance & Safety, CAS  Lucas Kuehner, Global Head of Air Freight, Panalpina

SUBECT MATTER COMMENTS AND GROUP DISCUSSION The panel included a cross section of shippers, forwarders, and carriers who discussed concerns and challenges from a shippers' perspective including what shippers are doing, what industry needs to do, and what gaps still exist. They also looked at what shippers are saying about the current state of our industry, and what are they looking for.

Lars Droog opened the session to introduce the new Shippers Advisory council, which he explained will act as a bridge for shippers and industry. Its main role was to help industry better understand shippers requirements in order to bring all sections of the air cargo supply chain to the discussion table, and help them tackle future challenges together. Droog also announced that among new members on the council were representatives from Chanel Fragrances and Beauté, Ericsson, Marine Harvest RMT, Teva Pharmaceutical, and Sandvik Machining Solutions

The council was still looking for representation from the automotive and flower sectors so that they would have members representing all the verticals in the airfreight industry.

"We would like to make airfreight industry more competitive to other transport modes. We need to be an organization where we have collaboration between shipper and freight forwarder, as well as all elements in cargo supply chain. This includes trucking companies and airports, only then can we reach the quality required by shippers.," he said.

"Shippers need to have a more end-to-end approach, that means they want to have supply chain visibility, which can give a clear idea of the total cost of delivery to their customers." Droog then presented a SWOT analysis of the airfreight industry, citing its strengths, weaknesses, opportunities and threats. Strengths included speed, safety and reliability, whilst weaknesses included handling, a lack of transparency, expense, and complexity. Opportunities included innovation, quality and responsibility whilst threats included minor growth, overcapacity, modal shift, re-shoring/on-shoring and legislation.

Droog said the capacity is growing with the introduction of the Dreamliner and the A350. But, he said there is modal shift, with shippers moving from airfreight to train.

"In Asia they are increasingly shifting to railtrain. In addition, for the pharma industry they require temperature control for the entire supply chain. That is a challenge for airfreight but also an opportunity."

Droog said innovation is where the industry has opportunities. "There is a technology revolution, we have robots building pallets, that is current practice. ULDs are being built by robots, that is a huge efficiency in moving cargo around the world."

Droog said data sharing improvements were needed in the air cargo chain, by using one platform for this information exchange.

"For me it is difficult to understand why we add cost to the air cargo supply chain, moving shipments from airport to airport instead of direct delivery to airports. The main thing we should ask ourselves is do we add cost or value to the air cargo chain."

Robert Mellin, Ericsson said industry needed one “backbone” of data sharing which would improve process flows as well as create greater efficiency across the supply chain. This digital platform would reduce paperwork and increase security as well.

He said, "Have you ever been to the airport and seen how the documents flow. You can reduce the lead time, one Air Waybill takes about three hours to complete. You can do this and cut the lead time by a third and improve accuracy at the same time.

"Raw data has value, you can actually sell that value. Take track and trace, it goes somewhere and it goes into a black hole until its POD surfaces. A company can actually sell track and trace data back to us."

He added: "This is the principle, it is an open platform. This issue covers entire supply chain, it is multi-modal. We are in collaboration with road, railway, and ocean freight, they have the same problem."

Mellin added, "When the backbone has been proven, we can remove a number of steps. When the stakeholders feel trust and confidence that this is working, the efficiency gain is there, it will be hard to avoid. "When I speak to the shippers, it is a no-brainer. They say we send the information anyway. On top of that you get all this visibility, why wouldn't the shipper push for that."

Tim Strauss, Hawaiian Air, said the International Air Transport Association should be the owner of this push.

"The largest roadblock to e-Air Waybill is the World Trade Organization in the sense of customs," he said.

"Until we get customs to accept universally, airlines are still going to ask for paper as a solution for customs because of the various documentation requirements.

Mellin said there were a lot of documents that needed to be sent and that the WTO was there to support improvements, not impede them.

"Not all countries are the same, and yes some require paper. But it is much easier to print something out if you need a paper document, but you cannot convert paper to digital."

Tim Cantwell, MidAmerica St Louis Airport, said there is a tremendous amount of footprint and workinrapping space taking up mainly for US customs.

"It's a minefield, it takes up valuable space that we could be using for cargo. That is the logistics part, on the security side, the less that we have to touch the product, the less we have to touch the paperwork, the more secure it i."

Droog asked the panel why shippers were not choosing more efficient routes.

Lucas Kuehner, Panalpina said as a freight forwarder they look for the cheapest way to hit transit time, and by doing this they match capacity with volume.

"That is how a lot of cost is cut out of the supply chain, that is why the cost of the integrator is higher," he said.

Droog said it should be easy for airlines to arrange delivery as loose cargo, to which Kuehner agreed.

"The networks of the true global carriers will change how we move cargo. There are more direct connections, but it is the belly capacity, not the freighter capacity that is driving this," said Kuehner.

The audience asked what the panel what they would like to see influenced in improving delivery performance.

Mellin said the benefits are huge - they would need to figure out how to monetize information. "It is easy to value cost reduction, how do you calculate customer management, relationship, etc," he said.

"We also need to review how costly it is to run this, how do you do the connection, through API. I am quite sure the conclusion will be very big benefits for all parties engaged, not only the shipper.

"We are working the 1970/80 methodology process in a society where everything is digitized.

"It is also how much taxes and duties shippers pay. The freight value is higher than the real freight because you don't want people to see your freight weight, this has a very big impact on shippers' perspectives."

The audience then asked the panel if industry could learn from the Cargo IQ initiative and e- freight in terms of having a common data sharing platform.

Mellin said the shippers had never really been engaged with either initiative, but that industry was ready for a change.

Strauss said the e-Airway Bill was not ambitious enough, as you are doing one item out of the whole process.

"You are doing one part electronically, this creates problems of a different kind as we are not changing to a whole electronic format. For an airline it has made it a hard way to get where we wanted to go. Airlines like ourselves are investing to totally get there.

"We think industry has not been ambitious enough. I favor that broader approach, we are going to take down cost as much as we can. I don't think it's avoidable, if we are not playing at the same level we are making a big mistake."

Speaking from the audience, Kester Meijer of KLM said that the evolution of Cargo 2000 into Cargo IQ was more than just a name change.

"It will help to improve cost and quality. For example, in terms of security, take the 7+1 data elements. TSA are really helping us here, they are giving us referrals. We are sending raw data, they say wait this is missing, this is wrong country code. I can predict in the future when new regulations come into force we will not be able to load data.

"I can tell my customer or forwarder, we can use referrals today to improve quality. Let's begin to look at small steps. With Cargo IQ we can see which airports are doing great, let's do this together." Droog said when Cargo 2000 started the market was different. "It was in need for change. The modal shift is not because we prefer other transport modes. When you say mistake with the address, it may be a consequence of entering data over and over again. When you share data, you can work more efficiently and reduce these types of errors," he said.

"The biggest challenge is everything is global, not only for the ground handling agent, for all of us. Only together we can change it. Data sharing is a game changer."

Mellin added that Cargo IQ would go together with this. "We need more though, we need shippers involved. Let's do it step by step. But we need big steps - if we do very small steps forever, we won't get far."

Speaking from the audience, Ariaen Zimmerman, Executive Director, Cargo IQ, said, "For every initiative you have, you need to have the right time.

"For Cargo IQ, we talk a lot about this, we want to be with you in this development. I don't see this as a challenge.

"Please stop talking about what we have been doing as a mistake, a lot of our members have invested a lot of money and time. The problem with quality in our industry is that people don't pay for it. I love it when people to say, we need to be faster. If you want to deliver anywhere in 48 hours, we will deliver a solution, but this is not what you want. You want solutions that fit your needs in an optimal way.

"We need to rise to the challenge of delivering a superior product - a greater, cheaper product. This can be a great step forward, if this isn't going to work, something else will."